NON FINANCIAL FACTORS AFFECTING INDIAN IT COMPANIES

By INDIAFORU

1.1 Setting the Stage

In the past 45 years of the computer age, computer processing power has increased to an incomprehensible 30 orders of magnitude, 1030, the ratio of the diameter of an atom to that of the Milky Way. From the 1970s to the present, computer power has doubled each year following a trend known as Moores Law. This means computer power increases at 2year, about one million times every 20 years. And there is no end in sight to this trend: research on nano-computers predicts that Moores Law will apply well into the next century (Spencer, 1995). The bottom line: we are dealing with the most amazing ubiquitous technology, which has been and will be changing the face of the earth, effecting humans in every possible way. The computer industry, otherwise called as Information Technology (IT) industry, has been described as the most dynamic, most prosperous, most economically beneficial industry the world has ever known (Parsons & Oja, 2011). The rapid development of the industry is promoting global industrial restructuring, optimization and upgrading, and bring about profound changes in the human lifestyles and production patterns (Zemin, 2009). Economies of scale and insatiable demand from both consumers and enterprises characterize this rapidly growing sector (Economy Watch, 2010). With the worldwide consumption of IT industry products estimated to be more than US $ 2.1 trillion annually (Parsons & Oja, 2011), the industry has acted as a key driver for global economic growth (Economy Watch, 2010).

Since the beginning of the 21st century, IT has been evolving every single day with its popularity and applications having significant impact on economic, political, social, cultural and military development. The IT industry of a country or region has become an important yardstick of its overall strength, international competitiveness, and degree of modernisation (Zemin, 2009). Considering the Indian scenario, IT industry has literally given India a place on the world map which was otherwise considered a developing country with inferior infrastructural reliability. NASSCOM - the apex forum for the IT Industry in India, asserts that IT industry has played a significant role in transforming Indias image from a slow moving bureaucratic economy to a land of innovative entrepreneurs and a global player in providing world class technology solutions and business services. Presently, the industry is estimated to have grown by 19 per cent in the FY2011, clocking revenue of almost US$ 76 billion (NASSCOM, 2011). Poised to become a US$ 225 billion industry by 2020 (IBEF, 2011), India has climbed 10 spots to reach the 34th ranking on the global IT industry competitive index owing to its strong human capital and research and development (R&D) base. Compiled jointly by Business Software Alliance (BSA) and the Economist Intelligence Unit, this IT industry competitiveness index benchmarks 66 countries on a series of indicators covering the critical foundation areas for IT innovation (Economic Times, 2011). Speaking about this news, Som Mittal, president of NASSCOM , he said India (Indian IT Industry) is gradually diversifying its services focus to innovation in new product development and related capabilities reflecting its gradual emergence as a lead in not just IT exports but soon also in IT products.

1.2 The Development of the Indian IT Industry

The Indian IT industry saw its birth in the 1960s. It was the time when multinational companies originated in the 1960s, hardware was provided by multinational firms like IBM had taken their place as global leaders in the hardware market and the only opportunity left for Indian firms was to specialise in the area of IT services. Those were the days when Indian domestic IT needs were almost negligible making the Indian IT service companies to rely heavily on export markets. By 1980/1981 when

many of todays Indian major companies were founded, the Indian software exports reached the 13 million USD mark and, large companies in other sectors of the economy diversified into the IT sector (Ainavolu, 2007). At that time, the Indian software industry heavily relied on body shopping that is, flying professional staff to the sires of overseas clients in order to work on software assignments. This was mainly due to the large talent pool of English-speaking computer scientists and engineers willing to work overseas for a fraction of US wages as well as the lack of appropriate hardware in India, caused by the limited availability of foreign exchange to purchase computers (Henley, 2007). Body shopping proved to be the stepping stone for the gigantic growth of IT Industry that would be recorded in the years to come. During the 1990s, IT industry saw the prevalence of customised and firm specific software along with the considerable market for maintenance work and integration of legacy software systems. It has been argued by some observers that over two-thirds of all software development efforts are spent in maintaining and enhancing existing software codes, rather than producing new software (Arora & Athreye 2002). Such work necessitates in-depth understand of the software functions through face-to-face contact. The building of trust between client and software provider that was possible as a result of face-to-face interaction on site, was critical for the development of the software industry. For the business relations to prosper and Indian companies to get business deals from the west, they would have to develop strong client trust, in order that the client shares confidential information with the information technology provider. Indian IT companies have challenged their limitations over time by building their infrastructural facilities, intellectual property and human capacity. Today, India's top technology firms like TCS, Infosys, Wipro and HCL are readying plans to gain a bigger share of their largest market, US, by aggressively chasing contracts being served by multinational rivals. Analysts expect the top IT firms to grow between 23-27 per cent in the FY2012 on the back of more number of discretionary projects, improved pricing, and robust business volumes (Economic Times, 2011).

1.3 Organisational Challenges to IT Companies

An introduction to this subject could not be any better but to pen down the following mission statement of IVY Comptech company:
While our business is not dependent on physical assets to succeed, it is heavily dependent on intangible assets such as our brands, technology and most importantly our people. We aim to attract and retain high performing talent from around the world and seek to promote and develop high culture. Our employees are both engaged and well-rewarded for their achievements and outstanding contributions.

Two of the most important features of IT industry are (1) Unlike other common industries, IT industry is knowledge-based and (2) Efficient utilisation of skilled labour forces in the IT sector can help an economy achieve a rapid pace of growth (Economy Watch, 2010). Being in a knowledge-based industry, IT companies like IVY Comptech have identified that the main source of their competitive advantage is the intellectual capital consisting of human capital and intellectual property. As seen from this mission statement, IVY Comptech has identified that attracting, retaining and maintaining high performing talent is necessary for the IT organisations to stay ahead in the competition. Indian IT industry has seen several stages of transformation throughout its history from infancy in the 1960s to the present decade. Principal factors of transformation, apart from overall investment climate and changes in demand and supply, have been the business processes, human resources and institutional capabilities. (Mitra, 2010). Economy Watch (2010) maintains that one of the most important crises facing the Indian information technology industry today concerns the human resources aspect. The skill level of the information technology professionals is one area that needs improvement and presents a considerable amount of challenge before the Indian information technology industry. Kuruvilla and Ranganathan (2008), stating in Indian context, claim that four critical and interlinked HR challenges threaten the near and long-term prospects of IT industry. Macro level HR problems include a shortage of skilled HR and difficulty in

producing high-skilled manpower. The micro HR problems include high average turnover rates, and the rapidly rising HR costs in the industry. According to Andersen, et al. (2010), the desired outcomes from an HR perspective are low employee turnover, low absenteeism, high-quality customer service and high performance. These outcomes are achievable only through the result of an integrated and coordinated effort by the service provider and the client. The desired outcomes can be achieved using best-practice activities within job design, change management and contract formulation. These activities should continuously be reassessed by monitoring the psychological impact on the employees attitudes toward the activities, the job, the service provider and the client. Similarly, Meenakshi Gupta from the premier Indian Institute of Bangalore, in her article on HR Challenges in the Indian Software Industry discussed a variety of issues hovering Indian IT Industry. They are recruitment of world class workforce and their retention, compensation and career planning, technological obsolescence and employee turnover, to name a few. Apparently, the human resources perspective needs to be studied in order to adopt an all-embracing approach to understanding organisational issues, their effect on people and to prepare processes and solutions to improve organisational effectiveness (Gupta, M., 2004).

1.4 Need for the Study

It is globally accepted fact that the performance of an organisation is vital for organisations success. Armstrong, & Baron, (2004) describe management of organisational performance as the continuing responsibility of top management within an organisation to achieve the corporate objectives by planning, organising, and controlling activities with good leadership. He goes further and states that there are various types of performance measures however which one is used sensibly lies on the managers. There have been various studies conducted on managing projects (Lewis, J. P., 1999) where all the different phases of an organisations lifecycle from conceptualisation, growth, maturity through decline and closure are looked at. Now

the top management are on an agreement that they needs to ensure that through all of these stages planning, organising and controlling is executed efficiently. However yet there are still organisations that underperform and fail eventually. This shows that there are yet many other reasons why an organisation fails to perform. These reasons shall be explored through this research. Organisations that close down suffer themselves from financial loss however this also impacts on the workforce and the employment opportunities. Many other stakeholders are affected by an underperforming organisation which is why this research needs to be conducted as it would uproot causes which will help execute corrective and preventive actions.