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iGate CEO Phaneesh Murthy aims to shake up IT industry billing model

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iGate Corp Chief Executive Phaneesh Murthy.  (Reuters) iGate Corp Chief Executive Phaneesh Murthy. (Reuters)
SummaryAnalysts expect iGate's earnings to grow the fastest among key rivals including Infosys.

2017. By comparison, the industry may earn about 22.5 percent of revenues through that billing model by 2018, predicted Ray Wang, principal analyst at Constellation Research based in California.

BETTER DEAL?

India's $108 billion-a-year outsourcing industry got there by throwing hundreds of thousands of bodies at everything from selling credit cards by phone to processing mortgages and managing complex computer networks from remote locations.

Peter Bendor-Samuel, chief executive of Everest Group, a U.S. consultancy that advises clients on outsourcing, said outcomes-based pricing is more opaque than the time-and-material model.

"In the short term, that creates margin opportunities. Over the medium to long run, clients recognise that and the way they deal with that opaqueness is to introduce competitive pricing, and what does competitive pricing do? It compresses margins."

"Complicated models lead to mistrust, and also complicated models are much harder to scale," he said.

Murthy, however, believes outcomes-based billing lends itself to the move towards providing services through technology and away from deploying large numbers of people.

If a company can deliver results with fewer people, costs come down. Margins for outcomes-based work are 7-8 percentage points higher than for traditional work, Murthy said.

The time-and-material model encourages IT companies to add people because they bill based on man hours.

Sundararaman Viswanathan, a Bangalore-based manager at consultancy Zinnov LLC, said iGate's campaign to push outcomes-based billing is good for the industry: "It's a game changer because they are forcing everyone to start talking more openly about the pricing models."

Analysts expect iGate's earnings to grow the fastest among key rivals including Infosys and U.S.-based Cognizant Technology over three to five years at a compound average annual rate of 19.5 percent, Thomson Reuters data showed.

Chandrashekar Kakal, senior vice president and global head of IT services at Infosys, said that while outcomes are important to customers, Infosys views them as a part of its overall offering and not as a driver of pricing.

"Pricing model could be anything, so you keep it aside," Kakal said on the sidelines of an industry event on February 14.

Murthy, who still owns Infosys shares from options he received when he worked there, argues that outcomes pricing is a better deal for clients and enables him to answer questions he said frequently arose at his earlier employer.

"When I was in Infosys, while it had a great model, the four or five questions which customers always asked me, which I couldn't find an answer to were: you learn at

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