Strategic responses of Indian IT industry to recession

Abstract

The Indian IT industry, once considered the most promising sector among the sectors contributing to India s growth story, is facing considerable headwinds today. The cause of the slowdown can be attributed mainly to the dismal global economic scenario. Enterprises have considerably shrunk their IT budgets and are unwilling to spend on hardware or services. In this scenario, how do Indian IT organizations make changes to their strategy to survive and grow? Specifically, what strategic decisions did large and midsize IT companies make in the last few years since this recessionary atmosphere set in? The objective of this project is to study the strategies adopted by large and medium IT firms during this period of recession. Towards this objective, we studied 10 IT organizations 5medium and 5 large. We have taken a two pronged approach to achieve this. In the first part of the analysis, we have used input parameters for the corporations like employee cost; expenses etc. to analyze the predominant strategies and ideas in play during this period. In the second part, we have attempted to assess the performance of these 10 organizations using output parameters like revenue, profit etc. that typically impact the top and bottom line. Our study reveals a distinct difference in the deliberate strategy between large and medium firms. Large firms on encountering a saturated market combined with their inability to pursue deals too small for their size, have adopted managing and containing costs as their predominant strategy. Large firms also hire and retain employees at levels that are more than reasonable during growth phases. This bench strength becomes a liability during economic downturns. The strategies adopted during recession are mostly geared towards correcting this excess. Medium firms on the other hand have the ability to pursue deals irrespective of different sizes and are also comparatively leaner organizations. Hence they have adopted strategies to improve their top line. In a stagnant market, such top line growth comes at the cost of competitors and ultimately becomes a market share game. Ultimately, this results in the entire sector losing its attractiveness that it once held for potential employees and investors. In spite of firms adopting specific strategies, we are concerned that many of these decisions might be tactical moves that might not build new capabilities for growth in the long run. There always seems to be a reactionary approach which creates a lag between the markets moves and the companies response.