After visiting India more than 30 times, it's easy to know what's right and wrong with the country and its people. And unlike some of his peers, he does take time out to explore the country on every visit. Jan Erik Aase, who was a buyer of technology services in his early career with American Express and Ameriprise, is now an analyst with Forrester Research and advises clients on sourcing technology. It's obvious that India is doing something right since the world looks here for technology services. But prod him asking what Indians don't do right and he says, smiling, “Sometimes, Indian vendors claim the equivalent of putting a man on the moon. Impressed, you sit down to talk with them and finally you know that the vendor has merely ‘designed the pillow' that the astronaut slept on!” Read on to hear the good things he has to say, too:

Given the nature of the average Indian's claims, what do you advise your clients?

When I was a client, I used to believe what I was told. Then, I learnt to be more specific and ask questions. I have been advising Indian vendors for some time now — suggesting that they be more forthright. Everyone is always at the top or the Number One or the first. Rather than always trying to compete that way, I ask them “Why don't you talk straight and show real evidence of how you made a difference in delivery or on the cost front — or as to whatever your role was. If it was to merely execute a client request at a high level, let's talk of that. If you gave the client the whole idea and then convinced them on the RoI and then executed it, you need to talk about it, as well.

What lies ahead for Indian vendors?

This year, 2011, and 2012 are going to be pivotal for the Indian IT market — you might see more vendors wither and die — they either don't differentiate themselves or have over-extended themselves from a financial standpoint or they simply do not understand what the customer needs.

Rather surprising, not understanding customer needs..., given the duration of such relationships?

Customers do feel that a number of vendors are happy to be fat and lazy. They put a lot of effort upfront for the business. That's bread and butter work — maintenance, small enhancements, etc. That doesn't take a lot of leadership; it only needs someone to listen and some good execution. Maintaining the contract requires no great effort.

Clients are now saying, “I need something innovative — you don't seem to offer that and I will give that work away to another vendor.” I have seen that happen in my time, in Amex and later — I felt I was giving a clear indication that I wanted something more and nothing happened. When I actually told the vendor that I am giving the work away, they were shocked. They ask if they didn't do a good job? I tell them that they did an adequate job but that I wanted more. “I tried telling you that but you didn't have the motivation to bring more to the table.”

This affects vendors when they spread wide and not deep enough. With no depth or the ability to innovate, they fail to get consulting or re-engineering opportunities. Or, they have no funding to get those skills.

Especially mid-tier companies could be in trouble here. They need to drop verticals that they service. Instead of 12, let me focus on five verticals, should be their aim. It is in their own interest as well as that of the client.

They may have an unfortunate story to tell some clients: “We will keep your business but we are making no new investments.”

Anyone can dream of becoming an Infosys or a Cognizant, in crossing 1,00,000 employees. But not everyone can do so. Vendors need to realise that and need to scale back. They may be staring at a crisis before long.

Even vendors who invest cannot spread themselves too thin, then they won't have the depth that clients need.

I am actually bringing out a report on 25 mid-tier vendor companies. In many instances, these companies haven't grown as much as they might have wanted to. But in some cases, there has been de-growth. Clients need to watch out for that, too.

We are advising our IT buying clients. Not that they would stop doing business with such vendors, but to be cautious when expanding outsourcing.

The Silverline-Seranova combine is a case in point. After the acquisition, there came a stage where salary payments were difficult for them and employees were leaving. When I was an IT buyer, we were running a few serious projects with them. We scrambled a bit before Cognizant came into the picture. What we learned is that it was important to be more involved with the vendor company's management and find out what they intended to do, to find out how they were financially, and finally to find out how they hoped to support us. Senior management responsibility is a must.

Today we advise clients to actively know what the roadmap is with vendors and keep audits and take a look at it. And in doing audits, you cannot do one just for the sake of doing it. You have to do a thorough job of it; use your own people who do it for you on a regular basis when you are considering an acquisition and the like. The key is to check if the vendor is over-leveraged in one area or another. That is the extent to which we should go.

Could the Satyam scam have been avoided with this kind of client scrutiny?

People say they had indicated suspect ratios. Clients should have at least positioned people to ask them questions.

And by ratios I mean the amount of money poured into real-estate, into new hiring, etc. All this didn't match with their actual client work and deals sold. Mahindra Satyam later had to drop a number of employees. It is astonishing that you have some 9,000 people on the bench who have never been on a client assignment for 9-12 months! That should have been tracked and alarm bells sounded.

So, clients should engage with the senior management of the vendor company. It's easier to do it when the vendor is a small player. Do due diligence of the vendor's accounts as if you were acquiring it, at least once a year. Clients should be watching these mid-tier vendors to see which ones are recovering and which are too far gone.

What's your view on the iGATE-Patni combination?

Patni has very good skills on the ground while iGATE has a dynamic and ambitious leadership.

But it's not slam dunk already. They have work to do — they have to get their go-to-market strategy right. They need to reassure clients that they have the right direction and clients' interests in mind. They also have to do it in a way that employees of both companies are confident this is the entity they want to be with.

Clients need to evaluate where the new management is taking the company. When FIS bought eFunds a couple of years ago, the transaction processing side was not important to them, but the credit side was important. All of the clients from the former section were going to go away, because the acquirer was clear about what he wanted.

Between iGATE and Patni, they have, too many verticals. They need to decide which ones they want to retain. Obviously, they should retain the ones they have in common. GE is a big client for both, so that's a natural pick on the financial services side.

But overlapping clients alone can't be the thumb-rule. For example, iGATE is good in mortgage processing.

They should evaluate from the point of view of not only where revenues come from but also where the potential is – the market opportunity they want to stick with.

When you cut down verticals, it helps redirect funds that can be useful elsewhere. If they do move away from a vertical, clients in that vertical then say “let's do an orderly transition”. This makes everyone happy.

In the recent results announcements, the Top Four Indian IT companies talked confidently about their own clients but were still cautious in guiding for growth. What is this uncertainty about?

My pick is that they want to grow organically, invest in their client base and grow each of their relationships better. The risk is that their clients do not want to over-expose themselves with one vendor, whose interest is to have as much of client work as possible. That is the dichotomy,

Expansion of the vendor base would come when clients feel that vendor has not kept current with his offering. You are so busy trying to do everything for everyone, you are not getting as deep as I want you to be with my work — yes, that happens even with a top five vendor.

As a client, no matter what I ask you to do, you can do, but if I ask you to be my chief architect and write a new roadmap for my organisation with most services on the cloud and then monetise our offerings, you say that is too deep and too specific for you. Then you go out and I bring in someone else.

Aren't consulting arms of Indian companies doing this? That is, telling clients what they need to do?

They haven't gone far enough. Even in consulting, they are telling clients what is out there and about the possibilities but still wait for clients to tell them what to do.

The difficulty comes when you have to consult, give rock-solid advice and then stay on to execute it. With the big consulting firms, they gave you solid advice because they could walk out before execution is over.

It is more difficult to give solid recommendation and execute to prove that the recommendation is right. But that's what a client needs today.

What's your take on each of the Top Four Indian vendors?

TCS has strength in numbers and synergy with other entities of the group — it's almost like they can't go wrong. Where they miss opportunities is when they are too slow to respond to client needs. They are good with keep the lights on and work — the client can't go wrong if he gives work to TCS. But can he depend on them to give him the next level of industry maturity. Basics are where TCS has the advantage.

With Wipro, the owners can't continue to believe that clients still feel comfortable if they make management changes like the ones they just made. Clients have different opinions. They wonder if it were a well-thought out and a long-term approach rather than a knee-jerk reaction. That's what I hear from clients — why did this happen? Not portraying like this would add value, etc, that's going to hurt them. They have been struggling for quite some time to portray they have a strong vision and where they want to take their company.

You can't deny that they have very impressive numbers — on client numbers and volume, etc. Their consulting practice, for instance, is a force to reckon with. If the execution arm of the company is not as good, then something's not going to click.

In the case of the iGATE-Patni deal, even before the announcement, some analysts were saying that clients would walk away. Some felt they wouldn't...?

Transition from one vendor to another is the hardest thing to do, especially when the original vendor is doing a good job. It takes years of understanding by the vendor to know exactly what the client wants.

In Wipro's case, there is danger of losing clients only if the new management is unable to communicate to employees and the latter lose confidence and hence choose to leave the company.

Wipro is a very good company, it has been good to employees — you are not just going to walk away from that — you are going to give them a chance. Experienced people, even if things go south, they have a lot of choices. No shortage of opportunities. Look at announcements. Cognizant, in the last year, added the same number of people from inception to year no 12. Likewise others, they are not unique.

You had mentioned that balance sheets of companies, especially the smaller ones, are not as strong as they were earlier. Even during the slowdown, Indian companies were hesitant to lay off people, and when they did, were hesitant to make it public. Maybe it's a cultural thing. Do you think they ought to have done better?

A lot of small vendor companies looked internally and checked what they could do to cut costs, raise utilisation rates, look at normal expenses...Nothing was shocking enough, when you didn't have enough work to do. It was a good time to check manpower costs. Everyone said that cost cutting helped them – this came from cleaning up internally.

Stopping new recruitment is good. But if you were way out of whack, you needed to lay people off. If some had said that open, it would have improved their credibility.

In the US, it's different, even at a divisional level.

Obvious area of opportunity here is in real-estate. Time was when clients were saying that they came to India and saw big campuses and said it was fantastic — beautiful campuses and beautiful buildings. Now, they are tired of going to India and seeing this. Their point is, “It's my money, my staff does not get that kind of treatment. Why are they investing, why aren't they leasing?”

Would that apply even when we have emerged from a downturn?

You don't want to wait till the next crisis and find oodles of space that you don't know what to do with? Now is opportunity for vendors to rethink on what they thought they were entitled to and look at what exactly you need. I am not talking about extremes — such as a company here in India that said that employees had to bring their own toilet paper. It's like the airlines taking peanuts away. That's petty.

But do they need swimming pools, day-care? Nice things, but are they necessary?

Canadian deal — with Citi. Own the product, all the development and maintenance but the client will continue to own sales of the product. That will happen more and more. Indian vendors could be caretakers of their proprietary products. Clients would be partners who would sell them.

That would change capex, which means more investments for the Indian vendors.

That would answer the question: for Indian vendors, what are you doing with so much cash? You could leverage cash like that. Good track records of returns to their companies. A lot of what clients are saying is that they don't have the money to put into this. What better partner than ones already doing it?

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