Deep Facts Between Service And Product Based Companies (In India)

IT industry impacts each and every other industry in some or the other way . This industry has also creates a larger job prospects also. Broadly two types of company comes under IT.

Indian IT exports stood at a staggering USD 99 Billion.

India's IT workforce accounts for 4.36 million employees.

This comes out to be around 12000 USD per employee. This is paltry.

The problem with Indian IT is that it is Selling Time.

What does it mean by selling time?

In a typical IT company, the employees work for a client. The client has outsourced its IT needs to the company so that the client can concentrate on its business. Banks, for example, wants its own employees to dedicate their time to serve its own customers rather than spending time on creating the website. IT companies then bill the client based on the number of hours their employee spent working for the client. During this time the IT guys will create applications, support applications, test applications, and whatnot. But essentially they are paid for the time that they spent creating, supporting, and testing the applications.

Compare this to what IT companies are doing per employee.

How do you expect them to pay the employees more? The employees in IT companies cannot earn more than a fixed amount.

Why do IT companies hire so big? To show the shareholders an increase in revenue.

Generally, all the IT employees have to fill something called a timesheet, which is nothing but an account of the time spent on the project activities. The client looks at the timesheet and approves the hours and then depending on the contract with the IT company pays a number of hours * Billing Rate to the IT company.

There is a limit to how much an IT company can earn. They cannot earn more than 8 hours worth per employee as an average, because they are not selling a product. They are just selling time.

To be able to change that IT companies must create high quality, scalable Products. Products that can be bundled, sold and then resold and then resold again. Unless that happens, there is always a limit to what they can earn because a day as we all know has just 24 hours.

Why can’t they do it?

With the experience that is present in the IT companies, one would imagine that there are people who are aware of the pain points that every business has. They have people who are experts in how all industries work and which part needs automation. They should be able to create a solution that can be utilized by all companies in an industry. But there is a great lack of money spent on R&D. You cannot imagine creating a product without paying for it up-front. IT companies need to pay their employees while the product is being created. Indian IT companies are not doing that.

During appraisals some of the below questions are very common:

• What value add did you show to the client?
• Did you show any dollar savings?
• What is your additional contribution to the organization?
• What re-usable components did you create?

What they mean by all these questions is to somehow create products that the organization can show and sell to a new client, or for that matter an existing one. This is nothing but a failed attempt to create a product.

This is opposite to their business model, but I think it is high time that each and every one of them starts looking at this as a futuristic model to do business.

Coming back to the stats at the start of the answer. Take a look at the first picture again. This is what the Indian IT companies should aspire for in terms of revenue generated per employee. Create products that can be sold at prices which they think are worth and not keep selling Time.

Here Comes the Basic difference which we discussed above. In short we can say that Product based Company generates revenue by marketing ,innovating and selling some good products. While Service Based Companies just accomplish a secondary task by providing their time.