Where is the magic?

Neha Kapoor

AS India rode the information technology wave, IT consultancy became an increasingly lucrative business. And every big consultancy (read the big 5) swung into action, bringing their global solutions to the Indian market.

With the software firms, consultancies too have been through a 'learning' process, moving through the high to arrive at a sobering slowdown.

In this edition eWorld looks at the big consultancies in India with a brief flashback tracing their beginnings, moving on to services offered here while discussing, among other things, the maturity of these services, issues faced by the consultancies while dealing with Indian companies as well as the effect of the slowdown on business.

Blast from the past

''Successful auditing firms during the 1960s and 1970s had strong exposure to company finances. This gave them knowledge on how firms and industry worked. The next logical step for them was to offer finance and strategy consultancy. As the operational aspects of the Finance function in enterprise started gaining importance because of sheer volume of transaction, auditing firms that had earlier evolved to consulting firms started with an exposure to IT strategy and implementation,'' explains Frost & Sullivan's Alok Shende.

''And as technology became a crucial plank in both strategy formulation and strategy implementation phases, offering technology consulting was a logical diversification for the big five accounting firms,'' adds Sunil Chandiramani, National Director, Ernst & Young's Information Systems assurance and Advisory Services.

A strong focus on IT and the transition to a one-point source of 'solutions' was further aided by the need for unbiased advice. ''On the one hand, business strategy consultants were advising clients to use Information Technology to improve their operational efficiency, while on the other side their clients did not know whom to approach specifically for IT-related advice,'' says Ravindra Datar, Senior Analyst (India), IT Services & Printers, Gartner.

''With vendors likely to push their own wares that they wanted to sell, rather than provide what the clients wanted, there was a potential demand for unbiased advice. Hence, this was a natural extension of the business consultancy firms' operations.''

Market in India

In India, the nature of the IT consultancy business has changed, according to Ravi Trivedy, Director, IT Strategy and e-Business, Pricewaterhouse Coopers. ''In most cases, IT consulting is extremely lucrative...also most global firms always looked at an integrated picture (strategy, processes, organisation and technology) for any BPR job.

However, the original model of IT consulting has changed - now every Ram, Shyam & Ghanshyam in India with some software development capabilities also calls himself an IT consultant. The challenge is more strategic than at the level of systems development.''

Apart from the Rams, Shyams and Ghanshyams, IT consultancy players in India can be divided into two broad categories. ''The first are the global five consulting firms who are present in India with strong IT consulting practices. The second are a few Indian software firms that have reached out to the global markets, offering high-end IT consulting services. The Indian customers have benefited from their (software firms) experience with advanced markets such as the US. For example, TCS, Infosys, Wipro and Satyam operate at the high-end IT consulting and implementation markets and are just as good as their multinational counterparts,'' says Shende.

According to Pankaj Vaish, Partner, Software, Accenture, ''the IT consultancy market - including implementation, advisory and training services offered - stood at around $50 million as of March 2000. Over the year there must have been a 20 per cent growth. And, of the total market, the share of big consultancies would be around a third.''

Services in India

On a theoretical front, Datar differentiates between consultancy assignments as either technical or functional. ''On the technical side it could involve technology comparison, enterprise IT architecture design/security audits; while on the functional side the work could involve product/service offering, comparison, implementation/deployment consulting and business/departmental restructuring.''

''There is also the differentiation as operational consulting and strategy consulting.

Operational consulting would focus on improving the efficiency of operations of the enterprise while strategy consulting would include operational consulting to some extent but the focus would be on using information technology to develop a competitive advantage for the client vis-a-vis competition,'' he adds.

IT consulting services offered in India, according to Trivedy, range from Strategic Systems Implementation Programmes (SISP) to low-end systems development. The SISP ones are normally driven from the top down, while systems development ones are done bottom-up.

Demand vs margins

In terms of services with the highest demand and margins, Shende says, ''there is an inverse relationship between demand and margins in the high-end IT consulting business. Margins also depend on the availability of skilled manpower. Enterprise Resource Planning (ERP) still encompasses the largest segment of demand, but the market is fairly mature and margins are down significantly from their earlier levels. Whereas CRM, where the demand is still at its infancy level, offers much higher margins.''

Accenture's Pankaj Vaish reiterates, ''the newest technology will obviously be the highest revenue earner as there are fewer people offering these services, hence there is less competition.''

As far as ERP is concerned, most consultants see a huge potential market as the small and medium enterprises (SMEs) and PSUs have yet to migrate to ERP. Also, those corporates that have already done so will need to upgrade the systems.

Maturity of services

''IT usage by itself has not reached maturity in India. On the one side you have some corporate users having huge IT set-ups while on the other you see an abysmally low PC penetration in India compared to the developed nations.

There is still some time before we can talk of maturity of IT usage in the domestic markets. The domestic scene leaves a lot to be done in terms of maturity, barring a few mature users,'' says Datar.

''The IT consulting market as a whole in India is in its infancy. IT consulting pre-supposes an availability of basic infrastructure of PCs, servers and networks. The Indian enterprises are still at a level where they need to make a larger share of an IT rupee on basic infrastructure,'' Shende says.

Or to put it in Ravi Trivedy's words, ''the service is mature - client understanding and expectations need a lot of development. After all, if they still x call it EDP or MIS, then they are missing the whole strategic angle to IT being the driver of change rather than just a support function.''

Client maturity

Datar offers, ''In most cases the clients may not know what specifically needs to be done. They are convinced that deploying IT can help them improve the efficiency of operations in terms of time and cost, based on hearsay, reading about success stories etc.''

''In some cases like ERP implementation, there have also been cases of the client refusing to tweak their business processes while being adamant about tweaking the package to meet their organisational processes,'' he says. ''While this is one extreme, there is also the other side where the internal IT team knows exactly what they want out of the project but need hand-holding on matters like vendor selection, product/solution evaluation, cost estimation.''

Trivedy says that IT services in India are still seen in a back-office kind of way where management will buy this box and expect it to work. ''The concept of information being key to business is not completely understood. IT infrastructure and strategy are still not in place and this is especially true of manufacturing companies.''He adds, ''the top companies are, however, solid on this as a lot of IT learning has happened. This 'learning' has helped companies to see IT implementation as a beneficial tool rather than a fashion issue.''

Awakening under way

Vaish is in agreement when he says, ''Tweaking the ERP systems, for example, to suit existing business processes was common in the earlier days. Since then there has been a learning and its much better than two to three years ago. In fact, there have been people who've come to us saying that we want to re-engineer our business processes before ERP implementation.''

Picking three issues that continue to persist, he adds, ''In India, there is an excessive cost focus on implementation rather than on the quality of services which actually determines the value of the project. The procurement approach for buying equipment where you can be specific cannot be applied to buying services as you can't be prescriptive or deterministic.''

''Buying services requires a different approach and closer involvement of the management. The process of procurement itself is flawed where people fail to judge the quality of the services they get. The least cost route obviously results in cutting corners.''

A resultant botched system then, is a company's own doing....''If you pay peanuts, you get monkeys working for you,'' retorts Vaish.

''Proper due diligence has to be conducted in engaging services because once a system is implemented, people's jobs change...they need to learn new skills and their performance measures change. If the implementation is botched and you go in for a replacement, employees won't be understanding the second time round. They have to unlearn and relearn skills which is traumatic and asinine!''

He adds, ''even though there is an increasing appreciation of the fact that business requires IT, what is lacking is the management appreciation of what it takes to make it work and how to draw value from the system.''

''Apart from these, the involvement of the CEO as a driver of the IT initiative is missing in most cases. Senior management has not been appreciative of IT and it has often been left to the IT dept in most cases. This happens when IT is seen just as an IT project and not as a business project.''

A strong in-house team, too, is essential, according to Vaish. ''IT implementation is a joint effort between the consultants and the company. Convincing people to give us their best people is difficult at times but is essential to the success of the project. We are not always able to understand the intricacies of every business and no one knows your business better than your own people. Their involvement is imperative to factor in the nuances of the company's environment.''

''The device is theirs (company's)...its your systems, your money....and advice is ours. We are here to help companies make the right choices,'' he says.

Two-fold slowdown impact

How has the slowdown affected the IT consultancy business - is there a crunch on IT spending or are more companies seeking help now than before?

''The impact of slowdown on the IT consulting firms is two-fold,'' says Shende. ''The first is, slowdown indeed impacts IT consulting firms. The impact of services offered by consulting firms to their customers is strategic in nature and hence of longer time horizon whereas in times of slowdown, the first thing that gets cut are long-term investments because of uncertainty.''

''The second impact is, consulting firms that change their focus and product mix to offer IT strategies and applications that lead to significant cost reduction are better off than those that lead to revenue expansion.''

According to Datar, ''in the short term, there will be a significant negative impact while in the medium to long term, we can expect more companies to deploy information technology to improve productivity. Also, there are areas like disaster recovery and business continuity related advice that would see increased interest.''

Trivedy says, ''there is obviously some slowdown...however, the problem is that if IT is seen as an expenditure rather than a revenue driver, IT initiatives get axed first!''5

nehak@thehindu.co.in

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