How Do We Create Net New Jobs in IT/ITES and Overcome Existing Jobless Growth?

India has transitioned from a labour-intensive economy to an incremental one, improving overall productivity. The same applies to all disaggregated labour-intensive industries, where workers use process rigour and incremental innovation. With technological advancements and globalisation, India is moving beyond an incremental economy. This shift involves a more significant emphasis on innovation, productivity, and value creation. While this transition was positive, it did pose challenges like job displacement and income inequality.

India’s transition from the labour economy to the current investment economy has created challenges to which we have yet to find answers. Sustained long-term growth will likely require a more significant investment in innovation, and emerging technologies are essential. The investment risk profile was low in the labour economy. At the same time, it is medium risk in the incremental economy and high in the investment economy.

The government and private sector must collaborate to create an encouraging environment. This environment will foster investment, support entrepreneurship, and encourage disruptive innovation, propelling India towards an actual investment economy.

Economic Phases of IT/ITES Industry

Let me make the case using the IT/ITES industry growth. How will the industry increase job creation while retaining its competitive advantage? India has transitioned from a labour-intensive economy to an incremental one and has seen improvement in overall productivity.

1. Labour Economy (1960s-1980s):
• Industry Focus: Due to India’s abundant and cost-effective labour pool, essential IT services like data entry, back-office operations, administration, and software maintenance were outsourced.
• Job Creation: This phase generated many low-skilled data entry and call centre jobs.

2. Manufacturing Economy (1990s):
• Industry Focus: The Y2K problem and the dot-com boom led to a surge in software development and IT services exports from India.
• Job Creation: This phase created many mid-skilled jobs in software development, testing, and quality assurance.

3. Incremental Economy (2000s):
• Industry Focus: The industry matured with a focus on process optimisation, cost reduction, and incremental innovation. Business Process Outsourcing (BPO) expanded beyond IT services to include finance, accounting, and HR processes.
• Job Creation: Job growth continued but slower, with a greater focus on skills like project management, business analysis, and domain expertise.

4. Investment Economy (2010s-Present):
• Industry Focus: It significantly shifted towards digital transformation, cloud computing, artificial intelligence, and data analytics. Startups and product development have gained prominence.
• Job Creation: This phase has led to a surge in demand for high-skilled jobs in data science, machine learning, cloud engineering, cybersecurity, and product management. The creation of many high-paying jobs has led to some displacement of traditional IT roles due to automation.

5. Stakeholder Economy (Emerging):
• Industry Focus: The IT/ITES sector emphasises social responsibility, environmental sustainability, and ethical considerations.
• Job Creation: This phase will create new job roles related to sustainability, social impact, and ethical AI development.

It is essential to understand the critical differences between incremental and investment economies from the IT/ITES industry’s point of view. Secondly, why has job creation in the IT/ITES industry declined?

Incremental Economy:

- Focus: It was on gradual improvements in existing processes and products.

- Drivers: Established industries, mature markets, existing technologies.

- Growth: Steady and predictable growth.

- Risk Profile: Lower risk

- Examples: Process optimisation and software maintenance with updates.

Investment Economy:

- Focus: Substantial investments in new technologies and industries are needed.

- Drivers: Innovation, emerging markets and disruptive technologies.

- Growth: Rapid and potentially exponential growth

- Risk Profile: Higher Risk

- Examples: Renewable energy, AI and biotechnology.

The displacement and reduction of jobs in conventional roles are due to the rebranding of titles and job descriptions and less work activity. The net effect has decreased the number of new jobs created over the last few years.

Drive Job Creation Besides Organisational Growth

The nature of jobs has evolved, requiring higher skills and specialisation. These skill shifts have created an unserved demand market. While high-skilled jobs offer good salaries, the gap between low-skilled and high-skilled workers has widened. The risk of creating newer talent is higher due to complex skills needing development and behavioural skills requiring attention. The lack of internal capacity to deliver for this new demand has led to hiring from the market. Finally, job creation has been concentrated in urban centres, leading to regional disparities and an inability to leverage localised talent pools and educational institutions.

• Transition Isn’t Linear: Phases overlap and can coexist in different parts of the world.
• Disruptive Technologies: Each phase shift is a significant technological breakthrough (steam power, electricity, the internet, AI).
• Societal Shifts: Economic models evolve due to changing social values and expectations.

However, it is essential for India’s sustainable and inclusive growth. By involving all citizens in the economic process, India can create a prosperous future for everyone. The three forces drive the economy in phases: they focus on specific financial actions, secondly understanding the critical difference to adopting the same in your initiatives to leverage the change for growth, and finally, propelling your business or economy based on drivers for the next phase. Let me summarise the investment and stakeholder economy models.

1. Investment Economy (Early 21st century — Present):
Focus: Driven by significant investments in technology, research and development, and human capital to fuel innovation and create new industries.
Critical Difference: With the emergence of disruptive technologies like AI, blockchain, and renewable energy.
Propelling to Next Phase: Growing recognition of the interconnectedness of economic, social, and environmental factors, leading to the stakeholder economy concept.

2. Stakeholder Economy (Emerging):
Focus: Considers the interests of all stakeholders (employees, customers, communities, environment) beyond just shareholders, aiming for sustainable and equitable growth.
Critical Difference: Shift towards long-term value creation, social responsibility, and environmental sustainability.
Propelled to the new phase: It is due to increased awareness of income inequality, climate change, and the limitations of purely profit-driven models.

The Incremental economy focuses on continuous improvement and efficiency gains within existing industries. Job creation costs involve training and upskilling the workforce to adapt to new technologies and processes. Software development companies, where providing ongoing training and skill upgrades are crucial for employees to stay relevant. The same has changed as we moved to the Investment economy. An investment economy prioritises large-scale investments in new technologies, research and development, and infrastructure build-up. While it can lead to high-paying jobs, the initial costs are substantial. A stakeholder economy aims to balance the interests of various stakeholders, including employees, customers, and the community. The cost of job creation can vary depending on the specific focus of the stakeholder approach.

The Challenge to Overcome By IT/ITES Industry, Recommendations

The reason why IT/ITES companies seem to be struggling to create new jobs and develop new workforces, in my mind, is due to the following reasons:

Slowdown and Uncertainty: Economic slowdowns or periods of uncertainty can lead tech companies to prioritise cost-cutting and efficiency measures over hiring and workforce expansion. Many tech companies, primarily publicly traded ones, are pressured to deliver consistent profits and meet shareholder expectations despite the environment. It can lead to decisions prioritising short-term financial gains over long-term investments in workforce development. Training and upskilling employees can be expensive, and companies may see short-term benefits. The rapid technological change makes it difficult for companies to predict which skills will be most valuable. It can make them hesitant to invest in training programs that may need to be updated.

Krogerus and Tschappeler, in their book “The Decision Book: Fifty Models for Strategic Thinking,” provide a comprehensive collection of decision-making tools. The tools that I recommend are:

1. Real Options Analysis (ROA) aligns with the “Stop Rule Model” in The Decision Book, which emphasises knowing when to quit or change course in a project. ROA provides a structured way to evaluate when to exercise the option to continue, delay, or abandon a project.

2. Decision Analysis aligns with the “PMI” (Plus, Minus, Interesting) model and the “Weighted Pros and Cons Analysis” in The Decision Book. These models offer structured ways to weigh different factors and outcomes, similar to how decision analysis uses probabilities and values to guide choices.

By integrating models, businesses can create a robust and adaptable approach to decision-making, which makes them resilient and positions them for success, even in the face of economic challenges.

Talent Challenges: There is a growing gap between the skills required for tech jobs and the available talent pool. It makes it difficult for companies to find qualified candidates, even if they are willing to hire. Recruiting, onboarding, and training new employees can be expensive in the tech industry. Costs are high to develop specialised skills. It can deter companies from investing in workforce development. Developing a skill centre to become an adaptive organisation is a must. The first step is to build skill dynamic profile generation sourced from a global standard like “O*NET” or develop a custom skills graph per client demand. Leverage real-time profile updates, i.e. use AI to analyse various signals, often configurable by the organisation, to update that employee’s skills profile to reflect reality. Finally, the skills data-savvy vendors now offer their skills intelligence in a platform or as an extensible data set for customers and via HR partners to use in various use cases.

Let’s review decision models to tackle talent challenges and explore techniques. Leaders can adopt based on Mikael Krogerus and Roman Tschappeler’s strategic thinking models:

1. PMI (Plus, Minus, Interesting): Leaders can use this model to evaluate talent management strategies by listing each approach’s pluses, minuses, and exciting aspects. It can help identify the most promising and innovative solutions.

2. The Flow Model encourages leaders to create a work environment where employees experience flow — complete absorption and focus. Flow can lead to increased productivity, creativity, and job satisfaction. Leaders can foster flow by providing challenging tasks, clear goals, and immediate feedback.

Leaders can effectively address talent challenges by combining these decision models and strategic thinking techniques.

Remember, effective talent management is an ongoing process that requires continuous learning, adaptation, and investment in people. Using the right tools and techniques, leaders can build a solid, engaged workforce that drives organisational success.

Short-Term Focus: The fast-paced nature of the tech industry encourages focusing on short-term projects and quick results. It can make it difficult for companies to prioritise long-term investments in workforce development, which may yield little returns. The rise of remote work and the availability of talent from other countries have made outsourcing easier for companies. The outsourcing of talent focuses on specific tasks or hiring remote workers, potentially reducing the need for local job creation. In some cases, regulations or policies related to immigration, labour laws, or taxation may create challenges. With uncertainties, tech companies seeking to expand their workforce step back. Focusing on short-term goals can discourage investments in long-term initiatives like workforce development.

Let’s review decision models to overcome short-term focus. Techniques leaders can adopt based on Mikael Krogerus and Roman Tschappeler’s strategic thinking models:

1. The Systems Thinking approach emphasises understanding the interconnectedness of different parts of an organisation and its environment. By recognising the long-term consequences of short-term decisions, leaders can make choices that benefit the organisation in the long run.

2. The Rubber Band Model encourages leaders to think about the present and the future simultaneously. Leaders can consider the long-term consequences of their actions by visualising the present as a rubber band connected to the future.

3. The Force Field Analysis model helps analyse the forces driving and resisting change. By understanding these forces, leaders can develop strategies to overcome resistance and implement long-term initiatives.

Leaders must communicate the importance of long-term thinking, i.e., remind employees of long-term goals and how their work contributes to the organisation’s future success. They must also reward long-term success, i.e. recognise and reward employees who contribute to long-term goals, not just short-term wins.

By combining these decision models and strategic thinking techniques, leaders can overcome the trap of short-term focus and create a more sustainable and prosperous future for their organisations.

In Summary

To address these challenges and create more job opportunities, tech companies must prioritise workforce development as a strategic investment. It involves identifying and investing in the skills that will be most valuable in the future — and then partnering with educational institutions to develop talent pipelines. Create a culture of continuous learning, reward skill inventory-driven individuals and finally, make development a long-term initiative within the organisation. Tech companies can use and align with the government internship and CSR programs. Governments and policymakers should play a role by creating supportive policies. The policies should incentivise companies to invest in workforce development and create net new jobs. Besides creating new jobs, we must address the skills gap through education and training programs.