Tag: Indian service providers

Impact of Canada’s Foreign Workers Program on Global Services | Sherpas in Blue Shirts

“Putting Canadians First” — the title on the document explaining changes to the nation’s Temporary Foreign Worker Program —makes the Canadian government’s intent clear. Canada is forging ahead with adjustment to its immigration policy. The result will increase costs for global service providers in two important dimensions.

At this point, it’s now very unlikely that meaningful immigration reform will happen for the next two years in the United States. But Canada is moving forward, and components of its reform will make it much more difficult for service providers to utilize temporary foreign workers.

Two cost impacts to service providers

Canada’s immigration reform will increase the cost of transitioning new work to the global services model, particularly for India-based firms.

  1. Knowledge transfer. First, reform will raise the cost of knowledge transfer and effectively change the traditional knowledge transfer structure used by the Indian firms. Current practice is to send to Canada teams who will be doing the work to consult and learn from the existing teams and then return them back to India or other locations replete with sufficient knowledge to continue doing the work.

    Consequently, they will have to rely on in-country resources, which will make the knowledge transfer slower and more complicated.

  2. Landed model. Reform components will also increase the cost of the Indian heritage firms’ landed model — their employee base that resides in Canada. By making it harder to send Indian nationals to live in Canada, it will raise their cost of getting the visas, which will make it more likely that they will need to hire Canadian nationals to do the work.

    Everest Group’s analysis is that it could increase their costs by up to 20 percent for their Canadian landed model.

Impact on competitiveness

Neither of these two factors will stop the process of sending temporary foreign workers into Canada. However, it will slow down the process and also be more expensive for service providers than their current structure.

The “Putting Canadians First” reform of the Temporary Foreign Workers Program will not stop the Indian service providers from competing effectively in the Canadian marketplace. But it will complicate their business and modestly raise their costs to compete in Canada.

We do not believe that these changes will materially affect the multinational service providers such as CGI, HP or IBM. They already have substantial presence in Canada and have large existing workforces there. In fact, the net result is that the Canadian-based multinationals’ competitive posture will be slightly improved due to these immigration changes.


Photo credit: Ian Alexander Martin

How to Make Your Website Invisible | Sherpas in Blue Shirts

There’s a big move underway, especially among the Indian firms, to rebrand away from outsourcing and BPO. The industry now prefers to use a variety of other terms such as BPM, BPS and managed service. But the immediate impact of changing the terminology on a provider’s website is that the website disappears from the search engines, effectively turning the company into stealth mode and sabotaging marketing efforts when potential customers turn to search engines to look for those services.

In the U.S. market, the term outsourcing is saddled with the negative connotation of job loss and exporting jobs. And in the Indian market, negative connotations have attached themselves to the BPO brand due to BPO workers enjoying themselves in their first job out of college and often getting into interesting escapades that appear to be an aggressive, risky lifestyle. BPO is increasingly seen in a poor light, particularly among the parents of the Indian workforce the providers seek to attract.

India’s service providers have nothing to be embarrassed about; they offer employees high-paying jobs with good career potential. But in an attempt to deal with the negative connotations, they are changing the terms “outsourcing” and “BPO” to sidestep the problematic issues. It’s quite understandable.

There’s no doubt that the industry has accumulated these difficult brand connotations, and we would all prefer not to work in an industry with negative brand connotations. However, businesses tunnel to Google for marketing and, by calling themselves by other terms, they disappear from the search engines.

Nevertheless, customers continue to believe that they’re buying outsourcing and BPO services and are confused and somewhat annoyed about these new terms they must learn. It violates the first rule of marketing, which I’ve blogged about before: it’s all about the customer.

At a time when services growth is becoming more difficult, going into stealth mode in search engines may not be the wisest course of action.


Photo credit: Daniel

Tech Mahindra Puts Satyam to Bed | Sherpas in Blue Shirts

Tech Mahindra has run the gauntlet of stabilizing after its acquisition of the corrupt-ridden Satyam. The fully integrated companies have a unified leadership team, the client base is satisfied and stable, and Tech Mahindra has a robust brand. The provider is now turning its focus to growth.

When Satyam imploded through a well-documented set of corruption cases, Mahindra stepped forward to acquire its assets and, by extension, stabilize the Indian heritage services industry.

It has been a long, difficult journey for Tech Mahindra, more difficult than anticipated. Mahindra had to wrestle with rooting out the corrupt practices, getting the books restated, negotiating with the regulatory bodies and shareholder lawsuits, satisfying a concerned customer base, dealing with a nervous employee base and transitioning from the tainted Satyam brand to the robust but less well known Tech Mahindra brand.

Although there was some client flight, many clients chose to stay and wait it out. These clients are now satisfied and pleased with the progress Tech Mahindra has made.

Kudos to Tech Mahindra for enduring the journey to a successful outcome. We’ll watch with interest as they now focus on growth.

Infosys Divides in Two — a Bold Move | Sherpas in Blue Shirts

Infosys made headlines recently, announcing the separation of its products, platforms and solutions (PPS) business into a subsidiary called Edgeverve Systems. It’s a bold move, but in many respects it makes sense. Here’s my take on the implications and potential net result of the spinout strategy.

As I explained in an article in The Times of India, Infosys’ PPS business — platforms, cloud products, and other digital services — are fundamentally a different kind of business than the firm’s historical labor arbitrage, skills-based business. The two models have different value propositions, selling maneuvers, adoption patterns and investment profiles.

Separating the two kinds of business allows Infosys management to keep the focus unconfused and allows Infosys to become masters of both business models. It allows them time and investment to develop its Edge series digital products in anticipation of demand, rather than focusing on revenue from the PPS business (historically only 5.2 percent of Infosys’ business).

It also allows management to continue focusing on the labor arbitrage business while revenue grows over time from the new-generation offerings of the Edgeverve subsidiary. Cognizant, TCS and other providers have demonstrated that there is still plenty of room left for growth in the labor arbitrage model. Although the growth is slowing, it is growing faster than the overall services industry.

Infosys recognizes that growth in its labor arbitrage business will be harder and not like the good old days; but at the same time, they recognize that they can do better. By separating the two business models of Infosys, Infosys acknowledges that they can and should go faster in the labor arbitrage, skills-based space. And this is coupled with a focus on going after larger transactions.

Two notable potential outcomes

If Infosys executes this spinout strategy successfully, I think it will result in better growth than they would otherwise get. The net result hopefully will be faster growth in both areas and more focused and nuanced value propositions for serving their clients.

As I said at the beginning of this blog: it’s a bold move, but it makes a lot of sense. So if it’s successful, I think it could lead the way for other service providers to separate their historical businesses and new-generation digital businesses.

Infosys Appoints Dr. Vishal Sikka as CEO, Making a Brilliant Pilot a Swimming Coach | Sherpas in Blue Shirts

In a landmark move with far-reaching implications, Infosys appointed ex-SAP CTO Dr. Vishal Sikka as its new CEO and managing director, making him the first non-founder at the helm in the firm’s 33-year history. Accompanying this change, the founders are getting out of the new chief’s way. Current CEO and co-founder SD Shibulal will leave by end of July, while NR Narayana Murthy will vacate his role as executive chairman on 14 June, continuing in a non-executive board role until 10 October to ensure a smooth transition.

The fact that Infosys engaged an executive recruiter to look for a successor reflects a dramatic shift in ethos for the firm. It represents the strategic decision to bust up a certain inward-looking culture that has come to represent Infosys. That Infosys reacted to market and customer expectations by bringing in an external technology visionary bodes well for the critical imperative to change to a customer-centric culture, rather than firm-centric. 

What Works 

The Gujarat-born Dr. Sikka holds a Ph.D. in artificial intelligence. He spearheaded the development and marketing of HANA, SAP’s flagship analytics product. His experience in these areas could give Infosys a sizable edge as service providers look to establish credentials in next-generation technology avenues such as big data, analytics, cloud, robotics, and artificial intelligence.

He seems to have been given a wide mandate, per the large-scale changes in senior management that are accompanying his appointment. This will allow him to exercise a free hand as he attempts to reshape the beleaguered company. Infosys’ long-standing strategic imperative to let the founders control the firm has been widely criticized.

He joins a long list of industry outsiders taking charge of IT majors. Louis Gerstner was unanimously credited with turning around IBM’s fortunes when he took over in 1993, after previously leading RJR Nabisco and American Express. Closer to the Indian IT services landscape, Vivek Paul, a GE-alumnus transformed Wipro, fast tracking growth from a US$150 million company in 1999 to over US$1 billion in sales in five years. Last year, Apple announced UK fashion chain Burberry’s CEO as the head of its retail and online business.

Appointing an outsider tends to bring fresh perspective to inherent legacy issues plaguing companies. Free from the baggage and expectations associated with firm veterans, Dr. Sikka can look to usher new life into Infosys. 

What May Not

Since he comes from primarily a products-driven business, it will be interesting to see how he adapts to the IT services industry, which has inherently different business dynamics and challenges. The focus will be on streamlining project management, client delivery, and sales efforts. Dr. Sikka’s experience in driving sales and marketing at SAP will be a crucial asset in this regard. Being a CTO of a products-based company is an entirely different ball game than leading a global services behemoth, as product-driven businesses rely primarily on the strength of intellectual assets, while services businesses are an amalgamation of resource management, delivery, and expectations handling.

In spite of the large-scale management changes, Dr. Sikka has his work cut out as he navigates disgruntled senior management. How he soothes frayed nerves and reassures them will be essential for stability. A cultural shift he will seek to implement will revolve around Infosys’ limited risk appetite for investments. Infosys needs to invest significantly in boosting its expertise in next-generation solutions through alliances and possibly acquisitions. Although it has made some notable acquisitions such as Lodestone, the firm has generally been fairly risk-averse in exercising its significant cash pile.

The role that NRN Murthy assumes will also determine the efficacy of Dr. Sikka’s roadmap for revival. If Murthy remains strictly in a mentorship role overseeing the transition, without overriding Dr. Sikka’s strategic decisions, the sailing should be smooth. However, if those lines blur, it could create a vicious cycle of conflict, decisions embargo, and execution paralysis.

Another important but often ignored challenge of such senior-level changes is the risk of culture mismatches outweighing the business positives. Echoing Peter Drucker’s “Culture eats strategy for breakfast,” bringing in a rank outsider can have controversial implications. For example, John Sculley joined Apple from PepsiCo, and during his time had long-standing disagreements with Steve Jobs due to divergent management styles and priorities, ultimately resulting in Jobs’ exit in 1985. The entry of a new top-level entrant is not easily accepted by the old guard, leaving open the possibility of wilful sabotage. Dr. Sikka will need to build bridges with senior stakeholders to avoid stepping on toes.

Swimming in Choppy Waters Ahead 

Essentially, whether or not Dr. Sikka manages to snap the once industry bellwether out of its funk will depend on his ability to make the transition from a technology visionary to an empathetic business leader combining technical expertise, client management, and people development, while maintaining the focus on innovation and thought leadership. He will try to take Infosys out its comfort zone, bridge service gaps with more nimble rivals, and ultimately reassure clients that their business is in sound hands. He needs to show that a brilliant pilot can be a swimming coach as well.

HCL Catches Lightning in a Bottle | Sherpas in Blue Shirts

Double the fun! HCL’s stock valuation doubled in a just a little over 12 months. They’ve been on a tear, improving every month, with revenue per employee skyrocketing and the corresponding profitability rising. Sure, HCL has shifted some positions in its leadership team. But what really caused the investing community to value HCL at twice the price as before is HCL’s successful shift to transaction-based pricing.

The strategy behind the leadership shifts was to ensure future growth. Former CEO Vineet Nayer became Vice Chairman a year ago, and Anant Gupta moved from President/COO to President/CEO. Gupta has been with HCL for 19 years and built its infrastructure business — which is now the dominant marketplace for HCL.

HCL’s growth strategy is taking hold, and it successfully transitioned its infrastructure offerings from an FTE-based pricing model to per/service transactional pricing.

Previously I blogged about payment companies outperforming their BPO brethren: it was because they implemented platforms for transaction pricing. As I explained then, there are few examples of transitioning successfully to transaction pricing models outside the payments space. It’s almost as rare as catching lightning in a bottle.

Spectacular and Rare

But HCL is one of those rare instances and succeeded in the infrastructure space.

Where success happens in rolling out and implementing transaction pricing, a service provider can reap tremendous benefits because it captures productivity gains from automating. When a provider can scale this strategy, as HCL is doing, the financial and competitive benefits are spectacular.

Pondering TCS’s Modest Morsel | Sherpas in Blue Shirts

TCS posted industry-leading financial results in its FQ4 2013 report. But what caught my attention was its quarterly guidance to investors where management stated they believe TCS can add “a few billion dollars” from digital as a growth driver. Really? Just a few billion? We believe TCS is substantially underplaying its digital hand.

Management talked constructively about taking the digital business area seriously. But they are guiding to only modest aspirations, almost a mere morsel of the market share potential in the seismic disruption cloud and digital are creating.

Although we recognize TCS’s need for measured conservatism and modesty in investor guidance, we at Everest Group feel no such need. We believe TCS is strongly positioned to exceed the modest goal of a few billion. Here’s why: From our industry analysis, we predict that 30-50 percent of workloads will migrate from traditional infrastructure models to cloud-based models.

As this occurs, we expect that TCS will garner substantially more than a few billion dollars of revenue.

What I Found Out at NASSCOM India Leadership Forum 2014 | Sherpas in Blue Shirts

Conversations at the recent NASSCOM India Leadership Forum 2014 in Mumbai were injected with a dose of confidence and optimism — but were also guarded in their outlook for India’s growth in the global services market this year.

Central to the message is that the industry is on an upswing. I noted that the services players showed more confidence this year than in 2013. NASSCOM projects a range of 13-15 percent overall growth for the services work coming into India this year. (The number includes work sent to Global In-House Centers/captives, BPO and ITO.) That number is slightly up from last year’s guidance of 12-13 percent, so they’re guiding up for the industry in 2014.

What’s Changing?

From an IT perspective, I think the providers’ hope is that discretionary spend will return to the marketplace, driven mostly out of the United States, Canada and the UK. They also believe that there is a strong secular shift in the Nordics and Germany not dependent on discretionary spend, as those economies reach for arbitrage partners to manage their structural talent challenges.

Shaping their Future

I also noted a lot of focus on cloud functions. At last year’s forum, there was a lot of exuberant talk about the cloud. This year cloud talk was backed up by more use cases and growing confidence that the cloud/automation trends can be turned to the Indian players’ advantage.

Specifically they belief that this will result in significant additional systems integration and project work and that the low-cost Indian players are well positioned to capture a disproportionate share of that work.

Most memorable to me is that, for all the enthusiasm evident at this year’s forum because of the Indian players’ capabilities, the topic that captured a significant amount of attention was differentiated growth strategies. There is much interest in how to grow faster. My sense is that the driver for this focus is a trend I’ve blogged about before — the increasing cost of growth efforts in a maturing marketplace.

That said, NASSCOM leaders and India’s services players projected guarded optimism about growth opportunities in 2014.


Photo credit: NASSCOM

That’s My Story and I’m Sticking to It! | Sherpas in Blue Shirts

It’s going to happen. I’ve been blogging since last May that the current U.S. immigration status is unsustainable and change will happen. And when it does, here’s what’s at risk: the heavy use of offshore talent in the landed model, as practiced by the big Indian service provider firms. Although at times on this issue I’ve felt like John the Baptist — the lone man crying in the wilderness — I continue to see signs that both political parties are preparing to take action on immigration reform.

The House is now talking about immigration reform again, just like I blogged they would. In addition, The New York Times reported recently that two congresswomen are reaching across the aisle to work on immigration overhaul. (Rebecca Tallent is a key player guiding John Boehner and House Republicans; Esther Olavarria is working with the White House to find a compromise.) And President Obama in his State of the Union address cited independent economists’ assessment that immigration reform would reduce deficits by almost $1 trillion — a top agenda item for Republicans.

Although the prevailing belief in the services industry through 2013 was that immigration and visa reform would not get through Congress, I say again that the pressures are too great and there is a material and growing chance that immigration/visa reform will happen. The political parties are aligning, and I also observe that the lack of strong support for the aggressive use of H-1B and L-1 visas in the landed model continues.

And when it happens, we believe the existing comfortable status quo of using H-1B and L-1 visas in the landed model will come under threat.  I’ve mentioned in previous blogs America’s rise in protectionism. Although this mindset and immigration reform won’t stop the outsourcing model, it will change the economics for the providers that aggressively use H-1B and L-1 visas in their landed model. It will level the playing field and bring their economics more in line with their domestic competitors.  That’s the issue.

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