Indian firms need to scale digital transformation: BCG

Do you see companies making good progress with their digital transformation roadmaps? What are they doing right, and what can they do better?

Rastogi: For the last 3-5 years, digital transformations have been on the agenda of companies. Covid-19 was a super-accelerator. Obviously, it was a traumatic period but there was a silver lining in the sense that covid accelerated digital transformation. Look at digital payments, digital health, digital education, and at governments—they really are using digital, which is a huge leap forward. As a result, companies have had no choice but to respond faster, especially when consumer behaviour changes so dramatically.

Asia is, to my mind, well suited to it (digital transformation). We don’t have legacy. We are mobile first, both in India and also in many parts of Asia. So, we can actually leapfrog. That is great, because it can be also an innovator that companies can take back (products and services) to other markets, rather than being the other way around. But while digital transformation has become a huge priority, we don’t see digital at scale across industries—they (compnies) are doing pilots, which is easy.

Gupta: In India, everyone knows that digital transformation is to be done and most companies are in generation two of their transformation journeys. However, there is a clear digital divide (between digital leaders and laggards). Obviously, tech companies in India are implementing at a far more accelerated pace than, say, many manufacturing companies, other than some really large manufacturing firms. But even as everybody gets digital transformation, they are less successful in getting on with it on a large scale. There’s a nice quote by one of the large tech CEOs who said that the ‘pilot (testing of a project) is going to be the bane of this industry’. 

What should companies do to go beyond pilots, and scale?

Rastogi: A study we did recently revealed that only 30% of digital transformation projects succeed. We looked at the main factors driving it. Number one, you really need to figure out the business case—what is the problem you are trying to solve, and what value will you get from it? Second is, how do you do this in an accelerated way, at scale? Third involves forming the right team talent unit. And last is senior management commitment— it really needs to be something which is at the core of the business, not a side activity or a hobby. I find Indian traditional companies struggling beyond numbers to take a leap of faith. 

Are you seeing companies reduce their IT spends given the fear of a looming recession? Will it impact ongoing and new digital transformation initiatives?

Rastogi: We did an IT buyer survey two months ago, and there were two areas that the respondents put down as priorities. The first is that they will continue to scale infrastructure and security spending. The second is that anything to do with digital transformation will remain a top priority—think about automation and so on. You will also notice that IT services companies have not lowered their forecasts, and neither has Nasscom lowered its industry forecast. However, we are seeing spends moving from capex (capital expenditure) to opex (operating expenditure). For instance, let’s say that if one were to spend about $200 million on a project, the capex part is the implementation while the opex part is to run services and outsourcing. Also, we are seeing almost 15-20% of software services being sold as a service. It will reach an inflection point, and then shoot through the roof.

But do you see Indian IT services moving up the value chain, given that a substantial portion of their revenue still comes from application, development and maintenance (ADM)?

Gupta: Indian IT services companies have retained their market share and not lost space. Now, what is really digital versus what is legacy ADM is actually very difficult to decipher unless you’re an internal auditor. But if India controls 55% of the global IT spend, and has a labour workforce that’s larger than that, proportionately, then India should not be following global trends—it should be leading from the front. It should be dictating what are the future technologies and should be proactively creating those centres of excellence—whether they be for mobility, cloud, AI, blockchain or for that matter, the metaverse or web3. Indian IT firms, however, are still very, very reactive. This is the time to seize advantage and move up the value chain. Also, we significantly lack a product mindset. 

How do you feel being a woman tech leader in a field dominated by men?

Rastogi: I’ve been at BCG for 25 years, this is my 26th. I started in Mumbai, and I was the only woman consultant on our team. Thankfully, this has changed now. We are fortunate to be in a different era now. I think it requires both sides to play a role (in promoting the cause of women in tech)—the C-Suite at companies and women too. Hybrid working has allowed a lot of people including women to continue working for companies. I would love to see more women in leadership roles in technology.