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Overcoming growth challenges in the IT services industry - focus on SMEs
- 1. © 2014, 3nayan Consulting. 1 All rights reserved. 3naya CONSULTING OVERCOMING GROWTH CHALLENGES IN THE IT SERVICES INDUSTRY THE FUTURE IS NOW Make it yours!
- 2. Our storyline today The Story So Far Looking for Solutions (an interaction) Taking a fresh look ©2014, 3nayan Consulting. 2 All rights reserved.
- 3. CONSULTING The Story So Far ©2014, 3nayan Consulting. 3 All rights reserved.
- 4. 20 India IT-BPM Revenues 32 32 68 109 118 140 120 100 80 60 40 20 0 ($bn) FY2009 FY2011 FY2013 FY2014P Domestic Total Overall State of Business • $109bn in 2013, expected to be $118bn by end of 2014 • Over 8% contribution to country’s GDP • Export revenue of $76bn is 52% of global outsourcing •NA accounts for 62%share • BFSI is the largest buyer industry, several growing at rapid pace ©2014, 3nayan Consulting. 4 All rights reserved. Stagnant domestic market
- 5. Small & Medium Business Context Emerging 1,000-1,200 Small sized ~15,000 EXPORTS GROWTH 16.0% 14.0% 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 50 45 40 35 30 25 20 15 10 5 35 30 25 20 15 10 5 • Rapidly increasing number of players • Stagnant domestic market • Emerging geographies and verticals need quick catch-up • Outsourcing of Engineering and R&D services have shown the maturity of industry • Larger businesses focusing on productivity gains through automation and reuse The going is only getting that much tougher for small and medium businesses ©2014, 3nayan Consulting. 5 All rights reserved. Large 11 Mid-sized 125-150 REVENUE 0 0.0% NA UK Europe APAC ROW BY GEOGRAPHY 18.0% 16.0% 14.0% 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% 0 BY VERTICAL
- 6. Human Capital • Employs ~12.5mn (direct / indirect)people • Large number of engineering graduates • Increasing de-skilling of work • Employs large number of domain specialists – Doctors, CAs, Lawyers, Mathematicians, Statistician, etc. (mainly for BPM) • Increase in the number of patents filed by Indian companies, albeit below the potential Other Specialists, 3% Financial Specialists, 5% Post Grads, 13% Getting “right” talent is getting more difficult and expensive. ©2014, 3nayan Consulting. 6 All rights reserved. Engineering Grads, 32% Graduates (excl. engg.), 45% Other Grads, 4% EDUCATION PROFILE
- 7. Human Capital • Employs ~12.5mn (direct / indirect)people • Large number of engineering graduates • Increasing de-skilling of work • Employs large number of domain specialists – Doctors, CAs, Lawyers, Mathematicians, Statistician, etc. (mainly for BPM) • Increase in the number of patents filed by Indian companies, albeit below the potential Getting “right” talent is getting more difficult and expensive. ©2014, 3nayan Consulting. 7 All rights reserved. 3% Management 1% Postgraduates 16% Technical graduates 17% Other graduates 14% Science graduates 14% Commerce graduates 35% Arts graduates FY2014 graduate out-turn Total 5.34mn
- 8. Evolving Technology 160 140 120 100 80 60 40 20 TECHNOLOGY DRIVEN GROWTH • Rapidly evolving computing paradigm • Consumer demand for products and services • Analytics, Big Data, Cloud and Mobility are on CIO agenda • SMAC is being rapidly adopted by businesses and domestically too • Digital enterprise is the new buzzword ©2014, 3nayan Consulting. 8 All rights reserved. 1. Mobile Internet 2. Automation of knowledge work 3. Internet of things 4. Cloud technology 5. Robotics The continuously changing technology horizon throws opportunities but needs “more” investments. 0 Social Mobility Analytics Cloud FY2013E Expected Growth Machines & Humans getting smarter Machines becoming aware Humans understanding machines $14.33tn by 2025
- 9. External Factors • Global economic conditions • Large currency fluctuations • Emergence of BRICS • Immigration laws of countries of over-dependence • Tax laws in India ©2014, 3nayan Consulting. 9 All rights reserved.
- 10. What is holding us back? • Still playing a generic game in highly commoditized market • Intense and fierce competition, including global competition • Entry barriers for new geographies and verticals • Increasing compensation irrespective of performance and potential • Continuous up-skill and re-skill • Ability to attract and retain talent • Immediate ‘deployability’ and productivity • Capability and competency based workforce management • Capability not translating to outcome based delivery • Scope containment and management ©2014, 3nayan Consulting. 10 All rights reserved.
- 11. CONSULTING Looking for Solutions Lets do this together ©2014, 3nayan Consulting. 11 All rights reserved.
- 12. Lets chat a bit 1. Survey (distributed separately) Being conducted across a group larger than this one Blind survey, but you are welcome to put in your name and contact details if you would want us to reach out to you We will need your email address though to send out a copy of the survey results. 2. Experience Sharing Two scenarios presented How would you strategize the solution 15 minutes each
- 13. Scenario 1 - Playing with the big boys! WIREL is a large, multi-national telecom provider, with presence across Asia and the Middle East. WIREL has 3 business groups - Landline, Wireless and Mobile. WIREL markets their products and services through various channels including Direct Marketing, Franchise Agents and Online. The company has a centralised IT group, responsible for defining the IT strategy for WIREL, and also to provide automation requirements to the Business. The IT group has business analysts who interface with each Business to gather automation requirements and business functional needs. These requirements are then batched into Releases. The IT group is also responsible for identifying, selecting and managing vendors to provide the automation solutions. Work to be done for each release is then apportioned to vendors, and project managed. ©2014, 3nayan Consulting. 13 All rights reserved. End Users Agents Marketing & Market Facing CEO Business 1 Business 2 Business 3 CIO/CTO IT Department Procurement Release A A.1 A.2 A.3 A.4 BIG 1 SMALL 1 MEGA XYZ PvtLtd Do you want to play in this game ? How do you play the game ? How do you grow in this scenario ?
- 14. Scenario 2 – Breaking the orbit! CHIPPO is a small, niche player in the RF and Embedded space, operating out of a single city, and has a 200 strong team. The largest segment (70% of their business) they handle is a part of the government agency dealing with Radars and Signalling for the armed forces. Rest of the business comes from the Mobility space and building Apps and firmware required. Attrition has been lower than the market, they have many senior skilled personnel at the mid management and design levels, who have been with the company for over 10 years. Processes defined, is ISO certified. Clients are happy, projects have overrun, but are absorbed by CHIPPO. Initial estimates vary due to dynamic changing needs. Often senior tech staff are deployed onsite for long durations during the testing/implementation phases. ©2014, 3nayan Consulting. 14 All rights reserved. Govt Mobility CEO Sales BU 1 BU 2 PM 1 PM 2 PM 3 PM 4 PM 5 Proj Proj Proj Proj Proj Proj Proj Proj Proj Proj CHIPPO wants to double its business. How should they go about doing this ?
- 15. CONSULTING Taking a Fresh Look 3nayan’s point of view
- 16. Quick recap • The deal sizes aren’t what they used to be • SMBs can’t compete with the biggies at their game • Many smaller countries are providing it cheaper and better • Skilled labour, in India, is an issue • India loves Tally, or prefer to run IT in-sourced • Can’t even get to an SEPZ to claim some tax benefits
- 17. Whether you like it or not, you are in denial or in acceptance; YOUneed to PLAY THE GAME DIFFERENTLY Or PLAY A DIFFERENT GAME
- 18. Where does one start? • Industry accepted pyramid for moving towards a goal • Complex, too many movable parts • Unwieldy Goals & Definition of Winning Growth Strategy Innovation Commercial Excellence © 2014, 3nayan Consulting. 18 All rights reserved. Fuel for Growth People, Culture, Process
- 19. GRO4WIN – influencers Policies Your Business © 2014, 3nayan Consulting. 19 All rights reserved. Regulations Political Environment Economy Market • Technology • Demand • Deal size/ type Competition Your People Buyer Sponsor
- 20. GRO4WIN – areas of influence, and impact © 2014, 3nayan Consulting. 20 All rights reserved. Buyer (Client) Degree of influence Degree of impact Your People Your Business Sponsors (Client)
- 21. GRO4WIN – pulling it together Your business BUSINESS STRATEGY © 2014, 3nayan Consulting. 21 All rights reserved. Strategy Alignment Clarity & Understanding Supporting Organizations Your people Business Stakeholders Buyer Basic Principles • Target / Outcome • Action • Behavior • Measurement / KPI •Ensuring strategic alignment across the company •Understanding the required outcome, and realignment of strategy •Ensuring there is organizational support, and specific support groups in place
- 22. GRO4WIN Business context STRATEGIC OUTCOMES TRANSFORMATION © 2014 3nayan Consulting. All Rights Reserved. Growth & Sustenance Raising Capital / Exit Customer Engagement Business Agility BOOSTERS Innovation Management Governance Framework Culture Leadership Centre of Excellence Enterprise Architecture AREAS of IMPACT Project Delivery People Matters Sales Process Management CIO / IT Other Enterprise Areas ENABLERS Capability Building Process Orchestration Change Management
- 23. Basic business model components towards GRO4WIN © 2014, 3nayan Consulting. 23 All rights reserved. Customer Value Proposition Profit Factors Resources Processes •Target customer base • Offering • Influence on other areas • Processes •Rules, Data, Metrics •Analysis • Profit or margin maximization o Revenue Model o Cost Structure •Resource Velocity •Resource Types oPeople oProducts, Equipment oTechnology, Information oBrands oPartnerships, Alliances, Channels Conscious shift of focus from deliverables and output to outcome
- 24. Lets stop admiring the problem ©2014, 3nayan Consulting. 24 All rights reserved.
- 25. Make the change, Innovate! ©2014, 3nayan Consulting. 25 All rights reserved. Value / Outcome based pricing Alignment to CIO/ IT Strategy of customer Productization of Services Solution ‘Verticalization’ Focused Delivery Area Comprehensive View of Value Chain Digital
- 26. Towards value based pricing - outcomes • Value based pricing, is really a means to an end. • The outcome that we want to hit is / are… © 2014, 3nayan Consulting. 26 All rights reserved.
- 27. Towards value based pricing - outcomes • Value based pricing, is really a means to an end. • The outcome that we want to hit is / are… PROJECT MANAGEMENT © 2014, 3nayan Consulting. 27 All rights reserved. PM Maturity Project Predictability Project Profitability Customer Satisfaction Business Efficiency TALENT MANAGEMENT Leadership Capability People Engagement Talent Attraction Cost of Retention Utilization SALES PRC. MANAGEMENT Win Rate Profit & Loss Lower Cost of Selling Market Credibility Company Valuation CIO / IT DIGITAL Other Enterprise Areas TACTICAL OUTCOMES STRATEGIC OUTCOMES Growth & Sustenance Raising Capital / Exit Customer Engagement Business Agility
- 28. Engagement models 28 Copyright © 2014 3nayan Consulting. All Rights Reserved. Large (or all) parts of execution, vendor totally accountable for Outsourcing Value Based Compensation Fixed Fee, Time & Material Transformational Partnership Level of risk sharing Build Operate Transfer Change the way services work, enabled by vendor managed transformation Level of collaboration Fixed Payment and expenses Or Simple T&M Part of payment on achievement of pre-defined business targets Transformational Joint Venture
- 29. Value based pricing risk Value based pricing really is about • Risk Sharing • Emotion • Customer centricity Demand © 2014, 3nayan Consulting. 29 All rights reserved. Risk Demand Price Cost Profit Risk Market supported price Point of equilibrium Business rejection Customer rejection Usual sale Ignoring, for a minute, • Price elasticity • Diminishing returns
- 30. The constituent parameters © 2014, 3nayan Consulting. 30 All rights reserved. Perceived Value Total Cost of Ownership Reputation & Relationship Ease of doing business Expertise & Knowledge Risk • Industry knowledge • Client knowledge • Technology • Process & tools • Organizational trust • Account & project leadership trust • Relationship • Learning culture • Project failure • Cost of over run • Business objectives • Quality • Cost • Time to completion • Client resources • Investment • Productivity
- 31. Value / outcome based pricing Create customer persona • Once there was a prince in a faraway land ©2014, 3nayan Consulting. 31 All rights reserved. Know your customer base Analyze, create pricing tiers Execute Continual Evolution big box electronics retailer…
- 32. What is a prime candidate? • Ideal targets - areas with higher emotional and functional complexity • Work with high emotional complexity, and not necessarily high on functional complexity could also be targeted Infrastructure outsourcing Functional complexity Emotional complexity © 2014, 3nayan Consulting. 32 All rights reserved. Business critical, customer facing New technology Transformational Staff augmentation
- 33. How does one differentiate? ©2014, 3nayan Consulting. 33 All rights reserved. Strength of relationship high low Degree of customer differentiation high low Quality advantage Type of competitive advantage Cost advantage
- 34. Towards value based pricing Targets / Actions Outcomes © 2014, 3nayan Consulting. 34 All rights reserved. Value Based Pricing Behaviour Measurement Customer Value Proposition Resourc es Processe s Profit Factors
- 35. Towards value based pricing © 2014, 3nayan Consulting. 35 All rights reserved. Targets / Actions Outcomes Value Based Pricing Behaviour Measurement • Aligning process, and people to the goal • Creating supporting organizations • Aligning marketing strategy • Define achievable value parameters • Define customer and price segmentation • Overt management support to new pricing model • Initial incentives for supporting model at project level • Set up target measurement parameters • Measure for every lead / opportunity • Pick patterns, feedback into pricing structure
- 36. Realigning with the CIO ©2014, 3nayan Consulting. 36 All rights reserved. THE CIO MANDATE RE-ALIGNMENT SECURITY OPERATIONAL EFFICIENCY VISIBILITY / DATA REACH OUT SECURITY INTERNET OF THINGS everything
- 37. © 2014, 3nayan Consulting. 37 All rights reserved. MOBILE STRATEGY DIGITAL & SOCIAL MARKETING PARTNER SUPPORT BUSINESS MODELS INFORMATION THINGS PEOPLE CUSTOMER FACING TECHNOLOGY INTERNAL SOCIAL & BUSINESS
- 38. The opportunities • Predictive analytics • Marketing • Traditional IT vs business or marketing aligned IT 60% 50% 40% 30% 20% 10% 0% CMO Spend changing between 2013-14 Digital Marketing Data Analytics Social Media No Change 5-10% >10% © 2014, 3nayan Consulting. 38 All rights reserved.
- 39. IDENTITY CAPABILITY Helping organizations be business and people proficient A group of highly qualified SMEs and entrepreneurs who share a common mission of making clients successful • Bring top tier global consulting and execution expertise along with ease of engagement and agility. Provide deep insight, expertise and execution help enabling clients reach their goals. • Outcome based strategies and implementations, bringing in real business value and not just reducing costs; • Crisp business case backed strategies and execution which integrate new operating models with enhanced organizational design, technology blueprint, and business aspirations. EXPERIENCE AGILITY PASSION CONSULTING 3nayan.com
Editor's Notes
- CAGR of 9.9% from 2009 to 2013, grew 7.4% in 2013 expected to grow by about 10% in 2014 Largest geography by headcount for global giants such as IBM and Accenture Total global IT-BPO spend is roughly in the range of about $2trillion As a country single largest beneficiary of outsourcing 42% of the revenues come from BFSI industry
- Top 11 players account for nearly 40% revenue and remaining 60% is shared amongst 16-17,000 players. 15,000 small companies battle out for about 9-10% revenue. 2014 is expected to see 1200-1300 start-ups Europe (UK and Continental Europe) is expected to show increase in business and its share in Indian IT industry. Traditionally, BFSI and E&HT industry has taken lead in outsourcing. However, smaller verticals such as, Retail, Healthcare and Education will show faster growth. Digital India or eGovernance. ER&D includes telecom and semiconductor, automotive sector soliciting services on safety systems, intelligent driving, hybrid cars and aerospace sector around plethora of hi-tech systems for advanced avionics, in-flight entertainment and cockpit/cabin information systems.
- 2mn people added in last decade alone. Industry is adding headcount roughly at a rate of about 160,000-180,000 people this year (6%). This also means that we are still largely in revenue proportional to headcount model. 58% workforce is from tier-2/3 cities and 74% is below 30 years in age. Indian IT industry also employs over 60,000 foreign nationals Did you notice that 6% growth in headcount corresponding to ~10% growth in revenue, implying somewhere it is starting to break the revenue/headcount relationship. Number of patents filed by Indian companies has grown from 150 in 2009 to 1,000+ in 2013 – this does not include patents filed by MNC for work done by employees in India. 32% workforce is engineering graduate and 25% workforce is domain specialists – translate into absolute numbers and they are staggering. Annual spend on training - $1.6bn
- 2mn people added in last decade alone. Industry is adding headcount roughly at a rate of about 160,000-180,000 people this year (6%). This also means that we are still largely in revenue proportional to headcount model. 58% workforce is from tier-2/3 cities and 74% is below 30 years in age. Indian IT industry also employs over 60,000 foreign nationals Did you notice that 6% growth in headcount corresponding to ~10% growth in revenue, implying somewhere it is starting to break the revenue/headcount relationship. Number of patents filed by Indian companies has grown from 150 in 2009 to 1,000+ in 2013 – this does not include patents filed by MNC for work done by employees in India. 32% workforce is engineering graduate and 25% workforce is domain specialists – translate into absolute numbers and they are staggering. Annual spend on training - $1.6bn
- Computing paradigm involves – On the cloud, processing power, disk storage, hardware costs and bandwidth. Analytics and Mobility are expected to grow at breakneck rate of 32-35% from their current position and each of them will become multi-billion dollar opportunity for the industry. On the other hand, Social and Cloud will also continue to grow, albeit at a somewhat lesser pace of 15-20%. As a matter of fact, Cloud technology is expected to dominate the scenario, conversations have already moved from “when” to “how” and “which”. No wonder SaaS, PaaS, IaaS and BPaaS are the most talked about jargons. According to conservative estimates, new age business impact is expected to be massive $15-30 trillion by 2-25. New age business technology – Cloud technology, digital individual, Internet of things, Robotics, Automation of knowledge worker and few more. Domestic markets will also see technology dominance of SMAC in both products as well as services scenario. Traditionally, we have see manufacturing sector to be the early adopter of technology, however, in the years to come Retail, Education and Healthcare will pick-up and so will eGovernance.
- Reason behind the colours in the Strategic Outcomes box Growth & Sustenance – in Orange – signifies passion, happiness and optimism. Raising Capital / Exit – in dark Green is the colour of money Customer Engagement – in Blue signifies trust, peace, stability Business Agility – in Turquoise, implies communication, clarity of mind and creates emotional stability. For Enablers: The chosen colour is Imperial Blue which signifies (along with Indigo) integrity, sincerity and is often associated with structure and rituals. Areas of impact: The shade of brown shows earthiness, practicality.
- adapted from Hougaard and Bjerre, 2002