India’s software exporters are trying to transform themselves from extravagantly staffed body shops doing grunt work by stepping up their intellectual property (IP) efforts as well as taking advantage of the opportunities that trends and technologies such as social media, mobiles and cloud computing offer.
By trying to generate more revenue from so-called non-linear, or non-headcount-related businesses, these companies are trying to shield themselves from the risks that these technologies present to traditional offshoring and delivery models.
Among the effects of this trend is a concerted effort to file for patents, with IT companies trying to earn more with fewer employees as cloud computing alters the future of traditional information technology (IT) outsourcing with a pay-per-use or subscription model.
Other initiatives include automation, templates for industry segments that can be re-used with minimal customization, re-use of assets and codes, platform solutions and tools such as Six Sigma, besides value-added services such as analytics and IP.
India’s largest software exporter Tata Consultancy Services Ltd (TCS) increased its intellectual property rights (IPRs) activity by filing 460 patents in several countries in fiscal 2012, according to its annual report. The company had filed a total 855 patent applications as of 31 March last year, of which 72 were granted.
Infosys Ltd’s fiscal 2012 annual report said it filed 474 unique patent applications, while Wipro Ltd registered 101 patents, 18 copyrights and 11 designs as on 31 March 2012.
Indian IT services firms “have maxed out their current business models”, said Ray Wang, principal analyst and chief executive of Constellation Research Inc.
By applying differentiated IP creation, enabling Big Data (analysing the mountains of information that companies generate) business models, delivering innovation value chains and leading partner ecosystems, Indian IT services firms can create new, high-volume, high-value opportunities to fend off margin threats and become truly global players, Wang said in his 21 January report.
TCS, for instance, which has more than 250,000 employees, has invested in various non-linear opportunities such as software products, platform-based BPO (business process outsourcing) and software as a service, or SaaS, while focusing on unit-priced contracts.
A platform-based BPO allows for sharing of a technology solution with other firms. It helps cut costs since companies pay only for every invoice processed.
A case in point is TCS’ deal with the UK’s Pearl Group, for which it developed a life and pensions platform that it re-engineered for the UK market. The company also sharpened its focus on non-linear revenue initiatives with a cloud-based initiative for small and medium enterprises called iON, and a platform-based BPO.
The company has stepped up “end-to-end services”, TCS chief executive officer and managing director N. Chandrasekaran said in an interview on 14 January. “We are also investing a lot in the mobility business,” he said, without giving any numbers.
Infosys’ product efforts are centred on Finacle, its core banking solution. The company, according to Wang, has built its InfosysEdge platforms for a wide range of markets.
The concept starts with mapping a client’s business problem and pairing that with measurable outcomes.
It then incubates, co-creates and partners to deliver differentiated IP built with its services and industry domain expertise. Solutions are delivered using a cloud platform.
Recent wins, according to Wang, include OSG Corp. of Japan’s selection of Infosys CommerceEdge for its eCommerce portal; Infosys TalentEdge being selected for billing and payroll at Hudson; a partnership agreement with WPP for Infosys BrandEdge; and Bharti Airtel Ltd using Infosys WalletEdge for Airtel Money.
“Outsourcing on platforms is a massive paradigm shift for the industry and a huge, huge opportunity. IT spend is roughly 2-3% of a firm’s revenue. The trend that we are addressing today is some 20%—you can take any business process and start. On paper, we have 20-30 platforms, five of which are revenue earning,” said Kris Gopalakrishnan, co-chairman of Infosys.
Wipro is differentiating IP creation through its service productization network. Sample products include DMS Telecom, WiproDigital, SaaSefy, NetOxygen, Medicare Advantage and Wipro’s Mobile Devices Certification Lab. Similarly, in the BPO space, Wipro offers transaction-based pricing (i.e., for processing, payment per invoice, claim, etc.).
Wipro, according to Wang’s report, has also enabled customers to create smart energy meters, 3D cinemascope smart TVs, portable dishwashers, point-of-sale and workforce management terminals, high-performance computers, industrial-grade wireless routers and base station controllers.
Tech Mahindra Ltd and Mahindra Satyam Ltd (to merge on 21 March), jointly unveiled with a client a unified business transformation platform that brings the power of convergence of multiple technologies such as networks, mobility, analytics, cloud and security, said Wang.
L&T InfoTech applies Big Data to social analytics that makes use of natural language processing tools and sentiment analysis to offer a categorization framework to classify social media reactions.
“IT services firms must secure software and IP assets soon—or face a bidding war with the mega-software vendors for engineering, product, sales and marketing talent. Mergers and acquisitions (M&As) must be accelerated in order to catch up,” said Wang.
A January report by India Ratings and Research, an India Fitch Ratings Ltd company, expects M&A activity to continue in the IT sector in 2013. It said the preferred destinations were European countries, West Asia and Asia-Pacific regions such as India, Singapore and Australia, and the acquisition targets are likely to be companies with offerings in solutions in analytics, cloud computing, and mobile services.
By 2015, the IT outsourcing landscape will see a whole new set of platforms, said Sid Pai, partner, global resourcing and India operations, at Information Services Group, a research and advisory services company. To be sure, “while we are seeing a push in so-called non-linear space, it has not yet translated into real business,” said Pai.
“Nobody has invested sufficiently for developing a software asset with significant applications. Most of them will be largely mobile platforms in enterprises and there will also be a set of new players who will pose a threat to traditional outsourcing models since there will be a change in the balance of delivery,” Pai added.
For instance, with the help of cloud computing, Google Inc., the world’s biggest online search engine, and Amazon.com Inc., the world’s largest online retailer, are more than nibbling at the IT outsourcing pie. They are increasingly hosting the IT infrastructure of large enterprises and especially small- and medium-size businesses at their own data centres, and reducing the IT costs of clients by at least 40%.
Still, offshoring will not die. It will only metamorphose, according to a 25 January report by Credit Suisse Securities Research and Analytics. “While cost advantages of offshoring have reduced, they are still significant. India’s market share is still less than 10%, and its penetration in Europe is especially low.
However, offshore companies have constantly metamorphosed since the early 1990s and will continue to do so,” the report stated.
Sourcing managers must consider the opportunities and risks presented by the convergence of social, information, mobile and cloud when re-evaluating sourcing options, delivery models and vendors, said a 28 January report by research firm Gartner Inc.
Growing cloud adoption will force sourcing managers to reconsider sourcing governance techniques and contracting practices, said the report, adding that revised mobile strategies, such as BYOD (bring-your-own-device, or organiztions allowing employees to bring their own smartphones, laptops to work and access company information and applications on them) and mobile applications availability, will expand IT service sourcing requirements as users demand new services.