Automation. The word seems to send a shiver of thrill among technology enthusiasts and a chill of fear among investors in the IT services industry in India. Automation-related investments and activities of the Indian IT industry, especially those of Infosys and Wipro, two of the country’s IT majors, have occupied top of mind recall in recent times.
Phrases such as Robotics Process Automation, and the move from ‘Heuristic’ to ‘Deterministic’ automation have also been bandied about befuddling listeners. Anxious parents, of engineering students about to graduate, are eager to know if the job-generating machine, which the IT industry has been, is grinding to a halt. In short, the answer is ‘No’. For the details, read on…
Only evolution, no revolutionAutomation of an existing piece of work promises to remove the need for manpower and cut costs. For the IT services industry in the country, revenue and profit growth have historically been linked to addition of manpower and hence infrastructure needed to house people. Currently the industry employs about 3.2 million people.
As much as automation has cornered premium space in the minds of people and in the media, here are some pieces of statistics: Infosys added nearly 18,000 people to its rolls for the year ended March 2016 to take it about 194,000. From an infrastructure perspective, it acquired an acre of land in the three months ended March. Syntel Inc, with nearly a billion dollars in annual revenues, has acquired 100 acres in Tirunelveli, a town in Tamil Nadu for its expansion. The first phase of this facility will be commissioned later this year with about 3000 seats. Mindtree Ltd, which reported revenues of $ 583 million the year ended March 2015, had increased the number of ready seats for its employees across locations by around 10 per cent, or 1300, of its headcount, in only nine months ending December last.
All these are clear indications nothing is dramatically changing, yet, for the industry due to automation. Cognizant put it succinctly. “It’s more evolution rather than revolution,” said Mr Gordon Coburn, President, Cognizant. “I don’t see automation overnight replacing a significant portion of our workforce by any stretch of imagination.” He added that automation initiatives are going to help enhance capabilities, supplement skill-sets of employees particularly in areas where there are repetitive tasks in the short- and medium-term. According to him, “Over time, it will have an impact on certain parts of the business – Business Process Services, Infrastructure Services and Testing. It’s an evolution that will over time change the roles that people will play.”
Revenue cannibalisationMost IT services companies do not anticipate an immediate change in their headcount or overall set of services. “Change will be slow. It depends on the pace at which enterprises can take this up,” said Senior Analyst Somak Roy, Forrester, a research firm, said. To restart a server remotely, one could do this with new technology, but does every enterprise want it, he asked. “This tends to cannibalise revenue,” according to him.
In other words, if a customer paid a vendor Rs 100 for infrastructure management, Rs 50 went as salary to the vendor’s employees, with the rest making up his other costs and profit margins. With automation, the total cost to the customer could come down to, say, Rs 20 or lesser. The vendor may make up for this over time with rise in volumes and greater profit margins, but in the near-term, it eats up his own revenues. According to Roy, “IT companies are adopting automation, but treading the path of least disruption.” His argument is that for large, publicly traded companies ‘it goes against their drift to report any sharp drop in revenues.”
He observed that the trend is reminiscent of that seen around the year 2000. Global software majors were not quick to set up offshore bases such as in India. It would have meant cannibalising their own revenues – since sending work offshore would mean doing work for clients at a fraction of the price vendors then commanded. “If they had, then India-heritage companies would not have had much of a chance of becoming global giants they are now.”
Automate where neededBut that does not mean that companies are shunning automation to their complete detriment. Said Roy, “Automation is progressing rapidly on the BPO side, especially in areas of customer service. Self-service seems most preferred for the end-customer who wants a low-touch model.” On the contact centre front among BPOs, headcount will reduce, he said, implying that revenues will decrease as well. In IT support, companies are spotting opportunities to help reduce manpower dependence. Testing and infrastructure management services are two areas in which automation is pervasive. Nitin Rakesh, CEO, Syntel, said opportunities to automate are immense. “In production support, if you can spot signs leading to a server crash then you are into preventive maintenance with little or no human intervention.” In other words, you avoid complaint tickets, not just manage tickets.
Syntel is pursuing the path of what it calls ‘recursive’ automation. Rakesh explained, “We run through the parts, do one round of automation, realise benefits and then do another round of automation. We put that in a feedback of loop and optimise the process.” In other words, one goes beyond robotics which repeats mundane tasks, into self-learning.
What does this mean for skills required? According to Rakesh, “We still need coders with .Net and Java skills. But our big requirement is being able to apply an automation routine on top of a piece of .Net code makes the coder relevant in today’s world.” So what part of his company’s work is automated? “About 50 per cent of our total revenues comes from fixed price and managed services projects – that area is low hanging fruit for us and we are making significant progress there.”
Why now?But why is there such noise around automation now? While companies talk about the need to automate mundane tasks that need little or no human intervention, and are now able to identify processes that lend themselves to automation, didn’t these opportunities exist a decade ago?
“Things tend to happen when there is a convergence of multiple influential factors. Earlier, the IT industry did business on pure labour arbitrage. Then came process transformation, which is now reaching a plateau. The new source of business is gaining efficiency,” explained Forrester’s Roy. Add to this the sophistication of tools, their availability and the industry’s ability to scale those. Further, this opportunity stems from clients’ need to cut costs in an environment of economic gloom.
And in a handful of cases, where there is revenue drop due to automation of services, clients are impressed enough to come back with more projects. “With automation, we helped cut effort for a large client by more than 30 people, out of 100, in a project,” said Mindtree’s CEO Rostow Ravanan. Though revenue for that project dropped by a third, the client came back with more projects thus enlarging the revenue umbrella.
