Mid sized IT companies: Recipe for success

Independent India is 60 years old, and for an average Indian this usually is an age to retire; sit back and enjoy the pension. But not the new age India, which, in the last decade has been propelled by a strong economic growth. Among all the Indian industries, IT industry has outshined with the highest growth to touch U.S. $50 bn (of which Software & BPO Services export being U.S. $32 bn) and is expected to grow to U.S. $100 bn (of which exports alone will be U.S. $60 bn) by 2010.

According to a study conducted by the research firm IDC, while the Indian IT market continues to be dominated by large services firms, certain mid- tier companies are creating some serious competition to them. I believe what differentiates these companies is that they have carved out a niche for themselves.

How does one identify such a niche? Gartner’s Magic Quadrant for North American Offshore Application Services 2007 defines niche players as the ones who can focus on a particular segment of the market, as defined by such characteristics as functional area vertical industry, client size, or project complexity. Gartner in the same survey has listed 14 such niche companies, including Unisys, Deloitte, Sapient, and also my own company Hexaware Technologies.

At Hexaware, we looked for niches in the under-served markets. Transportation was one such niche. When we began focusing on this vertical in the early 90’s, it was one of the smallest verticals. Among ERPs, PeopleSoft was another niche area that did not have any dominant scale player; Hexaware built competencies around it. Today, Hexaware is a global leader in PeopleSoft practices.

The 2005 NASSCOM-McKinsey report pointed out that IT Specialists (niche players) could earn revenues in excess of U.S. $2 bn each by 2010.These players are further divided into two categories:

* Application based specialist (For example, PeopleSoft, BA/BI and Testing Services in the case of Hexaware)
* Vertical IT Specialist (For example, Transportation and Capital Markets in the case of Hexaware)

There are enough under-served markets that mid-tier companies can choose. By implementing a niche strategy, companies can address client needs in a much focussed manner and specialize in the selected niche.

Some successful examples of Indian niche players are:
* i-flex in the banking vertical
* Sasken in embedded services
* Hexaware in IT services

Over the last few years, Hexaware has witnessed higher growth rate than most mid-sized companies.

A scalable delivery engine needs to be developed to sustain growth. Having identified a niche, companies need to invest on building competencies in these niches. Hiring the right kind of experts and skilled people, branding, and marketing are other investments that have to be considered. In this manner one directs the efforts to the right target audience.

Clients look for service partners that can add value to the business. Niche players can take advantage of their specialized domain knowledge and demand higher rates for their services, thus enabling good margins. Utilization is also better in the case of niche players.

Niche companies are increasingly on a faster growth curve, making the right kind of acquisitions or mergers to suit their business needs and taking the right moves to expand their businesses organically as well.

They have to focus on infrastructure also to ensure they offer world class services not only to their global clients but also to their employees.
Attracting the right kind of talent could also be a challenge, but if niche companies emphasize on their capabilities, offer a competitive and challenging work atmosphere they have a better chance to create excitement as compared to a scale player. Hexaware has been one of the Top Ten Best IT employers for past two years (as per DQ-IDC survey).

It is also important for niche players to expand their management team and create levels of expert decision makers. This not only gives flexibility but also leads to superior growth.

And finally, the golden rule of thumb: Once identified as a Niche Player, one must not be tempted to diversify in other areas as this could lead to defocusing from your core niche competencies and thus becoming a small fish in a big pond. Saying “no” to projects outside one’s strength areas is the key to becoming and remaining a niche player.