Alex Lutskiy, Innovecs: Focus on added value

Alex Lutskiy, Innovecs: Focus on added value

Alex Lutskiy started his IT career as a software engineer in the US, where he moved with his family in 1994. Having valuable experience in startups launching and technology business management, Alex returned to Ukraine at the invitation of GlobalLogic in 2011 and opened his own service IT company here over a year.

Over 7 years, Innovecs has developed from a small office and team of several people into one of the fastest growing US companies according to Inc. 5000 in 2017 and 2018, and was included in the prestigious highly-rated IAOP’s Global Outsourcing 100, which is a rating of the best and youngest service IT companies in the world.

GROWTH DYNAMICS

In Ukraine, the overall growth of the IT industry is about 20% per year. And this is a quite good organic indicator. As for Innovecs, the situation is somewhat different. We are a relatively small and therefore flexible company, so we can afford to be ahead of the market in terms of growth rates. Last year we grew by 68%, this year we expect to have approximately the same dynamics. 
Of course, with the further development of our company, the organic growth rates will somewhat slow down. We are planning to focus on the development of engineering services, creating added value of services that we provide to our customers.

I note that in Innovecs, we consider the growth of business not in terms of the increase in the number of specialists, but only in terms of revenues. Our goal is to increase the business turnover and profitability. It is archaism and a relic of the past to measure the success of IT companies by the number of jobs created. Today, nobody mentions how many developers work at Facebook, since everyone is interested in business capitalization, its added value and profitability.  

OUR CUSTOMERS

The three main markets, which Innovecs is working with, are the United States, Europe (Great Britain, Nordic countries) and Israel. Recently, we have been working with a very large number of customers from Israel, as there is the extremely rapid industry’s development that far outpaces the country’s resource potential.  

Customers from Qatar and the United Arab Emirates also demonstrated the great interest to Ukrainian services. But it is difficult for us to work with these countries because of the specifics of this region.  

REGIONAL PRESENCE

In Ukraine, Innovecs is represented in two regions — Kyiv and Mykolayiv. All the company’s expertise is concentrated in the metropolitan office, while the Mykolayiv office is involved in the same projects as the Kyiv office, performing the role of team extension. Regional specialization and distribution of expertise between representative offices is not typical for our company. 

PERSONNEL MATTERS AND SKILLS DRAIN

In Ukraine, we are faced with some staff shortage issues. Especially, when it comes to qualified managers. Unfortunately, there are very few experienced managers, who would be experts in IT business management, in the Ukrainian market. It is not enough just to have strong talents, but it is important to accompany them with high-quality services. And the issue of service and creating additional values for clients is a key task of management.  

Due to the lack of qualified managers in the Ukrainian market, today we are inviting experienced managers from large international companies such as Amazon and Paramount to key management positions at Innovecs. Drawing on better foreign experience is crucial for building a powerful business that will compete with other players in the global marketplace.

“Brain drain” is not a critical issue for the domestic IT industry. There was a time when I decided to move to work in the USA myself, but now I’m here and build a successful company in Ukraine, using the business experience gained abroad. My work abroad has taught me a lot of things and, most importantly, the right understanding of business.

Today, the “outflow” of Ukrainian specialists is about 1%, and a significant number of those who moved come back, bringing a solid international expertise. 

Speaking about wages in the industry, I would like to note that in Ukraine, the level of wages for IT specialists has increased significantly in the last 8 months. Today, the average amount of remuneration for developers in our company ranges between $2.8-3 thousand. Wages of programmers in such cities as Kyiv, Kharkiv, Lviv and Odesa are approximately the same — they get payed not very differently. In smaller cities, the situation is somewhat different, as the level of wages is more fragmented there due to somewhat lower level of expertise of local specialists. 

DOMESTIC MARKET AND MENTAL BARRIERS

The development of the domestic IT-services market in Ukraine requires, firs of all, changing the wrong perception of the service industry and outsourcing services. In Ukraine, unfortunately, outsourcing is associated with unnecessary expenses: why pay a company if we can hire the specialists we need themselves? But this is a very wrong opinion. A service company (not necessarily in the IT sector) having experience and expertise in a particular area saves the customer’s money and time. But so far, the Ukrainian business doesn’t fully understand that the external expertise can and should be paid for.

I am convinced that Ukraine has every opportunity for active development of the domestic IT services market. The obstacle to introducing digital solutions is not that market players have or have not large money, but that there is a lack of managerial will to introduce changes within companies. But the overcoming of these mental barriers is just a matter of time, especially taking into account that Ukrainian businesses will soon have to compete seriously with powerful international players not only outside Ukraine but also with those global companies, a growing number of which will enter the domestic market.

FORECASTS AND EXPECTATIONS

In coming years, there will be the redistribution of players among Ukrainian IT market participants. There will be a certain consolidation, and large companies will acquire only those small companies having expertise or prospective clients. The competition will completely remove the last “body shops”, that is, those companies that only provide specialists “on lease terms” without creating added value, from the market. There will be a regrouping of forces, and finally, we will have rules of the game in this market. Such a process is a standard practice and an integral element of the industry’s evolution.

Today, I do not see serious barriers for further growth of the industry within the country. The national fiscal policy and the opportunity to have concessional terms for the IT industry development will still be the key issues.

I do not think that the Ukrainian IT industry will face serious external obstacles to the further development in the near future. The growth of this industry is a global trend that we have successfully implemented. But the next global economic crisis, the effect of which we have already observed in 2008-2009, can be a potential threat. It may be resulted in a ‘financial bubble’ burst that appeared on the market of startups and technological products. Of course, this turn of events may lead to some IT services market turbulence. 

But despite all possible external and internal influential factors, I expect that the Ukrainian IT industry will grow smoothly together with the global digital services market, while maintaining current growth rates.