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What Does Corporate America Need?
Monday, November 17, 2008

Managers don’t all look for the same thing from an IT services company that they hire, but many fundamental needs remain relatively uniform. Krishnamohan “Kris” Nayak of Lucent Technologies says that the two most important factors he takes into account when hiring an IT services firm are the quality of the people they will use to work on his project, and the firm’s ability to complete projects on schedule. This is a vision echoed by almost any customer of a services firm.
But there are specific motivations. Nayak’s use of an Indian IT services company, in this case TCS, seems to be primarily an attempt to leverage Indian IT in the most efficient way possible. For Nayak, doing work in India needs to be well-planned because outsourcing raises concerns such as intellectual property issues. He explains that Lucent researched half a dozen companies doing business offshore to determine what the best approach would be. In the end, they chose to partner with IT services firms.

“There is no need to have a presence in India if you can get it all done by someone who is stable and capable of delivering quality solutions at a competitive price,” says Nayak.

So how is a given project executed? “The consultants we hire are not here to fill jobs,” Nayak insists, pointing out that the reasons are much more strategic. He highlights the importance of having an ongoing relationship with a services firm, given the initial costs and risks associated with committing to outsourcing work, particularly in India.

“Firms have to have long-term relationshis in mind while dealing with the customer,” according to Nayak, because customers will need to incur the expense and commitment of resources that go with having to train the consultants that work for them. “In the short term you don’t save a lot, in the long term you do,” he adds. In other words, short contracts with vendors are not really his preference, as much as extended relationships.

As to onsite and offshore work, Nayak likes to send as much as possible offshore, but there is still a large onsite component to what TCS does for him. A number of TCS consultants are brought over from India to train onsite. That number decreases as a project progresses and stabilizes. Some labs and infrastructure can’t be replaced, and so related work must occur onsite in the US, where the necessary infrastructure exists.

But Lucent is a large tech company with a deep understanding of technology and complex projects to execute. Corporate America extends well beyond Silicon Valley, where Nayak is based.

Cornell Williams is senior director of IT at clothing retailer The Gap, also based in Silicon Valley, but obviously much less involved in high-tech. Williams, like Nayak, insists that the services firm he employs provide requisite levels of service at a reasonable price. “We look for the understanding that a firm can provide the service at the most efficient cost possible,” Williams says.

“We typically like to shy away from time and materials type bids, and we like to engage in service level-based fixed price bids,” he adds. For example, services firms take care of Williams’ legacy systems. For The Gap, which is a Covansys customer, the value of IT services companies seems to be much more associated with the simple and cost-effective execution of IT projects and contracts. The company is less interested in large strategic use of offshore capabilities, which is the goal of Nayak and Lucent.

Surej K.P., regional manager for TCS in Silicon Valley, says that companies are using TCS’s services for a wide range of problems, from simple IT work to higher-end consulting. He speaks of a customer (which doesn’t want its name used) who was deploying a product and had doubts about its capability before it went to market. The company used TCS to do the testing and to evaluate the product for robustness. This is an indication of the Indian firm’s attempt to execute more high value work.

Surej assures, like anyone in the IT services industry, “we are not in the business of providing bodies.” Truth be told, however, IT services firms absolutely are in the business of providing bodies to clients. But success will come from knowing how to best deploy and manage the best personnel to cater to diverse and specific client requirements. Firms that can effectively serve all of their clients’ needs can then boast that they possess a total — high value — solution. n

Advent Global Solutions, a US-based company of roughly 100 consultants that specializes in SAP, and also does work in the Internet and e-commerce spaces. Maheswari puts revenues for his company at about $10 million a year from about 10 key clients. His company clearly fits in with the time-honored concept of a consulting company: built up organically from a few people, and living off key contracts and services.

Many such companies, of various sizes, have flourished in recent years. They differ considerably from companies like Infosys because they are based in the US, and are generally more focused on onsite consulting than offshore work. What will happen to such smaller companies in the face of IT spending reductions?

Maheswari explains, “On a short term basis, the budgets have been cut and it has impacted us.” But he remains optimistic that his company will pull through when all is said and done. He talks about, for example, suggesting to clients that he will put as many consultants on a job as is needed to get it done without billing for each extra individual — thus more fully utilizing his workforce and accepting lower revenues. His client relationships, he notes, will pull his company through. He emphasizes that clients often seek the more personal relationship that a smaller provider offers. But he also admits that he is seeing more and more demand for offshore projects, an indication that cash-strapped corporations are looking for cost benefits more than anything else.

Onsite and Offshore Kumar Mahadeva, chairman and CEO of Cognizant Technology Solutions, a New Jersey-based public company that, unlike many US-based consulting companies, specializes in offshore development, suggests, “Second tier companies are not doing well.” By second tier Mahadeva evidently means the smaller and mid-sized consulting houses. “The field has narrowed,” Mahadeva insists. “Clients want offshore development and not staffing.”

Clearly offshore development has become a major factor in the IT services industry, as body-shopping falls heavily out of favor, and traditional consulting struggles. But most doubt that offshore development will replace on-site consulting as a complete solution. Venu G. Vaishya is executive vice president and COO of India operations in the US for another US-based public IT services company, Covansys (formerly Complete Business Solutions, Inc.) which, like most other companies in the sector, operates somewhat of a hybrid model, using offshore capabilities, but still doing the bulk of the work onsite. “Customers don’t want you to disappear into a black hole for some time and come back and deliver,” he argues. “They want you to provide continuity.”

But Mahadeva counters this assertion, which is a favorite argument of companies that have made only limited commitments to offshore work. Offshore IT outsourcing, Mahadeva points out, has evolved considerably over the years. Companies sending work offshore can monitor the progress and characteristics of the offshore work being done at all times, he explains, in a sense artificially creating the sense of security that having somebody working onsite brings.

Cornell Williams, senior director of IT at clothing retail powerhouse The Gap, is a Covansys customer who has also used Indian firms like TCS to do his IT development work. He explains that he likes to send as much work offshore as possible to reduce costs.

Of course, even Cognizant makes nearly 50 percent of its revenues (which were about $137 million in 2000) from ongoing maintenance on existing projects. It has a large consulting force of its own, so onsite is still very much a reality of business. However, offshore is clearly in vogue, and several companies are increasing their marketing staff in the US to capture the opportunity that they see created by the slowdown. According to Lakshmi Narayanan, Cognizant president and COO based in Chennai, where the company’s offshore development center is located, “Competing consulting companies are increasingly quoting lower prices for their services. Competition is getting intensive, and we are preparing for it by beginning to sell more aggressively.” Simultaneously, companies are ramping up their offshore operations strategically to add value to their offerings. M.D.S. Bosco, COO of Intelligroup Asia, says of his company strategy: “Now that onsite is clogged due to the slowdown, we are strengthening our operations at Hyderabad.”

The Struggle to Survive Regardless of the model, how will firms suffer from the market downturn? “You have to identify the core skills that you must retain regardless of whether you have projects or not,” Vaishya explains. Covansys’ benched consultants are kept busy doing R&D or sales support. The company will be affected, but Vaishya assures that his firm has the capital available to easily weather a storm by re-investing available assets into building up its core business.

This is generally the attitude across the board. Executives readily admit that the industry is hurting, but offer a barrage of reasons why their companies will pull through with flying colors. Objectively speaking, the consensus seems to be that everyone will be hurt.

Pawan Kumar, CEO of DSQ software is one of the most optimistic, he explains, “I have not seen my customers cutting down their IT budgets. I think it is a psychological issue rather than a major issue.”

Exinom CEO Suresh Nichani, whose six-year-old 70-person (mostly H1-B workers) consulting company primarily aggregates data for large corporations, argues that his firm will pull through because of its niche focus. “People not moving up the value chain are going to feel the downturn,” he says. By doing focused work for companies like AIG, Merck, Siemens and Avis, Exinom will try to pull through even as other small consulting firms are crushed by the reduction in demand. But a limited scope also makes a company vulnerable to significant corporate cutbacks.

Hiten Patel is CEO of Global Consultants Inc., an $80 million company that employs more than 900 consult

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