Why Vishal Sikka's Concern On IT Costs Is Relevant
Gartner predicts that global spending on SaaS (software as a service) will rise 17.9 percent in 2014 to $14.5 billion and SaaS market growth will remain strong through 2015, when spending on the software is expected to hit $22.1 billion.
What is boosting IT spending is the rising expectations about the capabilities of IT companies to offer futuristic solutions. Customers want to radically improve their processes and implement best practices. They want tangible business benefits not just lower staff costs. And, IT industry is making constant efforts to provide effective services but at the same time it is under pressure to lower costs.
Infosys CEO Vishal Sikka finds the Indian IT industry’s focus on lowering costs ’somewhat depressing’. In a video keynote at CeBIT India debut, he said the industry is in a downward spiral. “It’s like a treadmill of increasingly lower cost, hiring people faster from mediocre places, training people less and putting them into jobs faster. I think that is a wrong direction.”
Sikka’s concerns are very relevant.
A study published by the Society for Human Resource Management found that a poor hiring decision, which ended in termination, actually costs the company concerned around 38 per cent of an employee’s salary.
“We believe that, from a pricing perspective, the IT services industry is where the airline industry was in 2000. It is ready to be transformed — and disrupted — by an ILCS model,” said Frank Ridder, research vice president at Gartner.
While reducing costs remains the major concern, IT companies need to ensure their services are value driven. Gartner has some advice for the companies on reducing costs.
“There are multiple ways to reduce the cost of IT delivery, as well as to increase the value of IT, the trend towards ILCS will become paramount for end users to trade nonessential customisation for better and less expensive services,” said Claudio Da Rold, vice president and distinguished analyst at Gartner.
CIOs play a vital role in managing IT implementation and it is essential for them to reduce the cost of “running the business”, while controlling the risk, integration and customisation issues, to increase the business value of IT and enhance its perception by the business.
Gartner predicts that despite being an embryonic market, by 2015 industrialised services will represent more than 30 percent of the IT services market and cloud services are expected to become a $177 billion market by 2015, of which $77 billion is based on advertising business models.
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