Information Technology

February 23, 2007
NASSCOM expects software exports to grow beyond US $ 60 billion to US $75 billion

NEW DELHI -- Encouraged by the “phenomenal” 32 percent growth in software and services exports this year, NASSCOM chairman Ramalinga Raju has spoken of the target for this by 2010 breaching the US $60 billion to rise to US $75 billion. The 2006-07 exports are expected to be US $30 billion.

The NASSCOM chairman said the domestic software use would rise to US $48 billion in this FY. Even at US $60 billion in exports, “We are only targeting ten percent of the addressable global export market of US $300 billion,” he added.

NASSCOM – McKinsey study on operational excellence has opened a new frontier in which the national software and services exports could continue to promote Indian leadership in this sector. NASSCOM president Kiran Karnik termed the findings of the study “very interesting”. The study has found that clients of Indian companies were greatly satisfied. India had 50 percent of the preset outsourcing market in software and services and thus it was “clearly the leader”. But the leadership needed to be maintained at this level through constant improvements. Karnik listed talent, infrastructure and operational excellence as the three major nodes in growth. The focus now should be on this operational excellence.

The data gathered from over 30 leading captives and third-party providers reveals three broad trends:

• Clients are highly satisfied with their offshore experiences – over 80 percent of customers are satisfied with the performance of their offshore units.
• Performance has been the result of capable people, not institutionalised practices.
• Rapidly evolving client focus will place increasing pressure on offshore units.

Specific highlights of the study include:

Process 360° for BPOs

• Data operations are generally performing better than voice operations due primarily to higher retention rates resulting from effective training and employee engagement practices;
• Third-party providers usually outperform captives in practices and metrics; but best-in-class captives show this gap can be bridged. The difference is a result of higher wage costs, lower span of control, and poor infrastructure procurement and utilisation;
• Operating practices, rather than location, determine performance on key metrics such as cost and quality. For instance, a Mumbai-based provider has been able to deliver superior cost and quality performance compared to BPOs in cities like Chennai. Low attrition rates, an optimal skill and tenure mix among employees, and higher infrastructure utilisation have been the drivers of this outcome;
• There is a lack of consistent performance within and across companies. For example, a Bangalore-based centre engaged in rules-based decision-making and basic data processes delivers above-average performance on most metrics for the former service but lags behind in the latter. Low performance levels result from inappropriate recruiting practices, i.e., mismatch between skills and job profiles;
• While clients focus initially on cost and quality, their priorities shift rapidly to higher order benefits like innovation and productivity once offshore services are well established.  

Project 360° for IT services companies

• Productivity improvements are evident across projects in which practices have been institutionalised, particularly application maintenance;
• Despite excellent customer satisfaction scores and robust outcomes, significant variance exists across and within service providers on critical metrics like proportion of projects with cost over-runs and people fulfillment rate;
• Customers are increasingly looking for upstream services like requirements gathering and solution design. However, at present, these practices are not robust enough to meet their demands;
• An industrial mindset that encourages institutionalisation of practices separates average from leading performers. The latter are able to absorb 15-18 percent annualised wage increases without impacting margins;
• The industry needs to focus on improving performance and consistency across six practice areas. These include requirements gathering, solution design, and training amongst others.