The document discusses non-linear revenue growth for large IT companies, which is revenue growth achieved through products, platforms and solutions that provide savings to clients without increasing headcount. These revenues improve revenue productivity and margins. The document outlines non-linear revenue initiatives and goals for major Indian IT firms TCS, Infosys, Wipro, and Cognizant, including platforms, products, and pricing models. Non-linear revenues are currently a small percentage but are expected to grow substantially in coming years. While providing benefits, developing non-linear solutions also requires high initial investment and short-term pressure on margins.

1. Focusing on the Non Linear Revenues
Non linear revenue growth is revenue growth without increasing headcount. These are revenues
that are generated from products, platforms and solutions which provide saving to the clients and
result in higher revenue productivity per employee and improved margins for companies. After
reaching a significant size and scale vendors have to start looking at non linear revenues as
adding headcounts will no longer be profitable. Non-linear revenues account for only 4-8% of
revenues currently for large IT companies but over the next 5 years, they will be as much as
30-35% of revenues. During the recent financial crisis non linear revenue focus has gained
prominence as a win-win strategy for both the vendors and clients.
For TCS non-linear revenue growth is a “strategic priority” and focusing to substantially increase
its revenue from non-linear businesses from 4% to 10% of total revenue by 2012. TCS pursues
three initiatives - Software Products, Platform based BPO services, and iON – an IT-as-a-service
solution for Small and Medium Business. Cloud based software services, ‘Managed Services’ and
‘Accelerated Solutions’ bring non linearity to the mainstream IT and ITES businesses of the
Company. Platform-based BPO services are standardized offerings for services such as payroll
processing and where pricing is usually is output or transaction-based.
Infosys plans to increase the non-linear revenue contribution from under 10 per cent now to 33
per cent in the medium term. IP, platforms and pricing models bases on unit of work form the
three broad areas of Infosys’ non-linear initiatives. Products or integrated platforms like iEngage
for social media; Flypp for telecom appstore apart from good old Finacle is their new focus.
Infosys is also looking to acquire small product companies with strong intellectual property in a
bid to move increasingly towards a non-linear business model.
Wipro non-linear growth models have resulted in about 11 per cent of its revenue compared to
8% previously coming from such initiatives. Wipro is emphasizing on shared services and
platforms for non-linear growth. Wipro started aggressively on the nonlinear initiatives in 2007
and has been able to generate good revenues. Wipro management is confident of achieving higher
realizations in FY12 on the back of non linear services and productivity gains. Investments in non
linear initiatives are in a primitive stage and will pay off in the longer term.
Cognizant recently started again talking on non linear revenues as the company hit the 100000
employee mark. Earlier Cognizant focused on efficient global service delivery, ongoing service
improvements and economies of scale. Cognizant is using an ‘outcome’ or ‘effect-based’ model
to provide the services by leveraging its global delivery network, talent pool and best practices.
Cognizant earlier focused on cloud based offerings as a way to generate non linear revenues.
Non linear revenue growth will be a ‘win-win’ situation for vendors as well as the clients as there
is an incentive for higher productivity and more efficient use of resources. The shift towards more
non linear revenues also increases revenues as well as margins for the vendors. With slow down
in pace of hiring the non linear revenue model will gradually pick up over time. The downside of
the non linear revenues is high initial investment in developing the products and services,
engaging costly resources and short term pressure on margins as these initiatives take time to
deliver.
Discussion points:
1. How to focus on improving the Non Linear Revenues?
2. What verticals are to be focused for the Non Linear Revenues?
3. What strategy the vendors should adopt to maximize the revenues and returns?