12 Dec 2017 20:00 IST

Mr Carr, IT does matter after all

The proof is in India’s $150-billion export industry, unmatched anywhere else in world

Fourteen years ago, Nicholas Carr shot to fame with a provocative article titled IT Doesn't Matter in the Harvard Business Review. He was referring to Information Technology — of course — and made the point that company investments in IT are not strategic. Just as a company does not particularly care about which brand of fuel fills its automobile fleet, his thinking was that IT too was just another commodity, so why fret about it?

If Carr was only talking about a company’s investments in hardware, such as computers, networks, and data centers, he would be spot on. Today, most companies find that it is easier to buy and scale computing power on the cloud, on demand. You don’t ever have to worry about all of the headaches of setting up and operating a data centre, just as you don’t ever think about where the electricity powering your building comes from.

Critically wrong

But Carr got one thing wrong. He overlooked how much of a company’s business strategy is actually coded into its systems, so when a company outsources application development and maintenance to a commodity provider, the company actually loses crucial business knowledge.

Modern companies live and perish by intelligence contained in their IT systems. An Amazon, FedEx, or Boeing would be nothing without the complex code that runs each business. Carr’s error here was monumental in size and scope because intellectual property is anything but a commodity.

His seminal article gave cover to thousands of large western clients to begin outsourcing their core systems to third party providers like Infosys, TCS and Wipro, chasing cost savings and labour arbitrage. Financial services companies such as banks and insurers were some of the earliest adopters of Carr’s vision.

But there was a problem. As bank employees in the West got laid off, retired, or died, the expertise in the business slowly began to move to the IT outsourcer. Within the windowless expanse of small cubicles thousands of miles away from their client, the offshore teams knew exactly how each program worked, how it connected with other programs and databases, and how individual lines of code commanded different elements of the entire system.

To be sure, the offshore teams didn’t always initially understand the impact of a business rule on an end customer or a US government regulation. This too began to change. The reality in the complex agile IT world that we live in is that business systems documentation is often not kept up to date as code changes are rapidly iterated, tested and deployed. Engineers are notorious in their inability to explain in simple business language what their code is doing, offshore engineers even more so.

So clients often ask offshore developers to “reverse-engineer” their own code to understand exactly how business processes work. Over repeated requests, this made offshore teams slowly become masters at their clients’ business rules and models; the irony was that the client was paying them for this knowledge transfer.

There are, of course, firewalls in contracts which prevent the offshore service provider from peddling the client’s intellectual property to a competitor. But there are never rules to prevent offshore teams from building up their knowledge databases in a generic sense, or for individual team members to become more competent in the domain. Nothing also prevents individual team members from job-hopping to new service providers with their new “business” competence.

Actual heart of the matter

However, contrary to what NASSCOM optimistically and publicly claims — that its members are at the heart of providing innovative solutions to clients — its bread and butter continues to be dull and boring work: developing minor changes to complex systems developed decades ago with a tweak here and a tap there; or maintaining migrations of software to newer versions of operating systems which are no longer supported by the manufacturer, and the like.

This is because of the nature of legacy IT systems. They are complex, and in most cases, old. For example, many bank programs were developed in the 1960’s in languages such as COBOL and Assembler and they work fine to this day. So there is little need for the banking client to undertake wholesale re-writing of bank code for a simple upgrade.

Scaling knowledge

But in a zero-sum game where information is king, the scale of knowledge has, for nearly ten years now, been tipping towards the IT providers. The large western clients are slowly losing their home-grown intellectual competence. Indian IT providers now control the brains of the largest Fortune corporations and are indispensable to global commerce. It is little wonder that IBM India has more employees than anywhere else, or that Oracle has more Indian employees than everywhere else but the US. And this dominance is not limited to US companies. Samsung’s second largest R&D centre is in India.

So, Mr. Carr, IT does matter. It has helped cement India’s supremacy in a $150-billion export industry that is unmatched anywhere else in the world. It has made Indians thought leaders even in functional and business areas, more out of necessity than out of drive-hard ambition.

What remains to be seen is whether India can use its newly-developed business expertise in various sectors and create products that the world is willing to buy. This alone can help stem the industry’s predicted downturn in the coming years, as automation and AI start rendering mundane IT sector jobs obsolete.

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