The Hindu Business Line : Tech Mahindra focuses on large fixed-price deals

Bangalore, May 6 As clients in the US finally give shape to their IT budget, some of the Indian service providers are exploring newer pricing models to ensure margins do not dip.

Tech Mahindra Ltd, a provider of IT solutions to the telecom industry, said the company is now focused on large fixed-price deals, which allows greater flexibility to improve margins. These deals are generally for three to five years, and Tech Mahindra has to take end-to-end responsibility for the processes, it added.

Mr L. Ravichandran, Executive Vice-President and Chief Operating Officer, Tech Mahindra, said the shift is largely to offset decline in profitability for man-month contracts. Because of the recession, customers are looking for more value, and this has put pressure on pricing for these types of deals, he added.

Guarantee savings

For the large fixed-price contracts, Tech Mahindra has to guarantee savings in the very first year of the contract, said Mr Ravichandran. Generally, savings happen in the second or the third year. Saving beyond that is guaranteed to the client is additional profit for the company, he added.

He said these contracts integrate IT services and business process outsourcing, and the company needs to restructure and re-engineer the deals. The margin depends on how smartly Tech Mahindra can handle the job.

He said the company has signed five to six of these value-based deals in the last three quarters. The deals would increase its profit margin, he added. However, he declined to give any details.

Mr Ravichandran said these deals involve investments in the first three quarters in areas such as knowledge transfer from customers, business process re-engineering, and in automating processes. The company has to bring in innovation to make the processes more efficient.

These deals give the staff the opportunity to manage a process on their own. He said the programme managers have the responsibility to run a process as he would run a company.

He said Tech Mahindra plans to send 100 senior programme managers to attend management development programmes at XLRI, Jamshedpur, for six to eight weeks this year.

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