But of late, forces of change are being felt. Large firms (the biggest buyers of IT services) are getting smarter about managing their suppliers. Instead of signing separate contracts for development, maintenance, testing, infrastructure, operations, helpdesk etc., they have sliced their operations into much larger chunks and entered into mega-contracts with preferred vendors.
Often the size of these contracts rules out Indian IT vendors which UK company will sign a deal with an Indian firm for 700m over seven years if the annual turnover in the UK is no more than 120m
The West is crying foul of the great hollowing out of their society the movement of white collar jobs to cheaper destinations. However specious this argument, the brutal reality is that it routinely figures in UK Parliament and in US presidential debates. Laws have been passed to prevent jobs from leaving western shores. Erstwhile proponents of globalisation have threatened to pull the plug on free trade agreements. Offshoring is under siege.
There is also a gradual pressure building on billing rates. Historically, Indian IT vendors have been the cheapest of the lot. Now almost all global players (IBM, EDS, Xansa, Accenture etc.) have opened development centres in India using the Indian labour market to keep their prices low. But we dont only compete on cost has been the fashionable argument of Indian firms. After all, arent we CMM-5 Dont we add value just by doing things right the first time, and by doing them better When contested with empirical evidence, this argument appears weak. Any seasoned project manager will tell you that no more than half of his projects were ever on time or of acceptable quality. The fully loaded cost of a business process operator in India is a fifth of what it is in the West. It is hard to argue with cold economics 92 per cent of executives polled recently by Hewitt Associates said they outsourced jobs primarily for cost savings. The fundamental objective for outsourcing has always been cost. Anything else is at best a nice-to-have, or at worst marketing spin.
Competing on cost is risky business unless you have a proprietary process or product that gives you an edge over your competitors. Unfort-unately, project management is a subjective art with few silver bullets. Software development methodologies have been around for years. Ignoring factor cost differences, there is little correlation between CMM-5 and long-term costs (in fact, by some accounts the reverse might actually be true). Given that most companies source their employees from the same markets, labour quality is also nearly the same.
If anything, Indian firms are at a disadvantage on account of the scale of their international competitors. So, what next Where are the Indian IT firms headed What should their value proposition be How can they continue to turn in robust performance in what is becoming a very competitive market First and foremost, Indian vendors must be unwilling to take all this lying down. They must not subcontract or backfill for larger vendors. They must not be satisfied with scraps when the IT majors end up eating the whole buffet. They must remain focused and develop expertise in specific domains. They must gradually exit the manpower-supply business.
The best way to know the intricacies of a large organisation is by dissecting the very heart of its business its operations. This inside-out view helps develop an understanding of the businesss history (what market forces have compelled our client to organise and operate in this way) and its future (what are our clients constraints in the face of new market developments).
This objective view of complex issues in specific business contexts is what senior executives pay big bucks for. After spending years in the engine rooms of organisations developing, maintaining, testing applications, Indian IT vendors are in a great position to creep towards the rudder. Consider this statement: Mr Client, we have noticed through our longstanding association with your industry, that rapid product development is increasingly being used as a tool for gaining competitive advantage. Your operations have been configured with the sole objective of supporting one or two blockbuster products, not for quickly introducing new ones. We tackled a similar problem in this other industry, where we successfully helped our client make their operations more flexible. Which do you think commands more attention, respect and importantly, billing rates
It may sound like Indian IT majors should transform themselves into management consultancies but this is only partially true. They should stick to their core skills of operations and IT, but must develop a broader perspective on the problems they solve. They should constantly ask: Why is my client introducing this new system How does it affect his competitive position What knock-on effects from this effort should he be planning for So far the answer to Why has your client hired your firm has been a rather naive one: to reduce costs. If you dont think big, you will never be paid big.
All this is a step change for Indian firms. It will require changing the design and fabric of organisations moving them away from being delivery centric towards being services friendly. Unbridled growth has been a double-edged sword over the past few years the larger Indian firms have grown into ad-hoc structures. These random organisational constructs stifle the development of services. Without strong internal processes, incentives, accountability, and governance, no organisation can present a professional face a prerequisite for doing business at higher levels in the West. Focusing on services requires people with strong business skills. Each engineer working at a client site can be the source of useful business information.
Sadly, it is assumed that brilliant technologists possess limited business sense. Some big firms have taken risks and developed product-based offe-rings around which they provide services. Business consultants have been hired to mine accounts for follow-up work. But a lot more needs to be done and in a much more structured manner. Indian firms must develop relationships with the business organisations of their clients not just with operations or delivery managers. Business specialists must understand the dilemmas of their clients and engage them on operational issues more sophisticated than cost reduction. Indian firms must learn to push back. They cannot go on endlessly supplying three C++ programmers and network engineers. If they continue to do so, not only will margins be at stake, they will continue to sell their capabilities short.
The writer is a London-based management consultant specialising in operations and technology. He can be contacted at firstname.lastname@example.org