Feature on what the leaders in India's offhshore services companies feel about consulting services being provided by offshore vendors

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Wednesday, September 7, 2005
Keyw
Preaching what they practise
Surajeet Das Gupta / New Delhi September 07, 2005
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Software Services Indian software companies could soon challenge the supremacy of global
Searc
technology consulting firms.
Telecom & ITES
For years, it’s been a cosy little club. A club whose select members hobnobbed
TIPS:
Hardware with Fortune 500 companies and supped on the rich pickings from
or sea
technological transformation and greater globalisation. compa
Media & Ent
It was a club whose gilt-edged portals were firmly shut to outsiders. Adva
Technology
Until now. For, having already got their foot in the door, several IT majors are
Columnists resolutely elbowing their way deeper into the rarefied world of technology
consulting, hoping for a larger slice of the lucrative $21 billion pie.
Gadgets & Gizmos
Sens
Says an optimistic N Chandrashekhar, executive vice-president and head of
People & Snippets
global operations at Tata Consultancy Services (TCS): “Consultancy has been Nifty
identified as a key business growth area as our customers are demanding a
full-service offering. We are looking at 100 per cent growth in this area.” Rs-$
Nikk
Mumbai-based TCS hopes to earn more than 10 per cent of its revenues
(FY05: $2.4 billion) from consulting in the next three years, up from 3 per cent Nasd
currently. It has already roped in over 400 consultants across the globe to
make its dream a reality. Last
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TCS isn’t the only one with such ambitions. Consulting income for Bangalore- 19:1
based Wipro Technologies already constitutes 6 per cent of revenues (FY05:
$1.87 billion). The target is to hit 10 per cent in less than three years.
“While our consulting business is growing at 40 per cent, overall company
revenues are growing at only 28-30 per cent. We are looking both at organic as
well as inorganic growth to scale up our business,” says Kapil Khandelwal,
head of the India delivery centre of excellence at Wipro Consulting Services.
There’s certainly ample room for growth. Last year, Indian technology
companies earned barely $ 120 million from consulting, just a tiny fraction of
the $17 billion raked in from IT exports. What’s even more promising is that
consulting isn’t a greenfield area any longer: Wipro, for instance, bought out the
global energy practice of American Management Systems in 2002 and
acquired consulting firm NerveWire a year later . Today, it has 225
professionals servicing clients in the areas of strategy consulting, e-
governance , strategic cost reduction, business transformation and security
governance.
Of course, the easiest way to prise open the door to consultancy is by tapping
existing clients who have been hollering for end-to-end capability from their IT
services partners. Almost two-thirds of Infy’s consulting clients are companies
with whom it already has a business relationship.
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Will Sensex touch the
Similarly, 50 per cent of Wipro’s consulting business comes from referrals from
8,000-mark soon? existing clients. Says Tim Matalack, practice head of consulting at Wipro:
“Consulting is a matter of reputation and connection. Our reputation comes
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from the work we have done for our existing clients.”
Yes
Now that they’ve scampered up the steep end of the learning curve, Indian IT
No majors are hoping to spring into the big league. Take Infosys. Last year, the
Bangalore-based technology services giant set up a fully-owned consulting
May be
subsidiary in Texas. In the intervening period, the company has built and fine-
tuned its consulting model and is planning to spend $20 million to expand
operations, possibly through acquisitions. Abou
By 2007, for instance, Infosys Consulting hopes to ramp up the number of Partn
consultants from 120 now to more than 500. That should multiply consulting’s
current 4 per cent contribution to turnover (FY05: $1.59 billion) manifold. By Jobs@
offering a full range of services, Infosys COO Kris Gopalakrishnan hopes to
bag at least “a few clients who bill more than $100 million each”, in the next few Adve
years.
Term
Clients like that have hitherto been the exclusive preserve of big boys like the
$96.29 billion IBM Corp, $20.67 billion Electronic Data Systems Corp, and
$13.67 billion Accenture Ltd, who straddle the entire value chain from business
consulting to software outsourcing to IT implementation, thereby offering
comprehensive, end-to-end solutions.
Taking them head-on now are Indian companies that are using their strengths
in offshore IT services to paddle rapidly upstream to consultancy creek. The
reason? “Our entry into consulting is essentially a business strategy. It is only
the cherry: the real revenue is from the downstream application work that it
brings,” explains Mumbai-based Patni Computer Systems vice-president
Deepak Khosla.
Unlike some of its peers, Patni doesn’t even have a separate consulting
practice, preferring instead to build its teams on top of key industry verticals.
However, that didn’t stop the company from acquiring Massachusettes-based
The Reference Inc., a technology consulting and advisory firm specialising in
investment management, in 2003 for $7.5 million, and following that up last
year with a $68 million buy-out of Cymbal Corp, a consulting, systems
integration and outsourcing solutions provider specialising in
telecommunications. The objective: to build domain knowledge in key sectors.
That domain knowledge is crucial when it comes to consultancy. That’s
because IT companies can leverage a domain-knowledge won consultancy
agreement to bag a veritable windfall in application and maintenance contracts.
Satyam, for instance, expects 80 per cent of its consulting work to generate
downstream implementation and maintenance work. Industry experts reckon
that every dollar earned from consultancy can generate between $7 and $10 in
downstream deals. “Consulting is a wedge to open doors,” adds Khosla.
Consulting is a pretty profitable business on its own as well. Billing rates can be
five to ten times that of pure application work (with 20-30 per cent higher
margins). Not surprising, therefore, that companies like Satyam are hurriedly
reworking contracts that bundle consulting with services for existing clients.
“Forty per cent of our contracts have already been restructured so that
consultancy is billed separately,” says Satyam senior vice-president Sailesh
Shah.
But perhaps most importantly, a consulting practice is essential for survival.
With competitors worldwide nipping at their heels, Indian IT majors are looking
for clients who undertake ‘strategic offshoring’. In simple terms, that means
clients who offer long-term contracts, where the board rather than the CTO is
involved in taking a decision on what areas to outsource.
Says Goplakrishnan: “If we’re looking for a deeper involvement with clients,
there is a clear need to build relationships with business managers and board
members rather than just the technology chiefs. If we want to add more value,
we must get into the lifecycle of the project much earlier. That is were
consulting comes in.”
That view is echoed by industry analysts. Points out Avinash Vashishta,
managing partner at San Ramon (Calif.)-based offshore advisory fiirm neoIT:
"None of their clients will come to them only for consulting. That might happen
ten years down the line. But as (Indian) IT companies try to move up the value
chain, clients are asking whether you have a wider knowledge of their
businesses like the Accentures of the world. You need a consulting arm to
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5. ICE World Page 3 of 3
convince them."
One of the biggest advantages that Indian companies have, of course, is cost.
By replicating its offshoring model in IT services, TCS plans to hire 60 per cent
of its consultants in the US and Europe, with the balance based in India.
Chandrashekar says that some work which is research-based or requires
elements of training, can be easily offshored.
Similarly, Infosys works on a simple rule of thumb: three India-based
consultants for every consultant overseas. But the real cost advantage kicks in
when companies undertake both consulting as well as implementation and
maintenance work as a package because then, most of the work can be
offshored.
Gopalakrishnan says that by leveraging the global delivery model, Infosys can
undertake consulting and implementation at a 35 per cent mark-down in price
over its global competitors.
“We have 40 delivery centres in 30 countries and cover of 30 industries. It will
take them years to replicate this model. After all, where do Indian IT companies
have a global delivery model? Their operations are dominated by India,” says
Kevin Campbell, global managing director of Business Process Outsourcing at
Accenture.
That’s not Indian IT companies’ only drawback. Reconciling consulting and
software services businesses poses a serious challenge.
Argues Arun Maira, chairman of Boston Consulting Group in India: “They have
different cultures, skill-sets and pay packets. The way they think is different.
So, there are serious issues of integration.” Maira adds another word of
caution: “Indian IT companies are not involved in strategic consulting at all.
Their consulting is geared to selling solutions and getting downstream
revenues.”
Hoping to pull the rug from under the feet of domestic upstarts, the big boys are
also replicating the offshoring model for consultancy much faster than Indian IT
companies are are building global delivery models.
As much as 12 per cent of Accenture’s employees, for instance, are now based
in India and more than half of technology consultant Sapient Corp’s work is
outsourced to this country. "Indian IT companies have still not built a truly
global delivery model, but the Accentures have, after some years in India,
perfected the offshoring model,” reminds Vashishta.
So are the Indian challengers destined to fall by the wayside? Perish the
thought. They contend that it isn’t easy for the multinationals to shift hundreds
of jobs to India without disrupting operations in other countries.
Our homegrown consultants may not have the geographical spread of the
global big boys, but their ability to build domain knowledge in specific verticals
as well as offer far cheaper end-to-end solutions could signal the arrival of an
Indian contingent at the consultancy club.
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