Peter Bendor-Samuel, founder & CEO of management consulting and advisory firm Everest Group is one of the few global consultants who have been watching the Indian IT outsourcing landscape quite closely. In an interview with Bibhu Ranjan Mishra , he talks about how the Indian IT services firms have now reached a level of maturity when they are expected to be more acquisitive. He also talks about how Tata Consultancy Services (TCS) has been able to differentiate itself from rest of the pack backed by consistency in strategy and execution. Edited excerpts:
Recently we saw Cognizant, an offshore-centric IT services company showing rare aggression BY acquiring US-based healthcare solutions provider TriZetto for a whopping $2.7 billion. What does it mean for Indian IT services companies?
It (Cognizant’s acquisition of TriZetto) is really going to change the competitive dynamics. But there is no doubt that companies like Infosys and TCS can do it because they have got great balancesheets to do these kinds of things. My guess is they will (do it). This is time for the industry to consolidate and this is an appropriate time for Indian heritage firms to step up their inorganic growth pursuits.
You have been tracking the Indian IT services companies quite closely for long. Are you seeing any change in the way these companies operate now as compared to few years ago?
Clearly, the Indian IT services majors are a matured lot now. They have got much more seasoned leadership. Look at TCS; it has a very seasoned and matured leadership team, very strategic in operation. They are riding a huge wave. They are running down the hill. I can say that no one else at the moment has that kind of capability. The next step for them is to be acquisitive.
How has TCS managed to leapfrog the rest of the peers?
For TCS, much has to do with their leadership team. From the early days when they were about an in-ward focused company, TCS was among the earliest ones to take a customer-centric view. TCS thought about value to clients whereas Infosys continued to focus on maintaining high margin. So, TCS was more forward looking and more consistent in their approach. I think Infosys struggled with that. They (Infosys) were too much focused on growth and profits, and customers did not agree.
But TCS has now improved its profit margins to one of the industry leading?
That’s true. But just think how they are doing it? From the very beginning, Infosys was focused on making a margin play whereas TCS became a low cost producer. They (TCS) drove huge investments in labour pyramid to make it flatter and more efficient. They invested more in automation and productivity tools. I think the other aspect is, in this business scale helps. So TCS was able to benefit from the scale advantage. It is particularly important in two aspects. They were able to get large wallet share in big clients while they were able to price lower than Infosys.
With Vishal Sikka at the helm, people say perhaps Infosys is going to make a much larger product play now that before. What is your view?
I think they will unlikely do so at this stage of their services business. They have to do significant intellectual property (IP) acquisition. Infosys has a huge capacity to do that. They have got a great balance sheet and the right structure. They have got a separate organisation which they can run differently for products. I like that structure. Putting the investment to the product side makes a lot of sense. I think that will be a very attractive strategy to look for.
What are the key changes that you are seeing at Infosys after the joining of Vishal Sikka?
I think he is still trying to have the feet on the ground. He has met many clients. But these are still early days. I think his next step will be get talents. I won’t be surprised if he does not get talents from outside. It is not that Infosys does not have enough of them inside, but more so to drive the kind of changes he wants to. I would encourage him to bring in non-Indian talents. Infosys needs to do with multi-cultural aspects as it is very Indian-centric now.
What are your view about Wipro and HCL Technologies?
There is no doubt that Wipro has become a much aggressive company, led by T K Kurien. Wipro is competing in the multi-tower transactions in domains which used to be the focus of companies like IBM and Accenture earlier. So, they are certainly seeing a lot of momentum right now. As far as HCL is concerned, while they are very much focused on infrastructure services, they need to strengthen their applications and BPO offerings.
Beyond these four companies, any other companies that come to your mind who can be the challenger in the IT services space?
The guy you should keep an eye on is Virtusa – they are very aggressive, very strong in digital; they are quite well-positioned to take advantage of the new technologies. They are growing very fast. So also is Syntel; they are growing very fast backed by a very aggressive management team. Syntel’s success lies in their ability in turning some key accounts to very large accounts. Then there are companies like Mindtree, but I think they have really to figure out how to differentiate in a market where scale really matters.