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February 12, 2016 : The mood at the 22nd edition of Nasscom’s annual forum was sober. Unlike last year, drones were not flying inside the Grand Hyatt hotel. Neither were there too many announcements from companies participating in the event.

Conversations, mostly centred on how technological advancements such as automation can potentially change the economics of the $143-billion industry.

“These forces are hitting the industry hard and the majority did not anticipate this,” says Neeraj Aggarwal, Managing Director, BCG India.

Nasscom, however, understands this and has partly baked in this sentiment in its guidance of 10-12 per cent growth in fiscal year 2017, which is lower than the 12.3 per cent in fiscal year 2016. Macro-economic factors such as the fall in oil prices and the China slowdown are becoming party poopers. Recently, Cognizant issued an uninspiring annual revenue guidance, TCS has been struggling for the past 6 quarters and Infosys is yet to turn the corner.

Old paradigm

A large part of the problem has to do with the way the industry was built. Outsourcing started with companies trying to solve the Y2K problem in the 1990s. This needed more bodies to maintain and develop software that ran banks, airlines etc.

“Technological advancements have reached a stage where some basic repetitive tasks can be automated and it does not matter whether it is answering calls or writing code,” opines Akhilesh Tuteja, Partner and National Head, Technology and BPM sector, KPMG.

Companies are beginning to understand this shift but are caught in a sticky situation. According to Nitin Rakesh, CEO of Syntel, the back-end systems of companies are in the old world and their front-end systems are in the iPhone age. However, more than 60 per cent of their revenue comes from the old business and a very miniscule bit from the new business.

“More systems will gravitate towards the new age but business from old systems will get highly commoditised,” opines Sumit Ganguli, CEO of GAVS Technologies.

To adjust to this change, some companies have started making adjustments to their business models. All the major outsourcing companies are looking to partner with start-ups, build capabilities in new technology areas, make acquisitions and get their workforce to start thinking about problems instead of just solving them. “Clients these days do not understand what their problems are so it is up to us help them navigate at a time of high volatility,” says Puneet Gupta, CTO of Brillio, a tech consulting company.

In the new normal of constant volatility, the software industry has to take the next step quicker than before, opine industry watchers.