Falling margins, increased competition – Indian outsourcing is having a bumpy ride. The real question is whether its leaders can steer it into calmer waters, says Saritha Rai.

Indian outsourcing

Just as India’s outsourcers seemed to have turned a corner after the recession, the industry has hit a series of speed bumpsPhoto: blrframes

Indian outsourcers have recently come face to face with multiple tribulations. Apart from the near commoditisation of the business, the outsourcing market is going through rapid changes. Topping it all, competition for Indian outsourcers is becoming more complex as hybrid companies and multinational consultancies aggressively go after business.

Indian outsourcing’s value proposition under threat

Some years ago, outsourcing leaders enjoyed a golden period. As employee count rose, so did their revenues. But these days, skills are growing scarcer, attrition is high and salaries are soaring. The very premise of the Indian outsourcing’s value proposition is under threat.

As companies emerge from recession, it has become apparent that client-pushed business is drying up. This change has already had an impact with profitability dipping from between 30 per cent and 35 per cent a few years ago to between 15 per cent and 20 per cent now. For the first time, leadership and strategic thinking are being put to the test.

The next generation of outsourcing leaders need an incredible amount of energy and innovation to build the products and services that customers need, according to Pramod Bhasin of Genpact. Bhasin, until recently the chief executive of Genpact, India’s largest business-process outsourcing firm that rolled out of General Electric, is now its non-executive vice chairman.

Top leaders need to anticipate and address the constant changes in the market – and the increased complexities that result, Bhasin said.

Strategy to cope with outsourcing changes

An ability to foresee change well before it arrives is a leadership imperative, said Sudin Apte of consultancy Offshore Insights, an outsourcing advisory firm. That skill also includes…

 

…the ability to work out a strategy to respond to change and build resources internally, he added.

In one well-recorded instance, at India’s third-largest outsourcing firm, Wipro, leaders failed to anticipate change and alter direction. Wipro, like other top Indian outsourcing companies, earns the bulk of its export revenues from the financial services sector. Wipro chairman Azim Premji said the company’s two co-CEOs did not anticipate the sector’s quick rebound from the recession. The two were unceremoniously removed.

As client businesses alter dramatically, their expectations of their outsourcing partner are changing too. An unwavering customer focus, deep sector expertise and an understanding of how technology can impact customer business are essentials, Infosys CEO Kris Gopalakrishnan told silicon.com. Gopalakrishnan is moving to the co-chairman’s role in July.

Companies sorely need leaders with charisma who can create opportunities, Gopalakrishnan said. At his company, co-founders long-time chairman Narayana Murthy and former CEO Nandan Nilekani were both industry poster boys and also recognisable brands who could open doors at Fortune 100 companies.

Growing anti-outsourcing sentiment

While these changes occur, outsourcing firms continue to service customers onshore in their main market in the US. But as an anti-outsourcing sentiment grows, India’s outsourcing lobby group Nasscom says the Infosys visa troubles and recent immigration issues are all political hype to impede Indian outsourcers.

The immigration controversy highlights yet another failing of Indian outsourcing leaders – the lack of sophisticated communication. The political rhetoric could potentially tarnish big outsourcers’ corporate governance image.

In the final analysis, India’s outsourcing industry is showing the same shortage of top leadership talent as it is at the entry and mid levels. Whether CEOs or business unit heads, leaders at outsourcing firms have until now tended to grow from within organisations and have typically had engineering and technology backgrounds.

For their next phase of growth, Indian companies need top-rung leaders to think business strategy and value, and not just technology. And that might be the industry’s biggest talent hunt yet.