Bangalore: After years of wanting to move up the value chain into the world of management consulting, India’s top information technology (IT) services companies are seeing their high-end consulting practices gain some degree of global importance.
But this traction has come after many false starts and even now analysts are divided over how much Indian IT firms can achieve in the consulting space.
Infosys Ltd, which is further along this road than its peers, clocked $200 million (Rs 992 crore) in consulting revenue in 2010-11. Its smaller rival Wipro Ltd is set to reach that milestone this year.
Both claim IT revenue, as pulled through from their consulting revenue, of at least three times—around $600 million each. And their aspirations are lofty: Infosys is targeting $1 billion in consulting revenue by 2015 and Wipro wants to build the largest consulting practice out of India.
Wipro Consulting Services (WCS) grew 37.8% year-on-year in the April-June quarter, with about 1,600 consultants. It aims to have about 5,000 consultants in 30 months, said managing partner and global head Kirk D. Strawser, a consulting veteran who joined from Capgemini in late 2008.
Widening foorprint: Wipro’s Kirk Strawser says his firm is growing fairly rapidly in telecom, manufacturing, and energy and utilities consulting. Aniruddha Chowdhury/Mint
With that many people, Wipro will have “the largest pure-play business transformation consulting practice” in India, Strawser said in an interview that was followed up on email. The practice is Wipro’s fastest growing and should hit $200 million this year, he said.
What Infosys and Wipro hope to do is take on pure-play business consultants such as global giants McKinsey and Co. Inc. and Booz Allen Hamilton Inc., or at least IT firms such as Accenture Plc and International Business Machines Corp. (IBM) that have significant consulting businesses.
“There is a definition issue here, as to what one can describe as pure-play business transformation consulting,” said Frederic Giron, country manager of research firm Forrester Research India. “A lot of what Indian IT vendors do is still technical consulting. But clearly, high-end consulting is where they all want to go, and have to go. They have no choice.”
Much of Wipro’s targeted growth in the consulting business will be internal, with perhaps a “small, targeted acquisition” or two along the way.
“We work with Rishad Premji (chairman Azim Premji’s son) who handles all corporate M&A (mergers and acquisitions) for Wipro,” said Strawser. “A target acquisition could be in the range of 100-500 consultants in a functional area where we see significant upside. Or it could be to enhance our presence in a geographical market where we want more critical mass.”
Wipro’s consulting practice is organized around competencies such as process excellence, high-end enterprise architecture, governance risk and compliance, customer relationship management advisory and supply chain.
“The crowning piece is in business transformation, where we have the senior guys, sourced from industry leaders like Booz Allen, McKinsey, PwC (PricewaterhouseCoopers Llp),” said Strawser.
Wipro’s consulting revenue in the fiscal first quarter was $43.63 million, or 3.1% of its overall IT services revenue of $1.4 billion.
Strawser said that while Wipro’s largest consulting footprint is in the banking, financial services and insurance sector, “we are growing fairly rapidly in telecom, manufacturing, and energy and utilities”.
“In telecom, for example, a large global carrier wanted us to develop an application ecosystem like the Apple iStore. They hired us to do a very strategic project. For a large equipment manufacturer, we developed an entire new global operating model covering channels, sourcing, everything. The kind of work McKinsey would do, they hired us to do,” he said.
As for Infosys, the company recently folded back its consulting and system integration subsidiary into the main organization—a move analysts interpret to be an indication that the practice did not achieve what it set out to when it was launched in 2006.
Steve Pratt, who has previously worked with Deloitte Consulting and Booz Allen, and now heads Infosys’ $2 billion consulting and system integration practice, has a different explanation. Innovating within a large organization can be challengingm, but Infosys was “smart to innovate outside and then integrate the new piece back into the main organization”, he said in a phone interview from the US.
Pratt has 24,000 people in his consulting and system integration team, including 750 high-end business consultants and 2,000 strategy and implementation consultants.
Clients are charged about $230 an hour for engaging the top high-end business consultants, placing Infosys’ in the strategic consulting territory that McKinsey and Booz and Allen operate in. That average drops to $175 an hour when strategy and implementation clients are included.
Infosys’ consulting practice grew 42% in fiscal 2011 and is targeted to grow to $5 billion from $2 billion now.
Infosys, India’s second largest IT firm, is ahead of its peers in consulting, says Peter Bendor-Samuel, chief executive of research firm Everest Group, but he adds that Infosys and Wipro will soon face hurdles as, according to him, high-end business consulting and IT services do not go well together.
“They look like they should, but they don’t. It is very difficult and very risky. Even IBM, which acquired the consulting practice of PwC, and Accenture, which grew the practice organically, have not really been able to use it as a lever to grow,” he said. “Accenture has actually pulled back. Indian IT vendors will face the same headwinds.”
Bendor-Samuel pointed to what he sees as a “low-grade war” between consulting teams and IT teams in Infosys and Wipro. “These guys do not really get along at all. Their value propositions are different. The expectation that they will work seamlessly together is not realistic,” he said. “They are like lions and hyenas out on the Savannah.”
He also does not see evidence of consulting engagements at Infosys and Wipro that can be classified as pure-play business consulting. “Sure, they have significant practices, but the problem is the expectations. I see no evidence that they are taking on the McKinseys or the Booz and Allens,” he said.
Cognizant, which has a consulting practice that drives its IT services business, seems to agree with Bendor-Samuel.
N. Radhakrishnan, vice-president, consulting, Cognizant, said now is “not the right time” for a large push into the consulting business because of both strategic reasons and market perception. “Maybe in three-four years,” he said.
Cognizant has about 2,800 consultants, one-fifth of whom can be characterized as business consultants. The firm did not provide a revenue break-up for its consulting practice.
“Cognizant and TCS (Tata Consultancy Services Ltd, India’s biggest IT firm) do things a little differently; they are far more focused,” said Bendor-Samuel. “Cognizant has a strong client interface model, and they let that dictate the nature of the engagements.”
While Infosys and Wipro also work closely with clients, analysts see Cognizant’s model as superior.
Cognizant’s consulting practice is well integrated, said Radhakrishnan. “Our consulting model is well-embedded into verticals. Conflicts can arise if it is not.”
TCS did not respond to requests to participate in this story.
Stephanie Moore, vice-president and principal analyst at Forrester Research, who is closely studying the consulting ambitions of Indian IT firms, wrote in a 30 August report that while a few years ago, these companies “approached management consulting in slightly different ways, no vendor distinguished itself as a viable competitor to the traditional management consulting vendors—at least from a scale, market presence or reputation perspective”.
That might change, she feels. Writing about Wipro, she said that while challenges remain, “the current business environment, in which one understands the importance of technology in business strategy, combined with WCS’ approach to consulting, might catapult Wipro into a leadership position, at least among its traditional competitors”.
Moore added: “In the right areas, WCS can give even the best of the classic management consulting firms strong competition.
Wipro’s competitors will want to do that too.