Indian IT Industry: Will it Rain Consulting?

Date:   Wednesday , July 02, 2008

“It’s potentially exciting times”, says Kris Gopalakrishnan, CEO of Infosys. He sounds quite optimistic and confident, though the rupee appreciation and the economic recession are looming large over the IT Industry. According to him the industry is churning the cauldron towards yet another growth curve through consulting. His firm Infosys Consulting is charging ahead with strategies for capturing the consulting business.

The efforts began a few years back. The Indian software companies saw the opportunity to gain credibility with the clients about being business advisers. The tier-one companies were the first to drive this trend by trying to design solutions to solve specific business problems, instead of being just a software vendor or service provider who can translate specifications to quality code. They did not want to miss the train like the management-consulting firms did in the 80’s when they missed the technology wave and created an opening for the accounting firms like Price Water House Coopers (PWc Consulting later got acquired by IBM) and the Arthur Andersen (today known as Accenture) to get into consulting. Hence from simply executing technology, the Indian software giants decided to transition themselves to taking ownership for improving the client’s business, by going into the area of consulting.

Some believe that to venture into consulting is to move up the value chain as the major players were not content to remain doing what many in the service industry put it as non-value add IT functions such as cranking out software code or staffing help desks. But, what puzzles the analysts like Sudin Apte, Senior Research Analyst at Forrester is the balance sheets of the consulting divisions of these companies. He says, “To say that the firms are moving up the value chain through consulting is a big hoax. It is a scalable business and there is an opportunity to grow. But I don’t agree that the companies are moving up the value chain, if so it should be reflected in the profitability. Moreover, consulting is a different ball game altogether. It will not suit the typical Indian sales proposition. A lot of consulting has to happen onshore, which means heavy investments in setting up offices and hiring high-level senior professionals. High cost is a contradictory tone to the typical Indian low cost value proposition.”

Even as the industry is speculating on this move, the SWITCH (Satyam, Wipro, Infosys, TCS, Cognizant, and HCL) companies, as they put it, are gravitating towards the highest end of the services spectrum establishing IT consulting practices, setting up offices in overseas markets and hiring senior people locally. They are also offshoring a significant part of the IT consulting business to India. IDC, the market research firm, estimates that worldwide spend on IT consulting will touch around $201 billion by 2010. “By and large, these companies are far behind the top notch players like IBM and Accenture. Consulting is a niche high touch game, which involves building up a strong relationship with the clients. But, of late, the Indian players are chipping off the market share from these traditional players,” explains Arup Roy, Senior Research Analyst, Gartner. “The process-centricity and process excellence, which the Indian players have evolved over a period of time, gives them a competitive edge over the traditional players,” explains Roy.

With the new entrants, the consulting industry itself is evolving into a new system different from the traditional model. The new generation model capitalizes on the Global Delivery Model with changes in enterprise demand and buying behavior, the number and nature of providers, business process outsourcing (BPO), shared services market development, offshore labor arbitrage, and changes in the ways consulting services are priced, sold, and delivered.

However, establishing a consulting practice is not so easy for Indian IT services companies whose expertise has mainly been in providing high quality execution services in scenarios where the project scope is well defined. For these companies, their traditional target clients have been IT directors and sourcing managers who are focused on performance parameters such as cost, rapidity, and quality. But as they seek to evolve into trusted advisors, these IT services companies are faced with a new reality. Now the game is to shift the touch-points in a client’s firm from the IT directors or CIO to the business heads or CEO, which would be a major challenge to the Indian vendors who do not have much experience in consulting.

The Indian Edge
There are two types of consulting services that the Indian vendors offer: technical consulting and non-technical consulting, like business process redesign work or IT strategy consulting. The top-tier Indian companies have a notable track record and experience in the technical space, which they can leverage in the technical consulting area. But their ability to provide business process consulting and strategy consulting is the main challenge in front of them. This capability is also important because the top-notch consulting firms that have developed a viable business process consulting offer approach and manage consulting in a much more professional and less ad hoc manner. These vendors have to consciously decide to invest in developing these capabilities, whereas the technical consulting often flows from existing technical work and uses existing technical resources for delivery.

The Indian companies that moved into the space have devised their own mode of operation based on their experience. Infosys options for investing in its consulting offering included making an acquisition or organically growing the business. Since they wanted to establish a new model in the consulting space, they decided against an acquisition and formed Infosys Consulting. Wipro had its eyes on the consulting market as early as in 2002 and they decided to pursue it through acquisitions, and acquired two companies in the consulting space. Cognizant ventured into the consulting space five years back, and they went about in a traditional way by adding consulting as a line of business to the company and now the division has a headcount of 1,800. Satyam looks at consulting from a business transformation point of view, which makes it align the consulting work within its overall business structure. HCL believes that consulting would provide a ‘business outcome’ driven approach to its offerings as part of the ‘advice to execute’ strategy and establish HCL as a ‘trusted advisor’ to the CIO. TCS does not seem to be much into the consulting space, though Ramadorai, its CEO and Managing Director, had said in an interview with CNET last year that consulting within information technology is very appealing to TCS. When contacted by this author they refused to comment on this line of business.

Mission Impossible?
Consulting through execution, as these companies define it, has a wider scope and extent. Consulting requires a lot of creativity, because this requires embedding the perspective of business and organization right through the delivery chain. And the Indian players are faced with quite a few challenges as they move ahead. One of the main challenges facing the technology players is the need to be known as consulting group. Though they are major players in the IT industry that have established credibility in the market, winning credibility as a consulting firm is a huge challenge for them. To build a brand in this space takes a lot of time. “Conventional marketing methodologies will not work in consulting”, explains Kaushik Baumik, Global Practice Leader - Consulting and BPO, Cognizant.

Another factor pointed out by all the players is that though they are well received by the existing clients, brand recognition plays a big role when it comes to new clients. To become trusted business advisors and effective solution providers, Indian IT services companies need to demonstrate their understanding of business problems. They must be bold enough to envision and articulate the way in which that particular industry is likely to evolve in the future. Most importantly, they must acquire the capability to persuade their clients to share their vision of the future and get them to prepare for that by making appropriate changes to processes, technology, and organization structure.

Recruitment and retention is yet another challenge for the Indian players. “Consulting is very ‘skill’ based – client facing, facilitation, and group handling are mostly based on experience. The domestic market is weak on this dimension while it is strong on knowledge,” explains Ramkrishna, Corporate Vice President and Head - ETS & M&A, HCL Technologies. All the Indian companies have hired senior level people into their consulting business from across the globe. These consultants are very different in profile, personal style, culture, and expectations than someone who might join a technology firm. When Wipro acquired NerveWire few years back they had a high attrition level due to this contradiction. Now, the Indian players are learning to approach the overseas employees differently, compared to the offshore employees. The industry also has to build a strong brand in the area for the purpose of hiring. Moreover, the Indian education system is more focused on harnessing engineering and technical skills.
Indian players are thinking of the consulting space as quite lucrative, despite all the odds. The players are moving optimistically ahead to leverage the country’s offshore advantages. But given the current scenario, the Indian players have a long way to go. As Gopalakrishnan himself puts it, “Our genesis is on the implementation side and we are yet to scale up on the consulting side.” Despite investing heavily to increase brand visibility, domain knowledge, to have facilities across the globe, and hiring senior consultants from across the world for the past 5 to 7 years, the financial reports say that the percentage of earnings from pure play IT consulting is miniscule and in some cases negative.
Now, let us go back to the argument put forward in the beginning of the article, about Indian companies moving up the value chain through consulting. The reality is that the Indian players are yet to substantiate their claim of moving up the value chain. The foray into consulting seems to be more out of the fear factor of losing the competitive edge given the aggressive intrusion of global biggies into India in the last few years. Till the beginning of 2004, IBM’s workforce in India was around 9,000 and today it has a whopping workforce of 73,000 in India. With the biggies heavily betting on India and offering the same offshore-onshore delivery model, the Indian players seems to fear the loss of their competitive edge on the Indian advantage. Today it looks more like a game of survival.

“We have done it in the IT services market, and it’s only a matter of time before we establish ourselves in consulting too”, explains Gopalakrishnan. On hearing a firm conviction like that, you can't help believing that these guys will do whatever it takes to get there. However, the past few years have given them hands-on understanding of what works and what doesn’t work: also what works faster and what works slower. And of course, the market will play its own game and this new industry will unfold itself slowly. Till then it’s for us to watch whether the industry will relive its days of eye-popping returns, now through consulting.