Infotech Lead Asia: Do Indian IT service providers follow a software development culture?
Constellation Research CEO and Principal Analyst, R Wang says that simple adoption of new technologies alone will not drive growth of Indian IT companies.
“Success lies in the creation of new business models that tap into more than one disruption. In addition, most Indian IT firms think in terms of getting the job done for the client instead of creating repeatable and reusable offerings. To succeed in future, they must adopt a software development culture,” Wang said.
Constellation Research, in its latest research report — Clients Want Outcomes, Are Indian IT Services Vendors Ready? — says IT Services firms that invest in Intellectual Property (IP)-based offerings will experience accelerated growth in the next 24-36 months.
According to a research conducted by Constellation Research, 80 percent of clients surveyed prefer ‘outcomes’ rather than technologies or solutions from IT service providers. The resulting demand-side dynamics of this preference will compel services firms to focus on IP versus vanilla offerings.
Based on the shifts in the technology purchasing environment, Constellation recommends four business models for Indian IT Services providers seeking to drive non-linear growth.
Indian IT services firms can create high-volume, high-value opportunities for themselves by applying differentiated intellectual property (IP) creation, enabling disruptive technology-focused business models, delivering innovation value chains, and leading partner ecosystems.
The abundance of disruptive technologies in Cloud, Mobile, Social and Big Data presents opportunities for Indian IT firms to craft new business paradigms that expand the business and strengthens relationships with customers.
Indian firms should now understand that their conventional business models have matured. Not only have their buyers’ technology challenges and priorities changed, their buyers’ profile itself is changing.
Clients have moved way beyond mere staff augmentation, infrastructure, testing and advice. As long as IT services firms deliver on promised outcomes, clients do not care what database, hardware or internal middleware is used to deliver the solution.”
Indian IT firms’ partnership approach with software vendors such as Oracle, SAP, Microsoft, and IBM are not supporting them for long term growth.
The new paradigm requires IT services partners to drive the ecosystem instead of being enslaved by the partner model. IT services firms know the clients the best, they have intimate industry expertise, they understand the client’s challenges and opportunities, and they have the account relationship, according to Wang.
It’s a now-or-never situation for IT services providers in India to invert this partnership model. The software mega vendors may in the near future encroach upon the IT services space via acquisitions, leaving number of their valued partners in the lurch.
To save costs, many top companies are insisting that enterprise software from the likes of SAP and Oracle should be maintained by third parties, resulting in savings of up to 50 per cent.
This new market for offering maintenance support is worth $125 billion (Rs 6.8 lakh crore), according to a March report by Constellation Research, far larger than the $100-billion Indian IT services industry.
“Third-party maintenance represents an untapped opportunity for IT services firms, to not only demonstrate value to their customer, but also help them free up funds for innovative new projects,” said Wang.
According to Lucintel, the global IT maintenance and support services industry experienced good growth over the last five years and is expected to continue its growth momentum to reach approximately $216 billion in 2017 with a CAGR of 5.3 percent over next five years (2012-2017).
Large enterprises such as the UK’s United Biscuits, German steelmaker Thyssenkrupp, and defence contractor BAE Systems have recently moved to third-party maintenance. Typically, for companies like Oracle, SAP, IBM or Microsoft, such contracts provide a sustained revenue stream for 5-10 years.
The IT maintenance and support services industry is fragmented and comprise two main segments, Hardware IT Maintenance and Support Services (HMSS) and Software IT Maintenance and Support Services (SMSS). North America dominates the industry and represents 42 percent of the global market. IT spending and significant economic growth are likely to affect industry dynamics considerably.