The Way Forward

Business technology consulting in India is evolving from low-value offshore
outsourcing to high-value business results focused work. This fundamental change
in the kind of work performed by business technology consulting firms in India
requires that these firms change their underlying business model.

And therefore the Indian IT industry must raise its sights higher.

On the one hand, the Indian firms have to face the challenges posed by the
multi-national corporations. These companies have moved in and opened their own
development centers, often paying above market salaries to attract hires and in
so doing putting inflationary pressure on wages. On the other hand, the Indian
firms have to look beyond playing the mere numbers' game. Just hiring
programmers by the hundreds month-on-month and wishing that growth will follow
as it has in the past is not going to work for much longer.

As the challenges of managing a huge workforce grow further and as other
countries such as China, Russia, and the Philippines play catch up by ramping up
their human resource pools, the cost advantages enjoyed thus far by the Indian
firms are likely to disappear.

To counter this, and to keep the growth engines going, many Indian IT firms
have set up BPO operations, hoping that they would offset the thinning margins
in the software services business with the currently attractive margins in the
BPO space. Unfortunately for these firms, this is also a short-term approach
built on the sands of labor arbitrage. Business technology consulting in India
must be built on the firm foundation of sustainable competitive advantage, and
in the consulting business there can only be one credible way to do this-consistent
delivery of high-value business results to customers.

So far, the Indian companies have paid scant attention to developing
intellectual property or specializing in vertical industries. The typical
business model is simply a cost play based on labor arbitrage. To the US or
European customers, most Indian software or BPO companies look the same,
providing a commodity service at the lowest price. The underlying benefit
provided is just one thing: lower cost. But history shows that this economic
underpinning is weak-India's short-term labor cost advantage is not
defensible or sustainable. The Indian firms must change their delivery models
and approach to business technology consulting. They should set their sights
higher up the value chain.

Customers are putting more and more demands on technology consulting firms:
expecting more value, asking them to be their partners in achieving business
results, sharing the business and technology risks and, most importantly,
expecting innovation.

It is in business technology consulting where the future holds promise of
sustainable, high-margin business. Support and maintenance, and BPO, are
by-products of business technology consulting-they will be services in a
larger portfolio to be provided by future Indian companies with a business
results focus, global presence, proven delivery capabilities, dynamic workplace
ethic, and an innovative approach to technology.

As business technology consulting in India trends toward more innovative
projects, the current project delivery model must evolve to meet the different
needs of this type of project.

The primary mission of business technology consulting is to help clients
solve their business problems through technology. As companies turn to India for
help on more complex problems, India's consulting firms must change their
business model to meet this demand. The new delivery model will require Industry
knowledge and proprietary methods for solving complex business problems.

The future of business technology consulting will be a more challenging
business environment for Indian firms than one that depends on low-wages for
competitive advantage-and it will also open greater career opportunities for
the talented engineers and graduates that India produces. Because of the
higher-value results delivered to customers, the new model will provide an
economically sustainable foundation for the long-term success of the Indian IT
industry.

Clayton Locke, MD, Sapient Corporation, India