‘Indian firms are yet to make market-changing investments'

Interacting with Mr Sunny Banerjea, Head of Performance and Technology, KPMG, throws up strategic insights on trends prevalent in the IT industry. Here, he tends to focus more on the macro areas where Indian software companies need to improve.

Excerpts from the interview :

Clients are engaging in vendor rationalisation. We find that Indian vendors (even the likes of Infosys and TCS) invariably win the lower-billed applications services portion of deals, while the meatier enterprise solutions and consulting parts are bagged by global majors (such as Accenture, IBM). Why is this so?

There are couple of issues here. The client perception of Indian firms is changing slowly, but they continue to be boxed as being good at the low-end high-volumes transaction space.

While they have, in some cases, built solutions that do address strong business issues, IBM and Accenture have been at it for a longer period and continue to do well in creating spaces. For example, Business Analytics and Optimisation is an investment that IBM made with deep-thought leadership.

Through strategic acquisitions and investment in solutions, they were able to communicate the value ahead of peers and, in some cases, even before their clients started thinking about it. Such market changing investments are not yet made by Indian firms with the frequency necessary to change client perception; this is an expensive route.

Greater business-led innovation and advisory thinking can happen by bringing in individuals who have successfully built such businesses — if Indian firms are serious about building these businesses, they have to ring-fence them for a reasonable period and allow them to grow, without immediately exposing them to quarterly pressures of revenue generation. Sticking with this strategy over a period will allow them to make progress.

Even though IT spends have revived from global clients, why are we not seeing large deals being announced ?

IT consulting firms have to become creative and build capabilities whereby they can take on more of the internal IT of their clients; firms can proactively go to clients with solutions that will deliver value.

For example, they can design and offer end-to-end digitised process management services, private and public cloud offerings around areas which address non-competitive spaces. These could include areas such as cheque processing, payments processing for banks, creating a risk data repository designed to address regulatory requirements with country-specific nuances and deep logistics ecosystems. This will not only spur growth but will also improve client loyalty. Alliances should also become a key component of consulting firms as they look to create solutions without “owning” all the capabilities.

Among verticals, BFSI has seen increased IT spends. Within BFSI, which are the segments where there is more demand for IT services ?

Clients in the BFSI segment will have to invest in understanding and serving their customers better and differentiate themselves in an otherwise commoditised market place, where investments will have to be made in the areas of data, analytics and channels. Risk will continue to be an area that will demand investment due to regulatory changes and pressures.

To allow BFSI clients to get closer to younger customers, social networking and pervasive computing provide the right medium.

Processes in Indian banks still have a long way to go in terms of digitisation, seamless hands-off approach across the enterprise, strong controls and ability to build intelligent workflow tracking mechanisms; this is an area that will see new investments too.

Over the last couple of years, M&A activity such as Oracle-Sun, Dell-Perot Systems has picked up. Is this an indication that large global players are trying to become a ‘one-stop-shop' for clients?

Specialisation in niche areas as well as integrated solutions, both work. These acquisitions were done more to address gaps in individual offerings rather than any specific demand or push from customers. Oracle was missing a hardware platform and acquired Sun, so that it could compete with the big players.

IBM had sort of become an aspirational model for everybody with its hardware, software and consulting offerings. HP acquired EDS so that it could take on IBM on the software turf. However, it does not give HP the capability in higher-end services and consulting for which it is hiring aggressively from the Big-Four.

In a vendor rationalisation scenario, will smaller IT companies find it difficult to compete and win deals? With limited segments of operation and lower scale, how do you see them coping?

There is no doubt that over the next couple of years, we are going to see a significant number of M&As among the smaller IT companies in India. With cost as the only differentiator, they would find it extremely challenging to compete with the larger players and win deals. So entrepreneurs of these companies need to consider options that are attractive in terms of valuations.

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