Subba’s Serendipitous moments

April 22, 2008

Wave 3 companies business models for Indian companies

Mr. Sudhakar Ram in a new post has explored different business models for Wave 3 companies. While he has elaborated different options, he has fallen short of making a compelling case for each of the business models. I would also add that some of Indian IT services firms have played in these sand boxes for quite some time, though they haven’t made it their core business.

Secondly, if the Indian IT service firms have to make this transition, it is going to call for a transformational change in approach. It is not that the new business models are flawed, it is the transition that is going to be risky as it would be a roller coaster ride. Since Mr. Sudhakar has opened the dialog here are my comments:

IT Budget owners:

I don’t think the Indian IT service providers have the aspiration to occupy this space, and neither do they have the required ability and bandwidth to do so. Occupying this position needs a lot of lot of domain expertise, breadth and depth of functional knowledge and more importantly the propensity to take risks. Essentially, one has to assume the role of a trusted advisor to the CXO world and may be even to the Board. Even amongst global providers, barring a IBM, Accenture, EDS, CSC and a couple more, few would have the capabilities to stake a claim to become budget owners and take the responsibility to ensure alignment and business impact.

If outsourcing initiatives indeed fail, because of lack of ability of providing alignment and business impact (as Mr. Sudhakar seems to imply), despite the experience and abilities of an IBM or an EDS, I am wondering how would Indian IT service providers fix the problem. Let’s accept the fact that most outsourcing engagements fail, because of a culture clash, the promised cost savings not getting realized and various other conflicts that such a relationship often entails.

Software product providers:

Mr. Sudhakar is right on this one and a number of Indian companies — the likes of Wipro and HCL have been doing it for sometime. Wipro perhaps has a better track record in terms of doing 3rd party software product development right from the 1980s with their InstaPlan product ( a very successful project planning software of the 1980s). They would have easily done this for over 100 companies. This is no different from a typical “IT body shop” (only that it provides higher end engineering services). Yes, Indian companies do enjoy a cost advantage, but these days it is very easy for the overseas company to set up a development outfit in India. So essentially even in this case, it is just labor cost arbitrage, (maybe applied to a different sector), not defining a new line of business.

Software Solution Integrators:

Well, if the track record in the SAP or Oracle or for that matter any package implementation service is any indication to go by, most Indian IT service providers are just routinely satisfied just being SAP certified consultants and “loaning” out people for the major integrators or doing routine SAP implementation. I guess most large multinationals would still trust a IBM, Accenture, Bearing Point to do the higher end work in terms of consulting, process mapping, change management and leave the integration work to Indian companies. In fact, I had the opportunity to analyze the revenue and margin mix at a leading Indian IT service provider and found that over 70% of the revenues and 40% of the profits of the SAP practice team came from maintenance, support service and on-site placement. It is difficult to walk away from such a lucrative, low risk business and ask them to embrace a higher value added, potentially risky segment. In another instance, this Indian IT service provider has a large pool of SAP consultants in a particular area, have done over 50 projects, but still lack the higher end business process knowledge, expertise in change management, maturity in client engagement and related project management capabilities to take on a big consulting firm, despite its track record. They just can’t inspire the necessary confidence and are more more comfortable playing the secondary fiddle.

Platform services:

I agreee with Sudhakar here that it indeed is a very exciting area for Indian service companies. Some like WNS and IBM Daksh have been successful as they developed a complete platform for their respective verticals (travel and insurance respectively), but their ability to expand the platform or build alliances with other players and make it an industry standard has been found wanting. This has deterred other companies from going this route. In fact I would believe this (platform services) would eventually become the natural step in the growth plans for companies which has deep IT skills, domain expertise and BPO capabilities.

As I said in one of my earlier posts, moving beyond Wave 2 to Wave 3 or Wave 2.1 is a business imperative. I know a number of Indian IT services firms are grappling with this issue. Given that they have grown in a reasonable risk averse environment, I do not think they want to adopt something too radical and big, as they are aware they do not have the necessary leadership skills or management expertise to pull this through.

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  1. Hi,

    Excellent article – I really appreciate your blog about Wave 3 companies business models for Indian companies, I have bookmarked it for later viewing and forwarded it on.


    Comment by Nancy — April 22, 2008 @ 8:05 pm | Reply

  2. Thanks Nancy. Given that a lot of smart people are thinking about this issue, I would appreciate if you can give us your point of view.

    Comment by Subbaraman Iyer — April 22, 2008 @ 9:37 pm | Reply

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