mckinsey perspective 2020 presentation
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Mckinsey Perspective 2020 PresentationTRANSCRIPT
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Perspective 2020: Perspective 2020: Transform Business, Transform Business, Transform IndiaTransform India
February 11, 2009
2
PERSPECTIVE 2020: KEY MESSAGES
Transforming business, transforming India
An agenda for action
Shifting customer needs and delivery
The decade in review
3
PERSPECTIVE 2020: KEY MESSAGES
The decade in review
Transforming business, transforming India
An agenda for action
Shifting customer needs and delivery
An unparalleled impact on
Indian economy in the last ten
years
Significant returns to all
stakeholders
A large unfinished agenda
remains
Global economic crisis will
have a far-reaching and as yet
uncertain impact
4
THE TECHNOLOGY AND BUSINESS SERVICES INDUSTRY HAS HAD AN UNPARALLELED IMPACT ON THE INDIAN ECONOMY
*Total export revenues as a percentage of nominal GDP**Based on FY08 performance***Technology and business service exports as a percentage of total exports (merchandise exports and service exports)Source:RBI Annual reports 1998 to 2008; WMM (Global Insight)
Growth of Indian technology and business services exports
Actual
US$ billion
Share of GDP*
Per cent
Share of exports***
Per cent
<1
4
4
16**
2005
18
2002
8
1998
2
Dec 2008
50
Aspiration
47
Mar 2009
5
*Total urban jobs in FY 1994 amounted to 81.8 million and 90.5 million in FY 2005**High multiplier effect; for every direct job created 2.6 additional jobs created in indirect employmentSource:Institute of Applied Manpower Research; “The Rising Tide – Employment and Output Linkages of IT-ITES; February 2007”; “Indian IT/ITES Industry: Impacting Economy and Society 2007-08”
Incremental jobs created
THE INDUSTRY HAS HAD A RESONATING IMPACT IN THE BROADER SOCIETY
Other areas of impact
• Contribution to education: 6-7x fold increase in tertiary education capacity in states that account for 90% of exports
• Diversity and global exposure: proportion of women in the workforce estimated to be 30%
in 2008 and increasing; around 30% of delivery outside India
Million; FY 1994-2005
Total organizedurban jobs
8.7
33%
12%
45%
Share of total Share of total urban jobs*urban jobs*
Technology/
business services
Indirect
Direct
4.0
1.1
2.9**
• Offset oil imports: Industry exports offset close to 65 per cent of India’s cumulative net oil imports over past decade, strengthening foreign reserves
6
THE GLOBAL ECONOMIC CRISIS WILL HAVE A FAR-REACHING AND AS YET UNCERTAIN IMPACT ON THE INDUSTRY
Source:BEA; McKinsey analysis
US EXAMPLE
IT spend as per cent of GDP
Trend at 2.9% YoY
increase in IT intensity
IT intensity peaked in 2000
Current IT intensity is much less than at peak levels
0 1970 1980 1990 2000 2007
0.6
1.2
1.8
2.4
3.0
3.6
4.2
Historic data indicates a moderate impact But…
• Customer feedback is polarised
• Severity of the downturn is far greater
• Political and regulatory pressures are escalating
7
PERSPECTIVE 2020: KEY MESSAGES
The decade in review
Transforming business, transforming India
An agenda for action
Shifting customer needs and delivery
Demographic shifts will fuel the
growth of new sectors, markets and
service linesThe promise of technology to create
new opportunities needs to be
balanced by the risk of erosion in core
marketsIndia can become a global innovation
hub and own business systems in at
least three areas
ICT-enabled solutions can drive socio-
economic inclusion of 30 million
citizens each year
8
ASIA (INCLUDING JAPAN) WILL BYPASS EUROPE IN THE GLOBAL ECONOMY BY 2020
*Estimates **Brazil, Russia, India, China Source: McKinsey Global Forces research
Regional share of global GDPPer cent
Middle East & Africa
Latin America
Asia (except Japan)
Europe
North America
Japan
0
20
40
60
80
100
1990 ‘95 ‘00 ‘05 ‘10 ‘15 ‘20 2025
7%
5%
20%
25%
33%
10%
20201990
5%
5%
8%
31%
33%
18%
Share of global GDP*
9Source: UN population prospects, 2004; McKinsey Global Forces research
WORK FORCES WILL DECLINE AND AGEING POPULATIONS INCREASE IN SELECT DEVELOPED COUNTRIES
Decrease in working age (15-60 years) population: Japan
Millions of people
7583
20202008
8
Increase in retiree (60+ years) population: United States
Millions of people
54
38
20202008
16
Current offshore base in India –
1.6 million
10
TODAY’S CORE SERVICE LINES ARE AT RISK OF SHRINKAGE
*Includes specialised voiceSource:NASSCOM data; McKinsey analysis; expert interviews
Highest risk of erosion
Business services
Tech-nology services
• Automation of basic services (e.g., testing, level 1 AM)
• Productivity gains
• Increasing standardisation
• Interactive voice recognition techniques
• New technologies such as optical character reading to automate data entry
Service line
23
4
3
1
2
5
11
3
Industry revenue
US$ billion, 2008
14
1
1
Total
AM
Traditional IT
AD
SI
IT Consulting
High-end offshoring*
Basic data
Basic voice
Total
Rule based decision making
11
THE INDUSTRY CAN TRANSFORM INDIA BY HARNESSING TECHNOLOGY TO ENABLE INCLUSIVE GROWTH
50% of Indians do not have access to primary healthcare – technology can provide it at half the cost
80% of Indian households are unbanked – technology can enable access for 200 million families
India faces a 3-fold shortage in teachers – technology can address this through remote solutions
Healthcare
Financial services
Education
Public services
India suffers from a leakage of 40-50% in public food distribution - technology can ensure transparency
Potential of ICT solutionsAreas
Source:Expert interviews; McKinsey analysis
12
PERSPECTIVE 2020: KEY MESSAGES
The decade in review
Transforming business, transforming India
An agenda for action
Shifting customer needs and delivery
The industry landscape will be
fundamentally altered
There are several new business
models for providers to consider
A majority of incremental growth will
be driven by opportunities that are
untapped today
13
2020 WILL PRESENT A DRAMATICALLY ALTERED LANDSCAPE (1/2)
Past decade
• Concentrated footprint
–75% with Fortune 500
–80% from US/UK
–75% from BFSI, Telco, Manufacturing
–60% from IT services
• Predominantly private sector
• Managing for cost, productivity and quality
• Labour arbitrage dominant value driver
• Onshore/offshore mindset
2020
• Significant opportunity outside today’s core markets
–SMB
–BRIC, GCC, Japan, ROW
–Public sector and Healthcare
• Public sector, Government owned or influenced companies
• Innovation, end-to-end transformation, risk & compliance
• Access to talent and expertise
• Global delivery
2 Customers
1 Market
Demand
14
2020 WILL PRESENT A DRAMATICALLY ALTERED LANDSCAPE (2/2)
Past decade 2020
3 Talent
Supply
• India accounting for more than 50% of the low cost workforce
• Delivery centric management
• Recruiting and training as key differentiators
• Trainable talent pool
• Global people supply chain with globalised recruiting and talent practices
• Multiple management tracks, globalised expertise
• Emphasis on learning, knowledge management, research spending
• Deployable talent pools
15
THERE ARE MULTIPLE “STEP-OUT” BUSINESS MODELS FOR PROVIDERS TO CONSIDER
*Independent verification and validationSource:McKinsey analysis
NOT EXHAUSTIVE
Ho
w t
o c
om
pe
te (
co
mp
eti
tiv
e a
dv
an
tag
e)
Multi-client services/ products
Domain expertise
Customer intimacy
Delivery excellence
New geographies (BRIC)
SMBs Large enterprises
SMBs
Developed markets
Where to compete (customer segments)
Large enterprises (Fortune 1000)
3 Domain approach
2 Customer-centric approach
1 Delivery approach
4 Solution approach
Low-cost
Players today
“Step-out” plays
Full-service provider
Vertical specialist
Saas enabled
BRIC specialist
Low cost product
16
PERSPECTIVE 2020: KEY MESSAGES
The decade in review
Transforming business, transforming India
An agenda for action
Shifting customer needs and delivery
Success will rely on concerted action by industry stakeholders (companies, NASSCOM, government) anchored on a five-fold vision
• Catalysing growth beyond today’s core markets
• Establishing India as a trusted global hub for professional services
• Harnessing ICT for inclusive growth
• Developing a high caliber talent pool of over 4 million people
• Building India as a preeminent innovation hub
17Source:McKinsey analysis
COMPANIES CAN EMERGE AS WINNERS THROUGH 4 ACTIONS
Deepen end to end capabilities in select areas
Target recession resilient sectors
(Healthcare, BRIC, climate change)
Invest in transformative big bets
Create a portfolio of “downturn” services
Segment customer base for resiliency
Target transformative acquisitions
Ring fence talent and knowledge investments
Consider strategic alliances for scale
Develop isolutions for domestic end-customers
Fundamentally transform existing cost structure – 20 to 30% lower
Balance delivery foot-print to hedge against concentration and forex risk
Make strategic invest-ments
Adapt offering/sales
approach
Rebalance customer/ services portfolio
Streng-then
operations/
delivery
18
Catalysing growth beyond
today’s core markets
1
Establishing India as a trusted
global hub for professional
services
2
Harnessing ICT for inclusive
growth
3
Developing a high caliber
talent pool of over 4 million
people
4
Building India as a
preeminent innovation
hub 5
Five themes
AN AGENDA FOR ACTION ANCHORED ON A 5-FOLD VISION
• Winning through the downturn
• Reinvented business models
• New verticals, geographies and customer segments
• Improved infrastructure (e.g., satellite townships)
• Corporate governance
• National security
• Robust domestic demand
• Global branding• ICT solutions for healthcare, education,
financial services, public services
• Connectivity and access (e.g., broad-band rollout)
• Soft infrastructure (e.g., IT literacy)
• Primary and tertiary education quality and scale up
• Curriculum and faculty development
• Intellectual property framework (especially enforcement)
• Centers of Excellence
• Entrepreneurship
19
PERSPECTIVE 2020 PAINTS THE WAY TO “TRANSFORM BUSINESS, TRANSFORM INDIA”
What has lead to the success of the industry thus far?
What will be the altered landscape of 2020, including growth engines and industry revenue potential?
How can the Indian industry lead the way in innovation-led transformation of global business and technology-led inclusive growth of the nation?
What are internal and external threats to India’s leadership and how can it sustain and improve its competitiveness in 2020?
What is the industry vision for 2020, and resulting imperatives and actions for industry stakeholders (companies, NASSCOM, the government)?
Report release in March
20
BACKUPS
21
THERE IS AN INCREASING NEED TO ADDRESS CLIMATE CHANGE AND ICT IS EMERGING AS A KEY ENABLER
ESTIMATES
Select ICT-enabled abatements
ICT can play a role in abatement of a potentially dramatic rise in global greenhouse emissions by 2020
Greenhouse gas emissionsGtCO2e
22
52
1240 22
8
30
Potential
abatementEmissions
in 2020EIncremental
emissionsEmissions
in 2002Emissions in
2020 withabatement
ICT enables at least 35% of global abatement potential
Social and environmental trends
Source: McKinsey analysis
BACKUP
22
Efficientbuildings
Industrial processes efficiency
Efficient transport
Efficient power
generation
ICT efficiency
OPPORTUNITIES EXIST ACROSS A BROAD SET OF APPLICATIONS AND ARE NOT LIMITED TO THOSE TRADITIONALLY ASSIGNED TO ICT
*Excluding telecommutingSource:McKinsey analysis
Abatement potential, GtCO2e
0.68Industrial motor optimisation
0.29Industrial processautomation
2.03 Smart grid
0.40Combined heat and power (CHP)
1.52Efficient logistics and supply chain
0.50Private transport optimisation
0.25 Dematerialization*
0.16 Efficient vehicles
0.10Traffic flow monitoring, planning simulation
1.68Smart buildings
0.26Tele-commuting
NOT EXHAUSTIVE
Energy efficiency/climate change
BACKUP