Non Linear Revenue Model @ Indian IT Industry – Banking on Automation & Artificial Intelligence reshaping Organizational structure

Non Linear revenues refer to growing revenues faster than growth in number of employees which leads to increase in both revenue per employee and profitability. Indian IT services companies such as TCS, Wipro Ltd and Infosys Ltd with a target to increase nonlinear revenues had started building expertise & skills in the areas of automation and artificial intelligence. With a target of increasing 20% revenue per employee in its IT Infrastructure division Tata Consultancy Services (TCS) has introduced artificial intelligence (AI) platform, Ignio. Wipro was the first Indian IT services firm to launch an AI platform HOLMES, or “heuristics and ontology-based learning machines and experiential systems”.  Along with improving productivity and margins, this nonlinear strategy of Indian IT firms is aimed at creating differentiated offerings that will help them to acquire high margin outsourcing contracts that were previously dominated by global players like IBM, Accenture.

TCS had launched Ignio as “paid pilot” projects for 18 clients, whereas Wipro has about 70 projects running on HOLMES, and Wipro expects to offer it to up to one-third of its 1,000+ clients in the next 24 months. Infosys has about 32 projects in this category and its CEO is pushing for more. There has been a dramatic fall in the hiring levels of the Indian IT companies in the past few years due to the automation and artificial intelligent platforms. Major Indian IT players are investing heavily in automation tools, platforms, and intellectual property (IP)-based growth as the market is expected to grow further in near future.

NASSCOM hiring data highlights Indian IT Industry have hired 14,350 engineers for each billion dollars in revenues for the year ended March 2015, up from 13,505 recruitments for every $1 billion in the previous year ended March 2014, 21,185 engineers per billion dollars in the year ended March 2013, and 18,893 engineers per billion dollars in the year ended March 2012. There has been a constant fall in the overall net hiring of IT professionals by Indian IT Industry as a percentage of the total talent supply that includes engineers and postgraduates in computer science in the past five years. For example, while the engineering graduate output of Indian universities stood at 1.5 million a year in FY15, up from 0.3 million in FY05, net hiring in the sector remained stagnant at around 0.25 million over the past five years. This has resulted in a huge demand-supply mismatch.

Automation & AI strategy is also reshaping the pyramid-shaped organisational structure in of Indian IT sector as the lower level is moving up towards the mid-levels there by increasing pressure on the middle management to re-skill themselves for the skills required lower down in the hierarchy or lose the job. The organisational structure in the sector is expected to look like a diamond than a pyramid over the next three to five years. Non-linear and automation will increase in near future but that does not necessarily mean that there will be no more opportunities for people as most of the Indian IT players rely on linear growth model where more employees are needed for increasing the revenue growth. It’s a mixture of both linear and nonlinear growth for the Indian IT industry for the next five years. With a slowdown in the IT budgets of the clients, Indian IT players cannot ignore nonlinear revenue models.

Blue Ocean Strategy – Thomas Cook India – Focussing on School Student Education Tours

Thomas Cook India the oldest travel & tourism company, founded in the year 1881 was initially into foreign exchange business. In the past couple of years the company did some major acquisitions like Sterling Holidays ( time-share and holiday resorts company) in February 2014 and recently in August 2015 acquired  Kuoni's India and Hong Kong businesses including SOTC and SITA in India.  Both the acquisitions highlight the strategy adopted by Thomas Cook India which is digital business focus and targeting the emerging travel segments in India School Student Tours, Woman travellers, retired travellers and middle class travellers. Particularly Kuoni has a strong brand recall for its brands SOTC and SITA, SOTC is a very popular brand for group tours and the company will integrate Kuoni as an independent brand in the company.

Thomas Cook’s Blue Ocean Strategy is to target the school children who go on tours both domestically and foreign as part of the school learning process. A flood of international schools across India offering global curriculum and foreign languages & culture as part of the syllabus has created a unique market which is untapped and Thomas cook is the first company targeting this huge potential market. Students and parents are willing to spend for preparing their children for global education and career opportunities and this student travel market is expected to grow by 200-300% in the next few years. Thomas Cook (India) has with an aim to target the student market set up and exclusive vertical within the company 'Travel Quest Study Tours' and outreach to the students further strengthened by a travel quiz- Thomas Cook Travel Quest – India’s first national travel quiz for school students. The company is spending Rs 2-2.5 crore on media alone and around Rs 5 crore on organising the quiz programme according to Economic Times Article. The quiz program conducted in partnership with Grey Caps India (Onstage Quizzing & Knowledge Services Company) over period of four months covering 5 lakh students in classes 6 to 9, in 1100 schools and 16 cities in India. (Source: Thomas Cook Press Release)

Mr. Madhavan Menon, Managing Director, Thomas Cook (India) Ltd. said, “Today, experiential learning is clearly a vital ingredient for India’s young minds and travel is indeed the best teacher! Our national travel quiz - Travel Quest, was created post in-depth research as an engaging platform to reach out to students and educators- to look beyond the classroom and conventional methods of learning.” He added “Our strategic business intent is clear: to address the business opportunity posed by the growing student market in the absence of organised players in the market. Our aim is to bring progressive academic curriculum to life with hands on approach to learning, allowing students to engage in a healthy mix of fun and relevant education.” Mr. Menon concluded saying, “The latent demand is evident and the early response has been encouraging: our Team has as part its quiz school outreach, confirmed over 5 school student tours to destinations as diverse as Ranthambore, Singapore and Netherlands- in just over a month since we began our school outreach” (Source: Thomas cook press release). Clearly the student tour market is uncontested blue ocean market where in Thomas Cook is creating a first mover advantage and is creating good revenue potential for future growth.