Indian GDM changes the IT services landscape

The global delivery model of Indian majors has changed the way IT services will be delivered in the future, says SRIKANTH RP

JOHN McCARTHY warns Indian companies not to take their process capabilities for granted

IT IS A showdown that could change industry dynamics the way Dell changed the rules of the PC business using its build-to-order model. While India still has a minuscule marketshare of the global IT market, the ability of Indian vendors to deliver almost every possible IT service using the global delivery model (GDM) has changed the way services are being delivered. From plain application development, Indian vendors have innovated to bring higher-end services such as ERP implementation, systems integration and even consulting to the GDM. This model has also changed the way Indian vendors have positioned themselves—by pushing the low cost factor angle. That positioning has now moved from cost to quality to process expertise.

When Kris Gopalakrishnan, chief operating officer and deputy managing director, Infosys, says that Indian players are well-positioned to take control of the future of the IT services landscape by making the GDM mainstream, it is a radical change for India’s software services industry.

“By making the GDM mainstream, we have shifted the battle to our battlefield. From being rank outsiders, we have become heirs to the new model of delivering IT services. The power of GDM provides us with further headroom for rapid growth while changing the competitive landscape,” states Gopalakrishnan on how India is positioned to take the GDM to a higher level. This model, which was essentially thought of as an offshore model which could be easily replicated by MNC players, is now threatening the established players as a host of Indian companies are winning multi-million dollar deals.

Until a few years back, most analysts and even MNC companies believed that Indian IT companies were successful only at the low-end of the chain using traditional low-cost offshore models. But a landmark event changed this perception. This was the much talked about $100 million GE Medical Systems deal awarded to India’s largest software services player, TCS. Not only was this deal the largest contract ever awarded to an Indian player, but the project involved rollout in more than 30 countries spread across America, Europe and Asia over two years. This deal effectively put a rubber stamp on the global delivery capabilities of Indian companies.

Says John McCarthy, vice-president, Forrester Research, “This deal opened the eyes of MNC vendors who used to think that Indian vendors were typically addressing deals that they did not even consider bidding for. Also, unlike in earlier years, Indian vendors are pushing the traditional boundaries of what can be done in remote locations. From just application development or maintenance, Indian organisations are now branching out into complex packaged application implementation, database monitoring and maintenance, and infrastructure monitoring and support.” This service capability can be seen emerging even in new technology initiatives. For example, a large UK retailer is using TCS as a key member of its RFID initiative.

Observes N Chandrasekharan, executive vice-president, TCS, “Our GDM follows a totally digitised approach. Whether we deliver our services from India or any of our global development centres, the same processes are followed to ensure delivery and quality.” Chandrasekharan gives the example of an FMCG company which wanted to roll out a CRM application across 14 countries. The solution was configured and delivered from TCS’ Indian CRM Centre of Excellence.

The capability of Indian players using a low-cost GDM to offer almost every possible IT service is highlighted in a recent Forrester Report. The report, a first in the industry on the low-cost GDM model, gives fascinating insights about the way players in two distinct camps are trying to capture the IT services market. The findings are significant for the Indian IT industry as it takes into account the top three players from the two main starting points—onshore suppliers such as Accenture, EDS and IBM, and Indian offshore players such as TCS, Infosys and Wipro. While the Indian companies have excellent processes and quality, IBM, EDS and Accenture have domain expertise. Both sets of players are now trying to take marketshare from the other camp.

Comparing capabilities

KRIS GOPALAKRISHNAN says that while newcomers grapple to decode the genes of the current GDM, Infosys will focus on evolving next-generation processes to ensure that its intellectual property cannot be easily replicated

While some think that Indian IT service providers have essentially an India-centric model, this perception is bound to change if you look at the geographical presence of the top three players. TCS has 99 international offices with global development centres in 17 locations abroad, in addition to 14 development centres in India. Infosys has a presence in 17 countries and employs around 700 foreign nationals from more than 35 nations. Wipro has 19 sales offices in the US and 12 in Europe. Its development centres are spread over US, Canada, China and Japan.

Additionally, Indian players are trying to bolster their global presence through acquisitions. Wipro, the most aggressive player of the lot, has already made two acquisitions—the global energy practice of AMS and NerveWire—to strengthen its consulting expertise. Infosys did a first when it acquired Australia-based Expert Information Services. While MNC players are also boosting their offshore presence in India, Indian players currently hold a big advantage in terms of process expertise.

States Sudip Banerjee, president, enterprise solutions, Wipro, “Over the last five years Indian players have invested heavily in building robust processes and infrastructure to provide end-to-end IT services and support from India. Today we have evolved a model which helps us provide IT services from any location as per the client’s needs.” The focus on standardised processes by Indian players has also meant that most MNC vendors have been forced to change their proprietary processes that could not be easily measured for the value they delivered.

On-demand GDM

The Forrester report gives the example of a client who stated that the typical time-and-budget variance with IBM was 20 percent—this dropped to less than one percent when the application work shifted to Infosys. Even in terms of project complexity, Indian vendors have sufficient references to show the complexity of work that can be executed using the GDM. For example, the report mentions the case of TCS which replaced 300 legacy systems with an Oracle 11i suite of financial, supply chain and order management systems at 70 sites for GE Healthcare. It managed the roll-out over three years, at the peak of which 300 TCS employees were managing eight software releases.

Another big project using the GDM was demonstrated by Wipro when it bagged a project to deploy an end-to-end integrated broadband service delivery platform for 186K, part of the Lattice group. Apart from the complexity of the project—involving multiple technology domains and 350 business processes—Wipro faced an uphill task since it had to complete the project within a tight time-frame across 45 locations. Armed with 200 people, Wipro executed the project using the GDM in a span of only four weeks. Declares Banerjee of Wipro, “We were the first Indian IT consulting organisation to execute a large-scale systems integration project (worth $70 million) using a GDM. What was more important was the fact that this deal was won against competitors such as Accenture, Logica, Cap Gemini, IBM, EDS and KPMG.” Unlike in smaller projects, Wipro was responsible for the complete system including hardware, software, systems integration and managing applications.

Wipro was also involved in a SAP R/3 implementation project for a large hi-tech manufacturer of rechargeable batteries. The implementation and roll-out were carried out in three languages—Mandarin, Taiwanese and English—across eight locations—Hong Kong, Beijing, Shenzhen, Tianjin and Suzhou in China, Taiwan, Singapore, and Batam in Indonesia—over 14 months. Apart from the complexity of the project (involving supply chains and data to be collected in multiple languages across these locations), Wipro also faced an uphill battle when it found itself in the midst of the SARS crisis. But due to the company’s global delivery capabilities, the project was completed within the time-frame and budget.

While Indian vendors have a significant competitive edge in process expertise, it remains to be seen how they cope with multi-cultural issues when they scale up. Says McCarthy of Forrester, “Indian players should not take their process capabilities for granted. Unlike global majors, Indian players do not have the experience of managing multiple cultures. Apart from building offshore capabilities, the sheer scale and speed of MNC players can nullify the advantage Indian organisations have built if they do not continue to improve.” For the record, Accenture is bigger than the entire Indian software services market, and CSC is investing close to $20 million to improve its process delivery capabilities. Most Indian vendors score poorly because of their technology-centric messages which can alienate business buyers.

Recreating the Indian GDM

According to N CHANDRASEKHARAN, TCS’ GDM follows a totally digitised approach

When MNC players were busy adding offshore capabilities at a rapid pace, it was argued that they could use the same price strengths of Indian companies to undercut and bleed the latter to death and create a GDM similar to the Indian model.

Counters Banerjee of Wipro, “It will be extremely challenging for MNCs to repeat the GDM of Indian firms because of the lack of standard processes and methodologies. Also, adoption of the GDM has to be coupled with a change of mindset. As of now, their presence at offshore locations is to benefit from the cost arbitrage which is evident from the fact that a large chunk of work being done in their offshore centres is not strategic. Also, moving to a GDM model will involve restructuring their existing business models which are primarily based on partner-based fiefdoms that lack integrated global sourcing capabilities and lead to a high cost structure.”

The good news is that most major Indian companies are building even greater process capabilities, forcing global

firms to catch up. Says Gopalakrishnan of Infosys, “While newcomers grapple to decode the genes of the current GDM, Infosys will focus

on evolving next-generation processes to ensure that our intellectual property cannot be easily replicated. For example, services such as consulting and systems integration can be delivered using the GDM.”

Where will this race lead?

SUDIP BANERJEE says that Wipro has evolved a model which helps it provide IT services from any location as per the client’s needs

As players in both camps approach the mountain from two different sides, it will be interesting to see which will eventually seize strategic control. Comments McCarthy of Forrester, “The move to a low-cost GDM will impact the IT services industry by continuing price deflation, a rising level of M&A activity, and increased focus and spending on marketing. For Indian vendors, dedicating product marketing resources to their value-added processes will be critical as onshore-based suppliers close the offshore gap. Secondly, vendors will have to segment the market more precisely since some clients will only be interested in onshore, others will want simple offshore work being outsourced to India, while the leaders will require a low-cost GDM.”

In the new services landscape, the potential of Indian majors to become multi-billion dollar global players is bright. However, as they are well aware, actual performance is something else. As in any race, only a few win—the rest are simply gobbled up by obscurity.

srikanth@expresscomputeronline.com