The Hindu Business Line : An innovative spin

Indian software companies are looking to `monetise' growth by building reusable frameworks. This way, business likely grows on innovation rather than price cuts, or by boosting the workforce.

"Cost helped us get a foot in the door, quality opened it a little bit more, and now we need innovation to open it all the way."

ONE BASE to generate new models. - K. Ananthan

With offshore becoming mainstream for global vendors, frontline Indian IT services firms are facing pressure to maintain their profitability in a relatively stable pricing environment even as customers are turning more savvy and looking for more bang for the buck.

It is widely believed that the next phase of growth for IT services firms will be driven by their ability to innovate and fine-tune their business models.

According to S. Ramadorai, CEO of TCS, and former Chairman of Nasscom, "Cost helped us get a foot in the door, quality opened it a little bit more, and now we need innovation to open it all the way."

Industry experts feel Indian IT services firms will have to slowly build a variant of the hybrid business model mindset to leverage their existing potential. The hybrid model relates to including an element of `product' in the services landscape.

Branding frameworks

Services companies are looking at `productising' or `monetising' the tools, frameworks, or methodologies that they have worked with while executing projects for their clients.

For instance, frameworks typically developed for a particular client are being used by the vendor for other clients as productivity tools and also to reduce software defects.

Many companies are starting to brand their frameworks and methodologies as a first measure towards monetising them. Besides frontline companies Infosys, Wipro or Cognizant, some mid-tier companies such as Zensar Technologies, Mastek and KPIT Cummins are beginning to set up revenue targets for frameworks and tools that are already commercialised.

`Elixir' of business

Mastek has branded its component-based solution for the insurance sector as Elixir. The company recently signed up a 10-year licensing agreement with Capita Life and Pensions, UK, for Elixir.

Sudhakar Ram, Chief Executive Officer, Mastek, says the Elixir platform, with its functionality across modules and product lines, can easily match products in the insurance space.

"Our edge today is not in standard operational products, but it is about components that help configure solutions for the specific or unique requirements of customers. To that extent, the fact that we have an enterprise platform, good architecture and a component framework to support that architecture is unique," says Ram.

Generally insurance projects turn out to be large. Even though it is a product implementation, the fact that you have to integrate and connect it and plan for the future is all 200-300-man team kind of efforts, says Ram.

"For most product companies, the entire staff is 100 people. But we can take on these because we have 3,000 people. Moreover, they do not have the process maturity or project management capability to carry these large projects to completion. We have a good track record. Eight of the top 20 insurance companies are our customers. We can give them a solution not only for today, but a solution alive, up-to-date, and on a customised basis for the rest of their lives," says Ram.

Migration path to revenue

Zensar is betting heavily on migration services as a significant revenue growth opportunity over the next few years.

Migration services typically involve shift of legacy systems (or mainframes) and applications built using Cobol and other older technologies to open systems and a Web-based environment in order to reduce maintenance costs.

The company has developed Solution BluePrint, a software framework, which automates a substantial portion of the coding done by programmers. Zensar expects its revenues from migration services to grow by over 100 per cent over the next three years from $7 million, says Ganesh Natarajan, CEO, of the company.

Zensar sees significant opportunities in Japan, to the tune of $150-200 million, where most mainframe programmers would be retiring by 2007-08. In order to capitalise on these opportunities, Zensar already has partnerships with companies such as NEC and Fujitsu.

But Natarajan admits that the opportunity in Japan is limited by how fast Zensar can ramp up.

A future option

Infosys Technologies' chief operating officer and deputy managing director, S. Gopalakrishnan, says the IT major has a group that looks at frameworks and tools currently used for existing various projects.

"We do license them but we don't expect any revenues from them at present as we are doing it free of charge," says Gopalakrishnan, adding the company may look at various options to monetise them in the future. "We need to figure out what the best way to monetise them is," he adds.

Currently, Infosys allows its customers to use the frameworks and tools but does not charge them. There are multiple technologies the company has developed and it is using them for internal purposes. "We have developed requirement modelling tools, among others," he says. Infosys had spun off Yantra, a warehouse management application, in 1995, which was sold to Sterling recently. "We had developed OnMobile, which was spun off again in 1999, which is still a private company. We still own some shares in OnMobile," he says.

Working on frameworks

The Nasdaq-listed Cognizant Technology Solutions is also working on frameworks to create new client relationships. R. Ramkumar, Director, Corporate Communications and Marketing, Cognizant says, "We have developed a yard management framework and deployed it at Ford. Ford evaluated multiple products in the marketplace and realised that for port management, warehouse management and yard management, this particular framework fit them very well.

There is a huge demand for waste management in the US. We have our own solution called Waste Trace. How do you dispose hazardous waste? It is a huge opportunity in the marketplace. Disposal of hazardous waste may be extremely useful for a chemical, paint or pharma company and maybe even for electronic goods such as mobiles and laptops. Unless this domain capability is seeded within the multiple verticals in the organisation, it is going to be difficult.

We have also been demonstrating our capability in RFID at Nasscom, last year and this year too. Everybody thought it was applicable largely in the retail and logistics sector. But it is fast catching up in the pharma sector. Once you build a capability in a particular domain, it can be extended to other domains, where it finds relevance and works with the consulting team to carry this forward."

Challenges

Monetising tools and frameworks, however, demands management attention and requires tweaking of the business model

Infosys did monetise some of the tools and frameworks it developed years ago. For example, Finacle is a channel in itself, which has an independent sales and revenue model. "In the tools and methodologies space we have not done that. We are not saying that we will never do that but we don't have any immediate plans," says Gopalakrishnan.

Infosys has generated many tools, but has not yet analysed the potential of monetising them.

The IP content is key here and the company is proactively developing both horizontal and vertical solutions as part of delivering value to clients, he says. It is a natural evolution of the services company.

"As we attend to problems facing multiple clients in the industry, we are able to come up with solutions because of our broad view of the industry. We are also of the view that these solutions could be implemented in the country.

"The question is how do we, and where do we take it. The model that we will follow is not yet clear," says Gopalakrishnan.

Infosys is in the process of applying for 90 IPs (intellectual property), which is one clear measure. It has been working on joint R&D with clients. In most cases, "these become products of our clients. In most cases we work with product companies. We are developing joint products and they commercialise it. In some instances, it is paid R&D and some times it is on royalty basis or shared revenues basis," he says.

Infosys derives about 4 per cent of its revenues from the products business.

Revenue from IP

Gaining an innovation edge is fundamentally on top of every software company's agenda.

As Frances Karamouzis, Research Director, Strategic sourcing, IT Services, Gartner, points out, "They (Indian companies) need to invest in reusable frameworks if they have to ensure that their fundamental underlying business model is not linked to revenue per labour hour. Most of these companies have 50,000 employees and they are $2 to $3 billion now. For them to be $10 billion, they are not going to scale it to 3,00,000 employees.

You have got to be able to sell IP so that you get revenues but not by increasing the workforce. If you think about it, Indian companies are in the best position to identify technology trends.

They may not have the domain experts now, but why not harness technologists to identify that next new innovation and build a business model to generate revenue from IP?

Something, we guess, the entire industry will have to ponder long and hard in the coming years.

vishwa@thehindu.co.in

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