Short Case Studies - Industry Analysis & Reviews

Innovation @ HP – Declined in the past decade, major concern for HP Leadership

2013-04-16T11:17:00.000+05:30

Bill Hewlett and Dave Packard founded Hewlett Packard Company also known as HP in 1939 and company gained a remarkable reputation to be one of the most innovative companies in the world where in it developed innovative printers, scanners, calculators, servers and personal computers. For years success mantra for the company had been the innovation which is essential for the continuous growth and survive in the highly competitive market place. Innovation is at the heart of HP as company constantly innovated with bold ideas particularly in the printers business and also later in the servers and PC businesses. HP leadership has encouraged innovation at all levels in the organization which made company hugely successful and one of the most admired companies in the world. For years till the year 2000, HP was an innovative market leader focused on high-growth, high-profit businesses. But HP lost its way since then where in the company struggled to keep up its revenues and almost forgot innovation which helped the company to survive for years. Innovation is essential for technology companies be it hardware, software and services companies to survive for long term.

Since the year 2001 the company started facing serious troubles post the acquisition of Compaq (PC manufacturer) by Carly Fiorina which was highly criticized at that time as both the companies were struggling with poor financial performance and IBM had sold of its PC business to Lenovo highlighting that the PC business is no longer high profit business and IBM shifted its focus to software, services and consulting. Personal computers business was becoming low margin, low growth business which was a wrong move for a company like HP that focused on innovative products that provided unique benefits to the customers which were hard to be replicated by the competitors and are high margin. Carly Fiorina was criticized for transforming a highly innovative company into a market follower and generic company with focus on low growth and low profit business. Carly Fiorina targeted PC business which lacked product differentiation as Dell, Lenovo and other PC manufacturers who have manufacturing operations in China produced at cheaper cost and the whole strategy was based on volume based and not on innovation for which HP had big reputations. HP was turned from a transformational innovator into a generic manufacturer.

Mark Hurd replaced Carly Fiorina as HP CEO in 2005 and his tenure at the helm of HP was a remarkable transformation in itself where he doubled the share price and increased net income significantly. Mark Hurd acquired EDS which is a IT Services company in 2008 and this deal was questioned by many insiders and outsiders as EDS was facing severe financial troubles in its business and HP spent close to US$ 14 bn to acquire the troubled EDS. EDS could not recover under HP and its business is still struggling and rumors are going around that HP is looking to dispose of EDS. Mark Hurd also acquired 3com, networking equipment manufacturer and again HP struggled to maintain growth and profits as there had been significant shift in the technology environment where in there is shift towards mobile devices and common carriers and above all HP could not innovate and enter new markets for pushing the products. He also acquired another struggling smartphone company Palm for US$1.2 bn. Mark Hurd was brought into HP to cut costs and improve financial position of the company which he did remarkably well but in doing so he also cut Research & Development cost also significantly that hampered the innovation in HP. The short term profitability gains destroyed the long term gains fueled by innovation that are essential for long term survival of HP.

Leo Apotheker replaced Mark Hurd as CEO of HP as Mark Hurd was forced to leave accused of falsifying expense reports (worth US$ 20,000), and also covered up a relationship with a female marketing consultant who alleged that he sexually harassed her. Leo Apotheker whose tenure at SAP AG was itself controversial that cost SAP close to US$1.3 bn and in his 11 months tenure at HP he made some very controversial decisions like spinning off the Personal Computer business and also the acquisition of Autonomy for US$ 10.3 bn. Both the Mark Hurd and Leo Apotheker was paid severance packages of US$ 40 million and US$ 25 million respectively which was a big burden on already struggling HP financials. Meg Whitman replaced Leo Apotheker as CEO of HP and instantly she overturned the decision of spinning off PC business and initiated a series of layoffs, which numbered 27,000. In November 2012, HP announced that it will take an $8.8 billion write down on the Autonomy deal amid allegations of accounting improprieties at the software company and investigations were initiated by both US SEC and UK Serious Fraud office.

Apart from these failed acquisitions, mismanagement of HP Leadership another factor that significantly effected HP had been the brain drain where in HP veterans had left the company. Some of the departures were V.J. Joshi, the executive vice president Pinter business, Patrick Scaglia Group CTO, Bill DeLacy, who was the senior vice president for printing, Randy Mott CIO, etc. These departures of the company veterans some of them to key competitors and other firms is a big concern for the company in terms of focus on innovation. Meg Whitman after her initial tough decisions has realized the fact that only way of reviving the growth at HP is only through innovation and in a recent earnings call she promised disruptive innovations. She also said that there are many innovative products are being developed in the Research & Development Labs and these products will hit the market over the period of time. But the critics are also skeptical about the capabilities of Meg Whitman to turnaround HP but she is confident that she will do her best to revive HP and she recently announced that there will be organizational restructuring within HP. She is also asking employees to work together to turnaround the struggling company and the only way HP will revive is through innovation of new products across different categories.

In an interview with CRN HP Chief Strategy Officer, Mohamad Ali highlighted three innovative technologies as software-defined networking, ElitePad notebooks and OfficeJet Pro X. OfficeJet Pro X is very different where in the ink technology that is super high-end and be able to run ink at 65 pages per minute which will be bright and at 50 percent reduction in cost. The recent launch of HP Moonshot which is the world's first software defined server powered by Atom processors and also extreme low-energy server technology. HP recovery is still in process and with these product launches it seems to be on right track.

Global Outsourcing Industry Outlook 2013

2013-04-04T21:26:00.000+05:30

The current global volatile economic conditions and the European Sovereign Debt crisis is expected to continue in 2013. But Germany & France are actively trying to solve the euro zone crisis and there are some positive signs in this regards. But most of the companies across the globe are going to see weak and volatile demand conditions and companies have to expand even more into emerging countries other than the Brazil, Russia, India and China (BRIC). Growth for the companies lie in emerging markets other than BRIC countries and for companies to expand and retain their profitability is only possible by managing and reducing their costs and spends efficiently. Companies are looking at outsourcing vendors to actively partner with them and provide services that directly affect the business outcomes and the move towards outcome based pricing will continue in 2013 and even the outsourcing vendors are looking for outcome based revenues as it increases their margins. Outsourcing Vendors are also changing their organization structures, products and services portfolios and recruiting highly skilled and talented domain experts that help them in providing outcome based services to their clients. More over the emergence of technologies like cloud computing, Big Data, analytics, mobility and social media will also have a significant effect on the way the outsourcing vendors operate and provide their services in 2013. United States followed by Europe will dominate the outsourcing industry but the Asia Pacific particularly companies in Asian countries are increasing their outsourcing spends and this will be a significant change for the industry in 2013 which was initiated three years ago.

Outsourcing Vendors are also setting up centers and offering services from locations that are close to their clients. Most of the Indian Outsourcing Vendors have opened development centers in European countries like Poland, Latin American countries like Brazil, Argentina and expanding to other low cost destinations in Asia like China and Philippines. Indian outsourcing vendors have slowed down their hiring as the deals and the pricing mechanisms are changing and are aggressively focusing on nonlinear and outcome based revenues. Most of the outsourcing vendors globally have prepared themselves for the volatile and weak demand in 2013 and are developing strategies to overcome the difficulties as they did in the year 2012. The traditional stronger outsourcing verticals like Banking Financial Services and Insurance from which all the Indian Outsourcing vendors get more than 50% of their revenues is undergoing some drastic changes that include regulatory changes has forced the outsourcing vendors to look at other verticals like Government, Healthcare, Telecom and the manufacturing vertical is seeing a resurgence. Cloud Computing, Big Data, Analytics, Social Media and Mobility are having a significant effect on the way the services are offered by outsourcing vendors and there is a lot of Mergers and acquisitions activity is going on involving the above mentioned emerging technologies. Outsourcing vendors are acquiring smaller companies that are offering the above mentioned services and integrate them into their core product and service offerings. But it will be a very challenging 2013 for the global outsourcing industry both in terms of increasing their revenues and profitability.

Global Outsourcing Industry changed significantly in 2012, continue to change in 2013

2013-04-04T20:27:00.000+05:30

According to KPMG Global IT-BPO Outsourcing Deals Analysis, 2012 is a year when the global outsourcing industry recovered from a comparatively bad 2011 but it still has to regain the level of performance that the industry saw in the year 2010. The report also highlights Worldwide in 2012, 1,244 ITO contracts worth USD 118.3 billion and 226 BPO contracts worth USD 19.5 billion were signed and 120 IT-BPO Bundled deals were signed in 2012 with contract value worth USD 12.7 billion. The number of deals also has improved compared to 2011 but it did not reach the 2010 or 2009 levels which show that the industry is being affected by the European Sovereign Debt Crisis and the economic volatility in the United States. 2012 saw a healthy growth in terms of number of deals (9% YoY) and Total deal value (24% YoY).

Geographically companies in Americas dominate the outsourcing industry with TCV of US$ 95.8bn followed by Europe, Middle East & Africa with US$ 36.0bn and Asia Pacific with US$ 18.7bn. Europe has seen a fall in terms of deal value by 21% courtesy the ongoing European Sovereign Debt crisis which is having a significant effect of the Europe as a whole and most of the countries have been drastically affected by the crisis. Asia is also gaining as companies in most of the Asian countries are also outsourcing to cut costs and increase their profitability.

Most of the deals worth US$ 64.9bn are in the range between US$ 100mn – US$500mn but the companies are still doing big deals that are more than US$ 500mn but less than US$ 1bn with a TCV of US$ 50bn. But overall the contract values of the deals are coming down when the deals are coming up for renewals. Companies are renewing deals at a lower value than previously outsourced. Companies are looking for significant discounts in pricing for the renewal deals and are also changing the outsourcing vendors if necessary which is leading to vendor churn in the industry. Less than US$100mn deals are with a TCV of US$ 35.5bn.

The Deal tenure has also come down as in the initial stages of outsourcing most of the deals were signed for 7-10 years and this trend has changed in the last two years when most of the deals are being signed for tenure of 1-5 years and the TCV is US$ 96.9bn. Deals with tenure of more than 5 years are also being signed and the TCV is US$ 52 bn. The deal size which most of the companies are looking at is around 4-5 years and less than 1 year deals are very small.

Pricing too has seen a significant change where in most of the deals (97%) are based on Fixed pricing and Hybrid pricing. Hybrid pricing deals are more complex hybrid pricing structures that combine input based pricing, output based pricing, and occasionally business outcome-based pricing mechanisms. In fact Hybrid pricing deals have significantly increased in the last three years as companies want their outsourcing vendors to not only reduce cost but also provide them more value based and outcome based services that will directly affect their business outcomes.

Transformation from BPO to Business Process Management Industry, Indian BPO Industry facing tough competition and growth concerns in 2013

2013-03-30T17:54:00.000+05:30

Indian BPO Industry has grown despite the global economic crisis, as evident from country's exports of the BPO sector which are expected to reach USD 17.8 billion in 2012-13 from USD 12.4 billion in FY 2010. According to NASSCOM, the Indian BPO sector still holds the global leadership position with 37% of the world's BPO market compared to 34% in 2009, despite the fact the voice based offerings have moved to Philippines and BPO revenues of Philippines are also on the rise. The global BPO sourcing market has grown from USD 36-38 billion in 2009 to USD 48-50 billion in 2012. But the Indian BPO industry has lost its advantage and in the last five years, India has lost 10% share of the world's BPO (business process outsourcing) market to countries such as China, Philippines and Brazil. Not only these three countries, countries like Malaysia, Egypt, Morocco, Mexico, Chile, Columbia, Poland and Ireland are emerging as attractive destinations for voice contracts, which is also concern for Indian Industry but Indian Vendors have also setup their offices in almost all of the above mentioned nations baring a few like Morocco, Egypt and Columbia.

Indian BPO Industry has transformed from BPO to business process management (BPM) – from the basic voice services to cost cutting to finally delivering value based services that have significant impact on the client businesses and this has picked up since the year 2009. Indian BPO vendors are looking at products, platforms, social media, Analytics and Consulting projects for increasing their revenues and profitability and most of these are nonlinear revenues which mean the revenues are not directly linked to increase in headcounts. Non Linear revenues, outcome based pricing and projects that are of high in revenues and margins, are necessary for Indian vendors to survive in the market and for this and are setting up of multi-delivery centers, niche vertical offerings and end-to-end solutions using cloud, big data and analytics for their clients. The Indian BPO industry is well prepared for the tough market conditions and volatile economic conditions that are expected to continue in the current year. Indian BPOs are acquiring the companies that are specialized and having niche skills particularly related to healthcare outsourcing, analytics, cloud computing and big data.

Leading players in Indian BPO industry like Genpact, TCS BPO, WNS, Infosys BPO, HCL Tech, Wipro BPO and Cognizant BPO have all acquired companies in the past few years with only aim of acquiring new skills, technologies and capabilities so that they can improve their product and service offerings to their clients. Not only acquiring companies the Indian BPO vendors have also realigned their management and organization structures focusing on key vertical industry segments so that they can service their clients in a better manner and increase their revenues and margins. Government of India is also encouraging the BPO sector by extending several incentives to increase the IT-ITES/BPO export revenue. Under the software technology parks (STP) scheme, IT-ITES/BPO units are eligible for various tax benefits such as customs duty exemption on imported goods, reimbursement of central sales tax and excise duty exemptions on procurement of indigenously manufactured goods. The Department of Commerce has notified 235 IT-ITES specific special economic zones. Currently, the SEZ units are eligible for tax benefits as per Section 10AA of the Income Tax Act for a period of 15 years in a phased manner. NASSCOM 2020 vision report also highlights the industry has a vision to garner revenues of $300 billion in seven years, up from $108 billion in 2012, and this growth will also imply heavy job creation.

Frugal Innovations @ GE Healthcare Low cost ECG, Baby Warmer, and Ultrasound Scan

2013-02-18T23:20:00.000+05:30

General Electric (GE) developed an ultralow-cost electrocardiogram (ECG), an $800 ECG machine for rural India that is portable, battery-operated, easy-to-use, and easy-to-repair. Normal GE ECG machine costs about $5,000 and $20 for a scan and the equipment is highly complex, heavy, bulky, and needs a skilled technician to operate it, as well as highly technical service support. GE built the machine using commodity components, realizing huge cost advantages and produced millions of units that reduced cost further with economies of scale and for the sake of reducing the power consumption and increase battery life eliminated monitor and used printers found on public buses and in movie theaters.

Another innovation from GE is the baby warmer, known as “Lullaby,” which was designed focusing on the requirements of maternity homes and hospitals (80 percent of which use baby warmers). This device which costs $12,000 in United States but the frugally innovated device will only costs $3,000, which is a big boon for emerging countries like India, China, Brazil, etc. The Lullaby is now reportedly sold in 62 countries, including Brazil, Russia, Egypt, Dubai and Italy.

GE’s drive to miniaturize technologies in order to make them more mobile couldn’t be better illustrated than with the breakthrough Vscan technology. Roughly the size of a smart phone, it houses powerful ultrasound technology that potentially helps redefine the physical exam and improve patient care by enhancing a doctor’s ability to quickly and accurately make a diagnosis. For critical care clinicians, Vscan can offer an immediate look beyond patient vital signs with the potential to identify critical issues, like fluid around the heart. Vscan high-quality imaging is indicated for abdominal, urological, cardiac, obstetric and pediatric scanning.

Reportedly, there are over 30 products in GE’s Indian pipeline that are targeted at “the Indian and the emerging global markets” and will be launched by GE’s Bangalore Centre within the next three years. In 2001, General Electric set up a $175 million facility (the John F. Welch Technology Centre in Bangalore, India), which houses state-of-the-art laboratories and facilities to conduct R&D for GE businesses worldwide. The center supports 4,200 scientists, researchers and engineers who frugally innovate in the healthcare, energy, transportation, aviation, financial and entertainment businesses. At this facility GE conducts advanced state-of-the-art medical research and innovation, working on breakthroughs such as molecular imaging and diagnostics, micro ultrasound machines and next-generation MRI systems.

For businesses to survive in the emerging markets they need to do adopt the frugal innovation making the products or redesigning the highly complex and costly products into affordable, easy to use products to be used easily particularly in rural markets where there will be problems like power shortages, lack of highly trained healthcare professionals and lack of infrastructure like roads, power, buildings etc. GE Healthcare has been successfully adopted frugal innovation and India based R&D center is at the heart of its strategy.

Case Study - Frugal Innovation – Renault/Dacia Logan played a major role in Renault Group Growth & continues to be critical part of product portfolio

2013-02-14T21:31:00.000+05:30

In 2006, Carlos Ghosn, the CEO of the Renault-Nissan Alliance coined the term “frugal engineering” by which he meant achieving more with fewer resources.Carlos Ghosn was referring to unique ability of engineers in India to innovate cost-effectively and at a faster pace when faced by severe resource constraints. As Ghosn said, “In the West, when we face huge problems and we lack resources, we tend to give up (too) easily. Jugaad is about never giving up!” Renault-Nissan has successfully adopted frugal engineering and the fundamentally jugaad mindset—and turnaround itself into a major global manufacturer of both low-cost vehicles as well as electric cars—two of the fastest growing segments in the global automotive market. According to Wikipedia, in India, the words "Gandhian" or "jugaad", Hindi for a stop-gap solution, are sometimes used instead of "frugal". Other terms with allied meanings include "inclusive innovation", "catalytic innovation", "reverse innovation", and "BOP innovation", etc. Business organizations across the globe are forced to offer products and services to frugal consumers as the global business environment turns volatile due to the 2008 financial crisis and the European Sovereign Debt crisis which led to businesses facing tough conditions to maintain their sales and profitability.

Logan Sales by year ( Volumes) Source: http://en.wikipedia.org/wiki/Dacia_Logan
Year	Dacia	Renault
2004	22,833	−
2005	135,184	9,915
2006	184,472	63,134
2007	230,294	136,742
2008	218,887	206,059
2009	160,120	150,603
2010	126,598	189,898
2011	95,365	253,698
2012	102,175	221,752
Total	1,275,928	1,231,801

In September 2004, Renault launched Logan, an affordable, robust, and well-designed car with many simplified features to keep costs down (has 50% fewer parts than a high-end Renault vehicle and has a limited number of electronic devices) and priced at 5,000 euros (Current retail price is US$10,000). The Logan is based on the B0 platform used for the Renault Clio II and for other Renault and Nissan models. The Logan's design lines are simple and straight and cheaper to repair. Some parts are also much simpler than those of its competitors like rear-view mirrors are symmetrical and can be used on either side of the car, the windshield is flatter than usual, and the dashboard is a single injection-molded piece. The car was developed with a focus on developing countries as the climatic and road conditions significantly vary from the developed countries like strong and soft suspension, and height of the chassis is high when compared to most other compact cars so that it can run effectively on dirt roads and negotiate potholes on ill-maintained asphalt roads. The engine is specially designed to handle lower quality fuel and the air conditioning has to be powerful enough to lower the temperature by several degrees (temperatures above 40 °C are common in the Middle East and the Mediterranean Sea). Despite the fact the car was made exclusively for emerging markets, the Logan has become Renault’s cash cow and big success in recession-hit European markets particularly in developed markets like France.

The Dacia Logan is a small family car produced jointly by the French manufacturer Renault and its subsidiary Dacia of Romania. It is manufactured at Dacia's automobile plant in Mioveni, Romania, and in Colombia, Brazil, Russia, Morocco, Iran, India and South Africa. It is also marketed as the Renault Logan, Nissan Aprio, Mahindra Verito or Renault Tondar 90 depending on the existing presence or positioning of the Renault brand, according to Wikipedia. In India, the Logan was launched in 2007 and marketed as the Mahindra Renault Logan. In April 2010, Mahindra &Mahindra ended the joint venture when it bought Renault's 49% share and according to the deal Logan would be marketed with the Mahindra-Renault logo until the end of March 2011. Mahindra retained the rights to produce and sell the Logan under its own name of Mahindra Verito with minor alterations to the front but retaining Renault petrol and diesel engines. The car is sold as the Dacia Logan in the markets where Renault has presence, such as European, African and Asian countries (i.e. Romania, France, Italy, Belgium, Netherlands, Germany, Greece, Hungary, Poland, Serbia, Czech Republic, Croatia, Slovenia, Morocco, Turkey and many others) and marketed as the Renault Logan in South Africa, Argentina, Russia, Ukraine, Colombia, Ecuador, Israel, Egypt, Brazil, Chile, Perú and Venezuela.

The Renault group is continuing its focus on improving the Dacia Logan range of passenger cars and the company revealed the second generation Dacia Logan in 2012 Paris Auto Show. Dacia Logan has a more modern shape with flowing lines that confer an elegant appearance while retaining the conventional styling that is its strength. The new front face, designed around Dacia’s new styling identity, suggests quality and strength. The Dacia logo on the grill and the broad headlamps make for a more expressive front end. The perceived quality of the previous generation has been enhanced through the choice of materials and improved fit and finish. This model features a new dashboard with an updated appearance (including chrome dial surrounds) and more ergonomic controls. Dacia Logan is built at the plants in Pitesti (Romania) and Casablanca (Morocco), both of which are ISO 14001 certified. In France, prices for New Dacia Logan start from €7,700 and come with a three-year/100,000km warranty. Four engines will be available for New Dacia Logan from launch, including the 1.2 16V 75 petrol power plant and the brand new TCe 90 petrol engine, which marks a significant saving in terms of fuel consumption and CO2 emissions. (Source: www.renault.com )

Renault Group is keeping the price of the Dacia Logan cheap compared to its competitors in some markets where in the cheapest version of the car is €5,900, and the price can reach €11,200, depending on equipment and customs duty. (The base model for Western Europe, where it is badged as a Dacia but generally sold in Renault dealerships, is somewhat more expensive). For Renault group Dacia Logan is a critical part of its revenue growth strategy particularly with a focus on emerging markets as the developed markets are facing tough economic conditions. Even customers in developed markets particularly in European region are also looking to buy Logan as its price is low, easy to maintain and also provides good comfort. Logan started as a no frills sedan focused majorly at the emerging markets but it saw most of its success in developed markets where customers received this car well. The car did not perform to the level of expectations and the joint venture with Mahindra group ended in matter of three years and the only car that came out of this joint venture is Logan. In other emerging markets Logan was well received and Renault too has launched many variants of Logan and also has launched an upgraded version at the end of 2012. Logan is also a case where in over a period of time the frugal innovation of low cost no frills version can also be supported by launching higher cost versions of the base version. Customers would definitely buy the higher cost variants also as evident in the Logan case. Also the portfolio of offerings can also be expanded by launching various other types of vehicles like in the case of Logan there are Light Commercial Vehicles, Sports Utility Vehicles, Vans, and Pick-up trucks along with base version low cost sedans.

Discussion points:

1. How important is Renault/Dacia Logan for the growth of Renault group?

2. What should Renault do to increase sales further in emerging markets?

3. How effective has been the Dacia Logan Product strategy?

Case Study - Innovation @ HCL Technologies – Employees at the heart of Innovation Strategy

2013-02-10T13:09:00.001+05:30

The only way you can bring innovation to the centre stage of the company to grow faster in the economic turbulent time is to get innovation going at the bottom of the pyramid to employees quoted Vineet Nayar, ex-CEO of HCL Technologies in an interview given to Business Today magazine. HCL Tech is one of the most innovative company in India that relies on innovation not only to help a customer solve a clear business problem but also develop a new way of doing business and create competitive differentiation for both itself and for their clients through innovative ideas. At heart of HCL innovation strategy are its employees and company through its “Employee First and Customer Second” approach channelizes the energies of 90,000 employees and employees develop innovative ideas through collaboration and communication across boundaries as the company has operations in 35 countries. This innovation strategy has helped HCL Tech to grow its revenues and profits during the economic turmoil post 2008 and provide innovative services to their clients. “Innovation is a must-have for service engagements to be more relevant to customers and to grow one’s market share,” Krishnan Chatterjee, vice-president and head, strategic marketing, HCL Technologies told The Telegraph.

Value Portal

HCL Tech believes the ‘value zone’ or the interface between the employee and the customer gives birth to the ideas, innovation and ultimately truly transformational value. HCL’s employee idea exchange platform Value Portal was created to channel the innovative energy of 90,000 employees, specifically grassroots level employees to collaborate, innovate and lead the implementation of their ideas that deliver value to the customers. Collaboration between the employees of HCL and the employees of customer organizations is facilitated through this platform to share knowledge, ideas and solutions to address common goals/problems which resulted in value co-creation. HCL employees were able to deliver ideas, and create value in line with the strategic objectives and direction of the customer’s they were working with and employees got feedback on their ideas and also received rewards once it was implemented in the customer organization.

MAD Jam

HCL Tech employees created the “MAD Jam” (Make a Difference Jamboree) which is a unique celebration of the best innovators of HCL, that demonstrates the HCL tech unique philosophy of the Employees First, Customer Second’ philosophy. HCLites worldwide sent in over 377 ideas and business heads of the company finalized 18 of the best ideas in the first round and these 18 ideas were made into 3 minute films that showcased the idea and business impact. These videos were shared online on a portal and 18 finalist teams campaigned for their ideas through various channel so as to garner maximum votes from employees and after 2 months, 9 teams made it into the Grand Finale where the ideas were judged by a distinguished panel of judges - two very senior people from HCL, and one external judge, an associate partner from McKinsey. ‘Customer On-boarding’ – a solution that drastically reduces the on-boarding cycle time of a customer in a financial institution - was picked as the winning idea. ‘Mobility Solutions’, which enabled police officers to instantly send details to the central police system from a crime scene, using their mobile devices, was the winner of the Innovators’ Choice award, according to HCL Tech website.

Wikiportal

HCL Tech employees developed Wikiportal to improve sales productivity, by connecting the global sales team with the right information and people within minutes and this portal is developed internally in collaboration with business process re-engineering (BPR) team to develop this application on Microsoft Office Sharepoint (MOSS 2010). Wikiportal allows access to structured and non-structured data through the support of social and collaborative features such as tagging, wikis, blogs, discussion forums, expertise locations, social networks, etc. This led to increase in sales productivity majorly due to streamlining day-to-day business operations; over 80% of our sales force is able to respond to customer queries faster and there is a 35% reduction in cycle time through collaboration while responding to RFPs. Today the Wikiportal has approximately 5000 users across sales and sales support teams, 1.2 million hits in a quarter and 2000 (average) unique visitors in a day, according to HCL Tech website.

Arkmedes

Arkmedes is a platform created by employees to bring together people with similar interests, passion and ideas and created a critical platform of collaboration and innovation within the organization. These communities of passion had indirectly created a robust, self-sustaining knowledge management portal that was driven by the very people who contributed to it on a daily basis and eliminated considerable costs. Today arKMedes has 112 communities with over 24,000 daily visitors, and 3 million hits per year with search volumes of over 2 million, according to HCL Tech website.

Meme

According to HCL Tech website, Meme was built on the concept of “Decoding Individuality” through Connect, Learn ,Share and Grow, this platform featured many standard applications like network of friends and colleagues, tech forums, posts/comments, pictures, tags, document share and group conversations. Since its inception till January 2012, MEME user base grew at around 111% (from 28, 100 employees in April 2011 to 59,185 employees in January 2012). Within the first 4 months of use, over 25000 HCL employees created strong social network connections with each other by creating 521 groups, posting more than 4300 comments and sharing more than 1030 photographs. Today MEME engages around 75000 employees through 2057 groups, 175 pages and 71,568 posts. Through this platform, HCL employees meet the challenge of building effective relationships which are vital to working in large, distributed enterprises.

Co-Innovation Labs

HCL Technologies has developed a strategy called innovative collaboration, where in it collaborates closely with its clients in all the stages of product development through setting up of dedicated labs. Set up two labs in Singapore — the Mobility Experiences Ready to Lead Business Innovation (MERLIN) lab and the co-innovation lab with pharma major Eli Lilly. The lab with Eli Lilly will develop new technologies and solutions specifically for the drug maker. Through a collaboration process, HCL Tech has developed the ITSE call (Intelligent Transportation System emergency call), a system installed in vehicles that sends an automated text to emergency services when cars meet with an accident. It provides the date and time of the accident and the GPS co-ordinates of the accident location.

Post the 2008 recession there has been a significant change in the Global business environment and the impact is also being felt by the Indian IT vendors who are seeing falling revenue growths and profit margins. Clients no longer expect outsourcing vendors perform simple cost cutting work but are looking for more valuable work that will have significant impact on their business outcomes. Innovation has become an essential part of the strategy for the Indian IT vendors who realized that the best way to bring innovation is to motivate employees and provide them the necessary tools, technologies and platforms for developing innovative ideas, collaborate with colleagues and their clients on those ideas and implement ideas for the benefit of the customers and their own organizations. HCL Technologies have benefited significantly from the grassroots level employee collaboration and idea generation and its philosophy of Employee first and Employee second has also supported the innovation strategy. In 2010, HCL Tech also formed a unit called 'ecosystem and business incubation organisation', which has identified five new ideas like cloud computing, mobility, social media, etc. with potential to become $100 million businesses in three years, and almost $300 million in five years, said Anant Gupta, HCL Technologies. In an interview with ET Now, Vineet Nayar, Vice Chairman and Chief Executive Officer, HCL Technologies Ltd, said “vendors like HCL are winning because of the uniqueness in proposition and constant innovation.”

Discussion Points:

1. What is the role of Innovation in the success of HCL technologies?

2. How do the various tools and platforms adopted by HCL Technologies for Innovation and collaboration promote grassroots level innovation in the company?

3. How the need for Innovation is transforming the Indian IT Vendor’s Organizations?

Blue Ocean Strategy – SAP AG Partnership Strategy fuels growth for company

2013-01-20T16:52:00.000+05:30

In the book titled “Blue Ocean Strategy: How to create Uncontested Market Space and Make Competition Irrelevant” authors W. Chan Kim and Renée Mauborgne mention SAP AG Partnership Strategy. The authors said, “By partnering with Oracle, SAP saved hundreds of millions if not billions of dollars in development costs and got a world-class central database, namely Oracle’s, which sits at the heart of SAP’s core products R/2 and R/3. SAP went a step further and also partnered with leading consulting firms, such as Capgemini and Accenture, to gain a global sales force overnight at no extra cost. Whereas Oracle had the fixed costs of a much smaller sales force on its balance sheet, SAP was able to leverage Capgemini’s and Accenture’s strong global networks to reach SAP’s target customers, with no cost implication to the company.” SAP AG has grown from 2003 revenues of US$ 8.83 billion to 2012 revenues of US$ 19.91 billion (estimated). SAP AG Blue Ocean Strategy of partnering with companies of all sizes like Large businesses like IBM, Accenture, Capgemeni, including Indian majors like TCS, Infosys, Wipro, HCL Technologies and small medium players have helped the company to push its products and services deeper into the market at a faster pace.

SAP also works closely with partners on all fronts not only to push sales but also to develop new products and introducing them to market. One of the major factors for SAP success in the early 1990s was because of the company closely working with systems integrators and allowing the System Integrators make money and margins from implementing SAP in the organizations. But company lost momentum around 2005 and sold only 7% of products through channel partners where as the industry average for enterprise software companies was around 40%. The company reworked its channel partner strategy and could increase channel partner sales to 20%. According to a Forbes article titled “How SAP is Betting Its Growth on Partnerships”, SAP CEO Bill McDermott highlighted the central role of expanding the partner channel in comments on the 2011 Q2 earnings, when SAP sold 25% of its revenue through channels. “Our ever expanding partner ecosystem and multi-channel go-to-market is core to our growth strategy,” McDermott said. Eric Duffaut, President SAP Global Ecosystem and Channels also said that SAP expanded its program for co-development and co-innovation processes which are essential to the consumerization of SAP and the true power of SAP platforms will be revealed by getting as many partners involved in envisioning and developing solutions.

In January 2011, has completed a corporate reorganization, including a restructuring of its channel operations that will result in the company relying on the channel for all sales to small and midsize customers and at least double the channel's share of SAP sales by 2015. Earlier SAP's channel operations were a complex matrix of the company's indirect sales and SME (small and midsize enterprise) operations. After this reorganization, Eric Duffaut was appointed as president of global ecosystem and channels and he said Partnering is critical to the strategy of SAP and to drive co-innovation with SAP partners to better help them cover markets, increase customer touch points and act as a force multiplier for SAP. SAP will work closely with channel partners to target small and medium enterprises and channel will account for 30-40% of total sales by 2015 form 2010 levels of 15%. For SAP, channel partners are essential for its future growth and it has to rely on them particularly for SME sales and also assist with some sales to large customers in specific regions or vertical industries where a solution provider can bring specific expertise which SAP refers as targeted opportunities.

SAP AG is a comparatively small player in the channel with about 10,000 partners worldwide, including about 3,000 VARs, with the remainder being comprised of systems integrators, service providers and ISVs. That's in sharp contrast to competitors like Oracle, which has about 20,000 channel partners worldwide, and Microsoft's stable of more than 500,000 partners worldwide. SAP also is putting more emphasis on leveraging the channel to help it boost sales in what the company has identified as its key growth areas: business analytics, mobile computing, data management and cloud computing. The channel ecosystem is an essential element of our growth strategy," said Co-CEO Bill McDermott. SAP blue ocean strategy of relying on channel partners for future sales is working well as is evident from the revenue growth the company has seen in the past few years and it is also able to improve its product and service offerings through co-innovation with partners.

According to Wikipedia, SAP partners include Global Services Partners with cross-industry multinational consulting capabilities, Global Software Partners providing integrated products that complement SAP Business Suite solutions and Global Technology Partners providing user companies with a wide range of products to support SAP technology, including vendors of hardware, database, storage systems, networks, and mobile computing technology. Solution extensions partners: this is a small number of companies which provide functionality that complements SAP solution capabilities. These enhancements fulfill high quality standards and are certified, sold and supported by SAP directly. SAP solutions for small businesses and midsize companies are delivered through its global partner network. In 2008, SAP signed SAP Global Service partnership with HCL Technologies, a $6 b technology service provider, headquartered in India. The SAP PartnerEdge program, SAP's partner program, offers a set of business enablement resources and program benefits to help partners including value added resellers (VARs) and independent software vendors (ISVs) are profitable and successful in implementing, selling, marketing, developing and delivering SAP solutions to a broad range of customers.

Discussion Points:

1. What should SAP AG do to improve their channel partner strategy?

2. SAP AG has fewer channel partners compared to its peers, how should they SAP increase number of partners?

3. With changing business environment, what should SAP AG do to survive in the near future and long-term?

Cloud Computing Outages List 2012 – Multiple outages for Major players, CIOs concerned

2013-01-13T14:25:00.000+05:30

Major cloud computing Players like Amazon, Google, Microsoft, Salesforce.com, Racksapce and Apple had major service outages in 2012 and most of them have no single but multiple outages during the year, which is major case of concern for the CIOs. Most of the cloud vendors have been facing these outages for the past few years and have taken precautions and developed new technologies but still the problems are persisting majorly because of the factors like human error, quality issues, technical glitches and natural disasters. As evident in the list above major cloud computing outages in 2012 were Google Gmail, Amazon Web Services, Microsoft Azure , Apple iCloud and GoDaddy outages ranging from 2-4 hours affecting millions of users and companies like Quora, DropBox, Pinterest, Heroku, and NetFlix. Gartner analyst says the biggest concern should not be that data could be compromised in the cloud, but rather that there may be a cloud outage that could lead to data loss.

Amazon has been betting big on the cloud through its Amazon Web Services which started in 2006 that provide data storage, computing power and other technology services from remote locations through thousands of servers across many locations that has football sized buildings and Evercore analyst Ken Sena expects AWS revenue to jump 45 per cent a year, from about $2-billion this year to $20-billion in 2018. Even players like Microsoft, Google and many new players are entering in the cloud computing segment as cloud computing is cheap, relatively easy to use, and can be shut off, scaled back or ramped up quickly depending on companies’ needs. Outages are there for corporate data centres and telecommunications hubs that frequently triggered service disruptions which highlight the fact outages are not exclusive for cloud computing only. Cloud Outages are slowing down cloud computing adoptions and with significant investments by major players they will find difficult to convince the consumers particularly the large business organizations in regards to reliability and security of the infrastructure.

Businesses CIOs are concerned but they cannot resist the temptation of adopting cloud computing as the benefits outweigh the risks and most of the outages did not lead to any data loss but only downtime where the services and websites were affected. CIOs have to mitigate the risk of adopting the cloud computing by training employees, signing contracts and SLAs where the vendors commit safety of data and continuity of operations, understanding the risks and also spread loads across different locations, multiregion redundancy, Data backups, safety issues and also make sure that service providers take appropriate measures to overcome the frequent outages. Cloud service providers and vendors too have to work closely with customers and understand their need and make cloud infrastructure more reliable with new services, partnerships and contracting models to meet client expectations for increased delivery flexibility, cost transparency, and elasticity of consumption. Particularly significant number of outages is due to human errors and during the technology updates and maintenance which highlights that the vendors have to improve their quality of the processes, train their staff properly and make sure such mistakes are not repeated. But the fact remains and most of the industry experts predict there will be rise in the cloud computing adoption in near future.

Global IT Outsourcing Spending 2002-2015, Forecast - Stable growth in near future; Are Indian Outsourcing Vendors prepared?

2012-12-31T11:10:00.000+05:30

Source: Gartner Inc. 2010-2012 – Press releases. 2013-2015 Forecast: IT Services, 2008-2015, 2Q11 Update. June 16, 2011

Worldwide spending for IT outsourcing (ITO) services is on pace to reach $251.7 billion in 2012, a 2.1 percent increase from 2011 spending of $246.6 billion, according to the latest outlook by Gartner, Inc. European Sovereign Debt crisis and economic volatility in the United States are the major reasons why the YoY growth fell to 2% form 8% in 2011. Businesses in Europe and United States are slashing their IT spends and budgets in the past year and most of the Indian Outsourcing vendors hinted that clients spending and budgets will either remain flat or will be cut down in 2013. NASSCOM too lowered its growth forecast for 2012-13 for IT-BPO exports to 11-14 percent from previous fiscal’s target of 16-18 per cent growth. While the global macroeconomic scenario remains uncertain in the coming years, the industry will continue to exhibit resilience and adaptability in continually reinventing itself to retain its appeal to clients, NASSCOM said. Indian Outsourcing vendors achieve 90% of revenues from North America and Europe and these dependencies has been a worry for Indian vendors and are looking to focus on other geographic locations for future revenues particularly domestic revenues in India.

In North America, Gartner expects that buyers will seek to transition more IT work to annuity-managed service relationships for cost take-out and IT costs. This will keep ITO growing through 2016. Enterprises' reluctance to hire or make large capital purchases, as well as their pursuit of asset-light IT strategies, continues to push clients toward consuming externally provided services. North America is the largest contributor of revenues to the Indian outsourcing vendors.

A challenging economic scenario that worsened in late 2011 continues to affect the government policies and end-user sentiment in many key European countries, resulting in a forecast for Western Europe ITO growth decline of 1.9 percent in U.S. dollars during 2012. Reinvigorated economic pressure is delaying the willingness of many commercial organizations to focus on enhancing competitiveness rather than cost reduction. In addition, the European public sector will continue to see a cautious budget environment throughout 2012. This will force many central and local government entities to concentrate on outsourcing initiatives aimed at reducing IT cost through IT efficiencies and rationalization, according to Gartner. Europe is the second big contributor of revenues to Indian Outsourcing vendors.

Spending on ITO in the Asia/Pacific region will grow 1 percent in U.S. dollars in 2012 and exceed 2.5 percent growth in 2013. With the exception of Japan, Australia, New Zealand, and to a lesser degree, Singapore and Hong Kong, the countries in Asia/Pacific are quite new in terms of outsourcing usage, understanding and sophistication. The growth is being driven by the large inflow of capital into Asia over the past three to five years, leading to the need among global and regional businesses to scale up their operations, according to Gartner. Asia pacific revenues are slowly increasing for the Indian vendors and all the vendors are targeting domestic deals for rising revenues within India. Indian service providers will look at establishing centers in China and other APAC regions to reduce the dependency on the America region.

Indian Outsourcing vendors both large and medium vendors are bracing themselves for the new normal which is the volatile macroeconomic environment and slowing down of the IT spending by companies. Even clients are looking beyond mere cost cutting and they want vendors to play an active role and share responsibility for improving the business outcomes and do work which affects the profitability of the company. Indian outsourcing vendors are betting on four “powerful” technologies—cloud, analytics, big data and mobility—and are believing that these technologies are transforming the industry and providing the vendors an opportunity to increase the nonlinear revenues, which revenues not related to increase in headcounts and also increase margins. There have been significant investments made on the development of products and services that help the clients to deal with technologies like social media, cloud, analytics and mobility (SCAM) to optimize and ensure efficiency in business environment. Acquisitions are another way in which the Indian outsourcing vendors are looking up to acquire skills and domain expertise in the above mentioned four technologies and there has been significant number of them in the last couple of years.

Discussion Points:

      1. Will betting on Social media, Analytics, Big data, mobility and Cloud Computing help Indian Outsourcing vendors to overcome the slowdown and increase revenues?
      2.Indian Outsourcing vendors are banking on acquisitions for building the capabilities in the above mentioned four technologies. Will this inorganic growth strategy work?
      3. How to overcome the talent and skill shortages in the above mentioned technologies and how to build required talent at fast pace?

Indian Outsourcing Vendors looking to increase Outcome based pricing revenues in 2013

2012-12-29T23:43:00.000+05:30

The $100-billion Indian IT sector is bracing itself for tough fiscal 2013 triggered by volatility in developed economies like the US and Europe who are the major outsourcers of both Information technology and Business Processes to Indian Vendors. Discretionary spending and overall IT budgets and spending has been reduced significantly by both the US and European companies which has forced to look at innovation, acquisition led growth and outcomes based business to compete against the dominant multinational vendors like IBM, Accenture, etc. For years Indian outsourcing vendors have focused on cost reduction for clients achieved through mostly labor arbitrage as Indian manpower cost was one third of the resource cost in United States and adopted the 'time and material model', in which companies charge clients based on the number of engineers working on a project and the number of hours they put in. Worldwide spending for IT outsourcing (ITO) services is on pace to reach $251.7 billion in 2012, a 2.1 percent increase from 2011 spending of $246.6 billion, according to the latest outlook by Gartner, Inc. Indian Outsourcing vendors used to have good visibility of the client’s spends and budgets and accordingly provided their revenue guidance and future outlook and also plan their operations. But things have changed forcing Indian vendors loosing visibility of clients budgets and as Infosys CEO S.D. Shibulal said “I think the world is in a new normal. It will continue to be volatile and uncertain. Corporations will have to adjust and become more aware of this and learn to operate in these conditions.”

The renewed focus on business outcome based pricing model is due to the recent advertising campaign launched by mid-tier player iGate in US titled "Conspiracy Uncovered" published majorly in the New York Times, Wall Street Journal and the Financial Times welcoming American companies to switch to 'business outcomes model,' where a service provider shares the risk of clients and gets paid only when they achieve business outcomes. “The arch enemy of big corporations isn't recession. It's the outdated, inefficient time and material model, which forces you to pay the outsourcing services vendor, even when a project fails," claimed the company CEO Phaneesh Murthy. Apart from the Time and Material model Indian outsourcing vendors also use a fixed-price model, where project costs are agreed in advance irrespective of the number of engineers working on it or the number of hours they put in. Time & materials model contribute to 50-58% of the revenues for the Indian outsourcing vendors. Post the $1.2billion acquisition of Patni Computers in 2011, iGate is looking to compete with other big Indian Vendors like TCS, Infosys, Cognizant, Wipro and HCL Technologies and this advertisement is one of the ways in which it is trying to draw attention to the American and European companies. In 2007, TCS ran a marketing campaign titled "experience certainty", which highlighted the message of dependability of its services.

iGate through its ad campaign advising clients to move from fixed price contracts to outcome-based models and it is signaling it as a larger global shift in outsourcing models. But most of the Indian outsourcing vendors particularly TCS, Wipro, HCL Tech and Infosys have been focusing on the outcome based model as early as 2005 when HCL Tech highlighted its focus on this model by signing some deals. Most of the Indian vendors have been offering the outcome based pricing for years and also have traction in this but not as much as compared to the traditional Time and Materials model and fixed price model. Between 2007 and 2009 major Indian outsourcing vendors had even announced during that time they are targeting 30-40% of revenues based on outcome based pricing model in next two three years but this did not happen. Outcome-based pricing, which is based on actual performance, does not follow the linear model which banks only on the number of people deployed for a contract. In 2012, 15-20% of offshore contracts are expected to run on the outcome-based model, in which the vendor gets rewarded for reduction in product costs, increased working capital, volume of sales and improvement in bottom line. Large Indian vendors are depending on the vendor consolidation/churning and mid-cap IT companies are relying on segregation of large deals into smaller ones and most of these deals that will be renewed will definitely have the outcome based pricing revenues.

But all the Indian vendors are treading cautiously in terms of increasing the percentage of the outcome based pricing revenues as there are certain prerequisites for this model to be successful like clear and thorough understanding of the client’s business models, understand the client’s business operation and industry best practices, understand the risks involved in this model like failure to deliver as agreed will lead to clients not paying which directly affects the revenues, a comprehensive contractual agreement between the vendor and the client that should factor in all the risks and all the data, reporting formats, details of the pricing and deadlines/milestones and both the vendor and client should understand the contractual terms and agreements thoroughly and sign off accordingly. Acquisitions done by Indian vendors for the outcome based pricing include TCS acquisition of Diligenta and HCL Tech acquisition of Axon, which highlights that all the major Indian Vendors are looking at acquisitions to acquire new capabilities and strengthen domain specific expertise. What ultimately matters for the success of the outcome based pricing model is strong relationship between the outsourcing vendor and the customer for the successful implementation of this pricing model. Clients are expecting Indian vendors to deliver high value other than mere cost cutting and expect the vendor to work closely with them on improvements that has significant business outcomes. Technology trends such as cloud computing and big data are supported by technologies such as social media and smart devices to create new services are most suited for outcome based pricing models and all Indian Outsourcing vendors have invested significantly on these technologies and offering clients new products and services.

Discussion Points:
1.What is the percentage of revenues in terms of the total revenues should Indian Outsourcing vendors target from outcome based pricing models?
2.What should they do to prepare themselves to offer outcome based pricing to their clients in terms of human resources and technology capabilities?
3.What are the risks involved in this model and how does the vendors have to factor them so as to overcome any significant loses?

India Healthcare BPO 2013 – ICD-10 conversion next Y2K of healthcare

2012-12-25T19:30:00.000+05:30

The US healthcare industry is about $1.8 trillion in size and is expected to be about $2.5 trillion by 2018. The healthcare revenue cycle market (claims processing) is estimated to be about $11 billion segment representing only the provider segment and in this segment around $3 to $4 billion is outsourced globally and Indian healthcare BPO vendors currently have a share of only about $300 to $400 million. Claim processing and settlement, i.e. healthcare revenue cycle management, is one of the core services in the health insurance industry and has to be handled promptly and accurately and Indian vendors are handling this work effectively. The Indian Healthcare BPO story started with basic claims processing (data entry) and over time India has become preferred destination for US Healthcare and Insurance companies to outsource their medical coding work including in-patient coding work, which is a complicated process. There is also a lot of growth in the claims adjudication space and other insurance company related work that is being done in India. The global healthcare BPO market is growing at a CAGR of 21.4%.

Healthcare provider outsourcing has the highest growth rate of 31.9% from 2013 to 2018 because of the conversion from ICD-9 coding system to ICD-10 coding system to be implemented by October 2014 in the US. Healthcare payer outsourcing market will also grow at about 30% in the forecast period. Omega Healthcare President and CEO Gopi Natarajan explained that the transition of the medical coding process from ICD-9 (The International Classification of Diseases) to ICD-10, a standard used in the US to classify diseases, is slated for October 2014 throughout the US, and is expected to be a huge boost for the outsourcing industry. Manish Hemrajani, Executive Director and Senior Analyst at Oppenheimer & Co. Inc. says Genpact, EXL Services and WNS have traditionally served the BFSI verticals, but they are now moving increasing their exposure to health care, one vertical where he expects meaningful growth. He says the transition from ICD-9 to ICD-10 is expected to translate into a meaningful amount of business. “The differences between ICD-9 and ICD-10 are significant, and none of the payers or providers in the health care industry are ready for it with a deadline set for October 1, 2014, and that’s where the BPO vendors come in. So you’re going to see a meaningful growth coming from health care in this space. Some are touting it as the Y2K of health care.”

ICD-10 is the new version of the World Health Organization's International Classification of Disease. The 155,000 codes in this massive compendium are used on everything from hospital records to insurance claims to death certificates. Most of the Indian Healthcare BPO vendors have set up separate practices for this and are well prepared to offer the conversion services to the US clients. ICD-10 is going to require a large amount of changes and training the new codes will affect medical collections for both patients and providers. Indian Vendors help the clients in transitioning their systems and coding mechanisms to the latest ICD 10 system and also help in providing training that is required to use the codes. Practice managers or billing staff must be trained on all the details of the new system, patients too have to know about the coding changes will impact the amount they pay on insurance claims as well as nurses, doctors, and other staff members that will come into contact with diagnosis codes.

Discussion Points:
1.How are Indian Outsourcing vendors targeting the ICD-10 conversion projects and are they profitable?
2.What type of talent and skill sets required for ICD 10 conversion projects and availability of talent in India?
3.Since ICD 10 conversion is a temporary project, what should Indian vendors do post the expiry of conversion projects?

Outsourcing Deals Slowing down: Should Indian Outsourcing Industry worry in 2013?

2012-12-23T21:05:00.000+05:30

Indian IT-BPO industry aggregate revenues crossed the $100 billion mark and exports reached $69 billion in FY 2011-2012 and within the global outsourcing industry, India had increased its market share from 51% in 2009 to 58% in 2011, highlighting India’s continued competitiveness and the effectiveness of Indian providers in delivering transformational benefits. As a proportion of national GDP, the sector revenues have grown from 1.2% in 1998 to an estimated 7.5% in 2012, says NASSCOM. The industry has seen a tremendous growth earlier but since past few years the year on year (YoY) growth rates have been falling reflecting the effects of the 2008 financial crisis and also the present European Sovereign Debt crisis. Continuing on the decline the $100-billion IT industry is expected to meet the lower end of 11-14% growth projection in FY2012-2013, according to NASSCOM and the revenue from IT exports is estimated at $75-77 billion for the current fiscal year.

Analyst firm Ovum said that the total contract value (TCV) of outsourcing deals fell a record 30% during the Q3, 2012; lowest in nine years and TCV of IT services deals announced in the three months ended September 2012 was $18.9 billion, down 33 per cent on the same period in 2011. The volume of deals fell sharply to 332 from 438 last year, representing the least activity in five years which highlights that companies are no longer aggressively outsourcing their IT and business processes, which also hit an 11 year low. TCV is a measure by which outsourcing deals are valued. Add to that the fact that public sector or government-owned companies have also reduced their outsourcing spends, which, according to Ovum, is at a three-year low. This data also highlights the fact that the Indian IT sector is facing one of its most turbulent years in its short history.

Infosys told analysts that the demand environment continues to be weak, and led some of them to conclude that the company may lower its annual growth guidance to 3.5% compared with the current growth target of 5%. Even the star performer Cognizant that has been consistently growing by 20% YoY has recently announced that its board had set a revenue growth target of 16% for 2013, which will be used as a base to determine whether its top executives will earn 100% of their equity incentives for the year which shows that their growth will also slowdown from 20%. Tata Consultancy Services (TCS) on the other hand is positive and hopes to keep up its double digit growth for the current year. Both TCS and Cognizant have said growth is expected to be lower in the December quarter, 2012 and in FY2013, respectively. The recently announced results of Accenture too indicated slowdown where the growth of outsourcing business segment has seen fall in growth compared to previous quarter and consulting services flat.

The National Association of Software and Services Companies (NASSCOM) has said that the Indian IT industry is likely to meet the lower end of its growth forecast of 11-14% for FY2012-13 as customers tread cautiously on technology spending due to global economic uncertainty and companies in United States, who are the largest outsourcers to India and businesses in Europe that are increasing their outsourcing to India are curbing spend and reducing their IT budgets in a difficult business environment. The statement, made for the second time since September, comes after several IT firms gave guidance which was lower than the industry body’s forecasts. Banking Financial Services and Insurance companies that dominated outsourcing to India are facing severe troubles in their businesses and are forced to reduce their outsourcing spends.

Discussion Points:
1.European Sovereign Debt crisis and volatile US economy is expected to continue next year in 2013, what should Indian Outsourcing Vendors do to tackle this?
2.Overall the Outsourcing Industry is not expected to keep up the double digit growth rates which is happening all these years, the growth rates will slowdown and are Indian vendors prepared for this new normal?
3.Indian Outsourcing vendors have to definitely shift their Geographic focus from US and Europe to other locations. So where should they focus? What about Indian Market?

Global Applications Stores 2012 – Big growth led by iTunes & Android Apps stores

2012-11-13T16:04:00.000+05:30

The mobile applications market has survived the volatile economic conditions and crises since July 2008 when Apple launched its App Store, a digital application distribution platform for iOS, as an update to iTunes Store through which iOS users (iPhone, Mac, iPad, iPod) can browse and download applications. Following Apple App Store success Google launched its own App Store, Android market place (currently known as Google Play) in October 2008. According to ABI estimates revenue from mobile app store purchases could increase from $8.5billion in 2011 to $46billion by 2016 dominated by iPhone App Store, Google Play, Blackberry RIM ( presently not doing well), and Windows 8 Apps (aggressive push from Microsoft). As per a report by IHS, formerly called iSuppli, downloads in both stores combined will cross 85 billion by the year 2016. The app revenue generated in 2012 is $1.68 billion for Google Play, and $2.53 billion for the App Store.

Apple's App Store currently contains about 700,000 apps, for iPhone, iPad, or both and more than 35 billion downloads till to date. According to Telecom Lead America, Apple App Store revenue is expected to increase to $4.9 billion in 2012, up from $2.9 billion in 2011 and commands about 65 percent share of the global application store market in 2012. Apple has said it has more than 435 million active accounts with credit cards and that it had paid out a total of $6.5 billion to developers as of October 2012, up from $4 billion in January. Apple takes a 30 percent cut of transactions made in its App store. According to ABI, Apple's strengths include a powerful development environment, a curated App Store promoting quality apps, and smooth commerce integration with iTunes accounts and credit cards. But off late Apple App Store revenues are seeing slight slowdown.

In March 2012, Google redesigned its app store, Android Market Place and re-branded it Google Play, with a new look and increased content including digital music, movies, games and apps all available on Google Play and recently it crossed more than 700,000 applications equal to Apple App Store. Google has significantly improved its app store but it still suffers from weak commerce tools or monetization issues, as most of the apps are free on Play. That has an impact on app revenue, as Android apps only earn 24 cents per active user for every $1 earned on iOS according to ABI research. Recently Google announced the downloading of the 25 billion applications. Google mobile revenues rose to $8 billion in 2012, a significant increase over the company’s $2.5 billion in mobile ads revenue reported in 2011. Google’s Sr.VP and CFO Patrick Pichette pointed out that the $8 billion in revenue includes mobile ads and sales of Google Play mobile content and spending on Play apps. Google Play revenue includes app purchases, in-app purchases, eBooks, movie and TV purchases, and more. As of 19 October 2012, developers in 32 countries were able to distribute paid applications on Google Play and developers pay $25 for registration to distribute on the Android Market.

Windows Phone Store (formerly Windows Phone Marketplace till August 2012) is a service by Microsoft for its Windows Phone platform that allows users to browse and download applications that have been developed by third-parties which also features "Metro UI", the UI is presented in a "panoramic view" where the user can browse categories and titles, see featured items, and get details with ratings, reviews, screen shots, and pricing information, according to Wikipedia. The Windows Store now has 120,000 apps, accessible in 191 countries and the company highlights the fact that 46 of top 50 smartphone apps are available on Windows phone Store. Microsoft’s has launched a revamped Windows Phone Store to go hand-in-hand with the official arrival of Windows Phone 8.

Nokia Ovi Store was launched worldwide in May 2009 and customers can download mobile games, applications, videos, images, and ringing tones to their Nokia devices. In May 2011, Nokia announced plans to rebrand its Ovi product line under the Nokia brand and Ovi Store was renamed Nokia Store in October 2011. Globally, there more than 150 million registered Nokia Store customers and Store offers more than 120,000 apps, and currently sees more than 17 million downloads per day, with 50%+ coming from Series 40 phones. To date, Nokia Store has driven more than 6 billion downloads and offers operator billing supported by 145 operators, across 52 markets. 80% of Nokia Store traffic converts to a download, and apps are No. 1 among paid-for and free downloads. Nokia Store is available in 190+ countries, of which 90% are served in their local language. 505 developers have achieved more than 1M downloads through Nokia Store, while 63 have achieved 10M or more, 41 with 25M or more, 13 with 50M or more, and 3 developers have now passed the 100M downloads milestone according to Nokia Developer site.

At BlackBerry Jam in September 2012, RIM announced that App World had more than 105,000 apps. Based on Vision Mobile data, BlackBerry developers generate an average of 4 percent more revenue per app a month than those on iOS. BlackBerry App World is an application distribution service and application by Research In Motion (RIM) for a majority of BlackBerry devices. The service provides BlackBerry users with an environment to browse, download, and update third-party applications. The service went live on April 1, 2009 according to Wikipedia. App World recently crossed 3 billion downloads since the store launch.

Michael Walkley, a Canaccord Genuity analyst estimated that Samsung would be able to sell 303.6 million handsets in 2013 while the American iPhone-maker is likely to sell 194 million iPhones and 102 million iPad units. Smartphones powered by Microsoft’s Windows Phone 8 software also posted a boost in the third quarter, increasing the company’s market share by 2 percent. Blackberry is also expected to launch its new smart phones based on BB10 OS in January 2013. App Store Industry is expected to continue its growth in near future as more and more apps are developed by developers and store access is extended to other countries which do not have access right now. All the App Stores are investing in further developing the platforms and devices, monetizing and revenue sharing with developers and encouraging developers by investing millions of dollars.

A look at Verticalization strategy adoption by Indian Outsourcing Vendors 2012

2012-11-11T22:44:00.000+05:30

Indian outsourcing vendors have adopted verticalization strategy since 2008 and they have restructured their organizations based on specific industry verticals like Banking Financial Services & Insurance (BFSI), Pharmaceutical, Manufacturing, Retail, etc. and have appointed business heads for each vertical with significant responsibility and accountability in terms of revenue maximization, profit & loss, developing specific domain skills and expertise that includes acquiring the required human resources for this purpose and train them accordingly. All the Indian Outsourcing vendors like TCS, Infosys, Wipro, HCL Technologies and even BPO players like Genpact, WNS, Aditya Birla Minacs, etc. have all adopted the verticalization strategy and invested significant amounts in developing the domain skills, products, platforms, and intellectual property and also used M&A strategy to acquire companies/players with specific domain skills. According to NASSCOM, the Indian BPO industry is moving from efficiency to effectiveness while focusing on re-engineering themselves in order to deliver transformational impact to customers. The industry is developing future-ready solutions by following a verticalized approach by developing in-depth capabilities across verticals and creating customer impact through service delivery excellence.

Indian Outsourcing industry that included IT and Business Process vendors both are experiencing slower growth rates since past five years where the slowdown is because of the Global Financial Crisis and European Sovereign debt crisis. Outsourcing clients are constantly demanding lower prices for the work, increasingly rationalizing their portfolio, looking to do more work with fewer Vendors and are also demanding the Indian Outsourcing Vendors bring more value to their relationships by providing them services that will have significant impact on the clients businesses. These are some of the reasons that have forced the Indian Vendors to adopt Verticalization strategy and Verticalization is one of the ways providers are seeking to deal with this changing industry and looking to create more value to their clients. According to Peter Bendor-Samuel, Chief Executive Officer, Everest Group, the move to verticalization is a reflection of a maturing services industry and secular pressures on the provider community. Large Indian IT Vendors like TCS, Cognizant Technologies, Infosys, Wipro, and HCL Technologies have realized and adopted the vertical strategy for the past five years and have reaped significant benefits from this strategy.

Verticalization strategy helps the vendors to focus on key verticals and since organizations are aligned according to key verticals, accountability and responsibility at the account level and enterprise level will help in increasing revenues and also enable sharing domain specific knowledge and expertise across accounts thereby enhancing vertical group’s ability to engage with existing clients and potential clients in the specific industry verticals. Products and Platforms based on reusable IP can be developed based on the domain specific offerings of the existing accounts/clients, thereby increasing the nonlinear revenues of the vendors as the Indian vendors are aggressively looking to increase nonlinear revenues. Biggest challenges for the Indian vendors are recruiting the domain specific skilled talent and training the existing talent to enable them offer innovative and client requirement based offerings and also vendors have to invest millions of dollars for developing the products, platforms and Intellectual property. Acquisitions is another way Indian Vendors are looking to build industry vertical expertise where in TCS acquisition of Citi Bank back office in India and its acquisition of Diligenta, insurance outsourcing specialist which got the US$ 2.2 billion Friends Life deal, Infosys acquisition of Lodestone Consulting and sourcing & procurement vendor Portland Group and Infosys 3.0 strategy emphasizes the vertical specific focus, HCL Tech acquisition of Axon and Wipro acquisition of Promax and it also kept a budget of US$ 1 bn for M&A. Vertical strategy is key for the nonlinear revenue growth that all the major Indian Outsourcing vendors are focusing on for future revenue growth.

Discussion Points :
1.Is the present verticalization strategy adopted by Indian Outsourcing vendors is effective?
2.What factors forced the Indian Outsourcing Vendors to adopt the Verticalization Strategy?
3.What are the advantages of the Verticalization strategy particularly for Indian Outsourcing Vendors?

Big Data will drive Business Organization IT spending till 2016

2012-10-22T21:05:00.000+05:30

Big data is gathered from everywhere be it posts, updates, comments, etc. to social media sites, digital pictures and videos uploaded onto internet and stored on the various devices, purchase transaction records, and cell phone GPS signals, etc. According to IBM, every day, we create 2.5 quintillion bytes of data — so much that 90% of the data in the world today has been created in the last two years alone. Big data is any type of data - structured and unstructured data such as text, sensor data, audio, video, click streams, log files and more and these data sets are huge and complex which cannot be analyzed and processed using normal data base tools and technologies. Big data sizes are a constantly moving target, as of 2012^[update] ranging from a few dozen terabytes to many petabytes of data in a single data set and requires "massively parallel software running on tens, hundreds, or even thousands of servers.” According to IDC, the volume of digital content is expected to grow to 2.7 zettabytes (ZB), up 48 percent from 1.8 zettabytes in 2011. With more than one billion smartphone users worldwide, and more than billion consumers are active on the social media platform like Facebook , are generating zettabytes of data (1 zettabyte equals more than a trillion GB), giving out information on their likes and dislikes, shopping preferences and much more.

According to Gartner, Big data will drive $28 billion of worldwide IT spending in 2012 and is forecasted to drive $34 billion of IT spending in 2013. Big data will drive $232 billion in spending through 2016. It will directly or indirectly drive $96 billion of worldwide IT spending in 2012, and is forecast to drive $120 billion of IT spending in 2013. Big data currently has the most significant impact in social network analysis and content analytics with 45 percent of new spending each year. Most of the current spending is used in adapting traditional solutions to the big data demands — machine data, social data, widely varied data, unpredictable velocity, and so on — and only $4.3 billion in software sales will be driven directly by demands for new big data functionality in 2012. “However, through 2018, big data requirements will gradually evolve from differentiation to 'table stakes' in information management practices and technology. By 2020, big data features and functionality will be non-differentiating and routinely expected from traditional enterprise vendors and part of their product offerings”, according to Mark Beyer, research vice president at Gartner. Gartner expects leading organizations to begin to use their big data experience in an almost embedded form in their architectures and practices by 2015.

According to IDC estimates, Big Data market is expected to grow from $3.2 billion in 2010 to $16.9 billion in 2015. This represents a compound annual growth rate (CAGR) of 40% or about 7 times that of the overall information and communications technology (ICT) market. IDC also forecasts a significant opportunity for both Large IT vendors as they acquire smaller players and launch their own product offerings and Startups where more than half a billion dollars in venture capital has been invested in new Big Data technology. IDC study also highlights the five-year CAGR for the worldwide market is expected to be nearly 40%, the growth of individual segments varies from 27.3% for servers and 34.2% for software to 61.4% for storage. Over time with the growth in appliances, Cloud, and outsourcing deals for Big Data technology business organization focus will shift from technology capabilities towards the business value arguments. Most of the vendors will focus on system performance, availability, security, and manageability and there will be very little differentiation among the various vendors.

According to Wikibon, the Big Data market will see rapid growth spurt that will see it top the $50 billion mark worldwide within the next five years and as of early 2012, the Big Data market stands at just over $5 billion based on related software, hardware, and services revenue. Big Data is going to be critical for business success in near future as businesses are looking to utilize the data for making critical decisions, develop new products and services and improve the existing ones. For some of the businesses Big data has already become a strategic advantage in comparison to their competitors who are still looking for ways to crack data. New technologies and tools are being aggressively developed and in next five years most of these technologies will be part of traditional IT architectures and businesses will learn to use big data effectively and big data will become just data and not more of strategic advantage.

Discussion Points:
1.What is Big Data, where is it gathered from and what is its role in Business Organizations?
2.What are the technology implications of Big Data and how to analyze it and use it for Business growth?
3.How should business organizations deal with Big Data and how to use it in strategic decision making?

Major Big Data Vendor revenue 2011:
Source: http://wikibon.org/wiki/v/Big_Data_Market_Size_and_Vendor_Revenues

Vendor	Big Data Revenue (in $US millions)	Big Data Revenue as Percentage of Total Revenue
IBM	$953	1%
Intel	$765	1%
HP	$513	0%
Fujitsu	$285	1%
Accenture	$273	0%
CSC	$160	1%
Dell	$154	0%
Seagate	$149	1%
EMC	$138	1%
Teradata	$120	5%
Amazon Web Services	$116	18%
SAS Institute	$115	24%
Capgemini	$111	1%
Hitachi	$110	0%
SAP	$85	0%
Opera Solutions	$76	76%
NetApp	$75	0%
Atos S.A.	$75	1%
Huawei	$73	0%
Siemens	$69	0%
Xerox	$67	1%
Tata Consultancy Services	$61	1%
SGI	$60	9%
Logica	$60	1%
Mu Sigma	$55	85%
Microsoft	$50	0%
Oracle	$50	0%
Splunk	$45	68%
1010data	$25	83%
Supermicro	$23	2%
MarkLogic	$20	25%
Cloudera	$18	100%
Red Hat	$18	2%
Informatica	$17	2%
Calpont	$15	60%
ClickFox	$11	31%
Fractal Analytics	$12	100%
Pervasive Software	$10	20%
Tableau Software	$10	14%
Think Big Analytics	$8	100%
MapR	$7	100%
Digital Reasoning	$6	50%
ParAccel	$5	45%
Couchbase	$5	84%
DataStax	$4.5	100%
10gen	$4.5	100%
Datameer	$4	100%
Hortonworks	$3	100%
RainStor	$2.5	100%
Attivio	$2.5	13%
QlikTech	$2	1%
HPCC Systems	$2	100%
Karmasphere	$2	100%
Other	$25	n/a%
Total	$5,125	1%

Blue Ocean Strategy – SpiceJet flying to destinations unchartered by rivals

2012-09-30T20:57:00.000+05:30

Tough competition, margin pressures and too many big carriers flying in the regular busiest routes like Singapore, Kuala Lumpur, etc has forced the Indian low-cost carrier (LCC) SpiceJet to spread its wings to destinations like Kazakhstan capital Almaty, Uzbekistan capital Tashkent, Chinese city Guangzhou and Chinese special administered region (SAR) Macau that are left unchartered by major full service peers and sought government nod to fly to 10 new destinations like this. SpiceJet already flies to war region Kabul Afghanistan, tourism-cum-trade centers of Colombo, Dubai and Kathmandu and the airline is expected to fly to Male, Riyadh and Dhaka soon. "We follow a blue ocean strategy for international flights which means flying to places where not too many airlines go. We would like to go to more points in China," SpiceJet CEO Neil Mills said. Mills is targeting routes where the airline will have a first-mover advantage at least six months to one year head start, particularly where its competitive rivals other Indian LCCs are not flying, not much competition and where setting up operations and getting permission is difficult, due to tough bilateral rules. SpiceJet's strategy to fly to the above said destinations with no competition from the other Indian rivals could benefit it as there is demand on these routes which will allow it to charge rewarding fares and increase profitability.

SpiceJet Blue Ocean Strategy is to develop new markets instead of competing with experienced big players in the established routes which are no longer profitable due to margin pressures and other costs along with cut throat competition. But the Blue Ocean Strategy of flying to war torn Afghanistan Capital Kabul carries a huge risk and only three Airlines fly to this destination but there has been significant medical tourism traffic from Kabul into India along with strong trade between the two countries, basic supplies are carried mostly through air rather than any other mode of transport and with supply constraints allowing airlines to charge between Rs 10,000 to Rs 29,000 for a one-way flight that took just two hours — making it one of the most profitable routes from India. Flying to former Soviet Republics like Uzbekistan, Kazakhstan, etc is also a good move because there have been good growth in terms of trade between the countries in this region and India and more over close to 1000 students from India are going to these countries for studying medicine and also students from these countries are also coming to India for studies as part of exchange programs that include cultural, academic, scientific, etc. National carriers from Uzbekistan, Kazakhstan are flying to India since past few years and there is also good opportunity for growth in tourism traffic between India and various countries in the Central Asia as tourism is being mutually promoted by all the nations.

A look at other international routes announced by SpiceJet like Madurai-Colombo, Delhi-Dhaka-Rangoon/Yangon, Delhi-Riyadh, Delhi-Guangzhou, and Trivandrum-Male reinforces its Blue Ocean Strategy of flying to unchartered routes not served by competition. Large Tamil population in Si Lanka along with strong business links has encouraged the airline to connect Madurai and Colombo and expects demand to be strong. Delhi Riyadh route is again significant as there is large movement of labor as many big contracts won by Indian companies and Muslims from India travel to this country in large numbers for this purpose. Guangzhou is China’s third most important city and it’s the manufacturing capital and lots of Indian Traders frequently travel to this city and no Indian airlines fly to the city and Macau is famous for its casinos and tourism. SpiceJet is also experimenting with this first-mover advantage within India too by flying to smaller towns and cities and connect them with multiple metros and larger cities, where no Indian airline flies at the moment. SpiceJet already connects 16 destinations, including Jabalpur and Amritsar, as well as Hubli and Tirupati, among others and it is doing this through its acquisition of the 78-seater Bombardier Q400.

SpiceJet adoption of the Blue Ocean Strategy of flying into new destinations underserved by its rivals with good revenue potential and taking big risks will only work for shorter time as first mover advantage will be lost once all the competitors start entering into these destinations once they see the profitability in those routes. So SpiceJet have to make money fast and hope that the bilateral agreements between India and nations like Saudi Arabia, China that makes it hard for getting licenses by the other Indian rivals will be there for some more time. Volatility in aviation turbine fuel (ATF) prices which is imported into India is another concern as most of the Indian Airlines are struggling to keep their costs under control in terms of fuel expenses. Maintaining two different types of aircrafts new-generation Boeing 737 for playing between major routes and Bombardier Q400 for flying to smaller cities and minor routes is like operating two low cost carriers which will put pressure on managing costs and technical maintenance costs will also raise. Another risk is the domestic strategy of flying to smaller cities and towns which are point to point as Air Deccan earlier failed to make profits in this model. But SpiceJet is forced to take these risks and adopt a Blue Ocean Strategy as the airline in the last financial year made losses of around Rs 600 crore and it picked up 12 million passengers. Neil Mills, the current CEO is aggressively looking to turnaround the airline with these strategies.

Discussion Points:

1.Will SpiceJet strategy of flying to destinations unchartered by rivals generate profits?
2.What should they do additionally to keep up revenues and increase profitability along with safeguarding its market share?
3.Despite its Blue Ocean Strategy, SpiceJet is not able to compete with other players like Indigo Airlines, Jet Airlines. What should they do improve their performance?

Significant Growth in Healthcare Outsourcing opportunity for Indian IT Vendors in 2012

2012-09-08T12:36:00.000+05:30

At the end of June 2012, the US Supreme court upheld the main elements of the Patient Protection and Affordable Care Act, which President Barack Obama signed into legislation in the year 2010. The law mandates all the American citizens to buy health coverage in 2014 or else pay huge penalties if they fail to buy and the employers should offer healthcare coverage for their full time employees and their dependents or they will face penalties. After this decision more than 30 million uninsured Americans are estimated to buy healthcare insurance because of the reform, and new projects are expected by Indian IT Vendors like data conversion, creation and management of electronic health records, as well as claims processing and insurance sales. Indian IT Vendors can actively vie for the deals worth up to $22 billion (Rs 1.2 lakhcrore) and according to NASSCOM, Healthcare accounts for another 4% of the IT-BPO industry, which is expected to grow slower this year, at 11-14% from 17% last year. According to TPI, a sourcing advisory the new law allocates about $37 billion for creation and management of electronic health records, data conversion, beta testing and change management.

According to Everest Group report titled, “IT Application Outsourcing (AO) in the Healthcare Payer Industry – Annual Report 2012”, the US$20 billion healthcare IT outsourcing (ITO) market nearly doubled its cumulative contract value in 2011 compared to 2009. Processes that are outsourced to Indian IT vendors include Application development and maintenance, testing services, and software package implementation and North America market is the primary market that outsources in healthcare payer segment. India is the preferred delivery location in this segment followed by China, the Philippines and Latin America and more than US$3 billion worth of payer AO contracts are due for renewal between 2013 and 2018. The Everest Group Service Provider Landscape analyzes more than 15 AO service providers, eight of which are mapped on the PEAK Matrix. The Leaders include Accenture, Cognizant and IBM; Major Contenders include CGI, Dell Services, Infosys and TCS; and Emerging Players include Mphasis. Other aspiring service providers in the payer AO space include Fujitsu, HCL, Hexaware and Mahindra Satyam.

Cognizant Technology is far ahead of its peers in terms of Healthcare vertical revenues with US$1.74 billion 37% (YoY), followed by Wipro, TCS, Infosys & HCL Tech. Infosys dethroned HCL Tech and it shows that Infosys is seriously targeting more deals in this vertical as evident with 42% YoY growth. Even TCS is also focusing aggressively on healthcare segment and Cognizant is keeping up its growth. Cognizant was the first player who bid aggressively in healthcare vertical and has built significant domain capability in healthcare and domain which makes it difficult for other Indian IT vendors to match it. Table source: “Report Card for the Indian IT Majors: Pecking Order Analysis of the “WITCH” Group”

Healthcare Vertical has become a critical for all the Indian IT vendors due to the ongoing reforms in the US and also the trillion dollars spend that is expected in coming years in United States. Analysts estimate the US’ healthcare market at $2.5 trillion and projected to grow to $4.6 trillion by 2020. For capturing this opportunity Indian IT vendors have to invest in developing and acquiring domain expertise in terms of people, processes and technologies. Analysts also predict that there will be significant rise in the M&A transactions particularly in Healthcare domain as most of the Indian IT vendors do not have necessary domain expertise and skills in healthcare domain and they are aggressively looking at the M&A route to acquire companies that have healthcare domain skills and expertise. Regulatory conditions also force the Indian vendors to set up delivery centers in United States and service the clients locally and also have to recruit local talent for this. Infosys and TCS have announced that they are looking for acquisitions in this segment both in US & Europe.

IT Application Outsourcing (AO) in the Healthcare Payer Industry – Annual Report 2012, published by Everest Group, an advisory and research firm on global services identified five key themes is fuelling IT services demand in the U.S. healthcare payer market: Compliance with regulatory reform, Consumerization, Claims transformation, Convergence of information across healthcare entities, Consolidation and M&A. Healthcare vertical also provides an opportunity for the Indian IT Vendors to also focus on nonlinear revenues that will lead to more revenues and increased margins and profitability. Outsourcing penetration levels is very low in the healthcare Payer Industry and in future this segment is expected to grow rapidly and present a significant opportunity for the Indian IT Vendors to focus and improve their presence.

Discussion Points:
1.What is the impact of PPACA act on healthcare BPO particularly for Indian Outsourcing vendors?2.What are the strategies adopted by Indian Outsourcing vendors to capture revenues from US healthcare outsourcing due to the changes and reforms in Healthcare?
3.What are the processes in healthcare that can be outsourced to Indian vendors?

India IT-BPO Industry 2012 – Contradictory Growth forecasts by Top Indian Players

2012-08-12T18:52:00.002+05:30

Indian Outsourcing Industry (ITO/BPO) top players include TCS, Infosys, Wipro & HCL technologies and these players gave contradicting growth forecasts for their companies wherein Tata Consultancy Services (TCS) and HCL Technologies, announced good growth in earnings for the quarter ended June 2012 and despite the challenging macro environment gave good growth forecasts for the year 2012 while Infosys and Wipro, announced not so great earnings for the quarter ended June and not so great growth forecasts for the year as both the companies are still struggling with internal restructuring and Infosys seeing budget cuts by their Clients. Both Wipro & Infosys have seen major changes in the Leadership where in new CEOs took over and also saw significant changes in the internal organization structures and they are struggling to adapt to changing business environment. The global economic slowdown is a matter of concern for the IT industry, fall in volume growth and pricing, shortening of contracts and slow decision-making, geopolitics (since it is election year there are visa hurdles) and currency arbitrage particularly weakness in rupee are major concerns for the Indian Outsourcing industry.

TCS has been doing well since past three years post the 2008 subprime mortgage crisis and has been able to sustain double digit growth in sales and profit in the changed outsourcing demand. The growth has been good across the verticals and across geographies not limited to few specific verticals and geographies and has benefited the most by the upsurge in outsourcing demand in the past three years. For the quarter ended June 2012, TCS reported volume growth of 5.3% and it saw growth across markets, industries and service lines. The reason for such good performance by TCS is because the company identified and invested in various non-linear opportunities such as software products, platform based BPO offerings and Cloud offerings like software as a service (SaaS), and focus on unit-priced contracts for the past few years. Also TCS has scale in terms of presence in major geographies, skills, capability and focuses towards creating intellectual property. TCS is also looking at inorganic growth wherein it is looking at a deal size of USD 50 million to USD 500 million if the target is a strategic fit particularly looking at inorganic growth to strengthen its European presence.

Infosys earnings for the quarter ended June 2012 were disappointing and the company did not give guidance for September 2012 quarter and cut its guidance for 2012-13 to 5% which is far below the NASSCOM ’s forecast of 11-14% growth for FY13. Infosys is still struggling with internal leadership and organizational changes as it had a new CEO and Chairman and is facing difficulties with its business model adaption to the new demand environment as there is a continuous commoditization of traditional IT services (Application Development & Maintenance) and it is finding it difficult to maintain premium pricing during contract renewals. Major part of Infosys business is from discretionary IT projects and it is looking to migrate large part of its business into non-discretionary since couple of years and looking to utilize discretionary resources to focus on growth of consulting and systems integration (33 % business comes from CSI) and products, platform and solutions (PPS) business. Infosys’s product efforts are centered on Finacle which is core banking solution, and other platform-based services for the likes of Airtel Money. Infosys built a US$ 2 Billion Packaged implementation business and also focusing to create an IP-based and non-linear revenues. Infosys is looking at both organic and inorganic routes for growth and has a healthy cash pile which can be used for acquisitions that helps to penetrate new markets, create new markets and acquire intellectual property.

Wipro too had a new CEO coming in 2011 but is still struggling with internal reorganization issues and announced a 1.4% QoQ dip in dollar revenue following a decline in most of its businesses (BFSI fell 2% & Retail & Transportation fell 4%) and geographies for the quarter ended June 2012 and guidance for the quarter ending September 2012 is also disappointing. Despite the acquisition of several companies fore inorganic growth in the last decade to strengthen its business verticals, which Wipro calls the "string of pearls" strategy, the company has not been able to overtake its peers both in terms of revenue and profit growth. But CEO TK Kurien is confident about Wipro recovering as it had done well in terms of adding clients and its strategy comprises of three phases which is growing the existing client base to continue to get short-term sustainable revenue, invest and broaden its customer base and make sure they do not get caught up in the changes and swings of their client business and prepare to face adversities. Wipro believes it is doing well with the first phase and expects the second phase to take another 8 to 12 months and the third would be a year-round story.

With strong QoQ growth across verticals (infrastructure management services (9.2%), enterprise applications services (4.8%) and engineering and R&D services (3.9%)), HCL Technologies posted better-than-expected results. But HCL Technologies is still struggling with its BPO business as it continues to be sluggish with a 2% fall in growth but it has moved to an outcome-based pricing model from its current input-based model. For the first time HCL Tech crossed $4 billion in terms of revenue and the company signed eight multi-year, multi-million transformational deals, while in the fiscal 2012, it won 52 deals. HCL Tech believes despite over all IT spends being flat there are contract restructuring and significant churn in the renewables market and it looking to capture significant share through these two. HCL Tech CEO believes that Indian IT industry should look to convert challenges to opportunities and is focusing on the specialization, domain competency and vendor churn is playing out for HCL Tech and it is aggressively investing in the areas of infrastructure services, engineering and ERP (enterprise resource planning). HCL Tech has also inorganically with its acquisitions of companies like Axon and these acquisitions have been key drivers of growth for the company.

Indian IT industry is facing many challenges in the current year and all the four top players have announced specific strategies that will help them overcome the growth problems and are investing in technologies like Cloud Computing, Platforms, products & other nonlinear initiatives According to NASSCOM, aggregate revenue for the Indian IT-BPO sector is estimated to cross USD 101 billion for FY 2011-2012 and exports accounted for ~USD 69 billion( IT Services $40bn, BPO $16bn & Engineering Services & Products $13bn) , growing by 16.3% over the last fiscal year and for FY2013, the export revenues are expected to grow by 11-14% while the domestic revenues will grow by 13-16%.

Wipro Non Linear revenue strategy focus on Cloud, Mobility & Analytics

2012-07-03T20:14:00.000+05:30

Early 2011 Wipro dismantled its joint CEO model and appointed TK Kurien as CEO who restructured Wipro into more simple, agile and customer centric with focus on core momentum verticals and the four key industry verticals included 'Banking, Financial Services and Insurance (BFSI)', 'Energy & Utility', 'Retail and consumer products' and 'Healthcare'. Wipro has been undergoing a massive restructuring exercise under TK Kurien, who is making extensive cultural changes within the organization, to bring back sustained growth for Wipro as it lost its number three position to Cognizant Technology Solutions. Some of the changes are aligning the organization structure with demand generation process and efficiency, variable component of management and mid management salaries linked to client and employee satisfaction, focusing more on existing accounts for more revenues, new team for chasing the change the business deals and focusing on increasing the non linear revenues from emerging areas like cloud, mobility and Analytics. “The future is clearly the non-linear model. We are already seeing signs of it. The linear model will break. Our focus will now be on cloud, mobility and analytics,” said Kurien. “I want to leave behind a legacy of growth. Thought leadership will not bring revenues.”

Wipro is focusing on analytics, social media (for enterprises), cloud and mobility for its future revenue growth and hopes these new service lines grow by 30% YoY and it is aggressively investing on these non linear initiatives. Wipro is looking to invest $1Bn in overseas acquisitions over the next 18 months and looking at deal size of around $50Mn - $300Mn and looking for specialized companies in analytics, cloud computing and mobile communications. Wipro is focused on industries including health care, financial services, energy and utilities, and retail and is looking for regions like Saudi Arabia and in parts of Northern Europe and Asia for their acquisitions. The company recently acquired Promax, an Australian company specializing in trade promotion for strengthening its analytics practice which gives it a head start over competitors in a segment where its peers are looking to enter for future growth. According to industry sources, Wipro had around 250 analytics clients and the company is strongly betting on Analytics for non linear revenue growth. Wipro has been showcasing client wins in new areas like analytics and cloud. "The company's keen focus is to grow its new focus areas like Analytics (35 new accounts in the year), Cloud (40 new wins in this quarter) and Mobility (50 new customers added in FY13)," reads a recent report from brokerage house Prabhudas Lilladher.

Wipro is also focusing on mining its 138 largest clients by using dedicated engagement managers and a report by Motilal Oswal highlights the fact that post restructuring, Wipro has seen impressive client additions and mining of large clients to increase its number of customers in the higher contribution buckets (USD100m+ clients up from 1 to 7 in 5 quarters). In a recent conference call with analysts, Kurien also mentioned that the company was investing in sales capabilities and had divided its sales teams into hunting (new client acquisition) and farming (mining existing customers) teams. Consequently, Wipro's sales and marketing expenses were the highest since the fourth quarter of 2003-04, adds the Prabhudas Lilladher report. Wipro restructuring is almost complete and company is looking at specializing in sub -verticals with longer revenue cycles, build capabilities in analytics and cloud computing through acquisitions and standardize its back-end using lean manufacturing principles for revenue growth. Another area where Wipro is betting big is mobility and company had less than 150 people working on mobility solutions earlier; the number now stands at over 1,500. Wipro Technologies has announced that Wipro’s Mobility Solutions will collaborate with Kony Solutions, Inc., a mobile application development platform provider and will offer an integrated portfolio of mobile application technology and services to enterprise customers in the US, UK, Australia and West Asia.

Wipro revenue growth for IT services was lowest among peers in Q4 FY 12 and its guidance for the first quarter of FY13 was muted and the company blamed it on certain delays in deal closures during the fourth quarter FY12 and lackluster domestic market revenues, especially in the telecom and government verticals. Wipro is also seeing pricing pressures, challenges in its key BFSI vertical and problems in some of its largest clients who are slowing down spend and internally with in Wipro it has to improve its cost structure and CEO Kurien also said that he is looking to trim the middle management and encourage them to improve their performance. Wipro is also targeting a different strategy which will allow its clients increasingly look at it as a combination of a consultant and technology company and have a say at the management or board rather than being just looked at as technology providers. Analysts believe Wipro will log a net profit of 15% CAGR FY12 through FY15 fueled by a significant contribution form these non linear initiatives.

Increased focus on Non Linear Revenue growth by TCS for FY 2013 growth

2012-07-02T18:26:00.000+05:30

Tata Consultancy Services (TCS) became the first $10-billion Indian IT company in March 2012 and this significant achievement is fueled by the solid base it created over the past few decades and the domain depth & expertise it has acquired across different domains. Despite the persisting macroeconomic challenges, slower GDP growth & job growth, and continued currency volatility, TCS, in FY2011-12, registered 15 % increase in net profit to Rs 13,517 crore, while its revenue increased 31% to Rs 48,894 crore. TCS believes there is significant potential for growth as the addressable market is still large which is also expanding continuously and market growth is further assured with relatively low current level of penetration. To further fuel the growth momentum TCS is focusing its efforts to generate more revenue from its non-linear businesses that includes three strategic initiatives-- software products (TCS financial solutions), platform-based BPO, and iON (IT-as-a-service solution for small and medium businesses). It is also planning to increase its focus on new technologies such as smartphones, mobility and cloud to drive growth and has made significant investments in these areas. TCS, with a brand value of $4.1 billion is competing with the big boys like IBM, HP and Accenture.

TCS Financial Solutions increased its client base by adding 39 new clients in FY12. TCS BaNCS is a market ready universal financial platform for banking, capital markets and insurance, offered by TCS FS. Recently Malaysia-based financial services group AmBank has decided to deploy 'TCS BaNCS', integrated banking suite, spanning conventional and Islamic banking, will support both retail banking and lending functionalities and also has bagged a contract from South Africa's Nedgroup Insurance Company (NIC) for deploying TCS BaNCS Insurance, part of the it's financial services platform, will serve as the new policy administration system for Nedgroup short-term insurance services. TCS also announced that Letshego Holdings (LHL), a leading consumer lending company based in Botswana, has selected the TCS BaNCS suite as the core banking system for its Greenfield venture into retail banking in Africa. The integrated core banking solution will process loans and deposits across seven countries in Africa — Botswana, Swaziland, Tanzania, Uganda, Zambia, Namibia and Mozambique. TCS is increasing its focus on Africa as it is trying to increase its revenues from the region.

iON uses scalable cloud computing technology to deliver automation suite to SMBs, eliminating the need for them to invest in any IT assets and requiring them to pay monthly rentals rather than a one-time license fee. The suite includes human resource management, customer relationship management, payroll and finance management solutions along with niche industry-specific solutions. iON is being marketed through a channel partner network of 109 cloud service providers and has 256 mid-market customers. The company also said that it wants to ramp up over 1,000 customers this year and targets a revenue of $1 billion in the next five years.

Through its Platform-based BPO offering, it offers services in segments like Life Insurance and Pension Policy, Analytics and Finance and Accounts. TCS was the first Indian IT Services Vendor who initiated platform-based BPO in 2007 as the then CEO, S Ramadorai felt that platform-based services can be ‘templatised’ and some processes can be leveraged across different sectors. This strategy has been successful for TCS as it yielded dividends and this offering has been well received by TCS clients, which has been proven by the fact that TCS has bagged multi-million dollar deals in life insurance and pension policy, analytics and finance and accounts verticals. For example, since some processes in retail are similar to manufacturing which will eliminate the need to develop applications or write codes from scratch. Diligenta, UK subsidiary of the company has won the Friends Life Deal based on its insurance platform offerings. TCS has aggressively invested in developing its Platform BPO offerings in the past few years.

According to Motilal Oswal Report on TCS, as a part of its disruptive innovation strategies, TCS is increasing investments in many areas including new sensor-based technologies, intelligent infrastructure, platforms for genomic research, information fusion for enterprises and green technologies. The company has significantly increased its intellectual property (IP). It filed 460 patents in FY12. Cumulatively, TCS has filed 855 patents till date, of which 72 have been granted.

In the recent TCS Annual General meeting, Ratan Tata announced TCS's growth plans, "Our focus is to find a balance between traditional markets like the US and Europe and other emerging markets like Australia and the Middle East, which present good opportunities. Going forward, TCS will be focusing on non-linear growth since the situation in the West continues to be a concern." Future opportunities for TCS are extremely good and banking, financial services and insurance (BFSI) segment continues to be the thrust area for the company, TCS CEO and MD N Chandrasekaran added. The company has opened multiple development centers in Latin America, China and Philippines. With all these initiatives, TCS is hoping ride over the economic volatility and demand concerns and company is all set to a lead revenue growth in FY13 too. TCS expects analytics, mobility, cloud computing and non-linear platform-based services to contribute 10% of its total revenues by 2014-2015, which will be around $1 billion given the company’s $10 billion-plus revenue last fiscal.

List of Cloud Computing Outages 2012 – Businesses not prepared for outages

2012-06-25T21:38:00.000+05:30

The month of June saw four cloud computing outages where in Google Gmail, Amazon Web Services, Apple iCloud and Twitter saw outages ranging from 2-4 hours and these are not big outages when compared to previous outages that these companies faced in the previous years that lasted for days. But millions of users and companies like Quora, DropBox, Pinterest, Heroku, etc who use the cloud totally or partially for running their day to day operations were severely affected which also led to a lot of negative chatter on social media platforms like blogs, discussion forums, Twitter, Facebook, etc. Despite many precautions taken by cloud service providers there have been outages on a regularly basis caused majorly due to human errors, quality issues, technical glitches and natural disasters which also highlighted that there is no escape from cloud computing outages and companies have to include the outage risk concerns in their data security and disaster management plans. Cloud Computing has become a vital part of the IT infrastructure of many companies and reliance on cloud computing is even more increasing in the near future to power business, government, consumer services, etc and major players in the space include Amazon, Rackspace, Microsoft, Salesforce, AT&T, Google, etc. Investing in Cloud computing is a significant IT decision that the CTO and his IT team along with consultations with CEO, CFO and other stakeholders have to make and also have to frame the necessary policy or upgrade the Organizational IT policy accordingly for the successful transition to cloud computing.

According to a recent report by the International Working Group on Cloud Computing Resiliency, every year minimum of 10 hours are lost because of service disruptions and according to the thirteen biggest cloud computing service providers since 2007 a minimum of five hundred hours has been lost, which also translates in monetary terms to be worth a minimum of $70 million. In that same report, the group claims that a cloud computing service is usually down for an average of 7.5 hours each year, although an electric power service outage is pegged at a low 15 minutes yearly. The group gathered the data from various sources such as Twitter, Amazon, Google, Paypal, Yahoo, Microsoft, Facebook, and others. Cloud service analysis firm Newvem says 40% of Amazon's biggest cloud users are not ready for the next outage which can be totally blamed on those users only as they don't follow rule No. 1 in computing: make backups. This is a major threat for these companies as in case of a major outage they may loose critical and confidential data forever. Cloud users must create a back up of their data either on another cloud or on their premises. Some of the cloud providers like Amazon provide tools like Elastic Load Balancers, which automatically shift traffic around, and Snapshots, which automatically make backups. Cloud service providers should reduce the human errors, technology glitches, improve the testing process and prepare for tackling the natural disasters to avoid frequent outages and consumer confidence on cloud computing will be affected by frequent outages.

Apart from backing up the data cloud users too have to deploy the cloud across multiple geographical regions as highlighted by Amazon and it strongly discourages the practice of deploying in one region only as the two major outages on Amazon Web Services over the past two years were limited to servers in a single region (its Eastern US servers). So cloud computing services users must spread their workloads across various geographical parts of cloud service providers in order to prevent being hugely affected if an individual region experiences service disruption as for some of the companies their websites going offline for couple of hours will lead to significant amount of business loss both in terms of revenues and profitability added with brand reputation loss and customers moving to their competitors. Cloud computing users should realize the fact that cloud computing do not work on its own and the cloud service providers will take total responsibility for the data safety and smooth running of the business operations rather they should carefully monitor and manage the cloud performance and also have a back up and disaster plan in place especially for what will happen in the event of a service disruption. Companies should be very clear on how to integrate the cloud computing into their IT infrastructure and should also have total understanding of the cloud computing limitations and should have a plan in place to tackle the risks. Both the users and providers of cloud services should have the relevant contracts in place and should also be very clear about the service level agreements.

List of Cloud Computing Outages in 2012:

SaaS Market will increase in near future –Vendors pushing & Businesses Adopting

2012-06-12T22:36:00.002+05:30

Despite the turbulent economic environment, SaaS market has constantly grew at a healthy rate and the overall SaaS market did not grow as expected and it is still below 5% of the total overall software market and in next three years despite growing at healthy 20% rate its size will still be 20% of the overall software market. The growth of SaaS market had been slow as enterprises had concerns in terms of Data Security and integrity, cloud outages, privacy concerns, regulation, failure to understand contract terms and obligations, scalable pricing models, technology still under development with many players working on developing and improving the cloud technologies further, lack of skilled man power, and lack of sufficient cloud based applications available for enterprises to utilize. But businesses are being forced to adopt cloud computing particularly SaaS as the IT budgets have become tighter, the demand for SaaS solutions increased due to their lower implementation costs, faster deployment times, increasing familiarity with the SaaS delivery model and vendors effectively marketing them which also led to a growing comfort level with the security and performance parameters of cloud computing. According to IBM survey, 13% of organizations have substantially implemented cloud technology, which is expected to increase to 41% by 2015. Additionally, 21% of survey respondents said their companies are currently adopting the cloud and overall 90% of businesses expect to use the cloud in some capacity within the next three years.

In the times of economic slowdown and crises most of the businesses focus not on business expansion but look to improve profitability by reducing costs of the existing operations and this has driven the demand for SaaS offerings as IT plays crucial role in reducing costs. With rise in SaaS markets there will be erosion in the on premise software market particularly in next two years and businesses are forced to shift toward hybrid on-premises and Cloud offerings but ultimately much of that hybrid focus shifts toward pure-play SaaS/Cloud within just a few years. Gartner Research expects hybrid cloud computing will gain prominence and hybrid cloud configurations will allow organizations to move data and operations from a private to a public cloud easily, thereby improving scalability and efficiency. SaaS use is shifting away from point-solution-use and increasingly towards integrating business operation and management benefits and this fact is substantiated by the issues the most businesses are highlighting like integration and customization concerns. Even more IT organizations within the businesses are able to convince the management the return on investment on investing in cloud computing technologies and can safely move existing workloads and operations to the cloud to improve efficiency and service. For IT organizations too there are certain challenges like Cloud-based licensing are different from traditional on-premises licensing, the traditional software sales cycle is very linear (RFI, RFP, contract, maintenance, handoff to an internal sales rep), understand the Service level agreements and contractual obligations , acquire the relevant technology skills and develop a cloud centric IT strategy for the business with an ultimate goal of reducing costs and improving profitability and customer satisfaction.

According to Saugatuck’s 2012 Global Cloud Business Software Survey Data Report, CRM, Collaboration, Customer Support, HR/HCM, and Collaborative Commerce will lead SaaS/Cloud solution demand through 2016. The Unisys 2012 Predictions for Cloud Computing expects organizations – both IT and business units – will accelerate their adoption of SaaS solutions for email and collaboration to further reduce costs and simplify operations. Additionally, in 2012, Unisys predicts SaaS will extend into line of business applications, supporting mission-critical transaction processing. Over the next few years, intelligent analytics built into these SaaS applications will enhance the ability for organizations to support sales, supply chain, logistics and support personnel in real time, making better sense of huge volumes of data more quickly to provide better responsiveness and customer support. Along with large organizations, Small & Medium Businesses are embracing SaaS solutions as they are simple to install, minimal configuration, on-demand everywhere availability, and integrated web-based data backup. The most popular SaaS apps for SMBs are core business productivity tools like Google Apps and Microsoft Office 365 and prefer to deploy other apps related to office, collaboration, customer relationship management solutions, marketing, project management, email list management, database development and administration tools. Gartner believes in the next two years, buyers are most likely to purchase SaaS solutions in packaged CRM, procurement and ERP applications.

SaaS vendors too have to be constantly be in contact with their customers and understand their requirements and develop their offerings accordingly. According to Forrester Analyst, Holger Kisker in his post “Looking through the Cloud” explains SaaS vendors need an automated system that provides benefits to developers and customers alike:

Þ Manage ongoing, dynamic metrics. Because SaaS typically uses a subscription licensing model, vendors need to manage the ongoing license entitlement and application usage for the correct billing process. And because the trend is going from user-based pricing to more dynamic metrics, the need for and challenge of providing continuous, automated usage tracking will only increase.

Þ Track customer usage for product innovation. With limited (if any) feedback from sales reps, resellers, or implementation partners, SaaS vendors urgently need customer insights gleaned from usage to improve their solutions and feed the fast innovation cycle that SaaS solutions need to follow. Constant usage tracking provides detailed feedback on popular, critical, or unused features and functions and helps firm’s better target R&D investments.

Þ Make gathering customer insights a two-way affair. Last, but certainly not least, customers will appreciate it if SaaS vendors play back some of their usage information, not only to monitor their license utilization but also to identify new opportunities, process optimization, and benchmark themselves against their peers.

Indian IT Outsourcing Vendors both large and small too have developed SaaS offerings and offering them to their customers and this is even more important for these vendors as they are looking at Cloud Computing offerings as a way of increasing their non linear revenues which helps them to charge higher billing and earn more revenues, increase profit. Unisys highlights the fact that organizations should increasingly consider SaaS a viable option for common line of business applications and IT management solutions, especially if they’re already considering outsourcing, as SaaS vendors may provide more cost-effective solutions than traditional outsourcers.

IBM Growth Markets - Market Expansion Strategy, Branches in Secondary Cities

2012-05-22T21:13:00.000+05:30

IBM is focusing on emerging markets and other countries in Africa, Asia, Latin America and Europe for future growth and it’s Growth Markets Unit which focuses on these 152 countries is driving growth (Revenue & Profit) in the recent quarters, is expected to continue to grow and contribute US$ 17 billion in incremental revenues, 30% of IBM revenues, outpace major markets growth by 8 points and drive margin expansion by 2015 (IBM 2015 Roadmap Objectives). In order to successfully achieve these 2015 objectives, IBM needs to expand its market presence in the Growth Markets which means opening new branch offices not only in the metropolitan cities, capital cities and big cities but also opening branches in the secondary cities or tier 2 cities in emerging market countries. IBM expects mature markets that consist of countries like US, UK, France, Germany, Japan, Canada, etc are not going faster enough as IT spending has reached maturity levels when compared to emerging markets and other countries where IT spending by both governments and industries is on the rise in recent years. IBM has been aggressively opening branches in the Growth markets and in 2011 alone 92 branches (31 face to face and 61 Virtual branches) in 13 countries were opened by the company and most of them in the secondary and tier 2 cities in emerging and BRIC countries (Brazil, Russia, India & China). IBM had been present in most of the countries for many decades but the company is expanding into new cities and towns in these countries as there has been increase in IT spending by the governments to automate systems and use IT to provide good governance and service to the citizens and Small Medium Businesses and Large Industries increased IT adoption.

IBM Branch set up involves setting up a physical office with office staff who will be the sales team, client support staff and the Branch staff also collaborate with IBM’s business partners, who are responsible for educating the public to use IBM products. IBM branch opening strategy is more targeted to open branches in secondary and tier 2 cities where there is significant educated population with IT skills, Universities and Other higher centers of Learning, Growing Cities where Governments are investing in terms of infrastructure like roads, power, Special Economic Zones, etc, internet and telecommunications networks, presence of industries that are large, medium and small, and favorable government policies. Another major reason for IBM targeting the secondary and tier 2 cities is IBM strategy to support the small and medium-sized enterprises/businesses (SMB), considered one of the fastest growing segments and where IBM is seeing strong demand and potential growth in future. IBM SMB strategy is to offer innovative and advanced that were once exclusive for larger companies with larger budgets to small and medium businesses at affordable prices and easy to use. IBM is looking to offer various IT services in the secondary cities that are focused towards telecom, banking, public utilities, etc which will help the citizens, industry and governments in these regions to take advantage of the IT Infrastructure and services for their benefits. IBM is closely working with governments and public sector undertakings and is developing innovative products and service offerings that help them in providing good governance and citizen services easily. IBM Smarter Cities is one such initiative which is seeing increased adoption by many governments across the globe. Smarter Cities projects are running both in mature markets (1900 Projects) and growth markets (500 projects).

IBM is continuing its aggressive branch expansion strategy in 2012 and in first quarter of 2012 opened 76 new branches (33 face to face & 43 virtual branches). The branches opened highlight the fact that IBM is focused on improving its geographical foot print in secondary and tier 2 cities in India (15 branches), China (11 branches), Brazil ( 8 branches), Mexico (4 branches) Russia (3), Korea (6), and ASEAN countries like Indonesia, Malaysia (4), Thailand, Philippines in 2011 and 2012. IBM also opened branches in Middle East and Africa in countries like Angola, Senegal, Tanzania, Mauritius and

Qatar

. Growth markets being critical component of future growth for IBM, the company is hoping to expand its geographical footprint beyond the large and metropolitan cities will help in strengthening relationships with existing clients and partners, acquire new clients and provide innovative and affordable solutions and services in areas such as information management, IT security, cloud computing and business analytics. The branches also closely work with IBM business and training partners that educate consumers about various IBM offerings and also train local talent in terms of technical skills and certifications who can play critical role in further pushing the IBM products and service offerings to the customers. Geographic Market expansion is not only branch opening in secondary cities but also involves IBM commitment in the local city or town development by investing in people and infrastructure and working closely with governments, businesses and educational institutions.

Case Study: IBM Growth Markets Strategy 2015 – Emerging Markets Strategic focus

2012-05-18T21:18:00.000+05:30

IBM changed its corporate structure in 2008 by dividing its markets into Growth and Mature Markets moving away from the earlier geography based segmentation and this change is necessitated by the fact that emerging market countries have different Information Technology (IT) needs and usually IT spending grows more than twice as quickly as those countries’ gross domestic product. IBM Growth Markets Unit headquartered in Shanghai, China includes 152 emerging countries spread across Asia-Pacific, central and eastern Europe, Latin America, Middle East and Africa. China, Brazil, India, Russia (BRIC Countries) are the major countries that contribute significant revenues (40% of Unit Revenues) in this unit. IBM Growth markets make up 22% of IBM's revenue in 2011, and the company expects to increase that to 30% by 2015 as per its roadmap. In 2011, Growth Markets Unit revenue increased 19%, contributed 11% incremental revenues at constant currency compared to 2010, around 40 countries grew at double digits at constant currency and nearly 60% of growth markets revenues came from outside the BRIC countries. IBM's success in growth markets is essential part of the company's five-year strategy to add $20 billion in new revenue by 2015. IBM is also investing more than US$1 billion in growth markets for developing the business partners and also spending heavily on the marketing initiatives which are mostly co-marketing efforts with business partners to increase revenues.

IBM is making significant investments in more than 100 emerging countries in terms of building critical infrastructure; developing strategic industries and responding to massive demographic shifts, such as rapid urbanization and these emerging countries are expected to drive more than 60% of global GDP growth by 2015. Virginia Rometty as soon as she took over as IBM CEO in January 2012 appointed James Bramante as senior vice president in charge of Growth Markets Unit which highlights the importance of this unit in its 2015 strategy. According to IBM First Quarter FY 2012 results, Revenues from the growth markets increased 9% (up 9%, adjusting for currency) and 40 countries had double digit revenue growth at constant currency. Revenues in the BRIC countries - Brazil, Russia, India and China - increased 10% (up 11%, adjusting for currency). The Growth Markets are driving growth for IBM as mature markets are facing economic slowdown and the European Sovereign debt crisis is also having significant impact. To further enhance the growth markets revenues IBM is aggressively opening branch offices beyond the large cities and BRIC countries particularly in African countries.

IBM had been investing in BRIC countries for past many years and its investments in these countries and other emerging nations even during the Global Financial Crisis 2008 has been delivering consistent revenues and is fueling growth for the company. IBM had set up R&D facilities in India, Brazil and China and these facilities are capable of innovation in the fields of natural resources technology, transportation and logistics, infrastructure and clean technology and also have significant number of employees working in these geographies. IBM is also working closely with Governments in BRIC and other emerging markets in range of projects covering infrastructure, energy, utilities, etc. The BRIC revenues are significantly contributing to the company’s overall profitability. IBM is investing heavily in Africa and it aims to increase its presence from 24 countries to 35 countries by 2015. In Africa, IBM is investing in areas like financial services and is working with five leading Kenyan banks on infrastructure projects and helping Safaricom, through a partnership with Vodafone; provide its M-PESA mobile money service to more than 15 million customers. Bharti Airtel is working with IBM to deliver next-generation mobile phone service across 16 African countries, from Ghana to

Tanzania

offering voice, data and digital services.

Growth Markets are essential part of 2015 road map and with mature markets slowing down, these markets have been driving both revenue and profitability growth since past few years and are expected to continue to fuel revenues in future too. But the current macro economic volatility due to European Sovereign Debt crisis is a major concern that is having significant affect on BRIC countries and other emerging countries along with US, Japan, UK and other developed countries. There has been cutting down of growth estimates for countries, reduce in spending increase in austerity and there has been rise in inflation, interest rates and fall in incomes for people. But IBM is well invested and prepared for facing adverse macro economic volatility and is expecting to keep up its growth particularly with boost from emerging countries IT Spending. IBM will maintain its 2015 financial roadmap with focus on four growth markets of analytics, cloud computing, emerging markets and "smarter planet" and will constantly shift to higher value operations, as well as drive new markets around new customers.

IBM 2015 Road Map continues the drive to higher value—with the expectation of at least $20 operating (non-GAAP) EPS* in 2015.Key objectives for 2015:

Þ Software becomes about half of segment profit

Þ Growth markets approach 30 percent of geographic revenue

Þ Generate $8 billion in productivity through enterprise transformation

Þ $70 billion of capital returned to shareholders

Þ $20 billion in spending on acquisitions

* Excludes acquisition related and non operating retirement related charges

Source: IBM Annual Report 2011

Discussion Points:

What will be the affect of European Sovereign Debt Crisis on IBM revenues?
Will IBM be able to keep up its Growth Markets revenues and profits?
With BRIC countries slowing down what will be the affect on IBM growth?