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Tech firms ready pay-per-use deals

Tech firms ready pay-per-use deals
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First Published: Wed, Nov 07 2007. 12 07 AM IST

Updated: Wed, Nov 07 2007. 12 07 AM IST
Mumbai/New Delhi/Bangalore: Indian tech and back-office services firms, led by Tata Consultancy Services Ltd (TCS), Infosys Technologies Ltd, Wipro Ltd and Genpact Ltd, have launched or are launching “pay-per-use” models of some key offerings in an effort to win multi-million dollar contracts from global clients that are seeking to improve their internal processes.
This set of offerings, dubbed by analyst firms as “business process utilities”, or BPUs, involves India-based service vendors setting up manned service delivery centres that run specially-designed software on company-owned hardware. The service providers say these “BPO (business process outsourcing) platforms”, as the model is alternatively referred to, are built around the best processes from across industries and different markets.
The efficiency delivered by such processes to clients helps them transform their internal processes, extracting cost savings, among other productivity-linked benefits.
The demand for such “transformational deals” could be in excess of $100 billion, or Rs3.93 trillion, and the “fundamental arbitrage is driven by transformation”, saidN. Chandrasekaran, chief operating officer of TCS. The global spending on tech services annually is about $700 billion.
Chandrasekaran estimates customers could benefit through a halving of costs. “If they (clients) have already efficient IT systems, then you probably cannot have much savings. But if there is a huge opportunity of transformation, then the saving could be 50% or more,” he said, citing the example of global businesses expanding rapidly through acquisitions as prime candidates for such standardization and transformation of processes.
TCS won a recent contract from market survey company Nielsen Co. for $1.2 billion spread over 10 years. One of the factors why the Netherlands-headquartered company chose TCS over four other contenders was the BPO platform that the Mumbai-based tech services firm had set up, Nielsen’s executive vice-president of global business Mitchell Habib had said last month. Nielsen will be billed on a pay-per-use basis for the service.
As part of its BPO platform offering, TCS will offer human resources and finance support services. The offering will be based on business software from SAP AG and TCS will offer clients other than Nielsen the same set of services, potentially reducing the cost per transaction as the service offering acquires scale.
Infosys, on the other hand, is offering what in the tech industry is commonly known as “procure-to-pay” services, which typically includes everything from handling purchase to logistics for inputs that go into a manufacturing process. For instance, in the garments industry, this could involve identifying suppliers; procuring supplies from them at competitive rates; helping manage inventories; and handling payments.
“Platform-based BPO is based on the number of transactions or the value of transactions you put through,” Infosys chief executive officer S. ‘Kris’ Gopalakrishnan had said in an interview last week. “So, if you buy $1 million worth of stuff, maybe we will charge you 0.5% of that.”
The Infosys platform, being offered to customers together with SAP, is yet to win its first customer. “We will see whether we will move some of our existing clients to this platform or get new clients. Any multinational would be a potential customer because third-party procurement is not core to any company,” Go-palakrishnan said, adding that his firm would focus on large clients to sell this service.
At Infosys’ cross-town rival Wipro, the BPO division has three customers who have shifted to the platform-based model. “It brings in standardization and also will reduce the number of people you deploy,” said T.K. Kurien, CEO of Wipro BPO, declining to name the customers.
Other service providers such as Genpact, too, see a strong future for “one to many platforms that come with services wrapped around it to address specific needs of customers,” the company’s CEO Pramod Bhasin said. Bhasin declined to forecast details such as number of customers its expects on the platform.
BPUs were recently described among a set of emerging alternative IT services models by Mark A. Margevicius and Claudio Da Rold, analysts at tech researcher Gartner Inc. “BPU is a mode of delivering business processes underneath the larger banner of BPO,” the analysts wrote in a report late in September
Smaller firms too, meanwhile, are beginning to offer BPU models that are capable of handling four-five million transactions a day. Gradatim Ltd, a specialist BPU firm based in Chennai, has “developed a platform for micro finance services and now we are diversifying into related areas like insurance and pension”, its director of sales and marketing K.L. Balasubramanian said. “Selling software has no more value,” he said, predicting a shortlived future for the traditional model where software is sold on licences.
abhineet.k@livemint.com
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First Published: Wed, Nov 07 2007. 12 07 AM IST