The Consulting Challenge

The saga of rupee appreciation against the US dollar has been
hanging like a Damocles sword over the offshore IT services firms for some time
now. And, though talking about high-value work is di riguer today, the
fact is that (ADM) still provides the bread and butter for most of these
companies, including the big six of offshoring, often called the SWITCH (Satyam,
Wipro, Infosys, TCS, Cognizant and HCL Tech) firms.

The short-term, tactical approach has been changing geographic
mix, with more focus on Europe, and in case of a few firms, Apac. But in the
long run, they have to tackle it by changing the internal business metrics. The
two key variables for protecting the bottom line are, of course, cost per
employee and revenue per employee. Though many of these firms have seriously
embarked on the path of productivity increase, the gain due to increase in
productivity is often offset by hike in wages. The only way, hence, is to look
at the increase in per employee revenue, dramatically.

This need has prompted them to look at consulting capabilities
far more seriously. But today, there is a lot of grayness to what outsourcing
firms call consulting. One, of course, is the consulting capability that is
integrated with IT and more often with BPO to give a higher value proposition to
customers, thus taking up average billing rates of existing IT and BPO services.
The otherwhich is a more radical approachis to pursue business consulting
as a separate service line so that the higher rates in consulting engagements
will take up the companys average revenue per employee, even if the billing
rates in IT and BPO remain in the same range.

The simple difference is that the former is easier to pursue
because it does not dramatically change the positioning of the company; but the
downside is that the gain due to it is gradual. Consulting as a separate
business line is tougher because the IT firmsespecially the offshore firmshave
played on efficient execution and not on devising strategies.

The World of Consulting

Today, it is not just the SWITCH coterie, but even many of the tier-2 IT
services players which agree that consulting is a must-do for moving up the
value chain. That ADM could not have kept them globally competitive much longer
was a foregone conclusion, the dollar depreciation is merely pushing them
towards going for consulting work to maintain their margins. The name of the
game is to shift the touch points in a client firm (the outsourcer) from just
the CIOs/CTOs to the business heads. With ADM and to some extent, infrastructure
management kind of work getting commoditized, consulting might soon become not
just one of the answers, but probably the only answer.

However, it is still a fact that Indian IT firms, not even the
SWITCH members, have yet to cut their teeth properly in consulting. Infosys,
which was the first of the bloc, and TCS have evolved to some extent on that
front, though they still lag behind the IBMs, Accentures and Capgeminis by a
long way. These are the only two that at least have consulting as a separate
business unit. Wipro and Cognizant would be in the next stage of evolution; they
do some pieces of consulting work, but are yet to have separate consulting
units. Satyam and HCL Tech would still be in the nascent stage on this front.
Tier-2 firms are, of course, far behind.

What, therefore, comes out is that the amount of consulting work
done by leading Indian IT firms is quite small. Whats worse, it is difficult
to get a precise measure of whatever there is on the ground. This is due to how
"consulting" is defined by different firms on different occasions.
Many of the software companies claim that there are a lot of consulting inputs
that are going into their traditional IT projects. And, though many of them
claim otherwise, it is not correct to account them as pure consulting revenues.
Bottomline: the amount and nature of consulting work that SWITCH and a few other
Indian IT services players do, should not be directly equated with the
consulting revenues they declare.

But how does the scope and content of consulting, vis--vis the
Indian firms, change so as to enable a proper measurement of the revenues it
generates? The simple difference would be between business consulting and IT
consulting. The general perception is that when a company moves from offering
consulting work on a specific IT implementation towards designing a solution by
addressing the clients business needs, it moves on to a higher plane. While
it is true that business consulting would be a more matured offering than IT
consulting, the difference would not be that simple. To cite an example, at one
end of the consulting spectrum are the business strategy consultants like
McKinsey and Booz Allen Hamilton, which are regarded as the intellectual elites
of the discipline; at the other end, even routine customization advice while
installing an ERP can be passed off as consulting.

The ideal position for Indian IT services firms would be between
the two, but very close to the former. That is the position that globally an IBM
or a Capgemini would be occupying. On the other hand, an Accenture would be more
closely straddling on both the worlds; perhaps that would be the model the
Indian firms (at least the SWITCH ones) should try to emulate initially.

Creating a mark in business consulting would also require
gaining adequate expertise in both domain knowledge and process knowledge. While
IBM, perhaps the best example, has acquired expertise in both, Indian firms are
currently in a piquant situation. The IT services arms of SWITCH have domain
expertise to varying expertise: TCS would be strong in BFSI, telecom, retail,
infrastructure and pharma, Infosys in finance, utilities and retail, while Wipro
would be strong in technology, energy, utilities and telecom. Even the likes of
Cognizant, Satyam or HCL Tech have specific domain expertise in fields like
healthcare or aviation amongst others.

The BPO arms of the SWITCH firms as well as pure BPO firms like
Genpact, WNS or EXL on the other hand, have gained process expertise to some
extent. However, in most cases, these players are still handling parts of the
processes (that too the non-core areas) and unless they expand their portfolio,
it is very difficult to see them moving up the value chain.

Among the SWITCH firms, Infosys was the first to show it meant
business (consulting) when it launched Infosys Consulting as a separate
subsidiary, way back in 2004. Ex-Deloitte consultant Stephen Pratt was selected
to head the subsidiary.

TCS has been doing consulting work for a long time, but moved
into full gear in business consulting only after forming TCS Global Consulting
in 2004.

Wipro, on the other hand, gained consulting expertise following
the acquisition of NerveWire and the utility practice of American Management
Systems. However, the Wipro Consulting team, led by Tim Matlack and Sanjay
Joshi, still remains within the ambits of Wipro Tech. Same is the case with
Satyam, which too has kept the consulting function within its overall business
structure despite acquiring a high-end investment management-consulting firm,
Citisoft. Cognizant has a Business Technology Consulting setup that has a long
way to mature.

Assessing the Challenges

The competitive comparisons in business consulting capabilities between
Indian IT services firms and global services majors present an interesting
picture. Obviously, there is a wide gulf and it looks unlikely to be bridged in
the near future. The Indian players today face a myriad of challenges that they
need to overcome before they can match the likes of IBM and Accenture in
becoming consulting champions.

The obvious difficulty first is in building the capability
itself; as demonstrated, the company needs to gain both vertical and horizontal
expertise (domain and process knowledge) before it can make an entry into the
consulting echelon. This, though, is only the first step as next the company has
to build a brand. True, the likes of Infosys, TCS or Wipro are fairly strong
global brands today; however, most of that brand equity is due to their IT
capabilities. How much of this equity can be transferred to their consulting
business would determine their success in future.

Manpower is another strong reason that could play a spoilsport
for the Indian consulting party. The requirements for IT services and
consultants are quite different; with India starting to face a shortfall of IT
manpower itself, the future does not bode well here. Not only will Indian
companies need people with domain expertise, but also armed with complete
process capabilities.

Another big challenge is that even the likes of IBM and
Accenture are under pressure on cost and margins, and are increasingly looking
at offshoring to stabilize. This means that their blended rates would drop over
time, and for Indian firmsright now engaged more in developing their
consulting capabilitiesit might not be easy to sustain against such dropping
rates.

Another factor that influences competitive comparisons on
business consulting is the dual nature of strategic business consulting. One
facet of that works on the revenue side, while the other works on the cost side.
Indian IT consulting has, till date, been primarily confined to cost reduction.
Whether they are up to the games played by consulting majors, like offering
advice on revenue maximization, growing business prospects or venturing into new
lines of business, is the moot question here. A consulting assignment from the
cost side is limited by scope; unless they do not mature to have a grasp of the
full industry to offer full spectrum consulting, Indian IT players will never
take off.

The Indian software majors, especially the SWITCH club, have
built their businesses on the cost proposition, on how a client must spend in
order to remain in business. But now the subtle difference is that in a pure
business-consulting framework they have to advise their clients on the
discretionary spending for revenue enhancement. Once a strategic direction is
understood, an IBM or Accenture can advise on how to get there, architect or
even execute the solution.

Even in commoditized areas, using domain expertise to suggest
productivity improvements is critical. Customers are consistently looking for
new value-adds and raising the bar. Will the Indian IT services players prove to
be equal to this challenge? In the answer would lie the future direction of the
Indian IT story.

Rajneesh De

rajneeshd@cybermedia.co.in