The pandemic is creating several opportunities for stronger players that can adapt rapidly to capture the market.

Circa 1999, 23:59:59 on 31/12/1999 – the Indian IT was on standby, watching the clock tick. That was the Y2K and we transition into the new millennia with no major failure. The Indian tech industry had announced its arrival on the world stage.   

In March 2020, as lockdowns started across countries, the same industry went into a near standstill again. This time, not watching over the systems for clients, but struggling with business continuity as all BCP/DR protocols went for a toss. The industry with its famed campuses was suddenly hit by a hammer and came to a halt as Governments announced restrictive lockdowns. 

In response, starting from mid-March to early April, India witnessed the biggest movement of man and machine. Almost a war, leaders at the front, working 24X7 to enable 4Mn workers in India and many more in other countries to start working from home. They had to deal with the shortage of devices, issues with IT (architecture, connectivity, security), restrictive regulations, logistics in lockdown and a somewhat whimsical interpretation of regulation by the administration. Importantly they had to deal with clients who took some convincing that WFH could actually work, security concerns notwithstanding. By April end, the industry had settled into the new normal, with most clients. 

During this transition, the big worry was to sustain business and topline. Early estimates for the quarter (Apr-Jun) by the business were indeed pessimistic. While companies were putting on a brave front, the scenarios being modelled reflected big drops in business as clients pulled back or slowed down as they went into lockdown across the world.  

The unknowns of the new normal – selling, transitioning, hiring, onboarding virtually were all big concerns. 

However, the mood started improving quickly. The series of quarterly results over the last 4 weeks shows a far more positive story. While no one was expecting growth, the degrowth has been contained quite materially and positive surprises on margin through aggressive and immediate cost actions.   

All leading IT services companies (the famed TWITCH) Accenture, Capgemini companies are above pre-COVID market cap. While the business is not out of the woods yet, it is quite a response and several of them, forecasting some growth for CY20/FY21.  

Reflecting on Global Financial Crisis, the last big crisis this industry faced, one notes that the industry was resilient even then. While on aggregate the market took 2-3 years to recover to the pre-crisis levels, many India heritage players maintained growth even though below pre-crisis levels.  

While this one has been a crisis like no other, contraction across quarters is likely, it does not seem that bad. It is worth reflecting on what helps this industry to stay resilient and two broad themes come up 

The pandemic is creating several opportunities for stronger players that can adapt rapidly to capture the market. This industry is countercyclical in nature. Cost pressures will drive outsourcing and offshoring. To add to it, digital is becoming big, accelerated by the pandemic, seen both as an efficiency lever and a way to future-proof, build resilience in the operating model 

Service businesses have inherent nimbleness. Adjustment is possible without having to put significant capital. But, the entrepreneurship (‘hustle’ resonates more) is as important. This has been the characteristic (strength?) of the Indian industry. I personally don’t like the word ‘jugaad’ which is also used at times. Strategy, structure and methods matter, but this industry has time and again demonstrated action bias and high responsiveness. Often times, this has led to the prioritization of rapid action over strategy and structural moves. One could argue that this is a bit short-sighted, but this has been an important muscle for this industry. In a volatile time like this, this is often helpful in the short term and creates space to think about the longer horizon.  

I am not taking away the role of strategic thinking to make big pivots, but in times like these, agility and responsiveness is key. The stories from my interactions with the senior leaders just brought this home. Right from focusing on new opportunities to challenging the sales paradigm - managing to hunt new relationships by leveraging the high-frequency interactions with clients over VC (everyone is available!) everything is being attempted. The industry also moved quickly to adapt the processes for this virtual world (hiring, onboarding talent to transitioning work, to ensuring the engagement and maintaining productivity) while also taking reasonable measures to maintain cost without significantly impacting headcount. Not everything is possible in the virtual world – large deals will be slower, acquisitions, even though underway, will be challenging.  

Every crisis creates winners and losers and this would be no different. My take is Indian IT-BPM will have a higher share of winners. As an observer/participant in this industry for almost two decades, it has been an interesting study of what helps companies survive, thrive. The jury on this crisis is still out, but conversations with many of the senior leaders, it is clear that next quarter is likely to be better than the previous one and last quarter of the fiscal (either CY20 or FY21) is likely to be at or above pre-COVID levels. This is quite a performance in the wake of significant contraction across sectors and economies that is expected.