India

Indian outsourcers are tweaking their model and innovating to stay ahead

Read about six ways India's IT companies are finding new ways to distinguish themselves from the herd.

Indian IT companies are facing severe headwind. Their original factory-style, componentized outsourcing model has played itself out and is yielding diminishing returns. Their customers are no longer outsourcing an ever-increasing set of functions. At one time, getting work done out of India was the only sales pitch Indian IT services companies needed to bag outsourcing contracts. Today, the rocketing growth rates of the past decade are history.

Buyer behaviour has evolved too. What started as staff augmentation ("body shopping" as some called it) progressed to outsourcing of small projects and then larger and complex projects. Today, customers are seeking integrated business solutions. In a change, competitive environment, India’s IT companies are having finding ways to distinguish themselves from the herd.

1: Quality of leadership

With India’s top IT services companies offering the same quality and processes, leadership is emerging a key differentiator. Does the IT firm’s chief have access to leaders in global business, is he and his company seen as an expert in a particular way of doing things, can he steer his customers' strategic decisions?

"Ten years ago, leadership did not have much impact on the performance of an IT services firm," said Sudin Apte, CEO of IT research and advisory, Offshore Insights. "As the fight for every dollar escalates, companies recognize that leaders who can connect with the client’s leadership and who can also motivate and keeps the flock together are vital.” The return of co-founder Narayana Murthy as the executive chairman of Infosys is a step to shore up its leadership.

2: Global culture

IT outsourcing firms have already penetrated a majority of the Fortune 500 global companies, which they are mining deeper. Their newer markets are in Europe, Asia, and Australia. Their new delivery centers are in Eastern Europe and Latin America. They are hiring global talent. But all this does not necessarily make every IT company global. "In many Indian outsourcing firms, the attrition of non-Indian talent is three times higher than the attrition of Indian talent," said Apte. Firms are making concerted efforts to make their company culture global, he said.

3: Integrated solutions approach

In the past, IT firms provided applications to their customers. Then some graduated to offering applications and infrastructure management. Today, the successful ones provide applications, infrastructure management, and business solutions. For a maturing market, services firms are offering more sophisticated packages.

4: Newer pricing models

While bidding for projects, firms are creating pricing models that deliver outcomes with a cost mix that is variable rather than fixed. Such performance and outcome-based models are far removed from the earlier time and materials (T&M) models. "Some firms are exhibiting a new level of aggression when it comes to pricing deals and that is changing the dynamics in the marketplace and presenting a threat to their international rivals,” said Siddharth Pai, partner and president of Asia Pacific in advisory Information Services Group.

5: Intellectual arbitrage

Companies are pushing the frontiers of outsourcing. Previously, outsourcing was all about labor arbitrage but today it has moved to a newer phase of intellectual arbitrage, where the goal has gone from improving existing outcomes or making them cheaper. "It has shifted to using global talent to create new outcomes which were not possible previously. Thus firms are partnering with their clients to meet strategic goals and win market share,” said R. Chandrasekaran, group chief executive, technology and operations at Cognizant Technology Solutions.

6: Delivery model

While cost has been the primary driver for offshoring, the availability of talent, the quality of delivery, and innovation has helped IT services companies sustain momentum. In the past few years, companies are taking the services value chain and its distributed model (PDF) to the atomic level, sending each type of specialized work to a different geography. There is much similarity to the manufacturing supply chain that went atomically global a couple of decades ago.

IT companies sense that the longer term motivation for outsourcing is clearly moving from cost to "value" in transforming business. "They are stepping up their focus on newer fronts, such as investing in consulting resources to bring business perspective and understanding to sectors that are undergoing a profound change," said Chandrasekharan. The innovations are poised to dramatically impact the IT services landscape in the coming year


About

Saritha Rai is an India-based journalist and commentator who covers technology, business and society from her ringside seat in Bangalore.

2 comments
punit_jain2000
punit_jain2000

The Innovation Engine:  IT services companies need to navigate the rapid changes in technologies and applications to give the best to clients. Large IT firms are notorious for their structure and inability to innovate. 

Indian firms have learnt to solve this by setting up Private Equity style Innovation and Incubation centers in places like the Bay Area, California and Bangalore, India. Senior managers evaluate, bankroll and mentor start-ups and new innovative firms to get new solutions for their current clients. Its a win-win situation, with controlled risk and great potential returns. 

Rohit Biddappa
Rohit Biddappa

Weak points remain lack of products and IP and perception that they cannot truly be transformation agents and undertake strategic business transformational projects IMO. This is where firms like IBM and Capgemini clearly stand out as reflected in revenue and enterprise value. Fundamentally Indian firms still compete on cost wwhich is a losing value proposition.

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