The User Appreciates Value

service.jpg (38957 bytes)In the
last two years, the domestic IT industry has seen the emergence of a new user. This is an
intelligent user, who recognizes that select vendors can contribute value to an
organization’s IT investments. The user has also recognized that by increasing dependence
on such vendors, the organization can actually reduce long-term costs of keeping pace with
technological changes. The user has, in fact, become more mature and the IT industry too
has climbed a level higher.

A significant characteristic distinguishing the state of
maturity of an IT industry is its relative ratio of hardware, software, and services. In
the US, Japan, and Australia, the IT industry’s hardware ratio is between 50-60 percent
and services ratio between 25-30 percent. In contrast, in China and India, the industry
has higher hardware ratio, between 55-90 percent and lower service ratio between 5-22
percent. An important consideration for the assessment of industry ratio is the manner of
distributing IT revenues within these categories. Typically, hardware will include
revenues from systems, peripherals, networking, accessories, and consumables products;
software includes revenue from packaged software; and services includes revenue from
maintenance, systems and network integration, facilities mana-gement, consultancy, and
training.

Global IT Industry Comparison, 1996
Value (%)HardwareSoftwareServices
USA49.119.431.8
Japan60.110.329.6
Australia56.217.226.7
India65.511.722.8
China89.85.05.2
Source: IDC (India)

 

Top
Vendors In Systems Integration
 Rs crore
Tata Consultancy Services94.8
CMC46.1
Siemens Information Systems26.9
Mafatlal Consultancy Services19.0
Tata Technologies18.7
Digital Equipment India16.6
IBM Global Services15.9

 

Top Vendors In Network Integration
 Rs crore
HCL Corporation34.5
Hughes Escorts Communications25.1
IBM18.3
Digital Equipment India16.6
Building Network Automation11.7
MicroLand7.5
Wipro Infotech4.4

The conventional approach while assessing the domestic IT
industry has been to combine the revenues of packaged software with software services
including software development, consultancy, and turnkey projects. However, from 1996-97,
the domestic industry appears to have matured to a new level, where users have begun
commissioning vendors for implementation of solutions rather than delivery of products.
These orders continue to include revenues from multi-vendor equipment and multi-technology
purchases. They also include significant revenue components for consultancy, project
management and implementation, testing, and training.

IT Services Market Segmentation

 Software DevelopmentSystems, Network
Integration
MaintenanceTrainingTotal
(Rs crore)
95-9610.3%25.1%34.8%29.7%1528.78
96-9712.5%20.5%33.5%33.6%1961.23
97-9817.9%29.4%25.8%26.9%3178.99

Driven by the need to implement enterprise
applications, business process reengineering, messaging, and networking solutions, the
user has realized that vendors can add value to their IT investments and reduce long-term
costs through outsourcing. In a similar fashion, driven by the rapid adoption of LANs,
WANs, and web technologies, revenues from networking solutions have also become
appreciable. The net result: a significant portion of IT revenues are now service-driven
and not product-driven. While they are associated with products, they are appreciable
enough to be categorized separately as IT services.

Looking at the conventional manner of adding IT revenues,
the software segment has grown, from 18.8 percent of the domestic industry in 1995-96 to
31.9 percent of the industry, by 1997-98. The software segment by this conventional
approach includes both packaged software revenues and all related service revenues. The
services segment using the same conventional approach, which includes maintenance and
training, grew from 14.0 percent in 1995-96 to 15.5 percent in 1997-98.

However, if we remove IT service revenues from the software
segment and include these in the services segment, a different picture emerges. The
services segment has actually grown from 21.7 percent of the domestic industry in 1995-96
to 29.3 percent in 1997-98. An indication of the change in the IT mindset of the domestic
user.

The services segment, under this new model, includes
hardware maintenance, facilities management, systems and networking integration, software
development, consultancy, and training. In 1995-96, maintenance and training were the
largest segments of the IT services industry, at 34.8 percent and 29.7 percent. In
1997-98, revenues from systems and networking integration, constitute the largest share at
29.4 percent, exceeding training at 26.9 percent and maintenance at 25.8 percent.

In the coming years, revenue from packaged software and IT
services will continue to grow faster than revenues from hardware. This will result in
reducing shares of the hardware industry and increasing shares of the software and
services industry. The ratio of hardware, software, and services for the domestic industry
will then begin to resemble the mature global IT industries of today. The domestic user
would finally have arrived.

Major Systems And Network Integration Projects (1997-98)
VendorCustomerProject
CMC LtdBombay Stock ExchangeCentral depository accounting
system
CMC LtdIndian RailwaysFreight operations information
systems
CMC LtdState Police Departments,
Mauritius Police
Fingerprint analysis and
criminal tracing system
Digital Equipment IndiaCrompton GreavesMixed-network architecture
project, SAP implementation
Digital Equipment IndiaInfosysIntegration of Unicenter TNG
from Computer Associates
HCL InfosystemsSamsung IndiaVSAT implementation, web
enabling of SAP R/3
HCL InfosystemsMahindra&Mahindra700-user SAP implementation on
Win NT across WAN
HCL InfosystemsIndian Overseas BankCommercial transaction
application development across 360-node WAN
IBM Global ServicesTimes Bank,Interactive voice response
applications
IBM Global ServicesIndian AirlinesPassenger reservation system
with migration to IBM mainframe platform on SNA network
Siemens Information SystemsLarsen&Toubro425-user SAP R/3
implementation
Siemens Information SystemsGeneral Hospital, KochiHospital information system
with software from Citation Computer Systems, USA
Tata InfotechIrrigation Dept, Govt of
Haryana
Modernization of communication
systems  and establishment of information systems
Tata InfotechTata Robbins FraserGraphical CAD application on
multi-OS platform and development of intranet
Wipro Infotech, CITILNational Stock ExchangeDevelopment of 500 GB
datawarehouse

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