The Hindu Business Line : It makes biz sense for IT cos to get consulting capabilities

Chennai, July 8 The recent reports of Infosys seeking to buy Capgemini, one of the world’s largest IT consulting companies, have led to experts evaluating the pros and cons of such acquisitions as growth strategy.

Mr Rahul Bhasin, Managing Partner, Baring Private Equity Partners (India), believes that from a long-term perspective, it makes a lot of business sense for IT companies to get consulting capabilities, “as it would build greater stickiness with clients.”

Speaking to Business Line on what such a trend means for the IT industry, he said: “Since the company would cover the entire spectrum – from decision on IT strategy to execution of outsourcing – it effectively miti gates the risk of a competitor coming in. While the economics of consulting may not be as attractive as those of IT services, this integration is required for long-term sustainability of the IT industry.”

Matter of concern

Though the IT industry is one of the fastest growing in the world, its structure is a matter of concern, he added.

“In the initial cycle of growth, manufacturing and services companies with huge internal IT departments outsourced only a portion of their requirements. If a firm decided to cut investment in IT, it would typically dispense with what it outsourced and keep in-house IT departments as busy as possible.”

This was seen by the cut on IT spends by US companies in 2001 and its impact on IT industry in India.

“In order to effectively mitigate this risk in the long term, IT companies need to work closely with their clients, understanding their business, needs, plans, constraints and priorities, so that they can dovetail their staffing and technical skills and domain knowledge and be of value to them.”

Partnership philosophy

According to Mr Bhasin, the long-term partnership philosophy of any IT company plays a vital role in reducing this risk.

“To get a better understanding of this, we need to step back and look at the decision to outsource from the very beginning. The client first decides on business strategy based on market dynamics, from where the IT strategy emerges, a component of which will be the decision on outsourcing.”

According to him, analysis of key voices during the decision-making at each level will indicate heavy reliance by clients on consulting firms.

“In the existing model, the consultant drives the overall direction of the outsourcing strategy and the IT services company carries the execution part.”

The client has to contend with the cost of management of different vendors and issue resolution between different parties.

“Today neither the consultant nor the IT services company is willing to take responsibility for failures in execution, which is a big pain point with clients.”

In such a scenario, a company with both capabilities would not only remove this headache but also make the whole process more effective, since responsibilities for delivery would be clearly attributable, Mr Bhasin pointed out.