Indian IT at inflection point

November 6th, 2015 by Rahul Jain No comments »

For T.K. Kurien, the 57-year-old boss of Wipro Ltd, running India’s third largest software services exporter is becoming more challenging with every passing day.outsourcing17

“There is this huge change…the way clients are buying technology, the impact it is having on the way we have traditionally worked,” Kurien said in a recent interview.

Kurien, who is based out of Bengaluru, spent just 13 of the 90 days in the quarter ended September in India—the most he has spent travelling in a quarter since taking over as Wipro’s chief executive officer (CEO) in February 2011. He spent most of the time in meetings with executives at Wipro’s 1,000-odd clients, trying to understand their technology needs and how the company could help them become more efficient.

Vishal Sikka, boss of Infosys Ltd, Wipro’s cross-city rival in Bengaluru, is more eloquent in his description of the way technology is impacting India’s $146 billion software services industry.

“I believe that the traditional model of IT (information technology) services is dying,” Sikka has said repeatedly in the 15 months since taking over in August 2014 as the first non-founder CEO of Infosys, the 34-year-old firm set up by N.R. Narayana Murthy and six friends in 1981.

“This is the biggest phase of technology disruption I am seeing,” said Natarajan Chandrasekaran, CEO of Mumbai-based Tata Consultancy Services Ltd (TCS).

The change and disruption Kurien, Sikka and Chandrasekaran—who helm companies that together employ more than 650,000 engineers and posted over $30 billion in revenue for the year ended March 2015—are referring to is the way commoditized IT deals are changing.

Historically, engineers at Indian IT vendors traditionally managed the computer infrastructure of clients and wrote codes for some of the largest banks, including Citigroup Inc. and retailers, such as Wal-Mart Stores Inc.

With the advent of cloud computing—in which clients buy computing power and services over the Internet from a third party—almost all IT vendors have rapidly built up their capabilities to offer these shared services or tied up with cloud service providers such as Inc. and Microsoft Corp.

Indian IT vendors have also started deploying small teams to evaluate the potential of some of the disruptive technologies—TCS and Infosys, for example, are looking to build applications around blockchain technology, which is essentially an electronic system currently being used by crypto currencies, including Bitcoin and Ripple, and helps in authenticating transactions.

Sarvesh Sharma/Mint
Click here for enlarge
These investments come at a time when banks and other financial firms—their customers—are looking at the use of disruptive technology, including blockchain technology, to cut settlement times and lower costs tied to international payments.

At the same time, IT vendors are being forced to bring in elements of disruptive technology in their service offerings, promising to offer greater efficiencies for their clients, and introducing new approaches, including user-centric approach of Design Thinking in their engagements with clients.

Remaking IT firms

IT vendors themselves are cutting their dependence on engineers and increasing their focus on non-linear growth—which means growth in revenue is not linked to growth in the number of employees—by automating a lot of traditional tasks. Finally, most software services exporters realize that not all technology innovations can come from within the organization and they need to partner with start-ups, thereby enabling them to take the technologies of some of these start-ups to their clients.

“We are seeing a big shift in adopting the culture of innovation from Silicon Valley and the rest of the world,” said Ray Wang, founder of Constellation Research, a technology research and advisory firm. “There is a big push to remake the IT services firm as a strategic partner on co-innovation and co-creation.”

“It is becoming a challenge,” laughs Kurien. “How do you balance it all and, at the same time, keep recording higher growth rates?”

Growth in the short-term is not just a challenge for Wipro but even for firms like TCS. Wipro hardly recorded any growth in the first quarter April-June period of this fiscal year and TCS, too, grew at just 3.5% in US dollar terms in the first quarter and 3% in the second quarter period.

This has worried a few analysts, who believe TCS may actually struggle to grow at over 10% in US dollar terms and less than 12-14% in constant currency terms, as projected by software services industry lobby group Nasscom, during the fiscal year ending March 2016.

“We have to live and re-calibrate to what you call is the ‘new normal’ growth rates—growing at 13-15% annually. I don’t think any Indian IT firm is even factoring a 20% annual growth in the next two-three years,” said a senior executive at TCS, who declined to be named as he is not authorized to speak with the media. “But, certainly, as more digital contracts come up, and new investments are being made (by all IT firms), one can again look to clock growth of 15%-plus in three-four years’ time”.

As the Indian IT industry approaches an inflection point, the bosses at these companies are shaking up the way the firms have traditionally operated and make each of their firms future-ready—and, thereby, aim to post higher growth rates in the future—by investing in new-age technologies.

“Infosys, Wipro and others were all behind about three years ago. They suddenly got religion and are working furiously to catch up (with their global peers). They (Indian IT firms) still have to keep the old business going, but the shift to the front end of design and strategy is happening and the Indian IT services firms are now seen as more strategic than where they were three years ago,” said Wang of Constellation Research.

One of the ways the three poster boys of the Indian IT industry are making themselves future-ready is by re-skilling their existing workforce to learn competencies in these new-age technologies. Infosys has already made 54,000 of its existing workforce attend day-long classes in “design thinking”, the user-centric approach which has helped the company win more than $100 million deals and helped its engineer write better codes.

Wipro is in the midst of re-educating its workforce on new languages, while TCS aims to train more than 100,000 of its engineers in this fiscal year in cloud computing, machine learning and other areas of digital technologies.

Renewed optimism

And again, the early results are encouraging. Since Sikka took over in August last year, Infosys is a more confident, 180,000-strong company now than it has been for some time. Rivals are seeing a more aggressive Infosys when IT vendors are making pitches to clients, even if the company is winning new business at the expense of margins.

It was not a surprise when Infosys’s sequential growth outpaced TCS for the second successive quarter in the July-September period; the last time Infosys’s revenue growth was higher than TCS for the first two quarters in a row was in the April-June and July-September quarters of 2008.

This renewed optimism is explained by a series of steps taken by Sikka. Sikka first won the trust of his employees and, eventually, brought down attrition rates. It was no easy task. Infosys was haemorrhaging talent, with one in five employees leaving the company between April and June last year. Now, Infosys has the lowest attrition rate among the Big Three IT firms.

Sikka then put his trusted lieutenants in important roles, went for a management and organizational restructuring earlier this year, and started to marshal his team to win the confidence of clients. It helped that in the April-June period, it recorded 4.5% sequential revenue growth in US dollar terms, and 6% in the second quarter.

Agreed, Infosys has warned of a softer third and fourth quarters. Still, most analysts believe that the investments being made by Sikka should help transform Infosys into a $20 billion next-generation IT services firm by 2020.

Not for nothing, both Sikka and Kurien believe that Infosys and Wipro should see the “first meaningful impact” of automation on the company’s results by the start of fiscal year 2017. This truly would be a big step in Indian IT’s embrace of non-linear growth.

“The catch-up mode India-centric vendors continue to operate in places greater pressure on their abilities to balance innovation and sales growth,” said Bozhidar Hristov, an analyst at US-based technology research firm TBRI. “Recent investments in ‘new’ technologies illustrate their aspirations to depart from their status of low-cost outsourcers.”

At the $15.5 billion TCS, the single biggest challenge ahead of Chandrasekaran is to find ways to generate close to $2.5 billion in new business this year, if the country’s largest software exporter expects to outpace the average growth of 12-14% Nasscom has forecast for the IT services industry in FY16.

It is an onerous task as companies across the world are pressing their IT vendors for cost savings and there is intense pricing pressure for deals that are coming for re-bids.

“TCS clearly has reached a point where generating more business from some of its largest clients is nearing saturation,” said the head of research at a domestic brokerage who spoke on condition of anonymity. “Some of its largest clients bring in more than $700 million in annual revenues. How do you continue growing with such large accounts?”

Client mining

TCS itself is trying different approaches to keep up with higher growth rates. The Mumbai-based firm introduced its artificial intelligence (AI) platform, Ignio, which identifies, diagnoses and learns from issues in the IT infrastructure and automates basic technology work, thereby doing away with the need for engineers.

TCS set up a new business unit called Digitate dedicated to its recently launched Ignio platform and other next-generation products, and believes it has the potential to become a multi-billion-dollar business. The move makes TCS the second IT firm globally to carve out a separate unit focused on products using disruptive technologies; International Business Machines Corp. (IBM) set up IBM Watson, an AI supercomputer system, last year.

“TBRI expects TCS’s Ignio AI platform to impact revenue growth positively in the next 12 months as the platform will play a core role in process automation within the company’s infrastructure services unit. Ignio had a sixfold increase in paid pilot client projects, from three to 18, in the past six months,” said Amy McLaughlin, another analyst at US-based research firm TBRI.

Chandrasekaran for now declined to share by when Digitate can become a billion-dollar business for TCS. However, executives at TCS believe that Digitate should become a $1 billion annual business by 2019-20.

Infosys and Wipro, in addition to investing in these new-age technologies, are also giving a fillip to its client mining or ability to generate more business from their existing clients, through a clutch of measures. This has started showing early benefits. Infosys managed to increase business from its top 10 clients in April-June by 5.7% from the January-March period; during the second quarter, too, the share of business from its top 10 clients was the same as in the first quarter.

Although Wipro’s two largest clients outsourced less work to the IT vendor, the company managed to increase business from its next eight largest clients by 2.8% during the July-September period.

Two of the biggest challenges ahead of Indian IT firms remain in areas where all of them are renewing their focus—re-skilling the existing workforce and how many IT firms are able to monetize their new products and platform offerings.

“Talent management, including both training and re-skilling existing employees, will remain a key investment initiative as the development and delivery of new technologies require different skillsets compared with legacy outsourcing services,” said McLaughlin of TBRI.

As more outsourcing deals have elements of digital technologies, Indian IT vendors need to evolve from back-end outsourcing firms to “thought leaders”, says Wang of Constellation Research. “They have to change how they engage with customers by being proactive in solution design vs reactive, and they can do this by hiring more digital artisans.”

According to Thomas Reuner, managing director of IT outsourcing research at HfS Research, supporting clients in their digital transformation requires broad investments in skills and capabilities.

“Indian providers remain selective, if not coy, following the likes of Accenture (Plc) and IBM in their investment strategies,” said Reuner. “The likes of IBM and Accenture have broader and deeper industrialized vertical assets while Indian providers are more selective in terms of verticals and assets. Hence, there are no simple answers as to the winning strategies. Much will come down to balancing transformational capabilities and commoditized delivery of services. Crucial will be devising new governance and management approaches to help clients in their digital transformation.”


Survey highlights post-election surge in IT outsourcing

November 6th, 2015 by Rahul Jain No comments »

Outsourcing spend more than trebled between July and September compared to the second quarter of 2015, with £1.77bn committed to IT deals alone, according to new research.outsourcing16

The UK Quarterly Outsourcing Index found the total value of contracts agreed during the quarter was worth £2.21bn, when other deals such as business-process outsourcing were factored in.

It said the majority of the spend had come from central government, with departments agreeing seven contracts worth a total of £1.73bn for a mixture of multi-scope IT infrastructure deals and shared-service agreements for back-office services. According to the index, the spending figure marked a 69 per cent increase in government outsourcing spend year-on-year.

The total value of agreements signed by local authorities represented a 67 per cent year-on-year increase, with councils largely procuring a mixture of multi-scope IT outsourcing contracts focused on new infrastructure, along with deals for revenues and benefits, customer-services and payroll.

The research, compiled by IT analyst Nelson Hall for outsourcing provider arvato Financial Solutions, also found that that the length of contracts agreed during the July-September quarter had increased by more than one-third compared with the previous three months.

Bryan Mouat, UK and Ireland chief executive officer at arvato, said “political certainty” following May’s general election had clearly had a positive impact on the industry.

“With market confidence returning, organisations across the private and public sectors are continuing to turn to outsourcing partners for the expertise and technology to help them achieve their objectives,” he said.

Debra Maxwell, arvato’s chief executive responsible for the public sector, said that new funding cuts expected later this month in Chancellor George Osborne’s spending review would drive further outsourcing growth in local government.

“Councils are increasingly looking to change how they operate and deliver services to leverage significant savings,” she said.


Global Life Sciences BPO Market is Expanding at a remarkable CAGR of 21.5% from 2013 to 2019

October 27th, 2015 by Rahul Jain No comments »

According to a recent market study published by Transparency Market Research (TMR), the global life sciences BPO market is anticipated to reach US$596 billion by 2020, from US$152.5 billion in 2012. The other factors that are expected to drive the global life sciences BPO market are, patent expirations which will give a major boost to the CMO industry, restructuring of pharmaceutical production, and the surging costs of research and development.outsourcing15

Expanding Contract Manufacturing Organizations Market to Fuel Market Growth

The global life sciences BPO market is segmented on the basis of pharmaceutical outsourcing and geography. On the basis of pharmaceutical outsourcing, this market is segmented into two broad categories namely, contract manufacturing outsourcing and contract research outsourcing. The segment for contract manufacturing outsourcing is subdivided into active pharmaceutical ingredients manufacturing, final dosage form (FDF) manufacturing, and packaging.

The contract research outsourcing segment is further categorized into the following: drug discovery, pre-clinical studies, early phase clinical research services (Phase I/IIa), Phase IIb/IIIa, Phase IIIb/IV, medical writing, pharmacovigilance, clinical data management, regulatory services, clinical monitoring, biostatistics, protocol development, and site management. The global market for contract manufacturing organizations is expanding rapidly, which in turn will stimulate the demand for generic drugs and will also lead to greater investments in R&D by life sciences enterprises.

Asia Pacific Life Sciences BPO Market to Record Highest Growth Rate

Geographically, the global life sciences BPO market is segmented into Europe, Asia Pacific, North America, and Rest of the World. North America is the largest regional player in the global life sciences BPO market, however it is the Asia Pacific region that will record the highest rate of growth during 2013-2019. Ongoing trends indicate that the Asia Pacific life sciences BPO market will develop at a CAGR of more than 21% from 2013 to 2019.

The factors that will propel the Asia Pacific life sciences BPO market are widespread adoption of newer technologies, improvements in intellectual property protection rights, and favorable government regulations. The other additional factors that will fuel the growth of the Asia Pacific market are availability of skilled professionals, low labor costs and miscellaneous overheads, and tax benefits.

Unforeseen costs that have hampered the growth of the CRO market have in turn hampered the growth of the global life sciences BPO market. Other restraints in the overall life sciences BPO market are stringent and differing regulatory approval systems in every country and data safety concerns.

The key companies in the global life sciences BPO market are Wipro Ltd., Quintiles Transnational Corporation, Piramal Healthcare, PRA International Inc., Parexel International Corporation, Patheon Inc., International Business Machines Corporation, Infosys, Fareva, ICON plc, DSM, Cognizant Technology Solutions, and Accenture plc amongst others.


Khaitan, Greenberg sell Volvo IT to HCL for $138m

October 27th, 2015 by Rahul Jain No comments »

Khaitan & Co advised IT and software outsourcing company HCL Technologies on its acquisition of Swedish multinational group Volvo’s external IT business for $138m (Rs 895 crore) in an all cash deal. London based law firm Greenberg Traurig Maher LLP represented Volvo.outsourcing14

Khaitan Delhi partner Joyjyoti Misra, senior associate Shruti Singh and associate Sanchit Agarwal acted for HCL

The two companies have also signed a letter of intent under which the Volvo Group will also outsource its IT infrastructure operations to HCL Technologies for an undisclosed amount for five years. Around 2600 Volvo personnel affected by the transaction would be offered to move to HCL according to report by Firstpost.

The transaction will be closed during the second quarter of 2016 and will provide both cost savings and a capital gain, Volvo said.


Davao attracting IT-BPO firms

October 26th, 2015 by Rahul Jain No comments »

Davao is turning to be a sweet spot for Information Technology (IT) and Business Process Outsourcing (BPO) ventures and investments, as the city in the south is more than ready to absorb the spillover of opportunities from the metropolis and opens its doors to urban development and a buoyant property market.outsourcing13

Local real estate consultancy firm KMC Mag Group, the Philippine associate of London-based property advisor Savills, made this observation in its website last week, as posted by KMC Mag’s analyst, Anna Maria Christina Marco.

Marco said Davao is emerging as a top BPO-IT destination in the country, as it offers a great blend of corporate environment and a laid-back countryside living in a tourist hotspot.

She pointed out that several micro-districts for the office sector have already been established in the area, just about three years after developers considered to tap Davao’s potential for office development.

Among these micro-districts are: the Lanang BizPark, Damosa IT Park, SM Lanang Premier, Davao Finance Center, Abreeza Complex, Pryce Business Park, Filandia IT Center, Matina IT Park, Matina Town Park, and the Felcris Centrale.

“With several BPO hubs and business districts developed throughout Davao, various contact centers have been set up in the city,” Marco wrote. “The BPO sector’s services have then expanded into data entry/transcription, software, graphics, and content development, as well as engineering and design. The service expansion has helped sustain the growth momentum for BPO and KPO (Knowledge Process Outsourcing) as well.”

For now, BPO companies Convergys, Concentrix, Ibex Global, and VXI Global have set up offices in Davao.

In 2013, according to Marco, the BPO office supply in Davao was approximately 66,000 square meters, and has grown steadily since then. She said there is now about 92,400 square meters of available office space in the city.

Given the robust office market, Marco foresees some 47,000 square meters of office space being added yearly to the present stock in the next couple of years.

“By 2017, the BPO office supply is anticipated to grow to as much as 139,800 square meters,” Marco said. “With this expansion in Davao’s office market, the city is poised to become a new BPO frontier.”

In the first half of the year, office vacancy rates in Davao rose to 15.89 percent, due mainly to the completion of new office spaces, according to Marco.

The market, she added, also awaits new office supply from major office developments, such as the 4,810-square-meter Ayala Business Center at Matina Town Square in the first quarter of 2016, the 14,000-square-meter Matina IT Park Building 2 in the third quarter of 2016, and the 28,620-square-meter Davao Finance Center at the Davao Park District in the fourth quarter of 2017.

Marco also noted that Davao offers investors a lower cost of doing business, since upper rental prices in the city are at around P480 per square meter, while the lowest net rental rate in the area is at P350 per square meter.

Marco said the challenge that the Davao office market faces is the need to build office developments that would cater to services other than the what the BPO industry offers.

“Landlords looking to building in Davao should focus on building BPO-ready office spaces, which won’t only cater to BPO firms, but will also be attractive options for other investments and businesses,” Marco pointed out. “These offices are designed to meet modern business needs and match the current office trends, focusing more on efficiency instead of the traditional setup.”

She further advised: “Developers should not just build offices with modern business amenities and 24/7 support facilities, but should also aim to create a live-work-play environment. Putting together various residential options, office spaces, shopping outlets, and leisure venues just in one easily accessible area would make Davao a forward-thinking BPO destination.”


Toll dumps IT outsourcing plan

October 23rd, 2015 by Rahul Jain No comments »

Logistics giant Toll has revealed plans to dump its plans to outsource key parts of its IT infrastructure, as well as application support and development, in a rapid and unexpected turnaround.outsourcing11

Yesterday, Toll group director of Corporate Affairs Andrew Ethell issued an internal email at the company, which has been sighted by Delimiter. In the email, Ethell announced a decision to “stop” Toll’s Global Technology Transformation (GTT) project.

Not much is known about the GTT project outside Toll, but Crikey reported in February this year that the company was considering outsourcing key aspects of its IT operation, with suppliers such as Optus and Infosys in consideration. At the time, Toll Group spokesperson Christopher Whitefield told Crikey that the program of work would take about 18 months.

In Toll’s February results session, Toll Group managing director Brian Kruger said: “The Toll Global Technology Transformation, the next stage of Toll’s IT strategy, will drive significant efficiencies throughout the company, reduce IT operating costs and provide Toll with a leading edge platform to support its growth.”

Ethell said in his email that the GTT project had been established to outsource part of Toll’s IT infrastructure and application support and development tasks. The project was one a number of significant transformation projcts currently underway in Toll, he said.

However, Ethell noted that a GTT project review of the last six weeks had validated the net business benefits as being “lower than expected”.

“As a result the Steering Committee has made a decision to stop the GTT project. This is effective immediately. We will continue to focus on our other transformation projects,” the executive wrote. “These will continue alongside our projects that are client critical, regulatory, risk driven or have a compelling business case.”

Ethell said Toll remained committed to its technology principles which were “an important plank” in the company’s strategy, and included: A best in class, streamlined and cost efficient IT environment ; Resources focused on value-add activities; Industry leading technology capability; The ability to rapidly deploy new business solutions globally; And the ability to leverage Toll’s scale to maximise procurement opportunities.

In the email, Toll Group CIO John Ansley said: “While we realise this decision will impact our people, service partners and vendors, this decision is a sign of the strength of governance processes in place for all of our projects. We will be having face to face communications; as scheduled, with our impacted employees to communicate this change and our priority remains to support our customers and employees. Toll remains committed to its technology principles which includes making Toll the industry leader in technology capability.”

Delimiter has invited Toll to comment further on the situation.

Very interesting move from Toll. It is quite rare that a company decides to go through an IT outsourcing process and then abandons the effort as it is being implemented.

So what do I think is happening here?

I suspect that what is going on is that Toll has realised that its business — logistics and transportation — is fundamentally based in 2015 on having solid internal technology platforms. As it went through the process of IT outsourcing, I suspect it realised that it would be trading away some of its competitive advantage if it did not retain some of these systems in-house and keep on focusing on developing them itself.

Either that, or its IT infrastructure is not mature enough to go through an outsourcing process (you see this in some organisations that have not stayed up to date with their underlying base IT infrastructure platforms — hardware, software, virtualisation etc). This article from iTnews would appear to support that theory, detailing as it does a number of legacy platforms at Toll.

Either way, it is fascinating to see this happen. I would welcome (probably anonymous) comments from anyone who could fill us in on what is likely to be happening inside Toll at the moment.


Brazilian IT outsourcing group opens third center in Romania

October 23rd, 2015 by Rahul Jain No comments »

The local subsidiary of the Brazilian IT outsourcing group Stefanini will open its third IT support center in Romania next month. This will be located in Targu-Mures, central Romania, and will hire about 50 people in one year, according to the company.outsourcing10

Stefanini already has an IT support center in Bucharest, which employs 1,000, and another center in Sibiu, with a team of 250. The new IT support center in Targu Mures should reach 100 employees in two years. The company has already started recruiting people who speak German and Hungarian for the “service desk analyst” position.

Romania is the fourth most attractive market in the world for investors in outsourcing, according to a ranking carried out by Cushman & Wakefield’s this year.

Over 50,000 Romanians are currently working in the local outsourcing companies, according to US company CGS.


Protected by تهنئة
Get Adobe Flash player