There's never been a better time than this for the specialized midtier services partner which isn't dragging around billions of dollars of legacy contracts and isn't reliant on massive people-scale deals to sustain its growth and profit margins. Clients are increasingly looking for shorter, sharper engagements - with immediate impact - that drive executives and their staff back to the classroom... the type of engagements which may simply not be attractive enough for a Tier 1 service provider which isn't built for smaller, focused engagements that require higher level talent to lead real change management programs. In addition, most clients today do not want to drop millions of dollars on consultants to change things for them... they would rather have someone come in who can teach them to change themselves. Moreover, with the relentless appetite for RPA, clients want service providers unencumbered by cannibalizing their own revenue models, and many are turning to the specialists who can parachute in and get the job done quickly and effectively.
In this vein, meet NIIT, India's original IT training company, once famously dubbed the "MacDonald's of the software business" by Far Eastern Economic Review in 2001, as it built a unique franchise business in IT education globally. Today, the business has ventured into sectors such as banking, finance and insurance, executive management education, professional life skills, BPO, and IT education for schools - and now it is going full throttle into supporting RPA and digital needs for enterprises. Never has there been a more critical time to help clients with learning new ways of thinking, understanding the true impact of emerging automation models and separating the hype from reality when it comes to digital business models.
So, without further ado, let's talk to Arvind Thakur (see bio) who is the CEO and Joint Managing Director of NIIT Technologies Ltd, for a discussion on the impact of Digitalization on IT growth and how the Indian IT sector is adapting to the shift from traditional IT services.
Phil Fersht, Chief Analyst and CEO, HfS Research: Good evening Arvind. It's good to have you on HfS for the first time. Maybe you could start by giving us some background on yourself and tell us a bit about how you wound up at NIIT Technologies, leading the charge?
Arvind Thakur, Chief Executive Officer, and Joint Managing Director: Phil, I have been with NIIT since 1985 when I joined the founders who pioneered IT education in India. Essentially the company had embraced a model inspired by a teaching hospital. As you know, a good hospital typically would have a research institute attached to it. Experienced medical practitioners teach at the research institute and the students who are trained get valuable experience as apprentices in the hospital. This creates a synergy between the learning and execution.
Over the years NIIT evolved naturally into offering software and system integration solutions driven by this model. It pioneered the software factory concept because the people that were being training were not necessarily experienced to face customers. To gain global customers we needed to follow good, strong processes, to deliver quality software and this was achieved by embracing quality models.
We embraced the models of those times, in the ‘90s. We began with the ISO 9000 framework and then the Capability Maturity Model (CMM). In 1999 we were the 12th company in the world to be assessed at CMM level 5, the highest level of maturity for software development. Backed by this capability we rode the internet wave and grew our software business rapidly through the nineties.
By the turn of the century, the dot-com meltdown resulted in eCommerce and Internet investments to become discretionary spends by clients. This, in turn led to a change in our software business profile which began to focus on legacy and our education business too started focusing on aspects of education other than IT. The strong synergy that existed earlier as teaching hospital became less relevant, so the company demerged its software and learning divisions into two independent companies, both listed on the India Stock Exchange; NIIT Limited, continued to focus on education and is now, in fact, a global leader in learning, and NIIT Technologies Limited was spun off to focus on services, and I came to lead the charge of the company as its CEO.
Phil: So, Arvind, what do you think today makes NIIT Technologies unique in the market? Why do your clients really hire you?
Arvind: When we de-merged in 2004, we were yet another IT services organization competing in an environment which was dominated by large-scale players. We put together a simple strategy which was to be very focused on a few industry segments and compete on the strength of our specialization. What differentiates us is essentially this strategy. People hire us for our understanding of the select industry segments that we serve: Banking, Financial Services, Insurance and Travel. We understand the platforms which are relevant to these industries. The understanding of the industry and the understanding of the technology relevant to the industry is what truly differentiates us, and that's why people hire us. This sharp focus has resulted in the creation of our own intellectual property, which are now leading platforms in some of these industry segments.
Our training heritage enables us to rapidly build strong capabilities as new technologies emerge and our customers evolve. We've been able to put together a very unique culture which focuses on delivering a great experience. Our vision is to be the first choice in the select segments and accounts that we focus on. Everything that we do is guided by this vision and that is what makes us unique.
Meet the IT educator himself... Arvind Thakur, CEO of NIIT Technologies
Phil: You talk a lot about being a “digital organization” at NIIT Technologies. How would you define digital as it impacts IT growth in the medium to short-term? Do you think India can become a digital juggernaut and evolve from much of the traditional IT markets that have served you so well? How do you see the whole impact happening and do you think NIIT Technologies can be successful?
Arvind: I think our industry is at a crossroad, Phil, and actively addressing this new Digital paradigm. The industry is rapidly shifting gears to embrace this new paradigm. As with a vehicle which slows down while shifting gears, the industry too is experiencing a slow down as it shifting gears to embrace new business models required to take advantage of the Digital opportunity. The good news is that India’s IT services industry has plenty of cash and is using the cash to rapidly build new capabilities both organically or inorganically and indeed has the ability to become a digital juggernaut.
NIIT Technologies itself is seeing rapid growth in its Digital business. We are approaching this opportunity by focusing on three things:
1. Smart IT - adopting automation in a big way so we deliver value to our clients. Anything that can be automated will be automated. In this context, we've put together an automation framework, a platform which we call ‘Excelerate’. The platform embraces the tools required to do traditional activities associated with the development and test automation, and also other elements like smart maintenance, infrastructure automation, all the way to advanced robotic process automation.
2. Superior Experience – The focus here is on the culture, and change required to the mindset of the entire workforce to address the new Digital paradigm. The industry so far has grown on the value proposition around cost arbitrage where customers would normally tell us what they wanted and we would build it faster, cheaper and better than anybody else. In the digital world however, clients are looking at how you, as a technology partner, can deliver business value. We need to change the mindset of the entire workforce from doing what you’re told to do, to identifying opportunities of value add. I believe we have taken the lead in the industry to invest in making this culture change.
3. Scale Digital - As mentioned earlier, we are using the cash generated from the business to build capabilities around Digital offerings both organically as well as inorganically and doing it fairly successfully. Digital revenues in the company which was negligible a few years ago, is now about 18% of the revenue mix.
Phil: One final question for you Arvind. You've got Prime Minister Modi's attention for one whole hour, his full attention. What if anything do you urge him to do differently with regards to growing India's IT sector over the next three years?
Arvind: One hour’s a lot of time with the Prime Minister! There would be many interesting things to talk to him about. He would appreciate that the IT-BPM industry, in India, contributes in a very significant manner to the GDP of the country - 9.3%. What's more important, is that the industry plays a significant role in the balance of payments for the country, with over 45% of the foreign money earned through services exports on the current account coming into the country through engagements by the IT-BPM sector. That’s very significant and I'm sure he does appreciate that.
The first part of my conversation with him would be around negotiating trade agreements specifically around, "How do we leverage our purchasing abilities as a fast growing large economy, to negotiate policies associated with free movement of people with trade partners?” Restricting movement of people particularly if it discriminatory is akin to imposing non-tariff barriers. I would urge him to get an understanding going between heads of government, that mobility of people is not the same thing as immigration. That would be one interesting conversation to have with him, which would obviously be very useful for the growth of the IT sector.
My second conversation would be around ease of doing business. You might have heard that the country is adopting a single tax regime for the goods and services which is now being made law. The focus has been to eliminate multiple levels of taxes to drive efficiency which is certainly good for the manufacturing sector, but we have to ensure is that it does not impact the ease of doing business for services sector. The services sector currently operates with a central single tax regime. The new GST (Goods & Services Tax) law creates the possibility of multiple registrations in different states for the services industry creating a lot more additional administrative work and difficulties in conduct of business. This would seriously impact the global competitiveness of the industry and so with the Prime Minister a good conversation would be “In terms of the single tax regime for goods and services – when the laws are promulgated, how do we ensure they do not impact the ease of doing business for the IT Sector”.
These would be the two important things to discuss with him.
Phil: I think that would be very relevant, Arvind! This has been a most interesting discussion – I look forward to sharing this with our readership... the NIIT model is certainly becoming increasingly relevant in today's uncertain market.