Analysis of business model flexibility for IT service providers with focus on business boom/bust cycles

Abstract

This Paper has looked at the current scenario of the Software services and the Business models adopted by firms like EDS, CSC and IBM from a software services perspective and compared the same with Indian firms like Wipro and Infosys. A need to revamp the operations model to make it simpler from the current focusses of Vertical, Horizontals, Geographies and Technology to something more on the lines of the services that are offered for the industries was felt. The model suggested is a simple one where there are only the following service- focuses namely Product development services, Networking/distribution services, Intermediation services and Other services and there can be a maximum of 7-9 horizontals as classified by the Appendix-Ill on the basis of industry issues catered to. The above is based on the logic that any service requirement can be classified into one of the four suggested. Also the decision to keep on adding to the current list of verticals is an expensive proposition and the opportunity cost has been calculated to be USD 5.5 million per vertical of 10 people. The model suggests that going in for the extra vertical can be made on the industry parameters and hence on the specificity of the services offered to that particular industry. This paper also suggests a new value proposition that would be valid for both up-turns and downturns of the economy cycle. The value proposition is to have a "Money for the value created" proposition over the current "Value for Money" .To graduate to the level of Money for the value created proposition a lot of improvements in the area of Organization competency development and knowledge management are required. The improvements that are required have been suggested with appropriate frameworks. A new revenue model called as the "Continuous cash-flow model has been suggested to commiserate with the suggested value proposition, through this the firms like Wipro and Infosys can get continuous revenues which are very easily sustainable for a longer period of time. However the rider for all the above suggestions is the fact that Indian Software firms need to offer end-to-end solutions thereby creating solid value to their clients. On implementing the recommendations the authors are confident that Indian firms like Wipro and Infosys can realize their dreams of being in the top-5 category in a few years time frame