Thursday, April 21, 2011

Cloud as a neutralizer of scale benefits!!

The notion that the cloud is taking over the world has got to be tempered. I was recently at a conference where most of the CXOs admitted that they don’t know how it will impact them. They’re not thinking about 5 years later - they’re thinking now.

Most people who understand the cloud and have done stuff in it are very clear that when it comes to IT infrastructure and software as a service, it’s quite obvious how the cloud can benefit. However, it’s when it comes to everything else including data, services, processing etc on the cloud, the majority view is that it won’t happen in a hurry across the board.

Standardization is a big question – how are we going to get on the cloud standardization across companies when many are not standard even within!! The best that could possibly happen is a private customized cloud. I am referring to large global corporations.

However, when it comes to mid-sized companies, or start ups the argument changes. It’s likely that the cloud will allow these mid sized enterprises to “leapfrog “ , get ahead of the larger ones as they have fewer constraints and legacy. Emerging market companies can now be structured very differently and designed better for their business from day one as compared to a more evolved large global corporation. They can be set up to leverage the cloud and standards from day one …. And that could mean a huge competitive advantage!!

Industry after industry will see the rise of brand new companies who have a killer product or service and because they will structure themselves differently from the beginning, they will have a massive edge over the others in terms of go-to-market speed and flexibility as well as in terms of a cost structure that would rival if not be better than a large corporation with huge scale.

Does that mean that the cloud allows mid sized companies to compete with large corporations? Does scale become less relevant because of the cloud?

For instance, we all know emerging market companies in the wireless market that are structured differently and fast becoming global competitors in the wireless space with global standards. They often have the unique combination of the lowest prices in the entire world, at the highest profit for themselves with better service for their customers!!

Think about companies that structure themselves from day 1 to only focus on design, product and customer interface and ownership - everything else is done through an ecosystem they’ve built which allows for flexibility and speed and scale leverage from day 1 and variability from day 1 .

So to me the Cloud could mean if not demise at least reduction of scale advantage in some industries and a further boost to emerging market cos with global ambitions!!

Tuesday, April 5, 2011

Inclusive growth is not charity!

The folks up at ISB (International Business School) invited me to write for their quarterly journal, B.Smart, on incusive growth. Do have a read and let me know your views.

Economic liberalization which began in the early 1990s has accelerated India’s growth rate to an average of 7% per year since 1997, up from 3.5% in the 1970s. During this period India transformed itself from an agricultural economy to a service economy. Services now form 55% of the Indian economy. The growth and development of the Information Technology and Information Technology enabled Services have had a significant role in changing the face of the economy. The good news does not end here. The growth rate for India is expected to overtake China’s double digit growth rate in the next few years.

This news however, hides some alarming trends. Growth continues to bypass a large section of people. A large majority of Indians live in the villages and they have been excluded from India’s growth story. Rural India is facing endemic problems – land holdings are shrinking, slow growth in agricultural production and limited social and economic infrastructure. Women, Children, backward castes & classes and other minorities often are excluded from the growth story. The rise of grass root militant movements which plague nearly one-tenth of India is a direct result of this economic exclusion and the unfulfilled aspirations of the bottom billion.

The task to feed, house, clothe, educate and employ India’s growing population, which is expected to reach nearly 1.5 billion by 2030, is enormous. This includes a net increase of 270 million people which will be added to the work force. Bringing them into the economic mainstream both as producers and consumers of goods and services must be the basis of any inclusive strategy.

Today, economic power rests with a precious few. According to Credit Suisse, the top 1% of the population own 15.9% of India’s wealth, the top 5% own 38.3% and the top 10% have 52.9% of Indian’s wealth. What this really means is that 90% of Indian, the urban and rural poor has a very small stake in the pie. Growth must lead to the re-distribution of this ever growing pie to a situation where the bulk of the population is middle class and a smaller percentage of the population is either very rich or very poor.

The aspirations of the “bottom billion’ cannot be wished away. If India is unable to address these aspirations, the “demographic dividend” that the country can reap will become a demographic liability.

This mammoth task cannot be done by government alone. Industry and civil society must partner with government to drive inclusive growth. Cognizant of income disparities and growing aspirations of the people the government has been working to address these through programs like NREGA and Aadhaar. Civil society has contributed with design and governance oversight. But, in my view the greatest lever for driving inclusion is jobs.

India is expected to witness huge changes in the coming decades. If the growth trajectory continues the economy will grow from a $1 trillion dollar plus economy today to a $4+ trillion economy in 2030. According to a report by McKinsey & Company the number of urban households will grow to 91million, up from 22 million today. This trend is already visible as people in rural India have begun voting with their feet and are migrating to towns in search of economic opportunities. Shiela Dikshit, the Chief Minister of Delhi has often spoken about 3 lac people migrating from villages and small town to Delhi every year looking for economic opportunities. Similar migration is happening to other big cities. Infused with the migration mind set and work ethos these people are contributing to the local economies both through their labour and consumption.

What has been the true impact of the IT-BPO Industry?

Many have joined the IT-BPO industry. A relatively young industry, it employs more than 2 million people directly and 8 million people indirectly. According to NASSCOM the impact of this industry is manifold – its contribution to India’s GDP is 6%. This industry has created 45% of total incremental urban employment in the last decade.

The industry began in Tier 1 cities like Bangalore, Delhi and Mumbai and quickly moved to tier 2 and tier 3 cities like Hyderabad and Jaipur in its search for economies and talent. Not only has this led to the development of infrastructure in metro towns but has also driven regional development. Not long ago Hyderabad was a sleepy town in Deccan India, Gurgaon and Noida were suburbs of Delhi. New housing, shopping complexes, office buildings have come up rapidly, supported by the cheque books of companies and employees of the IT-BPO industry. Similar changes are visible in Jaipur, Bhubaneswar and Vishakhapatnam and many other cities.

The investment by the IT-BPOs investment in local economies is two fold.
1. At the time of setting up of offices, this generates employment and business for infrastructure build out that takes place.
2. Thousands of employees, who live, work and spend their salaries in the local economy.

This industry has also led to increased financial independence for millions of people. Nearly 70% of the employees are below the age of 35 and a large part of income is spent on discretionary items. According to NASSCOM, the downstream impact of employee spend in FY ‘09 wasRs. 76,000/= crores. Nearly Rs. 7,400 cr in the hospitality and restaurant industry and Rs 6,000/=
crores in the telecom industry.

Driven by meritocracy and quality, this class of knowledge workers is raising the bar for the quality of goods and services they consume – in telecom, healthcare, entertainment, hospitality. Value added services in telecom, new restaurants and entertainment targeted at this segment are just some examples. People are changing the way they live and behave and are demanding quality products and services, this raises the bar for goods and service. This is always good for the economy.

Who does this Industry Employ?

There is a mistaken notion that the IT-BPO industry employs sons and daughters from the educated elite. This could not be further from the truth. NASSCOM data suggests that nearly 2/3rds are from tier 2 and tier 3 towns, 70 percent are less than 30 years old and 1/3rd are women; all indicators of inclusive growth. To deliver world class products and services, the industry spends large sums of money on training; in FY09 companies spent Rs 6,450 crores. Money spent on domain training, leadership and soft skills to create talent. As these employees grow in their careers the skill will be transferred to other companies and industries. So, this industry is creating a vibrant middle class.

How is this industry changing the face of education?

Driven by the demand for jobs in IT-BPO industry, education in India has gone through enormous changes. Several new colleges and universities have been set up to cater to the demand for a skilled work force. Educational institutions have been forced to revitalize curricula, improve infrastructure, introduce new courses and make graduates employable. Industry inputs at the time of curricula re-design, exposing students to business through internships and inviting industry leaders to college seminars are some of the steps taken by colleges and universities to become more relevant. Competition for students and placement of students has forced colleges to improve methodology and constantly work to raise the bar.

What skills is this industry creating?

Another misconception in the public mind is that the BPO industry is only “call centre”. The reality is very different. The call center business is about a third of all the work done by BPOs in India. Back office work in banking, insurance, supply chain, analytics forms the larger part of the business process management businesses. Over the years organizations have gained expertise and this has led to a creation of subject matter experts in various domains. Learning employees take with them to other organizations and industries. For example, BPOs have been applying IFRS norms for their customers for a few years now. Next year when Indian companies will have to conform to these norms, where will the experts come from? From the BPO industry and it does not stop here……

Former employees have fostered job creation as many of them have gone on to set up new businesses within the industry and outside the industry. Vendors servicing the industry have also been forced to raise the bar. For example, caterers are expected to deliver nutritious and hygienically prepared food in large scale and transporters have to be on time and standards of security which rival global standards.

Wanting to give back to communities has been the corner stone of corporate social responsibility programs in most organizations. More that 60% of IT-BPO companies employ people with disabilities. They encourage their employees to contribute to local communities through education, environment and health awareness programs. At Genpact, we encourage our employees to volunteer time in communities they live and work in.

IT-BPO organizations have played a key role in the set up and delivery of government services around the world bringing world class technology and process excellence to the table. The Indian government has already begun to leverage this expertise – the Passport Sewa Service, On-Line Income & Sales Tax Returns are but two examples. Tech savvy state governments like Karnataka, Andhra Pradesh, Maharashtra and Haryana too have set up portals to improve citizen services at the local level.

Financial inclusion must be a part of inclusive growth. Today, millions of Indians do not have access to government services or to the banking system as they are unable to establish their identity or credentials. The formal banking system is closed to them. The Aadhar card can go a long way to help. The project is huge in scope and scale and the government has leveraged industry expertise to set up and execute of this project.

Using traditional brick and mortar models which have long cycle times and require large investments will not deliver government services to the underserved. Releasing capacity through re-engineering processes and innovations like mobile banking, e-health and e-education are some possible solutions. Genpact has been working with government hospitals in India to release doctor and nursing capacity through improved processes. Hospitals have already begun diagnosing and suggesting treatment from data transferred on mobile phones and the internet. Other companies are innovating to create cost effective education, health and banking modules on the internet and telephone.

Inclusive growth is not charity. For industry to grow it needs markets, talent, changed government policy and huge improvements in infrastructure. Inclusive growth is the only way to get sustained growth!