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How Will the IT/BPO Industry Leaderboard Change? | Sherpas in Blue Shirts

April 14, 2011

This past weekend, many people were glued to their televisions watching the 2011 Masters Golf Tournament at Augusta National. As the days rolled by, the leaderboard changed in some surprising ways – the young McIlroy slid a long way from Number 1 on Day 1; Tiger Woods finally showed his old spark and stayed steadily within the top 5 throughout the game; and Charl Schwartzel jumped into the front-runner spot to take the Green Jacket.

While we now know the Masters winner, there is significant speculation on the changes in the IT services leaderboard, both today and going forward. The market is rife with questions on where Wipro and Cognizant will end up this season. The discussion on C-level changes at Infosys made a leading Indian newspaper speculate on issues it may be facing, with TCS speeding on and Cognizant being on steroids and catching up quickly. The next day, analysts said TCS would continue to outpace the other TWITCH majors as the quarterly results season starts.

We will know the answers to these questions in the next few weeks, after all companies report their numbers. But the more important long-term question is, what else will change in that leaderboard? Will we see more M&As, new entrants, or exits? And fundamentally, what will the future structure of the IT services industry be, and who will the winners be?

In a recent meeting, a CEO of an IT services company made an interesting point about there being steps at the US$500 million, $1 billion, $5 billion, and $10 billion marks, and that it is progressively challenging to get to the next level. It was clear he was thinking that some, including those in the $2+ billion scale, will struggle to reach the next level, and some will stabilize in their current or adjacent level.

The TWITCH discussion is interesting, but then there are the mid-tier IT players. We are just past the first quarter of 2011, and already three (iGate, Patni, and Headstrong) no longer exist, at least not in their original form. From all we hear or understand, several more may go before the end of 2011.

Then there are continuous speculations about pure play BPO players being shopped about. The rumor that Cognizant will take out Genpact has been around for ages. EXL is up for some action, and the market is abuzz with other speculations. As one of my colleagues recently blogged – will the Indian pure play BPO companies survive in the same shape and form past 2011 or 2012?

Net, net, here is the big picture. Some large Tier 1 players are struggling, mid-sized IT is not necessarily the best place to be, and pure play BPO companies are a vanishing tribe.

All this raises more questions: What is the future structure of the global services industry? Will Accenture, IBM, Dell, the Japanese majors, TCS and probably a few others become the super majors by 2015 or 2020, and will the rest need to find their own places under the sun? What other categories and groups of service providers will exist, and what will their characteristics be, for example, regional specialists, vertical specialists, etc.?

Irrespective of how the industry evolves, consolidation will continue, and the M&A juggernaut will roll. This business generates cash, and doesn’t require a lot to sustain it…so companies will invest in buying capabilities, assets, businesses, and people in attempts to win top spots on the leaderboard.

We certainly are headed for some interesting months ahead. Is anyone betting on who the winners will be at the end of 2011?

A Thumbs Up for Wipro’s Acquisition of SAIC’s Oil & Gas IT Services Business | Sherpas in Blue Shirts

April 6, 2011

Despite the fact that Wipro announced its acquisition of SAIC’s oil and gas IT services business on April Fool’s Day, the deal will be far from prankish silliness if the integration of two fundamentally different cultures and business models is managed correctly. Here are three key reasons we give this acquisition a thumbs up:

Stronger appeal to clients in the energy industry, and separation from its Indian provider peers

Wipro is already the largest offshore Tier 1 provider in the energy and utilities sector in revenue terms, and the acquisition will provide it with broader and deeper consulting, technology, and outsourcing capabilities in the upstream business, and enhanced service capabilities in areas including digital oilfields, exploration, and production data management. The deal brings into Wipro’s capabilities a pool of onshore domain experts — nearly 1,500 — with presence in major oil and gas markets in North America, Europe and the Middle East. The acquisition should also help Wipro upshift current offshore-based ADM service delivery clients, enable up-sell and cross-sell to higher value/high margin services, and allow penetration of the SAIC client base to drive growth per an offshore-centric delivery model. The bottom line is that the acquisition will enable Wipro to demonstrate a strong, differentiated play for oil and gas clients across the entire value chain.

An affirmation of its intent to further differentiate in areas of existing strength

Let’s face it . . . 2010 was not a great year for Wipro. With financial fraud and the sub-par financial and operating performance that resulted in the ouster of its joint CEOs, there was significant conjecture on whether or not Wipro could remain competitive and regain a place among the Tier 1 Indian providers. The acquisition not only demonstrates Wipro’s commitment to investments in growth, but also should help quell concerns about the company’s future, especially for energy industry clients. Perhaps most importantly, the acquisition gives Wipro the deep domain expertise differentiation play that is becoming increasingly important for offshore providers. This should enable Wipro to both win new business and increase the size and scope of its work within existing Wipro and SAIC accounts.

Enhanced revenue growth via its earlier inorganic strategy

Major acquisitions and inorganic growth — including its purchase of acquisition of Infocrossing in 2007 and Citibank’s IT captive in late 2008 — have been a large part of Wipro’s revenue growth strategy. Lacking any large acquisition in the last couple of years has negatively impacted its comparative peer performance. But the SAIC acquisition will enable a revenue upside of at least US$150 million — assuming a revenue multiple of 1 — which will reflect in Wipro’s next financial year which ends on March 31, 2012.

Assuming this all plays out the way we think it can, we do believe the SAIC acquisition can significantly widen the gap between Wipro and the other Tier 1 offshore majors in the energy vertical.

Everest Group just released a Breaking View point on this acquisition. If you’re interested in more drill-down insights on this deal, please go to: Wipro’s Fool’s Day Acquisition of SAIC’s Oil & Gas IT Business – The Energy Pill Wipro Needed?

Wipro’s Change in Leadership – a Sign of a Larger Industry-wide Problem? | Sherpas in Blue Shirts

February 10, 2011

When Wipro Technologies announced the stepping-down of its two joint CEOs, it cited needs for growth and a simpler organizational structure as the primary reasons. Perhaps. But rather than speculate on the validity of these statements, I believe the move is a very clear sign of the inherent paradox in the offshore linear business model.

Let’s look at the facts. In the pursuit of growth, offshore providers’ headcount has skyrocketed. The bait they have frequently used to attract and retain people is an onsite trip, often for an extended time, to the client’s operations. However, given the inherent bent of these providers to offshore more services and a limited ability to send people onsite, providers now commonly lure existing staff with opportunities to progress into team lead or management roles.

However, with employee bases expanding above 100,000 for large Indian providers, and approximately 90 percent of the workforce in India at any given point of time, the opportunity to establish different management titles and growth paths is limited. Nevertheless, because Indian employees cherish management or lead positions, however immaterial they may be, they are frequently promoted into these roles after three years within the organization.

But the providers can’t play this game for long. Employees will quickly realize the great wall of inertia they are facing in terms of a career path and growth. Additionally, this strategy results in a significantly complex management structure, especially on the delivery side.

Therefore, despite having a reasonably agile business organization, the providers are finding it tough to meet the need for flexibility and agility in the new environment. They continue reorganizing their business units and changing business leaders, without acknowledging that a bloated delivery management organization and a lean business management organization cannot co-exist. To be lean and agile, service providers must be so on all fronts.

What strategy do you think Indian providers can leverage to tackle this paradox? How can they make their delivery and their business organizations more lean and agile, while also offering sufficient incentive for employees to remain?

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Tag: Wipro

How Will the IT/BPO Industry Leaderboard Change? | Sherpas in Blue Shirts

A Thumbs Up for Wipro’s Acquisition of SAIC’s Oil & Gas IT Services Business | Sherpas in Blue Shirts

Wipro’s Change in Leadership – a Sign of a Larger Industry-wide Problem? | Sherpas in Blue Shirts

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