Rapid Graffiti

Sometimes I wonder that if someone demands royalty for the usage of the phrase “moving up the value chain”, how much dollars would she earn? Google gives me 83,900 results for the phrase, yahoo around 40,000 and live.com gives around 12,000 results. In my 18 months stay at B-school, I myself would have used this phrase a thousand times, mostly in the context of Indian IT/ITES companies.

Are IT companies [actually] moving up the value chain?

One of the ways to look at the present scenario is to analyze the area of consulting and system integration (CSI). This would primarily mean providing consulting, customization, deployment and integration of enterprise solutions.

This space differs substantially from Application Outsourcing space:

1. There is implied dependency on the product company, i.e. SAP, Oracle, etc.

2. Surviving on the basis of any one product/package is extremely tough, and hence there’s ever-building pressure on ramping up and expanding the service bouquet

As per Gartner’s Magic Quadrant for North American ERP Service Providers (basically dividing the whole world into four boxes), the leaders in this space are IBM, Accenture, Deloitte, CSC, Capgemini, etc.

Indian firms lie in the challenger segment. This means they are ramping up their ability to execute, but have limited vision about the industry.

Satyam was the first Indian company to venture in this space. It used to do lower end work for other service providers like IBM, etc. TCS, Wipro, Infosys are some of the other companies in the challenger quadrant. CTS was a very late entrant in this space, but has been growing fast.

What are the issues?

1. Clients perceive that offshore (Indian) companies lack the required functional knowledge and expertise

2. Onsite account and project management practice needs to be substantially improved

3. Offshore players should increase their bench strength; clients feel that low bench strength adds to staffing inconsistencies and delay in delivery

How are some of them improving?

1. Infosys invested a lot of resources in 2004, which helped it to expand its bouquet of services, improve on work force, and hence get better client ratings

2. TCS, Infy, HCL, etc. are leveraging their position in application services to form strong relationships with SAP, Oracle and others.

3. Indian players have realized that a lot of practices and methodologies are well defined by product companies, and hence they need to focus on innovation to get better work.

What they should be doing additionally? (pure gyaan)

1. Try to improve the consulting department. Infy is already attracting a lot of experienced players working with top consult companies so as to tap their network for penetration in bigger companies for better work.

2. Focus of innovation through better R&D spend; improve functional knowledge either through CoEs or acquisitions.

We need to understand that the gap between an established ESP (as in IBM, Accenture) and a pure-play offshoring ESP (as in Infy, TCS) is fast bridging in terms of cost, and offshore delivery model. Hence pure-play offshoring

ESPs should in turn try and bridge the gap through extended functional knowledge, wider rage of offerings in the bouquet and through developing integration competencies.

The inherent problem with established ESPs is that face a type of bureaucracy that doesn’t enable them to service small accounts in an efficient and healthy manner. These small ac counts receive very little attention from senior folks, and hence end up choosing offshore players, or smaller ESPs. Offshore players should further exploit this opportunity to bag complete contracts rather than just aim the low-end part a fortune 500 company deal.