Smart machines could disrupt India's IT services sector: Gartner

The rise of machines is real and it could disrupt Indian IT sooner than you think. Technology advisory firm Gartner, for instance, believes that by 2018, more than three million workers worldwide will be supervised by robots. By the same year, much of today's outsourced services will start leveraging smart machine technology that might make the business case for offshoring weaker.

Business Today spoke to Claudio Da Rold, an analyst at Gartner, on the sidelines of Nasscom India Leadership Forum in Mumbai. The message is stark:

1. Smart machines can replace labour in many business processes. Hiring processes, for instance, are getting automated. Tests and evaluation can be executed by machines - evaluations could be an analysis of data and algorithms can do the job.  Similarly, automation will make labour irrelevant in BPO, finance administration, application maintenance and infrastructure services. In some cases, according to Rold,  automation can lead to 30-50 per cent savings versus labour cost. That is a huge draw in an uncertain economic climate.

2. The rise of machines also implies the rise of the Internet of Things (IoT) - a world where machines are connected to each other. Rold says that after 2020, about a million IoT devices will be installed every hour. Some services, such as system integration and analytics, will be in demand. The machines have to be integrated and the data analysed for business insights. But for Indian IT, the value will shift from running IT in an enterprise to transforming it. The larger IT exporters have realised that.  

3. About 3,000 chief information officers surveyed by Gartner, who command an aggregated IT budget of $250-300 billion, are implementing 'bi-modal IT'. That is combining traditional IT - where labour arbitrage plays a part - with a start-up approach. Traditional IT is slow, but solid. Nevertheless, enterprises today are exploring new business models where smaller teams with a 'fail fast' approach work better. Expect enterprises to acquire start-ups and form joint ventures. To respond, Indian IT must also go bi-modal, or perish.  

4. Pricing decline for Indian IT is inevitable. In sectors such as Oil and Gas, there will be huge rate cuts. Rold predicts a yearly rate decline of 10-12 per cent in infrastructure services, going ahead. Application maintenance and BPO too. This will not support the economics of IT services companies - their labour costs are shooting up every year even as customers are cutting prices. This, in turn, may force them to automate more and hire less.

The key takeaway: Indian service providers have built huge businesses based on linear processes, where more people equalled more revenues. It was a strength that may soon become an inhibitor. Indian IT, over the past two decades, had disrupted onshore delivery of tech services. Now, the disruptor can get disrupted if it remains complacent.