Indian IT industry - crossing the chasm

Abstract

This study views the IT industry as comprising of 4 distinct horizontals, namely, Application Development & Maintenance (ADM), Business Process Outsourcing (BPO) including Knowledge Process outsourcing (KPO), Infrastructure Management Services (IMS) and Consulting Services. This study will aim to study the key players competing in this space and track changes in the industry structure. Given the evolution of this industry structure, the path of the industry over the next period will be charted out. Components of successful corporate strategies will be identified and complexities & risks associated with each will then be highlighted. Genesis of the Study – Defining the scope Indian IT service firms have established themselves in the IT service arena globally and made a foray into consulting as well. In a bid to offer one-stop solutions, they have also ventured into the ITeS arena. The latest addition to the basket of solutions offered by these firms is Remote Infrastructure Management Services. In conjunction, the size of outsourcing deals is continuously increasing up from €101 million in 2005 to €126 million in 20061. The interesting aspect of this is that such deals are not homogenous and have completely differing compositions and may consist of one or many horizontals. - At one end are the purely horizontal deals such as the $848m TCS-Pearl Group deal, wherein TCS will provide non-voice processing of life insurance and pension policies. In this case a single horizontal, the transaction processing aspect of BPO, is involved in the deal.2 - At the other end of the spectrum is HCLs recent contract with Skandia, where HCL will provide all aspects of outsourcing – IT, BPO and remote infrastructure management – in one single deal worth $780m3. HCL is thus providing a complete outsourcing solution that encompasses all the horizontals in the industry. - The most interesting deals might be those wherein a huge deal spanning across horizontals is split among different players. ABN Amro chose to split up its mega $2.2m deal among 5 companies – IBM for IT infrastructure, TCS & Infosys for IT application development with Patni and Accenture getting the other pieces. 4 The scenario is fast changing with client perceptions and mindsets changing rapidly. Indian IT companies are now competing directly with the big 4 of outsourcing – IBM, EDS, Accenture and CSC. Clients increasingly value domain expertise as a key factor in decision making, while expecting low labour costs as a given. In this context, IT companies need to be very careful in charting out both business strategies that will keep them as competitive in tomorrow’s context, as they are today. They will also need to organise themselves differently in order to meet these challenges. The key questions we’re asking in this context are:- - What is the right portfolio of IT horizontals to have in tomorrow’s IT scenario? - What should be the right organisation structure and processes that will sustain the above strategy?