Tag: Virtusa

Goldilocks-Sized Service Providers | Sherpas in Blue Shirts

Businesses today actively seek — and happily find — a different kind of service provider. Like the fairy tale Goldilocks sizing choices among the three bears, they find some providers are too large, some are too small, but others are just right. The just right players are growing spectacularly. But I believe it’s mainly due to shared characteristics beyond their size. It’s important to understand their value proposition, as they are a competitive threat to other service providers — even large ones that are currently doing quite well against the market.

So let’s start with the size of these high-growth just-right companies. They are tier-two, mid-sized firms ranging from $500 million to $2 billion. Often their growth is in the high 20s.

We’re seeing this segment outperform large providers across both IT and BPO. For example, EXL and WNS are growing faster than the big boys in BPO — Accenture and Genpact, Likewise in IT, Syntel and Virtusa are growing faster than the industry leaders, Cognizant and TCS.

I don’t want to take anything away from the “just right” firms’ hard-won performance in terms of aggressiveness in sales. But there is an important aspect to their growth. When we see a segment like this growing better than the large, mature firms that were driving growth and profitability, there is something about the segment that is beneficial, something beyond just well-run companies that have hit a niche or an air pocket where they’re going up.

That “something” driving their high growth is the change in the buying community. For the past five or six years, buyers rationalized their portfolios. They reduced the number of service providers they used. Now we’re in a climate in which they are looking for challengers.

It’s not that buyers are backing away from large service providers, but they seek more intimacy and less churn in their service delivery. The large firms have really pushed their factory model or offshore pyramid model hard to keep their margins up. They want providers that are smaller, more committed to addressing their needs and that will give personal (even CEO) attention. They are also looking for price challenges and rare skills. And they believe they can find all of these characteristics more easily in the companies among the providers in the $500 million to $2 billion range.

At $500 million, these providers are large enough to be highly credible, have deep benches, and have vertical industry expertise. And below $2 billion they still provide that personal touch to their customers. Their size is just right.

Another growth factor for the just-right size of providers is that they are growing off a small base. This is a dramatic contrast to a large provider such as TCS trying to grow off a base of over $10 billion a year. It’s much harder to grow a large base quickly than to grow a small base quickly.

Unlike the story of Goldilocks, there are more than three “bears” — midsized providers — in the market. And that’s a good thing, as they’re challenging the market with the attributes the buyers want at the moment (more commitment, less perceived churn, and more personal attention). And big profitable buyers with large spend are looking for these challengers.

Photo credit: Daniel Rocal

How can we engage?

Please let us know how we can help you on your journey.

Contact Us

"*" indicates required fields

Please review our Privacy Notice and check the box below to consent to the use of Personal Data that you provide.