RIM: The next growth opportunity for the Indian IT industry

NEW DELHI, INDIA: NASSCOM, the premier trade body and the voice of the Indian IT-BPO industry today released the report ‘The Rising Remote Infrastructure Management Opportunity: Establishing India’s Leadership’. The report summarises the findings of the study conducted over the last six months by McKinsey & Company, the leading management consulting firm. The report details the potential of the RIM industry by 2013, the forces that have, and will propel it, and articulates the impact RIM is likely to have on the infrastructure management business and its customers. The conference was addressed by Som Mittal, president, NASSCOM, Vivek Pandit, partner, McKinsey & Company and Vineet Nayar, CEO – HCL Technologies, & chairman, NASSCOM – RIM Forum.

Speaking at the release of the report, Som Mittal, president, NASSCOM said, “The Indian IT industry has been rapidly evolving with new specialised and value added offerings being delivered. Each of these services is reaching critical mass and has uniqueness therefore necessitating finer segmentation and a more focussed approach. Like IT and BPO, we see Remote Infrastructure Management as a large opportunity requiring focussed attention and nurturing.”

“RIM is a mission critical service requiring sophisticated tools and reflects high customer confidence and relationships. By increasing RIM services the Indian IT industry is moving towards becoming a fully integrated service provider. This report is aimed not only at assessing the opportunity but also identifying the actions to be taken to help realise it,” he added.

The study highlights that the US$524 billion infrastructure management services (IMS) industry – that manages an enterprises core IT systems, including hardware, software, connectivity and people – could become as important as the Application Development and Maintenance (ADM) and Business Process Offshoring (BPO) industries that have dominated the rise of offshoring in the last decade. The IMS industry is moving towards a remote delivery model where services are increasing delivered by vendors and captives from low-cost locations.

After discounting for infrastructure management spend in low-cost countries, defence and government budgets, spend in small enterprises, services that cannot be offshored and value captured by customers, the study estimates the addressable market for RIM to be US $96 –104 billion.

It states that so far vendors and captives in low-cost locations have captured a mere $6-7 billion of this opportunity. This coupled with the fact that 70-75 percent of infrastructure management roles can be outsourced, suggests that this could be a new frontier for growth. The study pronounces that RIM, as an independent industry could realise $26-28 billion in revenues by 2013. The majority of growth is likely to come from offshoring midrange services, and network towers, likely to account for approximately 70 percent of the overall opportunity during this time. In terms of industries, the banking, financial services and insurance industries will lead this growth followed by the telecommunications industry.

Emphasised, Vivek Pandit, partner, McKinsey & Company, “India is once again, well positioned to capture a disproportionate share of this growth by 2013 i.e. $ 13–15 billion and in the process create 325,000 to 375,000 jobs. Given its leadership in IT and BPO, India has a substantial head-start over other low-cost locations. India-based vendors have increasing scale and maturity, deep customer relationships, access to sound technical infrastructure, and access to and the ability to manage a large low-cost talent pool. Finally, it’s the convergence of three independent forces – the rapid evolution in technologies and IT architectures, changes in customer behaviours and demand patterns, and finally, developments in the vendor and offshore supply environment – that have propelled the industry at a pace faster than earlier conceived, and will continue to accelerate RIM adoption.”

These forces are a result of the dismantling of traditional barriers to RIM. Technology evolution has enabled the creation of processes and tools that facilitate remote management. In addition, the sharp fall in hardware prices, has shifted the focus of IT managers from managing infrastructure to managing associated labour costs and productivity. In parallel, customer capabilities have matured – particularly in governance mechanisms and vendor management. Lastly, developments in the vendor environment have been instrumental in driving the growth of RIM. For example, leading players in India have been expanding their workforces by 50% year-on-year for the last 3 years. In addition, they have been investing in tools, developing process excellence inITIL (Information Technology Infrastructure Library), and achieving productivity improvements through use of lean techniques.

Said, Vineet Nayar, CEO – HCL Technologies, & Chairman, NASSCOM – RIM Forum, “Indian players have always been at the forefront to capture significant share of the global IT services market.  After ADM and BPO this industry opens up yet another big opportunity for Indian players to re-position themselves in the global market and to move up the value chain from not just being a cost and intellectual leader to a true transformation leader. The objective of doing this report was to highlight the key demand and supply side gaps that need to be addressed which requires larger industry participation. This report by McKinsey has helped us identify 3 clear areas which the RIM forum has been chartered to work on which is -  to create a distinctive positioning of Indian RIM Vendors amongst the global CXO community, position RIM industry as an exciting and long term career opportunity and set key industry benchmarks and defining standards.”

For India to sustain its leadership in offshoring and realise the full benefits of the RIM opportunity several challenges must be addressed. NASSCOM, the industry, and the central and state governments need to act in unison to address the issues of talent supply and quality, industry benchmarking, and security enforcement, amongst others.

Augmenting talent supply will require effort by all stakeholders to brand RIM as an attractive career option while enhancing quality will involve efforts in improving relevance of curricula, creating technical institutes that offer core technology and process skills training and investing in training programmes to improve communication skills. The industry also needs to continue to enhance communication links and robustness. Finally, there is the need for an independent body that can systematically audit and publish “vendor capabilities” in line with global benchmarks and best practices.