Overcoming growth challenges in the IT services industry - focus on SMEs

© 2014, 3nayan Consulting. All rights reserved.1

3nayan

CONSULTING

OVERCOMING GROWTH CHALLENGES IN THE IT SERVICES INDUSTRY

TH

EFUTURE

IS NOWMake it yours!

Our storyline today

The Story So Far

Looking for Solutions

(an interaction)

Taking a fresh look

©2014, 3nayan Consulting. All rights reserved.2

CONSULTING

The Story So Far


20

32 32

68

109

118

0

20

40

60

80

100

120

140

FY2009 FY2011 FY2013 FY2014P

India IT-BPM Revenues ($bn)

Domestic Total

Overall State of Business

• $109bn in 2013, expected to be$118bn by end of 2014

• Over 8% contribution tocountry’s GDP

• Export revenue of $76bn is 52%of global outsourcing•NA accounts for 62% share

• BFSI is the largest buyerindustry, several growing atrapid pace


Stagnant domestic market

Small & Medium Business Context

• Rapidly increasing number of players

• Stagnant domestic market

• Emerging geographies and verticals need quick catch-up

• Outsourcing of Engineering and R&D services have shown the maturity of industry

• Larger businesses focusing on productivity gains through automation and reuse


The going is only getting that much tougher for small and medium businesses

Large 11

Mid-sized 125-150

Emerging 1,000-1,200

Small sized ~15,000

REVENUE0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

0

5

10

15

20

25

30

35

40

45

50

NA UK Europe APAC ROW

BY GEOGRAPHY

0.0%2.0%4.0%6.0%8.0%10.0%12.0%14.0%16.0%18.0%

0

5

10

15

20

25

30

35

BY VERTICAL

EXPORTS GROWTH

Human Capital

• Employs ~12.5mn (direct /indirect)people

• Large number of engineeringgraduates

• Increasing de-skilling of work

• Employs large number of domainspecialists – Doctors, CAs, Lawyers,Mathematicians, Statistician, etc.(mainly for BPM)

• Increase in the number of patentsfiled by Indian companies, albeitbelow the potential


Getting “right” talent is getting more difficult and expensive.

Engineering Grads, 32%

Graduates (excl. engg.), 45%

Post Grads, 13%

Financial Specialists, 5%

Other Specialists, 3%

Other Grads, 4%

EDUCATION PROFILE

Human Capital

• Employs ~12.5mn (direct /indirect)people

• Large number of engineeringgraduates

• Increasing de-skilling of work

• Employs large number of domainspecialists – Doctors, CAs, Lawyers,Mathematicians, Statistician, etc.(mainly for BPM)

• Increase in the number of patentsfiled by Indian companies, albeitbelow the potential


Getting “right” talent is getting more difficult and expensive.

3%Management

1%Postgraduates

16%Technical graduates

17% Other graduates

14%Science graduates

14%Commercegraduates

35%Arts

graduates

FY2014 graduate out-turnTotal 5.34mn

Evolving Technology

• Rapidly evolving computing paradigm

• Consumer demand for products and services

• Analytics, Big Data, Cloud and Mobility are on CIO agenda

• SMAC is being rapidly adopted by businesses and domestically too

• Digital enterprise is the new buzzword


The continuously changingtechnology horizon throwsopportunities but needs“more” investments.

1. Mobile Internet2. Automation of

knowledge work3. Internet of things4. Cloud technology5. Robotics

0

20

40

60

80

100

120

140

160

Social Mobility Analytics Cloud

FY2013E Expected Growth

TECHNOLOGY DRIVEN GROWTH

Machines & Humans getting smarter

Machines becoming

aware

Humans understanding

machines

$14.33tn by 2025

External Factors

• Global economic conditions

• Large currency fluctuations

• Emergence of BRICS

• Immigration laws of countries of over-dependence

• Tax laws in India


What is holding us back? • Still playing a generic game in highly

commoditized market

• Intense and fierce competition, includingglobal competition

• Entry barriers for new geographies andverticals

• Increasing compensation irrespective ofperformance and potential

• Continuous up-skill and re-skill

• Ability to attract and retain talent

• Immediate ‘deployability’ and productivity

• Capability and competency based workforcemanagement

• Capability not translating to outcome baseddelivery

• Scope containment and management


CONSULTING

Looking for SolutionsLets do this together


Lets chat a bit

1. Survey (distributed separately)Being conducted across a group larger than this oneBlind survey, but you are welcome to put in your name and

contact details if you would want us to reach out to youWe will need your email address though to send out a copy

of the survey results.

2. Experience SharingTwo scenarios presentedHow would you strategize the solution 15 minutes each

Scenario 1 - Playing with the big boys!

WIREL is a large, multi-national telecom provider, withpresence across Asia and the Middle East.

WIREL has 3 business groups - Landline, Wireless andMobile. WIREL markets their products and servicesthrough various channels including Direct Marketing,Franchise Agents and Online.

The company has a centralised IT group, responsible fordefining the IT strategy for WIREL, and also to provideautomation requirements to the Business.

The IT group has business analysts who interface witheach Business to gather automation requirements andbusiness functional needs. These requirements are thenbatched into Releases.

The IT group is also responsible for identifying, selectingand managing vendors to provide the automationsolutions. Work to be done for each release is thenapportioned to vendors, and project managed.


End Users Agents

Marketing & Market Facing

Business 1 Business 2 Business 3CEO

CIO/CTO IT Department Procurement

A.1 A.2 A.3 A.4

Release A

BIG 1 SMALL 1 MEGA XYZ PvtLtd

Do you want to play in this game ?

How do you play the game ?

How do you grow in this scenario ?

Scenario 2 – Breaking the orbit!

CHIPPO is a small, niche player in the RF and Embeddedspace, operating out of a single city, and has a 200 strongteam.

The largest segment (70% of their business) they handleis a part of the government agency dealing with Radarsand Signalling for the armed forces.

Rest of the business comes from the Mobility space andbuilding Apps and firmware required.

Attrition has been lower than the market, they have manysenior skilled personnel at the mid management anddesign levels, who have been with the company for over10 years.

Processes defined, is ISO certified.

Clients are happy, projects have overrun, but areabsorbed by CHIPPO. Initial estimates vary due todynamic changing needs. Often senior tech staff aredeployed onsite for long durations during thetesting/implementation phases.


Govt Mobility

CEO

Sales

CHIPPO wants to double its business.

How should they go about doing this ?

BU 1 BU 2

PM 4 PM 5PM 3PM 1 PM 2

Proj

Proj

Proj

Proj

Proj

Proj

Proj

Proj

Proj

Proj

CONSULTING

Taking a Fresh Look3nayan’s point of view

Quick recap

• The deal sizes aren’t what they used to be

• SMBs can’t compete with the biggies at their game

• Many smaller countries are providing it cheaper and better

• Skilled labour, in India, is an issue

• India loves Tally, or prefer to run IT in-sourced

• Can’t even get to an SEPZ to claim some tax benefits

YOU need to

PLAY THE GAME DIFFERENTLY

Or

PLAY A DIFFERENT GAME

Whether you like it or not, you are in denial or in acceptance;

Where does one start?

• Industry accepted pyramidfor moving towards a goal

• Complex, too manymovable parts

• Unwieldy


Goals & Definition of Winning

InnovationCommercial Excellence

Fuel for Growth

Growth Strategy

People, Culture, Process

Your Business

GRO4WIN – influencers


Regulations

Political Environment

Policies

Economy

Market• Technology• Demand• Deal size/ type

Competition

Your People

Buyer Sponsor

GRO4WIN – areas of influence, and impact


Buyer (Client)

De

gre

e o

f in

flu

en

ce

Degree of impact

Your People

Your Business

Sponsors (Client)

GRO4WIN – pulling it together


StrategyAlignment

Clarity &

Understanding

SupportingOrganizations

Your people

Business Stakeholders

Buyer

Your business

BUSINESS STRATEGY

•Ensuring strategic alignment across the company•Understanding the required outcome, and realignment of strategy•Ensuring there is organizational support, and specific support groups in place

Basic Principles•Target / Outcome•Action•Behavior•Measurement / KPI

TRANSFORMATION

© 2014 3nayan Consulting. All Rights Reserved.

GRO4WIN Business context

STRATEGIC OUTCOMES

Growth & Sustenance

Raising Capital / Exit

Customer Engagement

Business Agility

BOOSTERS

Innovation Management

Governance Framework

Culture

LeadershipCentre of

ExcellenceEnterprise

Architecture

AREAS of IMPACT

Project Delivery

People MattersSales ProcessManagement

CIO / ITOther

Enterprise Areas

ENABLERSCapabilityBuilding

Process Orchestration

Change Management

Basic business model components towards GRO4WIN


Profit Factors

Customer Value Proposition

Resources

Processes

•Target customer base•Offering• Influence on other areas

•Processes•Rules, Data, Metrics•Analysis

•Profit or margin maximizationo Revenue Model o Cost Structure

•Resource Velocity•Resource TypesoPeopleoProducts, EquipmentoTechnology, InformationoBrandsoPartnerships, Alliances, Channels

Conscious shift of focus from deliverables and output to outcome


Lets stop admiring the problem

Make the change, Innovate!


Value / Outcome

based pricing

Alignment to CIO/ IT

Strategy of customer

Solution ‘Verticalization’

Productization of Services

Focused Delivery Area

Comprehensive View of Value

Chain

Digital

Towards value based pricing - outcomes

• Value based pricing, is really a means to an end.

• The outcome that we want to hit is / are…


Towards value based pricing - outcomes

• Value based pricing, is really a means to an end.

• The outcome that we want to hit is / are…


PROJECT MANAGEMENT

PM MaturityProject

PredictabilityProject

ProfitabilityCustomer

SatisfactionBusiness

Efficiency

TALENTMANAGEMENT

LeadershipCapability

People Engagement

Talent Attraction

Cost of Retention

Utilization

SALES PRC. MANAGEMENT

Win Rate Profit & LossLower Cost of

SellingMarket

CredibilityCompanyValuation

CIO / IT DIGITALOther Enterprise

AreasTACTICAL OUTCOMES

STRATEGIC OUTCOMES

Growth & Sustenance

Raising Capital / Exit

Customer Engagement

Business Agility

Engagement models

28

Copyright © 2014 3nayan Consulting. All Rights Reserved.

Outsourcing

Value Based Compensation

Fixed Fee, Time & Material

Partnership

Transformational

Lev

el o

f ri

sk s

har

ing

Level of collaboration

Large (or all) parts of execution, vendor totally accountable for

Change the way services work, enabled by vendor managed transformation

Fixed Payment and expenses OrSimple T&M

Part of payment on achievement of pre-defined business targets

TransformationalJoint Venture

Build Operate Transfer

Value based pricing risk

Value based pricing really is about

• Risk Sharing

• Emotion

• Customer centricity


Risk

Demand

Pri

ce

Cost

Profit

DemandRisk

Marketsupportedprice

Point of equilibrium

Business rejection

Customer rejection

Usual sale

Ignoring, for a minute, • Price elasticity• Diminishing returns

The constituent parameters


Perceived Value

Total Cost of

Ownership

Reputation & Relationship

Ease of doing

business

Expertise &

Knowledge

Risk

• Industry knowledge• Client knowledge• Technology• Process & tools

• Organizational trust• Account & project leadership trust

• Relationship• Learning culture

• Project failure• Cost of over run

• Business objectives• Quality

• Cost• Time to completion• Client resources• Investment• Productivity

Value / outcome based pricing

• Once there was a prince in a faraway land


Create customer persona

Know your customer

base

Analyze, create

pricing tiersExecute

Continual Evolution

big box electronics retailer…

What is a prime candidate?

• Ideal targets - areas withhigher emotional andfunctional complexity

• Work with high emotionalcomplexity, and notnecessarily high onfunctional complexity couldalso be targeted


Functional complexity

Em

otio

na

l com

plex

ity

Business critical, customer facing

New technology

Transformational

Staff augmentation

Infrastructure outsourcing

How does one differentiate?


Strength of relationship

high

low

Degree of customer differentiation

high

low

Type of competitive advantage

Quality advantage

Cost advantage

Towards value based pricing


Value Based Pricing

ActionsTargets / Outcomes

Behaviour

Measurement

Profit Factors

Customer

Value

Proposition

Resourc

es

Processe

s

Towards value based pricing


Value Based Pricing

ActionsTargets / Outcomes

Behaviour

Measurement

• Aligning process, and people to the goal• Creating supporting organizations• Aligning marketing strategy• Define achievable value parameters• Define customer and price

segmentation

• Overt management support to new pricing model

• Initial incentives for supporting model at project level

• Set up target measurement parameters• Measure for every lead / opportunity• Pick patterns, feedback into pricing

structure

Realigning with the CIO


THE CIO MANDATE

RE-ALIGNMENT

SECURITY

OPERATIONAL EFFICIENCY

VISIBILITY / DATA

REACH OUT

SECURITY

INTERNET OF THINGSeverything


DIGITAL & SOCIAL MARKETING

MOBILE STRATEGY

PARTNER SUPPORT

CUSTOMER FACING

INTERNAL SOCIAL & BUSINESS

BUSINESS MODELS

INFORMATION

THINGS

PEOPLE

TECHNOLOGY

The opportunities

• Predictive analytics

• Marketing

• Traditional IT vs business ormarketing aligned IT


0%

10%

20%

30%

40%

50%

60%

Digital Marketing Data Analytics Social Media

No Change 5-10% >10%

CMO Spend changing between 2013-14

IDENTITY

CAPABILITYHelping organizations be

business and people

proficient

A group of highly qualified SMEs and entrepreneurs who sharea common mission of making clients successful

•

Bring top tier global consulting and execution expertise alongwith ease of engagement and agility.

Provide deep insight, expertise andexecution help enabling clients reachtheir goals.

•

Outcome based strategies andimplementations, bringing in realbusiness value and not just reducingcosts;

•

Crisp business case backed strategiesand execution which integrate newoperating models with enhancedorganizational design, technologyblueprint, and business aspirations.

EXPERIENCE AGILITY PASSIONCONSULTING

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Overcoming growth challenges in the IT services industry - focus on SMEs