A large European company recently engaged Infosys to shift its data centre operations to a private cloud infrastructure and the $7-billion Indian IT services firm successfully brought about this transformation along with making more than 1,000 servers redundant, resulting in multiple benefits like, among many others, lower energy and real estate costs. It shows the definite shift towards how India is now being viewed as an “outcome sourcing” destination that provides definite innovative results and not just an outsourcing region where efforts are being paid for being lower cost.
The $70-billion IT & BPO services industry in India is thriving on the well-established global delivery model (GDM) where cheaper cost is the key attractiveness. Under this model, the efforts of the Indian IT companies are paid in two main pricing mechanisms — time & material (T&M) and fixed price. However, all this is changing with the two key markets for the Indian IT industry — North America and Europe — under severe economic pressure, looking at ways and means to spend less on technology but still wanting the optimum results calling for innovative capabilities.
Chandrashekar Kakal, senior vice-president and global head, business IT services, Infosys, said: “India is now looked at as an outcome sourcing destination and this is a major shift.”
“The country is not seen being seen as a low-cost arbitrage but is becoming more of an outcome sourcing provider because of the capability, talent and solution that we have built over a period of time,” said Kakal.
Taking a cue from this shift, iGATE has unleashed an aggressive multimedia campaign targeted at mega corporations in North America in order to shift the outsourcing model from an efforts-based model to a strategic results-based approach. iGATE CEO Phaneesh Murthy said: “The old model of IT vendors getting paid on the flawed metric of effort without any risk being shared is dying in today’s times. Corporations are moving away from the T&M model that has curbed innovation in the IT industry.”
The Indian IT industry also realises that the software services segment is increasingly getting commoditised where the key selling point is lower prices. This model will become increasingly untenable for large Indian IT companies that are now putting their efforts to develop solutions, platforms and consulting capabilities where they are able to showcase their innovative abilities.
TK Kurien, CEO, IT business, Wipro, said: “One end of the market is getting commoditised and the biggest game-changer is to create value. Our goal is to transform ourselves from just an outsourcing outfit to a technology company.”
This change in strategy is also reflected in the kind of deals being bagged by Indian IT firms. Pradeep Mukherji, president and managing partner, Avasant, an IT-BPO advisory firm, said: “Outcome-based deals have a direct impact on the business of the clients. We are seeing a trend towards these kinds of deals. It is not necessarily all large deals are fully based on the outcome model. Of the large contracts, 30-40% will have an outcome-based component.”
The innovative ability of Indian IT companies is also happening from its traditional bread-and-butter services like application development and maintenance, testing, infrastructure, BPO, and from the new-age services like products and platforms.
Kakal said, “Clients are looking at lot of innovation in the service line itself and they are expecting faster response from us in an agile manner.”
Ankita Somani, IT analyst, Angel Broking, said: “There is definitely a shift from the low-cost service model to high-end services like consulting, package implementation and now to products and platforms. Indian IT services companies are investing heavily into these areas to build up expertise.”