One of the most talked about sessions at the HFS Super Summit in New York was my on-stage 1-1 with one of the IT and business services industry’s most revered voices, Ravi Kumar. When he’s not getting invitations to the White House to advise on expanding IT talent development in the US, he’s often spotted on stage at the Milken Institute or Davos – all the while working many major customer engagements – and some of the largest in the history of services. Not many people have been as steeped in the development of global IT services over the last couple of decades as Ravi
So getting Ravi to talk candidly to a senior audience of IT and operations leaders at the recent HFS Summit was a terrific opportunity to get his perspective on the current crisis engulfing tech services to attract the best and brightest – and reverse this depressing drift towards becoming a commodity business.
Phil Fersht: Well, Ravi, do tell the audience a bit about yourself. Because you’ve kind of grown up with this industry, you’re still fairly young, as well, so you have a good affiliation with younger staff, as well as senior management, being one yourself. So maybe you could share a little bit about how what used to be sexy about this industry and maybe where it’s lost its sheen a bit.
Ravi Kumar: Phil, thank you so much for the opportunity to talk to you and the audience here.
When I joined this Industry two+ decades ago, I would say the tech services industry, in general, hired from tier 1 schools. Twenty years hence, I think this industry hires from lower-tier schools. So it’s a significant shift. I think the classical economics of when demand outstrips supply, you think the billing rates are going to go up. That’s not happened. And because the rates have not gone up… I think somebody in the audience mentioned that their son didn’t join one of the tech services companies because it’s not an innovation industry. I think, historically, the industry has been a fast follower in that way. So you fast follow tech cycles, tech waves, and you monetize on it.
And I would also say, Phil, that for the last 30 years, Global 2000 firms used system integrators for enabling technology in the non-core; building HR systems, building CRM systems, building financial systems, etc. So when tech is non-core – and for the last 30 years, the Global 2000 went global, and they used technology to make their operations efficient – it wasn’t so critical, honestly. It was critical to scale, technology was the enabler, but it wasn’t like technology was core.
So every time there was commoditization, it actually hit the tech services industry the most, and the tech services industry held up the margin, and to hold up to the margin, they actually went down the chain to lower-cost schools and hired talent in addition to building productivity improvement cycles. And that actually is the reason why it went from being a sexy business to where it is today.
Phil: Ravi, so how do we reverse this depressing cycle down the service value chain?
Ravi: Phil, we have this unique opportunity to change that. Tech has gone from non-core to core. The Global 2000 today want to use technology not just to build HR and CRM systems; they want to use technology to get extended reach to their consumers through digital platforms. Now, they actually want to embed technology into their products and services. So tech is going to go core. Every Industry today is in the technology and software business. When tech is core for a company, the kind of talent you need is going to be extraordinary, and the rates you are going to get are going to be elastic. And therefore, we have this unique opportunity to repivot. And I would say that the ones who will really make it are the ones who can pivot from enabling technology from the non-core to the core.
There is a new segment of customers that is showing up, which is digitally native companies. Digitally native companies did not outsource for the last 20 years or so. They had a free runway on EBITA, capital was freely available, and they hired talent at an abnormally high cost, which is why they are attractive as employers. Now, the cost of capital is high, and there is accountability to EBITA. So these same set of companies are outsourcing, but they were born digital, so they are outsourcing for core work, and therefore they’re willing to pay more money for high-quality talent. So we could repivot if we want to. So that’s the second shift. Tech is core, and we have a new segment of clients.
And the third is the universe for tech services companies was 2 to 7% of the revenue of large enterprises because that was the IT spend of enterprises. But if tech is core, that’s not the IT spend. And, if operations are digitized, 20 to 30% of revenues is the universe. So you go from just catering to tech but to tech ops, tech-led ops, or digital ops. Then the universe is very different. Then you are doing a platform play. And once you do a platform play, your ability to make it nonlinear is going to be very high.
So we’ve spoken about nonlinearity and outcome-based pricing for years, but it has never been so mainstream. I think we have this unique opportunity to repivot in those three shifts I spoke about. If we can do that, I think we can repivot this business to be a happening one as an employer, re-pivoting from being a fast-follower industry to an innovation industry, enabling technology at the core of every industry.
Audience: Ravi, services companies are constrained by their client environments, so it is not about innovation at the services level but more in terms of what clients demand.
Ravi: Yeah. So, you know, to build an HR system or a CRM system, it wasn’t required so much to be innovative; you just have to follow the innovation cycle. But if you want to be a partner for Tesla as an example, to build a connected car… by the way, Tesla doesn’t outsource so much in their core. But if you want to build connected cars, for all the other car companies who want to be Tesla, they are going to throw dollars at the table and say, “Get me the best talent. I’ll pay you money.” So I think that is the change we are all expecting to happen as we go forward.
Phil: You know, I thought we were a pretty happy industry until the pandemic, and that was clearly the turning point to staff being bored and unchallenged and the ease of staff moving around to other firms. With all this competition and shortage of talent, we’ve now ended up with service providers so terrified of attrition and losing staff they’re willing to let them do whatever they want. So it feels like we’re on a death spiral of not enough talent, them not being encouraged or trained in a way to get them really passionate. Because the one positive piece of data we’ve seen is that they do believe in the work they’re doing, and they can see the potential in their clients to do a lot more. But then we have, you were just saying, these monolithic mandates in India, for example, where some of the provincial governments are mandating a return to the cube farms, rather than thinking, “What can we do to make it a different, more fulfilling experience when they’re back?”
Ravi: Indian heritage tech services companies have massive physical campuses built over the years, Phil. So there is a little bit of a natural thing: “Oh, let’s get them back to campus.” I think that template is out of the window. It’s a template that evolved from the Industrial Revolution, where work, workplaces, and workforces were all tightly coupled. We did it in the pre-pandemic; irrespective of the kind of job, you wanted people to show up at the office. Flexibility is not at odds with productivity. At some point in time, Silicon Valley told the world that fun is not at odds with productivity, and fun actually became an integral part of work. Flexibility will become an integral part of work, and if we can pivot it well, we could actually reinforce productivity.
Phil: So how can flexibility drive productivity, in your view, Ravi?
Ravi: I think the tech services industry can pioneer the hybrid model, Phil. You know, working remotely was easier than we thought; working hybrid is going to be harder than we think. It has heterogeneity. Some people will come for some days to work, some people will not come to work, some people will always come to work. And how do you make the productivity work? How do you create rhythms at work? How do you ensure that flexibility can reinforce productivity? I think it is a challenge. The tech services industry can take it, and then get the rest of the world to emulate. That is for real.
In fact, 50% of India’s tech services industry workforce is not in the base location. They are in tier 2 and tier 3 cities. They do not want to come back. If you call them to come back, they will go and join your competitors. So it is a flawed approach. You want to create satellite setups where there will be collaboration spaces. Take work to where people are, rather than moving people to where work is. There is going to be a redistribution of life and work, and we all have to live with it. It’s an important facet of how you define the future of work, and I think we can lead the path on that.
Suddenly, the number of people available to hire has increased because you could hire anywhere if you can use this to your advantage rather than using it to your disadvantage. Back in the US, the number of people who are getting hired in tier 2 and tier 3 cities is significantly higher than what we are hiring in tier 1 cities because customers are okay to virtualize work. That is a reality. Working alongside machines is a reality. You know? With AI software is a reality. The cognitive diversity in workplaces is going to be significantly different.
One of the questions you asked earlier is, “why is it that the talent in this industry is not very excited about what we do?” Because we did algorithmic and repetitive work. It was very STEM oriented. We are now going to do heuristic and more creative work in the future. In fact, the puzzle about people leaving in large numbers in tech services is not just because of the demand situation; it’s also because there is fungibility of talent from this industry to other industries. There is a fungibility, which never happened before.
That fungibility is startups are hiring from tech services companies because there are heuristic and creative skills that they can generate. Global capability centers – or captives, as we call it – they are hiring from tech services companies because of the creativity and the heuristic nature of the talent which is available.
So just look at the India forecast. NASSCOM forecasted 2 million additional IT professionals in the next three years. India has 5 million IT professionals in total. Five million in the last 40 years. NASSCOM has forecasted 2 million in the next three years. Do you know why that forecast is worthwhile? It’s indicative of how rapid the pace is. Only half a million is going to be added by tech services companies. Two hundred unicorns are going to add another 700,000. And 300 global capability centers will be set up in India; they will add another 700,000.
And the pool is very fungible. The ones who are in tech services can move to those. So, actually, you go back and check people who have left. We are losing people to our peers, but that’s not the big problem. We are losing people to startups, and we are losing people to global capability centers because there is the fungibility of talent, which wasn’t there before.
That shift is a big one, and it’s a good one because if there is fungibility… remember, the learning infrastructure of the technology world sits with tech service providers. So they build the feeder, they build the bridge, and then, if everybody is going to flourish out of it, so be it. I think we should hope that fungibility will uplift the innovative index of this industry.
Phil: That’s right. And Nadella, Microsoft CEO, for example, is doubling down big time on India because he sees the scale of the talent they can’t get the talent anywhere else. That’s creating a whole different set of opportunities for ambitious IT professionals in India.
Ravi: Completely, phil. India is the only large economy with demographic dividends due to a growing working-age population while the large global labor markets are aging and India has heavily invested in learning infrastructure for the tech Industry.
As I had mentioned earlier, India will be a hub for tech talent across the world – for tech services companies, the global technology and software players, next-generation SaaS software for global markets, and a large number of Global capability centers for the G2K. We are in the Golden era of technology, and software will be the new alchemy for every business and Industry. India will be at the center of a diverse set of technology talent needs of the world, demanding a cultural shift with needs spanning from heuristic to creative to algorithmic skills across the spectrum. While the G2k will outsource more and more, equally, they will build their own tech capabilities being core to their business in two parallel swim lanes. The key is to build operating models where we co-create, lend our capability and training infrastructure for everyone else to embrace, and help the G2K build their own retained technology centers or global capability centers as we call it and most of them will be based in India.
Phil: Yeah. And then, I remember you were telling me you were going to community colleges in the US for young talent…
Ravi: Yeah. Digital apprenticeships from community colleges and drawing talent without an undergrad degree is the future for alternate talent pools.. It’s fascinating how the USA is so polarised. We all think of education as the bridge. You know, university education has gone up by 200% in the last 20 years. Inflation has gone up by 50%- excluding the last 12 months, which is an exception. This year is an anomaly. So only a few people can afford education. 25% of the US workforce is from community colleges. 50% of the US workforce actually doesn’t have a degree. 50% of the US workforce doesn’t have a degree out of the 160 million. So these are people who are looking for upward social mobility.
We think there is a jewel of talent. There is a jewel of talent there that nobody is tapping into. The tech services industry, with its unique mission of learning and the culture of learning, can actually tap into that talent, and create a feeder apprenticeship, I call it the digital apprenticeship, and you do a learn, earn, and work program.
The idea is to land them on digital backbone jobs, like security operations, data operations, and then credentialise their work with universities, and as they cross the bridge, give them an undergrad degree, but they are learning, earning, and working with us. That template, I am absolutely confident, is going to be the real… you know, in some form, that template is going to be the real solution for the shortage of talent in the US, and hopefully the tech services industry can lead it.
Phil: I think I’ve learned a few things about the talent this morning. Saurabh, I see you want to have one last question?
Saurabh Gupta (HFS): Yes. Ravi, as always, that… especially the point around, you know, let’s talk about heuristic work, not repetitive work, I think is a really wise saying for this industry. But I think there’s always this conflict between service providers and buyers. Right? All service providers, typically, the first blame is, you know, “Hey, we can do all this, but clients still want the basic bread-and-better stuff.” And the buyer perspective is, “Hey, we want all this innovation, but the service provider only delivers the bread and butter.” How do you bridge that gap? I think that is one of the fundamental issues, where we are not shaking hands; but we sort of oppose each other all the time.
Ravi: Fascinating question. You know, in fact, one of the biggest challenges for service providers is they have not been able to create different swim lanes for talent. You can always do the heavy lifting on one side; on the other side, you can actually do the deep technology work you need for engineering new products.
I’ll give you an example. We go to IITs, the premier engineering schools in India, and hire, as well, but we hire very small numbers while we hire a large number from schools down the chain. The issue is, this keeps us so busy that the minority swim lanes with specialized talent is ignored. If you can create parallel swim lanes with the same underpinning of good learning infrastructure, there is room to even hire from the tier 1 schools and then do the kind of work you are talking about.
Taking the example of the automotive or the car Industry – it needs two swim lanes of talent. If you are building, say an HR or CRM system, you need the traditional tech services talent pools which do the heavy lifting, while if you are involved in their connected car initiative, it would need deep power programmers.
It is also time that we start thinking about non-stem talent in the tech services industry. The world has only just 28 million developers, while every industry is going to be a tech industry, and we all live in this golden era of technology. We all know that the embrace of technology across industries is not going to be powered by just adding new developers into the industry but by embracing low-code software. Low code software will mean the need to add more “problem finders” and the ability to use the software more meaningfully rather than just developing it. We will therefore need a greater diversity of cognitive stills, like anthropologists, sociologists, and liberal arts backgrounds in the tech services space.
Phil. I think we’ll all agree it was well worth bringing Ravi up to the stage because I think Ravi has a closer affinity to the talent in this industry than many people I’ve met. So it was great to have you share that with us, Ravi.
Ravi: Thank you so much, Phil, for the opportunity. You always get the best out of what is needed in the industry today. Talent is the biggest driver today. In fact, if there is one thing every company has to strategize in the tech services space, it’s about the talent supply chain.