The Middle Order Challenge

This is a story waiting to be told. A story of how mid- and
small-sized systems integrators (SIs) and solution providers in the country are
fast ramping up their services business. No longer contended with the fringe
margins, offered by pure hardware solutions, these SIs today are investing time,
money and people to ensure that their service offerings contribute a significant
share to their toplines and even more to the bottomlines. And having scaled up
the entire value chain of products, they are now looking to make a similar climb
on the value ladder of services.

Share in the Revenue Pie

A quick look at the revenue break-up of many mid-sized SIs
(with revenues between Rs 20-200 crore), and one can notice a very significant
affinity towards services. Most of these companies today have between 20-30%
revenue contribution, coming from services while in terms of profitability, it
goes as high as 50%. Even the growth in service revenues on a year-on-year basis
has been between 30-50% for these players. But growth figures apart, noteworthy
is the fact that these SIs are looking much beyond AMCs. Today their service
portfolio proudly speaks of offerings like facilities management, application
management, network design and audit, disaster recovery services, information
security services, remote management and even consultancy to some extent.

Not only that, they are also adopting frameworks like ITSM
(IT Service Management) for service delivery and going for standards like BS
15000. Another significant trend that's giving these mid-sized SIs an
advantage over other bigger players like HP Services, IBM Global Services or
Wipro Infotech, is their increasing geographical footprint in the domestic
market. Companies like Allied Digital boast of a direct presence across over 50
locations in the country while others like Network Solutions, Apara Enterprises
and Omnitech Infosolutions too talk of similar reach (either directly or through
partners). This clubbed with the inherent cost-advantage that they carry by
virtue of being a mid-sized organization has made the landscape very
competitive.

On a different note, HP Services, IBM Global Services and
Wipro Infotech even engage a large number of SI partners like the ones mentioned
above for last-mile service delivery or implementation. "In fact, more and
more partners would be responsible for carrying out last-mile activities for the
projects acquired by us in the days to come. Currently only 20% of that is done
by them," says Rajat Mathur, business head-Solutions Division, Wipro
Infotech.

Product Development for Differentiation 


What makes the entire domestic services more exciting is the
deft move by these mid-sized systems integrators to enter into the indigenous
product business apart from custom application development. Quite a few of these
have put large resources to develop software products in-house that they are
clubbing with their overall solution. These companies claim the products to be
at par with similar solutions offered by many MNC vendors. Netsol, for example,
has used its expertise in the network integration business to develop tools for
network management, application management and help-desk or other service-related functionalities. Last year, the company did a business of Rs 8
crore purely from its software tools (SNAPiMON, QWAN, WAN Insight, IP Meter, AV
Detect, coDesk, etc).

Some of the integrators have even started productizing their
service and support offerings. This way, they are finding it more easier to get
their customers pay for the same. However, making them realize that any kind of
service comes at a cost, is a big challenge that these SIs continue to face.

"Making our clients appreciate and hence pay for the
value that we add by way of our service offerings is a Herculean task as
services are still an intangible entity. Hence productization of the same helps
to an extent," says Bimal Raj, CEO, Allied Digital Services. Another
noticeable development is that most SIs have converted their service activity
into independent cost centers. This way, they ensure that their services team
doesn't come under undue pressure from product sales team to compromise on
pricing.

Further, realizing the fact that profitability factor is much
higher in services, the integrators are not shying away from investing on
training and certifications to further ramp up their service capabilities.
"Around 6% of our last year's service revenue is invested back on
training alone and we intend increasing the percentage in coming times,"
says Avinash Pitale, director, Omnitech Infosolutions, adding, training
investment to improve service capabilities in niche areas would differentiate it
from competition more distinctly.

Entering Foreign Waters

Finally, this is one move by the mid-sized systems
integration organizations that would surely make the big 5 players sit up and
take notice. They are going offshore!

While until recently, only large SIs like Wipro Infotech, CMS
or Tata Infotech were offering a bouquet of services in the international
market, the mid-sized players have also joined the party. And between them, they
are spanning the better part of the globe with their diverse infrastructure
management service offerings. Currently, Middle-East and African markets are the
hottest among these players. Moreover, recognizing the immense potential that
exists in the emerging trend of total IT outsourcing, the SIs are also sprucing
up their infrastructure and skill sets to remotely manage the IT infrastructures
of global clients. Companies like Netsol have already put in place a Remote
Management Center (RMC) to monitor and manage IT infrastructures existing in
foreign shores.

Companies worldwide are looking at improving their RoIs on IT
investments, outsourcing the management services to low-cost yet high-skill
destinations like India is inevitable as is already evident by the ongoing BPO
boom.

Realizing this fact early enough, the mid-sized companies are
slowly exiting the game of Rs 500 per PC-kind of AMC business to graduate into
becoming value-added service companies. And in the way software services exports
are currently bringing wide recognition to India, domestic service business-with
significant impetus from these mid-sized SIs-too promises to shine brightly on
its own. And soon!

Goldie in Bangalore