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.
6 am pacific 
In one word, Innovate!
R&D expenses should cease to look like rounding errors in IT company balance sheets.
Now that IBM,Accenture and EDS are in our own backyard, learn the art of snatching meals from under one’s nose!
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Basab
You make a few interesting points. And the need is certainly here.
The ‘big three’ of Indian IT average at over $4 billion. But with 100K employees each, the earning per employee averages $40K/employee. Five years ago, revenues averaged at $800-850mil with about 20K employees. [Earning/ employee the same magical $40K/employee]
On the surface, global ‘competitors” in the services space seem to be faring better Accenture with about $23 B and 170K employees can show about $136K and EDS (22B, 139K) about $156K. However the fuzzy math here may be because these are not pure-play offshoring firms and hence comparing revenues streams may be like comparing apples and oranges (?)… and not really manpower-vs-solutions.
Whether the 20% growth (for offshoring firms) comes from adding another 20% (staff) per year or “moving up the value chain” is anyone’s guess. 🙂
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“Muti tenant SaaS – I don’t think this is a good idea.” – You made a statement without explaining why it is not a good idea. If you are a products company instead of building a shrink wrapped product you may want to implement Muti tenant SaaS architecture. A products company can offer hosted solution to multiple customers and take over some non core processes as well with a Multi Tanent SaaS architecture.
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@The consultant,
Multi-tenant SaaS might be a good idea for a product company (or rather they had better, or have their lunch eaten!). But it is too far from the comfort zone of an IT Services company.
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Good commentary. Though there Execution skill varies (depends on the people), The Accenture’s & the EDS are great at Retaining/Sharing Knowledge , Documentation and therefore come through as more respectable in the Clients view.
Can you comment on what opportunities may exist for companies starting from the ground up in this environment.
btw, Some of the links to your prev posts (here) are not linked !! Can you fix it up ?
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Vivek,
thanks for pointing out the missing links. I think I have them right now.
The IP imperatives, I think are the same for smaller services startups, if not more important. Focus needs to be sharper since you have fewer resources.
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Basab,
Had a question, I manage a lot of IT services vendor relationships for my company, including one of the IT Majors. Now, when we get these IT services companies to build software solutions for us, we have never received a request on ownership/IP. Is this a new trend and how does this model work? Would appreciate your response.
Thanks!
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Peaceforall,
Your observation is correct. I attribute this to many reasons:
1. Indian companies are not genetically wired to take advantage of retained IP. There is no mgt focus on it. There isn’t enough deep domain to know how to assess the market opportunity for it.
2. The teams that negotiate the deal are so focused on thwarting a competitor and getting an acceptable bill rate, that they don’t want to add another wrinkle to the negotiations.
3. Offshore outsourcing began with the biggest global companies like GE. These companies will never give away IP. Perhaps, it has conditioned Indian companies to ‘Work for Hire’. They know no other way.
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