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| Tech firms look beyond headcount to grow revenue |
| Shivani Shinde / Mumbai Nov 05, 2008, 00:23 IST |
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In a bid to tide over the current slowdown in the US market and move up the value chain, major Indian IT firms such as Tata Consultancy Services (TCS), Infosys Technologies, Satyam and Wipro have put in place a non-linear business strategy, which is not merely headcount-related. In fact, firms like NIIT Technologies and EXL Services are already reaping the benefit of the first- mover advantage with over 20 per cent of their revenues coming from non-linear business in the quarter ended September 30.
A non-linear business’ focus moves away from the tendency to measure growth on the basis of headcount or the concept that the more the number of people working, the more the revenue. It also means that organisations offer value-addition to the customers by introducing platform-based solutions or invest in creating Intellectual property (IP) rather than focus on pure application development and maintenance (ADM) work.
Take for instance, the cargo operating systems (COSYS) developed by NIIT Technologies for Singapore Airport Terminal Services (SAT). The system owned by SAT integrates the airline cargo reservation systems and allows end-to-end cargo handling operations. While NIIT Tech created this IP-based solution for SAT, it is now taking the same solutions to other players in the travel industry and already has customer, including the cargo handling system at the new Bengaluru International Airport.
And the results show. For the second quarter ended September 30, 2008 NIIT Technologies registered revenue contribution of 25 per cent from non-linear business. Arvind Thakur, CEO, NIIT Technologies, said his company is targeting a revenue contribution of 40 per cent from the non-linear business in the next three years and 25 per cent for FY09.
“Our strategy to go non-linear with focus on IP-based solutions and platform approach started 12 months back. The results are there to see. In the last quarter revenue from non-linear business strategy was 23 per cent and in this quarter we touched 25 per cent,” says Thakur.
Another case in point is TCS. It has identified and invested in various non-linear opportunities, namely, software products, platform BPO and software as a service (SaaS), as well as focus on unit-priced contracts. Nearly 2.5 per cent of TCS’ consolidated revenue is expected to come from platform BPO. Under the SaaS model, targeted towards the small and medium enterprises, the company will give bundle solutions that would constitute hardware, software and networking infrastructure on a pay-as-you basis.
TCS has also been active in unit pricing in infrastructure management services (IMS) and transaction BPO. Macquarie analysts estimate that about a fifth of TCS’ IMS revenue and 10 per cent of its India-based BPO revenue is unit-priced. TCS also has several products — all branded as TCS BaNCS 1 — which contribute around 3.6 per cent to its consolidated revenues.
Analysts believe that in order to become specialist vendors, firms may refocus their growth strategy. “These firms will initiate a strategy overhaul and take steps such as divorcing non-strategic clients or shifting from a pure services play to an IP or solution accelerator proposition. I also see them making niche acquisitions —instead of a sellout — as a way forward,” said Sudin Apte, senior analyst at Forrester, a US-based technology and market research company.
Infosys BPO has said that platform BPO would constitute 25 to 30 per cent of its revenue by financial year 2010. Infosys has also launched a supply chain management (or ‘Procure-to-Pay’) platform in alliance with SAP and an HR (‘Hire-to-Retire’) platform with Oracle/PeopleSoft.
Revenue flows from these platforms are yet to start. Infosys has also stated its intention to create offerings in the software as a service (SaaS) space.
Similarly, NIIT Tech has already launched four applications offering under its SaaS portfolio. Since its launch in February the company has introduced applications offering in procurement, sales and distribution, HR and Finance. Even multi-national players are joining the trend. US-based IBM, is moving from a labour-based to an asset-based model. It has created assets around each vertical. It reuses these assets even as it creates “industry templates” that serve as roadmaps in understanding verticals and the players within.
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