Do You Still Call Them IT Services?
Enterprise IT services have traditionally been classified by companies and analysts into a few by-now well-accepted segments, slightly different nomenclature sometimes notwithstanding. They are: Application development and maintenance; infrastructure services/managed services; package implementation and systems integration; and IT consulting. While, in practice, there are quite a few people involved in taking decisions on outsourcing in each of these areas, they are a part of what is called the enterprise IT function, with the CIO being the final decision maker.
Now, we have a problem here. As we dissect the revenues of big offshore IT service providers, and classify their revenues under the above-mentioned categories, a significant chunk of their revenue — anywhere between 8 percent to 20 percent — is left uncovered. Very often, we leave them under “others.”
But what are these others?
For many such providers, they include things such as engineering services (the design work that they do for an aerospace firm or an automobile firm); product engineering (the creation and development of modules or full suites of software products for ISVs — Independent Software Vendors); a large chunk of embedded software (the software that they write for makers of semiconductors and electronic devices); BPO (any kind of back-end work that they do for any kind of companies, be it processing of insurance claims or collecting receivables); and consulting (advising companies on how to more efficiently run their business, assuming that it is only process consulting and not strategy consulting).
Now, these have nothing in common. Developing a piece of software for an ISV that will combine it with a telecom billing solution has no commonality whatsoever with creating a building design for a construction company. But companies like India’s TCS or Satyam effectively do both; their customers are satisfied as denoted by their growing revenue in these areas.
While the way they have managed to build these skills in such diverse areas as construction and aerospace is definitely commendable. But what is absolutely surprising is the way they have managed to sell the idea that they can actually do these things, to a set of global execs who are business managers, responsible for their companies’ core functions. Unlike the CIO, many of them are profit-center heads. Take the VP Engineering of a product company. For him to outsource part of his work, to a company whose salesman may not know a thing about his business during their first meeting, is a very daring thing to do. The fact that many of them have done that means there is something that they have seen.
This is an Indian phenomenon. Nowhere do IT companies compete for these kinds of work. Many of the SBU heads in Indian IT firms who are responsible for these service lines, when asked about their competitors in these areas, often take names of companies that are completely unfamiliar to those of us who follow the IT industry. Many of these firms are even buying out such specialized-services companies to build expertise in those areas.
It is not a small phenomenon. Ask the CEOs in any of these IT companies about their future high growth areas. Most of them would name multiple areas that will fall under that mysterious “others” category if we go by traditional categorization.
Will there be a day when these “others” revenue will be more than those from traditional areas? It does not seem too unrealistic, looking at the growth. Can we, then, still call this
IT services?
the demand for embedded software these days are getting higher and higher.”",