Perspective

2025
NASSCOM Technology Strategy Summit

Shaping the
Digital Revolution
Vikash Daga & Noshir Kaka
McKinsey & Company

October 05, 2015, New Delhi

CONFIDENTIAL AND PROPRIETARY

Any use of this material without specific permission of McKinsey & Company is strictly prohibited

Key messages (1/4)

Over the last decade,

the Indian technology
and services Industry
has transformed India
and is on track to
achieve its aspiration of
USD 225 billion
revenues by 2020

Industry revenues at USD 132 billion in FY15 representing a 6x

increase over the decade

Over 8% share relative to GDP in 2015, contributed one-fifth of

total exports

Created over 5.5 million direct and indirect jobs in the last decade,
largest employer of women in private sector

Technology spend as a percentage of total capex in the US

Massive structural shifts

increases 3X to ~40% in 3 decades Return on Technology
becomes the greatest contributor to RoIC
are underway in the
global customer
Digital Innovators disrupt traditional business models capture
upto 20-25% of incremental revenues in select industries today
landscape and the
technology industry is at Globally, technology is driving massive improvement in labour
productivity, while enabling new job creation within and outside the
the cusp of an inflection
technology industry (e.g., ecommerce)

Key messages (2/4)

Significant headroom
for growth with global
enterprise spends at
USD 4 trillion in 2025;
However, nature of
opportunity will be
markedly different

Indian Technology and

Services industry has
the potential to achieve
revenues of USD 350
billion by 2025 at 10-11%
CAGR over the next
decade by capturing the
digital opportunities

The overall enterprise spend on technology and business services

will increase from USD 2.8 trillion in 2014 to USD 4 trillion in 2025

Enterprise spending on legacy areas is likely to decline by 15-25%

over the next 5 years

Share of digital technologies (currently at 10%) will increase to

~35% by 2020 and 60% of total spend by 2025

Industry is expected to grow at 11+% to USD 225+ billion in 2020

and at 10+% to USD 350+ billion by 2025

Revenues of USD 350+ billion will likely have International

revenues of USD 280+ billion and Domestic revenues of USD 70+
billion

The next USD 100 billion of revenues will likely add 1.2-2 million
people to the industry

Key messages (3/4)

Domestic technology
market will also grow
rapidly to USD 70+
billion in 2025 spurred
by Digital India

As Indian Enterprises and the Government embark on digital,

domestic technology and business services spend projected to
reach USD 70-90 billion by 2025 from USD 34 billion in FY 15.

Digital India initiatives will catalyze growth of the domestic market;

Government departments have committed more than USD 16
billion to the program for example, special initiatives to drive
smart cities, defense, NOFN

Build a new service catalog for digital and defend existing legacy
revenue streams

Five imperatives for

providers of the future
winning players will
fundamentally transform
their business models

Invest disproportionately in building digital business e.g., higher

S&M spend (15%+) and solution investments

Incubate digital businesses and make design choices on

structuring sales, pre-sales and delivery for digital

Pursue programmatic strategy for M&A and partnerships for scaling

up digital business

Tap new sources and HR practices for recruiting digital capable

talent and re-skill ~50% of existing talent for digital

Key messages (4/4)

Structure: Foster innovation clusters around digital technologies
(e.g., cloud, IOT)

Success will require

concerted effort
between industry,
academia, government
and NASSCOM

Capabilities: Design, develop and rollout a massive reskilling

program to train and reskill 3+ million people

Entrepreneurship: Turbo-charge the startup economy through the

ongoing startup India program

Branding: Reposition India as a global Digital and Innovation Hub

Regulation: Support the creation of a strong and vibrant domestic
economy for digital services including enabling legislation (e.g.,
strengthening laws for cyber-security)

Appendix

International
revenues

Technology and services has driven Indias

economic growth

Domestic revenues

Growth of the Indian technology and services industry3

USD billion
118
101

+19%
63

69

48
28

21
13
7

18
9

2004

2005

37

24

108

88

74

41

47

50

59

69

76

86

31

13

16

22

22

24

29

32

32

32

2006

2007

2008

2009

2010

2011

2012

2013

2014

Share of
GDP1
%

3x

Share of
exports2
%

15

1.5x

19

1 Total revenues as a percentage of nominal GDP

2 Technology and services exports as a percentage of total exports (merchandise exports and services exports)
3 Does not include e-commerce revenues
SOURCE: Department of Electronics & Information Technology, governement of India; EIU World Data

Digital innovators disrupt existing models and have captured 20-25%

incremental revenues in select sectors
CE Retail example
Incremental revenues N.A. 2012-13, USD billion

Retail Banking example

Incremental revenues 2012-13, USD billion

Incremental
industry
revenues

Incremental
industry
revenues

1.7

10 traditional
players

2.4

3 Digital
attackers

All others

6.1

-2.0

29.8

20 global
banks

12.1

6 Digital
attackers

All others

5.9

11.8

SOURCE: Bloomberg; McKinsey Global Institute; McKinsey Panorama; Dealerscope; AR; SNL; quarterly reports; McKinsey Global banking pools

Global technology & business services enterprise spend likely to touch

USD 4 trillion by 2025; 60% driven by digital technologies
Digital tech1

Traditional tech2

Global technology and business services spend (USD billion)

3,950 4,100

3-4%
1,170-1,400

2,757
10%

-15-25%

80%

-450 - -650
100%

3,440-3,550
+30%
35%

60%

20%

15-25% of traditional

80% of new spend

spend saved by going

digital

around digital
technologies

90%

65%
40%

2014

Traditional spend
evaporates

New service lines

2020E

2025E

1 Digital technologies include social media, mobile applications, big data analytics, cloud (IaaS, SaaS, BPaaS) and cybersecurity
2 Traditional technologies include custom ADM, SI, BPO, IMS, hardware, packaged software & telecom services
SOURCE: Gartner (April 2014); IDC; McKinsey analysis; team analysis

Traditional Tech

80% of incremental spend to be around digital

technologies, resulting in significant shift in mix

Digital Tech
Opportunities

Global enterprise technology and business services spend

USD billion

1,0001,190

SaaS
4x increase in
apps

3,4403,550

+30%

Digital
tech.1

2,757

-15-25%
2,100
2,300

Consulting
SI

190 290

111

Big data/
Analytics

66

BPaaS

197

Cloud
(SaaS)

169

Cloud
(IaaS)

BPO
ADM
Packaged
Software

203

Mobile
Social
media

Infrastructure

59
90
2014

Traditional 2020E
spend
evaporates

BAU
Digital
growth in Service
Traditional Lines
Service
lines

Cyber
security

2020E

1 Digital Technologies include Social Media, Mobile Applications, Big Data/Analytics, Cloud (IaaS, SaaS, BPaaS) and Cyber Security
SOURCE: Gartner (April 2014); IDC; Team analysis

Mobile/Online
90%
transactions
Big Data /
Analytics
4x increase
driven by
micro use
cases
Legacy-Digital
integration
$0.1-1 for every
$1 Digital
investment
IoT
20% Y-o-Y
growth in
software and
sensors

Indian industry revenues could reach USD 225 billion by 2020,

USD 350 billion by 2025
India technology and services revenue pool1
USD billion

10%
350

38%
+11% p.a.

225
23%

118
4%

62%
77%

96%

2014

2020E

Digital tech
Traditional tech
xx% CAGR 2020-2025

5% share of
global digital
services

Services revenues
on track to touch

USD 225 billion

by 2020, the next
USD 100 billion
revenue will need
1.2-2.0 million
people

2025E

1 Includes hardware, packaged software, IT services, BPO and engineering services revenues; excludes e-commerce revenues
SOURCE: NASSCOM-McKinsey Perspective 2025 report

Decoupling of revenue and headcount likely to accelerate over next 5

years
Revenues
(USD billion)

Revenues1
USD billion

240

Employees (million)
Base case
High case
Low case

Employees
Million

Services revenues on track to touch $225

bn by 2020, but will add 1.2-2.0 mn people
for the next $100 bn revenue

8
7
6

160
For the first $100 bn in
revenue, ~3 mn people
were added

5
4
3

80

2
1
0

0
2000

2002

2004

2006

2008

2010

2012

2014

1 Includes revenues (domestic and export) from software products and services, BPM, ER&D and IT hardware
SOURCE: NASSCOM; ICRIER; McKinsey analysis

2016

2018

2020

IT-BPM Services1

Domestic 2025 Indian opportunity may reach $70-90 bn

Packaged software2
Hardware

Description

Factors favoring the case

Outsourcing of IT

Increased enterprise focus

services to remain at
current levels of 40%

Other technology and

1 Base case

operations spend
(hardware, software,
telecoms) to be 100%
outsourced

Outsourcing of IT
services to grow to
global levels of 65%

Other technology and

Optimistic
2
case

operations spend
(hardware, software,
telecom) to be 100%
outsourced

to build stronger internal

IT functions with more
capability building and
talent management

Enterprises setting up IT
teams internally to mobilize
technology investments

Break-up of India domestic

revenues
70
31
70 bn

32
30

15
4
13

10

Changing role of CIO in

90

Indian enterprises

CIO to be responsible
for creating great IT
ecosystems and not
only running IT systems
efficiently

CIO to spot and source

the right technology
partners for enterprise
technology needs

49
90 bn

32
30

15

4
13

2014

10

2025E

1 Includes IaaS and BPaaS 2 Includes SaaS licence revenues

SOURCE: Gartner, Nasscom, team analysis

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