The Indian IT Services industry is going to feel the pain of the US recession which is likely to spread to other major markets as well. This recession is going to be different as I have said before.
What do you do, when you are faced with a near certain slow down? You can try and squeeze whatever juice you can out of your as-is business, but that will take you only so far. Or you can choose to breathe some new life into your value prop and perhaps change the trajectory of your company.
Let’s face it. The old tricks aren’t working. You can’t use Indian labour arbitrage to compete anymore because everyone has it. And the way the rupee is going there won’t be much of it left anyway! CMM Level 5 companies are so common now that if you throw a random brick in Bangalore there’s a good chance it’ll land within the highly secure premises of one of them. Geographic expansion through acquisitions is more a sideshow than a major strategy. It’s messy and it takes too long to get the benefits.
I believe that lasting value can be created through the creation and nurturing of Intellectual Property. Nothing new, I have written about this before here and here. There is no better time to turn on the turbo charger on your IP related strategies than now.
Here are five ways of doing it (and two book-ends). They are ordered, largely, in order of sophistication. Don’t skip a level. There are no shortcuts here.
Vanilla – This is where most of the industry is today. Key organizational competencies are people management (hiring, retention), offshore project management, SDLC processes.
Retained Knowledge – Projects don’t just come and go. Domain knowledge is retained, documented, shared. People and skills are nurtured within competency pools – by industry, technology, function. This retained knowledge enables better presales conversations as well as better engagement outcomes.
Software Ownership – This is where the men get separated from the boys. Retaining rights to developed software is a high hurdle. It requires some investment – reduced billing rates for the first project, leaving skilled resources to build IP and nurture the solution rather than bill out, sales and marketing on the solution etc. Since it requires making investments, assessing the market opportunity is an important competency. Just to be clear here, this is not a licensed software model, which holds zero opportunity today in my opinion. This is more like pre-built components.
Open source – If you retain rights to the software or own it some other way, another strategy that can be interesting for the right solution, typically a more broad-based horizontal solution, would be to open source the software that one has retained the rights to.
Single tenant SaaS – From building the application with your own components to hosting and maintaining it is not a big leap. However, commercially this pushes out revenue. Higher investments and delayed revenues means that the CFO must be your friend (or desperate for growth)
Platform BPO – Single tenant SaaS plus BPO. Can be powerful. Earlier commentary here.
Muti tenant SaaS – I don’t think this is a good idea.
The one thing you don’t want to do is to come out of the recession looking the way you do today. To not change is to fall off the bicycle, pardon the mixed metaphor.