point
The Smart Techie was renamed Siliconindia India Edition starting Feb 2012 to continue the nearly two decade track record of excellence of our US edition.

IMS: The Hot ‘Revenue Mantra’!

Jayakishore Bayadi
Monday, September 1, 2008
Jayakishore Bayadi
The CIO of a global company sits in his U.S. office just a few floors above the company’s key data center. But many of the people who manage that infrastructure are located thousands of miles away from his company. May be in Bangalore or in Chennai in India. “All infrastructure is managed remotely and no one’s ever sitting inside the data center anyway,” says an Official in Bank of America. Today, Infrastructure Management Services (IMS) or Remote infrastructure management (RIM) is something that virtually every organization does every single day. But there’s a material difference if that work is done offshore. In fact, the offshore delivery of IMS — from network services and helpdesk support to server maintenance and desktop management — is gaining momentum nowadays, especially for Indian IT, due to the decline in the growth from application development outsourcing and other offshorinng activities owing to the economic downturn in the U.S.

Hence, Indian players are conceiving more aggressive strategies to tap IMS segment to generate constant revenue, because IMS is a high margin business, which allows considerable offshoring. Now, both top and mid-tier Indian IT services players are looking to IMS as a solid opportunity to earn constant revenue, as IMS deals are of longer duration of around 5-10 years, compared to IT services deals of around 1-3 years. “Vendors feel that IMS puts them in the comfort zone,” says Anil Kumar, Engagement Manager, Zinnov Management Consulting.

IMS is already a growing business for Indian companies. Indian IT conglomerates like Wipro and HCL have signed many IMS deals with companies including Fortune 500 organizations. Companies like AMD, Nike, NCR, Shell, and Honeywell now depend on Indian vendors to manage their IT infrastructure, usually spread across the globe. Furthermore, IMS growth is augmented by the rapid evolution in technologies like virtualization, cloud computing, unified communications, standardization of IT infrastructure, and the availability of sophisticated tool sets. “And we believe its effect on IMS will only unravel in the next 24-36 months,” states G. K. Prasanna, Sr. VP, Technology Infrastructure Services, Wipro. It has also been driven by changes in customer demands and a mature offshore supply environment. “Indian IT players now have efficient tools to access clients’ infrastructure. Importantly, success of Application Development and Maintenance (ADM) and Business Process Outsourcing (BPO) helped India establish its credibility among the customers,” adds Upinder Zutshi, CEO, Infinite Computer Solutions.

The Opportunity
A Joint study by NASSCOM and Mckinsey claims that the $524 billion IMS industry soon could become as important as the ADM and BPO industries that have dominated the rise of offshoring since some years. Out of this $524 billion, the study pegs the global addressable market for IMS to be in the range of $96-104 billion, with North America accounting for 60 percent of the global IMS demand followed by Europe (25 percent) and APAC (15 percent). If one takes out the $7 billion that is already being addressed by vendors and captives in the low-cost locations like India, the unaddressed market pie works out to $89-97 billion. With an opportunity of 70-75 percent of infrastructure management roles available for offshoring, IMS as an industry could realize $26-28 billion of the global opportunity by 2013, and India is strongly positioned to capture $13-15 billion of the global opportunity. As of now, IMS revenue of India stands at $3.2-3.6 billion. However, says David Appasamy, Chief Communications Officer, Sify, “The Indian IMS market is still fragmented, with the majority of the market being serviced by smaller local players that account for close to 40 percent of the IT services market.” In terms of revenue distribution across the verticals, the banking, financial services, and insurance industries (BFSI) would lead this growth with 43 percent of contribution, followed by telecom with 12 percent. Manufacturing and retail sectors contribute 12 percent each, media and entertainment industry and energy and utilities contribute 5 percent each. Pharma and health care contributes about 4 percent whereas others contribute around 5 percent.

According to Zinnov Analysis, small and data sensitive companies are not going to outsource their IMS processes. But mid to large size companies are increasingly outsourcing their IMS activities in order to reduce the costs and exclusively focus on their core areas. “In today’s business scenario IT is not just a support function, it is a business enabler and could very well provide competitive advantage over others,” says Satish Kumar, Founder Chairman and CEO, Glopore IMS. Traditionally a big portion of IMS is kept in-house or outsourced to near-shore locations and this trend is now changing with IMS industry moving towards a remote delivery model where services are increasingly delivered by vendors and captives from low-cost locations such as India. Notes Nareshchandra Singh, Principal Research Analyst, Gartner, “India’s ability to provide and conduct IMS through a remotely placed delivery team is consistently getting better. In the last five years, Indian companies have also relatively proved that an offsite and offshore model is viable and beneficial.”

Share on Twitter
Share on LinkedIn
Share on facebook