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.