About IT Industry

7/30/2019 About IT Industry

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www.pwc.com/india

Changing landscape andemerging trendsIndian IT/ITeS Industry


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ContentsContents


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Industry Landscape 06

Emerging Trends 14

Cloud computing 15

Platform BPO 27

Indias Software Products industry 34

Tier 2 IT/ITeS destinations moving to mainstream 38

Increasing focus on People an integral asset to theIndian IT/ITeS industry

51

The Road ahead 55


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Wishing you a very happy and prosperous new year 2011.

The Indian information technology (IT) / IT enabled Services (ITeS) industry has playeda key role in putting India on the global map. Over the past decade, the Indian IT-BPOsector has become the countrys premier growth engine, crossing signi cant milestonesin terms of revenue growth, employment generation and value creation, in addition tobecoming the global brand ambassador for India.

The Indian IT-BPO sector including the domestic and exports segments continue to gain

strength, experiencing high levels of activity both onshore as well as offshore. Thecompanies continue to move up the value-chain to offer higher end research andanalytics services to their clients.

The Indian IT-BPO industry has grown by 6.1 percent in 2010, and is expected to growby 19 percent in 2011 as companies coming out of recession harness the need forinformation technology to create competitive advantage.

Indias fundamental advantagesabundant talent and costare sustainable over thelong term. With a young demographic pro le and over 3.5 million graduates andpostgraduates that are added annually to the talent base, no other country offers asimilar mix and scale of human resources.

Realising the wealth of potential in the IT-ITeS sector, the central and state governmentsare also working towards creating a sound infrastructure for the IT-ITeS sector. CII aimsto make the Indian IT and ITeS industry world class by continuously providing aplatform for understanding and adoption of the new developments & best practices worldwide in this sector, taking up issues and concerns of the Indian industry with therelevant ministries at National and State level, coming up with studies, reports andsurveys to help understand the potential of Indian IT and ITeS market and theissues faced.

Our rst report generated a huge appreciation. The CII - PwC report Indian IT/ITeSIndustry - Changing landscape and Emerging trends, keeping in view the strengths andpotential of the Indian IT / ITeS industry, strives to enhance these aspects so as totransform the Indian IT identity to an iconic status.

CII believes that this report would help turn the goals envisaged by the Industry intorealities, and result in directing the worlds focus on India as the hub of IT.

We thank all the participants associated with this survey for their immense support and vital inputs. We hope that you nd this report enriching and meaningful.

Partap K AggarwalChairmanCII NR Committee onICT & Emerging Technologies& Managing Director,IDS Infotech Ltd

Sanjay K GuptaCoChairman,CII NR Committee onICT & Emerging Technologies& Global Delivery Head,

Birlasoft (I) Ltd

Foreword


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We wish you all a very happy and prosperous 2011!!

After the stupendous success of our rst report on the Indian IT/ITeS industry withConfederation of Indian Industry (CII) titled Indian IT/ITeS industry Evolvingbusiness models for sustained growth, we are happy to bring out our second report onthe industry.

As one of the key growth engines of the economy, the Indian IT/ITeS industry has beencontributing notably to the economic growth accounting for around 5.6% of the

countrys GDP and providing direct employment to about 2.3 million people and indirectemployment to many more.

The sector witnessed an interesting 2010 which saw the industry move beyond theeconomic slowdown and shift its focus on building revenues, creating innovative servicemodels, broadening geographical reach and optimising cost. Amidst the growth story,however, the falling margins and subdued growth of many small and mid-tiercompanies served as a wakeup call for that segment. Going forward, we expect to see aconsolidation wave in the years to come, where small and medium players would mergeto compete for large scale deals and keep up with the changing industry dynamics.

Emerging trends in service delivery like Cloud Computing and Platform BPO are likely to remodel the industry by creating new business opportunities for the IT/ITeS vendorsand driving changes in the traditional service offerings. Today, margin pressures arepushing companies to proactively look for ways to contain costs while enhancing output.For long, Tier-2 cities have played around the fringes of mainstream IT/ITeS delivery.Today, we are seeing more and more companies moving into Tier-2 cities to set updelivery centres.

The report is a result of our global thought leadership, real world survey of leadingindustry practitioners, research and interviews with the facilitators of the industry likethe Software Technology Parks of India (STPI) and IT-parks. Through a judicious mix of secondary and primary research, we aim to bring out a holistic perspective on thechanging industry dynamics and the emerging trends. We express our sincere gratitude to CII for selecting us as the Knowledge Partner for theconference and supporting us in the completion of the survey. We would also like tothank all the executives who participated in the survey for providing their valuableinsights and views.

Jairaj PurandareExecutive DirectorLeader Markets & IndustriesPricewaterhouseCoopers

Hari RajagopalachariExecutive DirectorLeader Technology sectorPricewaterhouseCoopers

Foreword


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6 PwC

Industry Landscape


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Changing Landscape and emerging trends 7

With a compounded annual growth rate(CAGR) of over 24% in the last decade, theIndian IT/ITeS industry has emerged as akey growth engine for the economy,contributing around 5.6% to the countrysGross Domestic Product (GDP) in FY 2010and also providing direct employment toabout 2.3 million people (from just abouthalf a million in 2001). It remains one of the biggest sectors for wealth generationin the country. As per the industry body,NASSCOM, the sector is estimated toprovide direct employment to 10 millionand indirect employment to 20 million

by 2020.

Size of the Industry The Industry is categorized into four broadsegments

1 IT services2 Software products and engineering

services

3 IT enabled services (ITeS - BPO)4 Hardware

These segments generated combinedrevenues of $73.1 billion in 2009-10 1 from $69.4 billion in 2008-09 - a growthof 5.3%.

The revenue from IT services constitutesabout 50% of the total industry revenues.It has grown at a CAGR of 21.8% from$13.5 billion in 2004-05 to $36.2 billion in2009-10 (refer gure 1).

The total ITeS revenues reached $14.7billion in 2009-10 from $5.2 billion in2004-05, with a CAGR of 23% (refer gure1). While IT services continue to be thelargest contributor, the ITeS segment hasgrown faster over the last ve years.

1 Revenue gures for 2009-10 mentioned in this section are estimates

Figure 2: Revenue share by main components

17%

20%

50%

13%

IT Services

ITeS - BPO

Hardware

Software Products andEngineering services

Source: Nasscom

Figure 1: Revenue contribution by main components (in $ billion)

2009-10

2008-09

2007-08

2006-07

2005-06

2004-05

36.2 14.7 12.8 9.4

34.1 13.6 12.3 9.4

30.1 11.5 10.5 10.8

22.6 8.7 8.2 8.5

17.8 7.2 5.3 7.1

13.5 5.23.85.7

20 40 60 800

5 year CAGR 21.8% 23.1% 27.5% 10.5%

Total$73.1bn

$69.4bn

$62.9bn

$48.0bn

$37.4bn

$28.2bn

IT Services

ITeS - BPO

Hardware


About 85% of the ITeS-BPO revenuescome from exports, thereby making itmore export bound than the IT services segment (about 75% of IT servicesrevenue come from exports).


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8 PwC

Export and Domestic MarketThe export revenues touched $50.1 billionin 2009-10, accounting for over 68% of thetotal Indian IT/ITeS Industry revenues.The export revenues have grown at aCAGR of 22.4% in the last ve years(refer gure 3).

India has become one of the fastestgrowing IT markets in Asia Paci c, owingto its increased IT spending in the last few years. The domestic IT/ITeS marketrevenues are at $23 billion for the year

2009-10 compared to $21.9 billion in2008-09 (refer gure 4). Over the last ve years, the domestic market has grownfrom $10 billion in 2004-05 at a CAGR of 18.1%.

Figure 3: Component-wise contribution Export revenues (in $ billion)

2004-05 05-06 06-07 07-08 08-09 09-10

60

50

40

30

20

10

0

27.3

12.4

10.0

0.40.4

0.5

0.5

0.6

0.53.14.6

10.0

4.0

6.3

13.3 17.1

7.6

6.6

22.2

9.9

8.3

9.6

11.7

25.8

Source: Nasscom

The IT services segment has been themajor contributor (54%) to the exportrevenues (refer gure 5). The exportrevenues from IT services have grownfrom about $10 billion in 2004-05 to $27.3billion in 2009-10 at a CAGR of 22.2%(refer gure 3). Over the years, the ITeS/BPO segment hasbeen the second largest segment in theIndian IT/ ITeS sector and in growth, thesecond fastest. The growth of the segmentfor the next ve years is expected to be

driven by a shift in the service mixtowards higher value services like businessanalytics, knowledge process outsourcing(KPO) including legal services, etc.

Figure 4: Component-wise contribution Domestic revenues (in $ billion)

Source: Nasscom

3.5

2004-05 05-06 06-07 07-08 08-09 09-10

0.60.7

5.2

6.5

1.30.9

4.5 5.5

1.11.6

8.0

7.9

1.62.2

10.39.0

2.7

1.9

8.3 8.9

2.3

2.8

9.0

While the India (Domestic) revenueslag in CAGR, the growth has beenrelatively better in FY2009-10 i.e., postthe economic slowdown. Most of thelarge companies, prior to the slowdown,had not focused on the domestic market. However, after the slowdown, there hasbeen an increased focus on the domesticmarket, thus resulting in better growthin FY 09-10.

IT Services

ITeS - BPO

Hardware


IT Services

ITeS - BPO

Hardware


25

20

15

10

5

0


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Figure 5: Export revenue contribution 2009-10

25%

54%

20%

1%

While Hardware continues to leadthe domestic market, its share hasdropped considerably over the last few years ( from around 49% in 2005-06 to 39% in 2009-10). The IT services segment has gained themost with its share increasing from34% in 2005-06 to 39% now.

In the case of the domestic market,Hardware continues to account for thelargest share (39% in 2009-10) of the totalrevenues (refer gure 6). The high share of hardware spend points to the fact that theIndian users are still in the nascent stagesof IT adoption. However, Hardwarerevenues have either declined or remained

at over the last two years.

On the other hand, the IT services segmenthas grown by about 5% in 2008-09 and7.2% in 2009-10. The growth in thissegment is driven by an increased demand

in the system integration (SI) and customapplication development (CAD) space.

The ITeS-BPO revenues grew by 21% in2009-10, slightly higher compared to about19% in 2008-09.

The growth in the IT services andSoftware product segments in thedomestic market is led by increased ITadoption in some of the key domesticsectors like Telecom, Manufacturing andBFSI. Emerging segments like Media,Retail and Healthcare are expected todrive additional growth in the next ve years.

IT Services

ITeS - BPO

Hardware


39%39%

12% 10%

Figure 6: Domestic revenue contribution 2009-10

IT Services

ITeS - BPO

Hardware



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41%

20%

16%

9%

2%

2%3%

3%4% BFSI

Telecom

Manufacturing

RetailMedia

Construction & UtilitiesHealthcare

Airlines and Transportation

Other

Figure 7: Export contribution by key verticals 2009-10

41%

14%

BFSI

Telecom

Manufacturing

Retail

Other

6%

20%

19%

Figure 8: Domestic contribution by key verticals 2009-10

Source: Nasscom

Key verticalsIn terms of verticals contributing to ITconsumption, the Banking, FinancialServices and Insurance (BFSI) verticalcontinues to be the dominant ITconsuming vertical. It contributes to over40% of Indias total IT/ITeS exports(refer gure 7).

The Telecom vertical is the second largestconsumer of IT, after the FinancialServices vertical, contributing to about20% of Indias IT/ITeS exports in the year2009-10.

With a contribution of about 16% toIndian exports, the Manufacturing

vertical becomes the third largest ITconsuming vertical. Together the topthree sectors account for around 76% of the total exports.

Mirroring the export market, the BFSI vertical has been a dominant contributorto the domestic market as well with a shareof 41% followed by the Hi-Tech/Telecomand Manufacturing verticals with a shareof 20% and 19% respectively (refer gure8). Together the big 3 sectors (BFSI,Hi-Tech/Telecom and Manufacturing)account for around 80% of total IT spend

in the Indian market.


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Indian companies have been talkingof de-risking themselves fromover-dependence on a few markets(USA & UK) but not much changedover the last three years.

Key markets In terms of markets, US still accounts for alions share of the business generatingmore than 61% of Indias export revenues(refer gure 9). UK has been the secondlargest IT/ITeS market with around 18%,followed by Continental Europe, whichaccounts for 12% of Indias exportrevenues. However, with the focus ongeographic diversi cation, Indiancompanies are also extending their reachto other markets like Asia Paci c,

Figure 9: Geography-wise export revenue split 2009-10

18%

US

UK

Continental Europe

Asia Pacifc

Rest of the world61%

12%

7%2%

Source: Crisil

18%

Australia, Middle East, etc. apart from theUS and European markets.

With the US and UK continuing to be ourIndias top export destinations, we see thatthe focus of the Indian IT/ITeS industry todiversify geographic risk may need to pick up steam soon if the industry is toinsulate itself from business turbulence inthese markets.


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Return of the good timesThe year 2010 has been a comeback yearfor the Indian IT/ITeS sector with thedemand picking up after the globaleconomic meltdown. The sector haddemonstrated remarkable resilienceduring the downturn.

The sector, which witnessed around 75000to 1 lakh job cuts and a drop in salary increments from about 14-18% levels to6-10% during the slowdown, saw aturnaround in 2010 with the industry providing a positive outlook on the hiring

scenario as well as on remuneration.

Most of the large IT companies have shownhealthy project pipelines, in addition to asigni cant growth in revenues this year,indicating a strong recovery. There is also

a strong focus on both market and businessline expansion. However, the small andmedium companies faced a tough year with sluggish growth, in sharp contrast totheir bigger counterparts. In our last yearsreport Indian IT/ITeS industry Evolvingbusiness models for sustained growth, we had a dedicated section on the smalland medium IT/ITeS providers bringingout the critical focus areas for them tobe winners.

As per Nasscom, the Indian IT industry hasadded close to 90,000 jobs during FY10,

taking the total workforce to 2.3 millionprofessionals. The industry also saw anaverage salary hike of 10-14% and anincreased number of promotions this year.


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PwC-CII survey results showthat about 46% of the IT/ITeScompanies surveyed are planning to grow inorganically i.e., mergers / acquisitions.

Despite the positive vibes around theindustry, there are trends emerging (referto the inserts on Large tier versus Mid tiercompanies) which indicate that the smalland medium players could face slowertop-line growth compared to larger playersand a drop in pro t margins. We expect aphase of consolidation in the coming years where small players would merge orcollaborate to be able to compete for largedeals. The iGate-Patni merger is likely tobe the harbinger of many more such deals.With clients looking at consolidatingsuppliers, the size and scale of the

company plays an important role whilecompeting for large deals.

The year 2011 should also witnesscompanies starting to focus on many emerging trends and discontinuities which will shape the future of the industry in the years to come. This is imperative if theindustry is to maintain its growth andpro t performance and achieveNASSCOMs estimated revenues of US$225 billion by 2020.

We have brie y described a few of thosetrends like Cloud Computing, PlatformBPO, Emergence of Tier 2 cities as IT/ITeSdestinations, growth of Indian software

products industry, etc. in the next chapter.


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Large tier 2 versus Mid tier 3 companies

As per the recent earnings, many of the large tier companies showed growth similar tothe growth witnessed by them prior to the slowdown. However, in the case of mid tiercompanies, it is a mixed bag. The smaller companies were impacted more by the slowerEuro zone recovery, currency uctuations, employee attrition and rising employee costs.

Figure 10: Challenges faced by mid-tier companies in the current market scenario

As per the PwC-CII survey, increasingcost of operations is seen as the majorchallenge facing the mid-tier IT/ITeS service providers. High attrition andemployability (a term referring to the skills and educational readiness of fresh graduates) are the other challengesbeing faced by them.

2 Large Tier companies include Tata Consultancy Services, Wipro, Infosys, HCL, TechMahindra, Cognizant3 Mid Tier companies include Patni Computers, Mphasis, Mindtree, Sonata, Polaris, 3iInfotech, Hexaware, NIIT Technologies

Source: PwC-CII IT/ITeS survey

Expiry of Tax sops

Slow recovery indeveloped markets

Competition fromlow cost countries

Employability

High attrition

Increasing costof operations

40%

20%

16%

8%

8%

4%

10% 20% 30% 40% 50%0%


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The Tier 1 IT companies are expectedto return to their trend growth ratesexhibited until 2008, but the script is

likely to be quite different for theTier-II companies in the Indian IT industry. Those companies that canmaintain their pace of new clientacquisition at a reasonable cost pernew client will emerge on the right side of a wave of mergers,acquisitions and consolidations thatwe foresee.

The larger companies, except for Wipro,have shown considerable growth in HY 2010 4 when compared to HY 2009 (refertable 1). These growth rates are in close to

the growth rates achieved by thesecompanies during the FY 2008-09. Wiprosgrowth was slower than its large peersowing to operational inef ciency, forex volatility and wage hikes (as stated by thecompany). Cognizant has shown asigni cant growth of 42.5% in the HY 2010 vis--vis HY 2009.

4 The latest quarter (quarter ending December) results were not considered as some companies had not yet announced their results while the report was being drafted5 For Mphasis, the HY period considered is May to October

On the other hand, most mid-tier companies showed slow growth with the exception of NIIT Technologies, Polaris, Mphasis and Mindtree. In aggregate terms, large tier companies have grown at 20.8% for the half year periodending September 2010, whereas for the same time period, the mid tier companies havegrown at 11.4% (refer table 1).

TABLE 1: Revenue growth (in %) HY 2009 vs.HY 2010 i.e., April to September

Large tier 20.8 Mid tier 11.4

TCS 19.5 Patni Computers 5.3

Wipro 13.1 Mphasis 5 17.3

Infosys 18.9 Mindtree 18.3

HCL 18.5 Sonata Software 0.4

Tech Mahindra 18.3 Polaris 16.2

Cognizant 42.5 3i Infotech 4.4

Hexaware 2.0

NIIT Technologies 38.5

Source: Company reports


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Figure 11: Net pro t margins (HY 2009 vs. HY 2010)

Source: Company reports

25

20

15

10

5

0

1917

2121

17

5 56

1012

1110

15

11 1114

HY 2009

HY 2010

P a t n i

C o m p

u t e r s

M p h a

s i s

M i n d

t r e e

S o n a

t a P o

l a r i s

3 i I n f

o t e c h

H e x a w

a r e

N I I T T

e c h n

o l o g i e

s

During this period, though some mid-tier companies managed a revival in revenues,companies like Mindtree and Hexaware had to face a signi cant drop in their net pro tpercentages (refer gure 11).

Also, the mid tier companies face margin pressure due to currency uctuations anda slow recovery in verticals like telecom and manufacturing that they operate in.Given these challenges, the revival in terms of pro t is likely to be slow paced forthese companies.


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The aggregate client concentration(contribution of Top 10 clients torevenue) of large tier companies is

around 28%, where as for mid tiercompanies, the clientconcentration is about 52%

Mid- tier companies are also being impacted by high client concentration (overdependence on few clients), high cost of new client acquisition, increasing attrition andnon-availability of talent. Some of the mid-tier companies are showing 25-40% attrition.

With the larger players making a comeback in the recruitment eld by hiring in hugenumbers including freshers from campuses, the mid-cap IT companies are beingaffected. As the larger players get high priority in the campuses during recruitment, themid-cap rms are being denied access to top-quality talent.

The other challenge faced by these mid and small tier rms nowadays is that thestructure of demand has changed fundamentally. There are many vendor consolidationexercises and as well as a signi cantly higher number of integrated deals. Mid-cap ITservices vendors might be specialised with certain speci c services but are not welldiversi ed. So, in the case of a diversi ed deal, the larger IT companies have a distinctadvantage.

With the withdrawal of STPI bene ts, the mid-tier companies could see their tax-incidence go up as they have been slow to move much of their operations from STPIpremises to SEZs. This may further impact their pro tability.

Mid-tier companies can still remain competitive in the marketplace by carving out nichesto differentiate themselves from the rest. They should also focus on increasing themindshare among the clients by showcasing their domain and service expertise. Suchdifferentiated value propositions can serve as a stepping stone for this segment to achievefuture growth in the competitive marketplace.


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14 PwC

Emerging Trends


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Business case for moving to a cloud-oriented environment Todays IT environments are built on aseries of costly compromises that driveunintended consequences. IT

environments are con gured andover-provisioned for just-in-case traf cscenarios and then sit largely idle until theextreme case occurs, if ever. Hardware,too, is often planned and purchased tomeet long term operational goals such astransaction increases; although in theimmediate term the technology sitsunderutilised. Ironically, by the time theanticipated long term goal arrives, thehardware can be purchased for less.

Cloud enables IT to reduce its capitalfootprint A cloud-oriented environment avoids thesecompromises even as it enables high levelsof ef ciency, exibility, and responsiveness while ensuring a way to control IT costs. Atthe same time, a cloud environmentenables new business models andopportunities. For example, it can deliverlevels of customer self-service previously not possible or allow for the creation anddelivery of new automated on-demandrevenue producing services.

1x

2x

x

x

EconomicExpansion

EconomicContraction

Time

Businees Need

Cloud Enabled IT

Traditional IT

Cloud solutions scale nearthe rate of the business

Traditional IT must acquireandon-board assets and people to meetthe rapidly changing demand

Traditional IT has accumulatedassets which now must be divested

LostOpportunity

Lost Value

S i z e o

f I T

Speci cally, a cloud-oriented environmentenables the following: Ef ciency - through automation,

which becomes essential to handlethe scale of operations that can besupported.

Flexibility - through the ability tocon gure and provision systems andresources on demand, effectively scaling systems up or down as needed.

Control IT costs - by eliminating theneed to over-buy and over-provisionIT resources far ahead of demand,relying instead on an on-demandpay-for-use only when you use itmodel and virtualisation of sharedcomputing resources.

Scalability - enables organisations toscale resources up or down as needed.

Extensibility - through hybrid cloudsorganisations can extend the scalabil-ity of their private cloud temporarily through linkages to public cloudsbased on a pay-per-use model.

The above mentioned ef ciency, exibility,cost control, scalability - can alone save theenterprise enough and improve operation-al performance suf ciently to justify

Cloud Computing


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16 PwC

moving to a cloud-oriented environment.Then, on top of that, add the revenuecaptured through new business modelsand revenue opportunities, typically revolving around on-demand services, andthe business case for a cloud-orientedenvironment starts to look very attractive.The level of attractiveness would howeverdepend on the creativity and innovation of the organisation.

IT has a new mandate IT is being asked to shift its focus

from cost reduction (automation to

increase productivity through theelimination of manual labour andcontraction of elapsed time requiredto execute a process) to value delivery (creating a strategic advantage by increasing revenue)

This shift requires strategic alignment with the business

The business has learned to be agileby minimizing its capital footprint(leverage the assets of others)

How does IT meet the agility require-ment with its capital intensivefootprint?

So far IT is behind the curve... Business agility is threatened:

Of 1,150 global CEOs, 76% 6 say the ability to adapt will be a key source of strategic advantage.

Complexity is growing: CIOs see complexity as a threat

to the very survival of theirbusiness

Operation costs exceed hardwarecosts: CEOs view growth as a key focus

area Operational costs far exceed the

budgets for new hardware

resulting in serious challenges for ITtoday Signi cant cost pressure and budget

constraints; economic climate calls forcompanies to do more with less

Innovation and transformationcapabilities to enable and manage

new business demand, models andproducts/services

Ability to support a more globalecosystem and leverage globalcapabilities in- and outsourced

Ability to acquire new talents, developand retain the best resources

Increase IT credibility throughoutthe business

Build capabilities to respond quicklyto new business opportunities andchallenges, optimise businessprocesses and develop newapplications

Modernise and rationalise acomplex and inef cient technology environment

Implement a service-drivenoperation and a value-based delivery balancing demand and supply

Improve quality of services and

6 Source: PwCs 11th Annual Global CEO Survey


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80% 100%

Increased Client base

Easier maintenance

Figure 12: Reasons for adopting Cloud computing (amongst IT users)

0% 20% 40% 60%

17%

42%

50%

75%

75%

Increased Customer satisfaction

Access to latest technologies

Lower Total Cost of Ownership

Lower implementation time

Increased mobility / exibility

Source: PwC-CII IT/ITeS Survey

83%

92%

CII-PwC Survey results

Among IT users - increased exibility, lower implementationtime, easier maintenance and lowerTCO stand out as the primary reasons for adopting cloud.

67% of the users want to adopt Infrastructure as a Service (IaaS), followed by Software as a Service(SaaS) at 50% and Platform as aService (PaaS) at 33%.

Amongst the IT/ITeS service providers, the survey results showthat around 68% of the service providers are either providing cloud services already or plan to providein the next 12 months and the service model of cloud they are primarily offering or plan to offer isSaaS (53%). It is followed by PaaS(42%) and IaaS (34%).

exibility to internal and externalcustomers and partners

Improve visibility/data to managerisk, portfolios and demonstrate ITperformance and its contribution tothe business

Ability to support business security and recovery

So, what does cloud deliver? Ef cient use of infrastructure possible

through sharing of resources

Highest level of agility possible for IT Built on a collaborative model

enabling the sharing of logic, data,and processes

Costs are variable, driven by con-sumption

Shift spending from CapEx to OpEx Minimizes time to market


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18 PwC

As a result cloud delivers on top businessimperativesCloud computing enables the business

to work around IT departments whoare seen as part of the problem

With the help of cloud, companies willreduce IT operating costs and improveagility

Business needs Cloud delivers

CEOs want IT costreductions

Maximises return onassets

Move from xed to variable cost

Cost based onconsumption (ext.)

Improve agility Assets used where/ when needed

Reduce complexity Abstraction layers trapcomplexity

Adopt a globalcapability

Network focus enablesglobal footprint

Business continuity during disasters

Inherent redundancy

Platform forinnovation

Enables new businesssolutions

Time to market Near real-timeprovisioning

Organic emergence of Cloud Organisations are not moving to the cloudas part of a deliberate Big Bang migrationor strategic decision. Rather, virtualisationand other cloud technologies are beingadopted organically, from within, often toaddress the IT departments cost andcomplexity in an ad hoc way and easeimmediate pain points. However, by doingso without a strategy and roadmapsigni cant gaps and risks are emerging.

In fact, when organisations stop to tally the

number of cloud-oriented elementsalready deployed they may be quitesurprised. Our research suggests thatmany CIOs are unaware of how far down


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the cloud computing path some operationsstaff have taken their organisations without the bene t of strategy orarchitecture. What they need is acontrolled way to move purposefully toward the cloud -something like thesystematic pursuit of the ve levels of cloud components(Level 1: Basic Virtualisation,Level 2: Automated Provisioning,Level 3: Cloud / Application Alignment,Level 4: Automated Orchestration,Level 5: Strategic Agility) -rather than the piecemeal assembly of

various components, new and existing, which is mostly the case today.than thepiecemeal assembly of variouscomponents, new and existing, which ismostly the case today.

The result of this ad hoc, organic activity, while admirable in some ways, can provetroublesome as well. In it grows the rootsof yet another round of dysfunctional IT:silos of tightly coupled applications, dataand infrastructure; and a limited use of process automation, which translates intohigher costs, less ef ciency, and less agility for the business. In short, the three indirectconstraints facing IT are more importantthan evertime, cost, and distance but without a strategic cloud roadmap they will inevitably be negatively impacted.

With such an approach, a number of gapsare left, thereby creating more risks. Theseinclude: Inconsistent, confusing governance Incomplete, con icting standards Insuf cient, inconsistent policies Misalignment of enterprise strategy,

lines of business, and IT Lack of integration with existing IT

strategies and enterprise architecturalframeworks

Instead, companies need a way to movepurposefully toward the cloud; a way that would identify and address gaps as they appear while mitigating risk. The goal of such an approach is IT and businessef ciency and agility, not cloudcomputing per se.

So what might this more deliberateapproach to the cloud look like? We see itconsisting of four core architecturaltargets: Loose coupling between distinct

layers of the IT stack

Systematic transition of IT operationsfrom manual to automated

Modernisation of legacy systems Continuously refreshing all aspects of

IT as needed without worrying aboutinterdependencies between layers

The result would be a business value-driv-en, methodical approach for the adoptionof cloud computing technologies based onthe ve levels of cloud computing compo -nents. It would utilise a customisableframework and business focused, strategy-led approach similar to ITIL (InformationTechnology Infrastructure Library) andCOBIT (Control Objectives for Informationand related Technology) while reducingthe risk of adopting cloud technologies by identifying and prioritising likely solutionsbased on the business case. Through theframework it would ensure the solutionsintegrate with the business and technology environments, effectively preventingisolated implementations.


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Private, public, hybrid cloudsMainframe data center veterans dontunderstand the high levels of interest in virtualisation, software-as-a-service(SaaS) and infrastructure-as-a-service(IaaS), or cloud computing. As they see it,the mainframe data center was theoriginal internal cloud. It also was theoriginal virtualised computing platform.Certainly, the technologies involved today have evolved considerably, but these datacenter veterans are correct from a histori-cal perspective.

Today some might describe the enterprisedata center, the classic glass house, as aprivate cloud simply because it is a singleresource delivering IT as services over thenetwork to applications and to usersbehind the corporate rewall. Whatmainframe veterans may be forgetting,however, is the huge moving van thatshowed up every two or three years with abigger and better mainframe; this old styleprivate cloud actually introduced hugeamounts of unused capacity and a risky transition from one machine to the otherduring which applications would beunavailable for hours or days.

A better de nition of private clouds is theacquisition, provisioning, and manage-ment of data center resources in a hyperef cient and agile way. This approachemulates the best practices of public cloudservice providers such as Google, Micro-soft, and Amazon while adding neededsecurity and controls appropriate tospeci c enterprises.

Today organisations should approachcloud computing as an architectural optiondriven by the desire to extract the maxi-mum ef ciency and agility possible frominfrastructure. Such a proposition calls forthe delivery of computing resources ondemand, where and when needed. And, asnoted previously, cloud computingmaximises business agility while minimis-ing the time and distance dimensions, which reduces the indirect cost of IT while

aligning the technology footprint to theneeds of the business.

Cloud computing, private and public,produces a highly dynamic technology environment that can drive multiple valuepropositions. These include green IT,continuous application availability, andinstant environment scale-up/scale-downin a consumption based cost model.

Organisations, as noted above, tend toevolve their cloud computing capabilitiesorganically starting in the existing datacenter, implementing various componentson an ad hoc basis to address immediateneeds. Gradually, they need to develop and

execute an appropriate strategy thatdelivers their desired cloud computingoutcome, which will likely be some form of private cloud.

The public cloud exists today and many organisations already use it for SaaSsolutions or to augment their existing ITcapabilities through IaaS offerings. By extending the private cloud to accesspublic cloud resources, usually IT infra-structure resources, the organisationcreates a hybrid cloud, which combinesboth private and public cloud resources.Policy-driven automation can be used toinitiate requests through the hybrid cloudfor IT resources or data residing in thepublic cloud. In this way, organisations cre-ate an environment that can scale up ordown as needed on demand.

What disruptions will cloud bring in?

People Alignment of roles and responsibilities

to service delivery Staff training Reorganisation to adopt a service

focus Update of success metrics Knowledge management

Process Project planning Capacity planning and compute

resource procurement Application prioritisation

Cloud computing is adisruptive technology which will transformhow IT does business


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Cloud Computing Success Stories

GE

Global procurement hosting 500k suppliers and 100k users in six languages on SaaS platform from Aravo to manage $55B/year in spend

Bechtel Reduced infrastructure cost by 30%in part by achieving 70% serverutilisation

Washington DCGoogle Apps used by 38k employeesreducing costs to $50/user per year for email, calendaring, documents, spreadsheets, wikis, and instant

messaging

Eli Lilly Using Amazon web services candeploy a new server in 3 minutes versus 50 days and a 64-node Linux cluster in 5 minutes versus 100 days

NASDAQUsing Amazon storage to store 30-80GB per day of trading activity

Developing and managing servicelevels

Vendor evaluation and implementa-tion

Technology adoption (PoC, Pilot,Deploy)

End-user support

Technology Utility computing architecture Identity management Data security Data management Systems management startegy

Vendor evaluation andimplementation

Strategy De ning a Cloud enabled IT strategy Budgeting and project funding Standard and guidelines Reference architecture for SaaS, PaaS

and IaaS Enterprise architecture

Structure Government model De ning and implementing controls Identifying audit procedures What are the cloud entry points and Approach to Cloud Computing?

Cloud entry points today Migrate expensive, compliance issue

riddled desktop applications to lowercost web alternatives

Eliminate expensive, complexcollaboration platform management(email, instant messaging, calendar,etc.)

Deploy point enterprise solutions forSFA, CRM, document management,etc.

Use cheap storage to drive publicinternet capabilities

Augment internal grids with on-demand server capacity

Approach to Cloud Computing in vephases Phase 1 - Build Business Case: Link

the key initiative to the overall driversor objectives of the business. Gainsupport from senior business leadersand senior stakeholders. Set a baselinefor assessing the impact of theinvestigation. Estimate costs andresource requirements.

Phase 2 - Develop the Strategy : Align the investigation with thebusiness strategy, and show how it candeliver business value. Show how the

investigation might lead to changesthat will affect your businessenvironment. Work with key stakeholders to identify businessneeds.

Phase 3- Assess Readiness : Identify the budgetary, staf ng, technology and other requirements necessary toprepare the business for theinvestigation. Develop a total cost of ownership analysis framework.Review established policies forassessing risk and managinggovernance.

Phase 4 - Pilot or Prototype: Identify a group to pilot, or develop aprototype for the investigation.Develop and communicate detailedrequirements. Manage the pilot/prototype. Assess and communicatethe results.

Phase 5- Gain Approval : Analysendings of the readiness assessment

and pilot or prototype effort, andrevise the strategy and business caseaccordingly. Present ndings of theinvestigation to senior stakeholdersand business leaders.


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Risks associated with CloudComputing

Business risks...Governance without oversight, businessleaders will be able to create shadow ITcomponents or entire organisations. And within IT there are fewer barriers tocreating unapproved environments.

Competition enables start-ups to avoidmost of the hazards of building atechnology foundation accelerating therise from start-up to stalwart

Start-ups it is important to understandthe providers business model to ensurethey have a reasonable burn rate operatingat a pro t and not dependent oninvestment

Regulatory ensuring compliance withthe myriad of rules including SOX (Sarbanes-Oxley Act), HIPAA (HealthInsurance Portability and Accountability Act), PCI (Payment card industry) and

others while taking advantage of theeconomic model

Vendor alignment many vendors areresearching and developing cloud productsso companies may be caught unaware if a

key vendor changes their business modelfrom installed or dedicated hosting to acloud SaaS only model and Technology risksBandwidth network bandwidth is themost important component of the model without which the model is an illiquidasset

Data location of data within the cloudmay change so location restrictions mustbe incorporated to avoid global issues of privacy, ownership, security and discovery.

When the data moves, the provider mustensure alternate/old copies are securely destroyed.

Security securing data at rest and intransit is fundamental when usingexternal network resources such as theinternet. Once the data is secure, limitingaccess via identity management is criticalbut may require integration creating apoint of vulnerability.

Staff cloud expertise will be dif cult tokeep as more companies jump on thebandwagon and want to pro t from theprice paid by early adopters

As per the PwC-CII survey, security and con dentiality of data (92%) is perceived as a major challenge /

disadvantage of cloud computing. Apart from data security / con dentiality, lack of clarity onlaws and regulations (75%) andloss of control over data (67%) arealso seen as a challenge.

Figure 13: Challenges / disadvantages of Cloud computing (amongst IT users)

0% 20% 40% 60% 80% 100%

92%

75%

67%

58%

50%

33%

33%Lack of speed in data transmission

Risk of data loss due to improperbackups or system failures

Compatibility issues betweencloud and in-house IT systems

Dependence on Network connectivity

Loss of control on your data

Lack of clarity on lawsand regulations

Data security / confdentiality

Source: PwC-CII IT/ITeS Survey


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The road to cloud enablement

How Cloud Computing is applied dependson the company Startups bene t the most from public

cloud solutions such as Amazon andGoogle (this is what most people referto as Cloud Computing) No legacy IT Need fast up/down scalability No capital + no income = perfect

for pay as you go model

Fortune 500 companies bene t the

most from server, storage, network

virtualisation application services (SOA)

Public Clouds are the defactostandard for startups using solutionsfrom Amazon, Google and Salesforce.com and increasingly required by VC

rms

No legacy IT Need fast up/down scalability No capital + no income = perfect

for pay as you go model

Private Clouds are the focus of Fortune 500 companies typically built using an Evergreen IT approach; building agile, exibleenvironments incorporating thebuilding blocks of cloud computinginto existing IT investments and usingthe savings to fund investment

Transformational cloud projects willbegin to emerge as businesses recognizethe competitive advantage of cloud indelivering the next level of customerservice


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Not all companies are equal .

Applicationdependencies

Incompatible Challenging Ready to Roll

Processor Alpha, VAX Itanium, SPARC X86, pSeries

Operat ing system OS/400, VMS, OSF,OS/2 Solaris Windows, Linux

Language Fortran, COBOL C/C++, COBOL, Assembler

Java/J2EE, .NET, PHP.PERL, Python, REBOL

Data VSAM RDBMS, OODBMS, XML, Flat les

Integration Shared memory TCP ports, RPC, letransfer

Web services, ESB

HP- UX, AIX

MOM

Revolution Oriented Evolution Oriented

Technology maturity scale

ServerConsolidation

SOA

IT Virtualization

CloudComputing Auto

SystemsMgmt

App. Virtualization

UtilityComputing

Startups Have little capital Own no legacy

environments Rapid growth in

transactions

Middle market Capital constrained Low IT

sophistication Moderate growth in

transactions

Russell 3000 High competition

for capital Wide range of IT

investments Planned growth in

transactions

Fortune 500 Available capital Large IT

investments Large legacy

environments Target-based growth

in transactions

Revolution Oriented Evolution Oriented

Technology maturity scale

Startups Have little capital Own no legacy

environments Rapid growth in

transactions

Middle market Capital

constrained Low IT

sophistication Moderate

growth intransactions

Russell 3000 High competition

for capital Wide range of IT

investments Slow growth in

transactions Scalability is a

competitiveadvantage

Fortune 500 Available capital Large IT

investments Large legacy

environments Slow growth in

transactions Scalability is

expected

. So the approach must be tailored to the need

Some applications are better prepared for the migration of Evergreen ITbased on their dependencies

Cloud Computing


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Identifying the right path for yourcompany: 3 scenarios

When it comes to the enterprise view of the cloud computing opportunity today, we have determined that companies fallon a continuum from not consideringcloud computing at all or to fully leveraging cloud computing, with mostfalling at various points in between.Where their data center operationsspeci cally fall may not even be clearsince, as noted above, the adoption of various cloud computing componentsoften is ad hoc rather than the result of

a systematic strategy to pursuecloud computing.

For conceptual simpli cation, however, wehave de ned three common paths thatre ect where most organisations are today, which are explained below. For each path we have described its cloud componentmaturity level.

Senior executives should identify whichcloud path their organisation appears to beon, determine which cloud path is mostappropriate for the future, determine if there is a signi cant gap, and set a strategy for how closing the gap.

Path 1 Have strategy and pieces but needto connect the dots Starting point : have some cloud

components deployed and astrategy

Desired outcome: transition to a aninternal cloud environment with theability to connect to the external

cloud as desired Likely gaps: confusing governance,

con icting standards

Obstacles/challenges : lling in theremaining cloud components

internally, connecting legacy backendsystems and porting applications tothe internal cloud

Next steps: continue to add cloudcomponents, simplify governance,and enforce a single set of standards

Cloud component maturity level :Level 1 and possibly some of Level 2and Level 3

Path 2 Have virtualisation and somecloud components but lack vision and

strategy Starting point : mainly virtualisationcomponents deployed, a few cloudcomponents, implementing pointsolutions

Desired outcome : transition to afully virtualised environment capableof transitioning to an internal cloudenvironment

Likely gaps : lacks vision, no cohesivestrategy for cloud computing

Obstacles/challenges : need toeducate both IT and management onthe opportunities and value of cloudcomputing, lack of technical andbusiness leadership on this issue

Next steps : identify a managementleader; paint the organisations visionfor virtualisation and cloud, securebuy-in from management and IT

Cloud component maturity level :Level 1 and possibly some of Level 2


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Path 3 Have the interest and vision butunsure of getting started

Starting point : have interest and thebeginnings of a cloud vision, not sure where they stand in regard to virtualisation, IT automation, andcloud computing.

Desired outcome : transition to anef cient IT environment that uses virtualisation, SOA, and cloudcomputing to achieve an agileorganisation

Likely gaps: needs benchmarking toidentify where they are and how toproceed.

Obstacles/challenges : need todevelop a workable strategy, need tobegin an orderly implementation of cloud components

Next steps : develop a business and ITstrategy and initiate implementationbased on the results of benchmarking

Cloud component maturity level :may have implemented some of Level 1

Today most organisations have begun themigration to virtualisation technologiesbut due to concerns and lack of understanding they are excluding clouds

from their plans. In organisations furtheralong the path, IT already is virtualised,enabling private cloud solutions focusedon customer and vendor integration. Theseorganisations are implementing all orparts of Levels 1, 2, and 3. Otherorganisations are willing to let publicclouds handle commodity collaborationand desktop productivity. Ultimately,everything should run on a cloud platform with both private and public versions of many applications, where access tocompute resources are determined by policies.

The goal is to get to Level 5. Level 4 andLevel 5 components address automation,orchestration, and management of policies, business process, service levels,and such. They use virtualisation andcloud resources but the goal is ef ciency and agility, not cloud computing per se.


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What is Platform BPO?

Platform BPO is a technology-integratedBPO that provides a complete businesssolution by packaging a technologyplatform with a domain application .

Some examples of domain applicationsinclude Insurance Policy Administration,Claims Processing, Mortgage Processing,Collection Management etc.

A Platform BPO provider takes care of software licensing, hosting,implementation, application support andthe requirement of personnel for running

process operations resulting in no capitalexpenditure for the buyer organisation.

The buyer is required to only pay amonthly fee based on usage of technology and BPO services (Pay-as-you-use model).

The service delivery moves from beingpeople-centric in the traditional BPOmodel to platform-centric in this newapproach. The chart below provides acomparison of the Traditional BPO andPlatform BPO models.

Comparison Chart Traditional vs. Platform BPO

Parameter r Traditional BPO Platform BPO

Scope Business process management (Businessonly)

Knowledge Management combiningData/Information management as wellas Business process management(Technology + Business)

Pricing FTE model / Fixed price contract(manpower and timeline estimatedupfront and a lump sump paymentdecided) Or Time and Material - T & Mmodel (billed per man-hour) Price not related to customers

business cycle Used when transaction volumes are

not closely tied to service providerscost drivers

Transaction based pricing model (Pay-per- use) - Typically, a base price isprovided for a speci ed volume band, with a negotiated increase or decrease inprice as usage uctuates around thespeci ed band. Encourages productivity and

ef ciency Suitable when transaction volumes are

tied to service providers cost drivers

Scalability Low as speci c/customised for each client Very High Same platform can be usedfor multiple clients ; con gured as apackage

Platform BPO


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The changing landscape of outsourcing The major Indian IT companies have madeprogress on non-linearity in transformingthe basic pricing model from a T&M rate

card to per transaction (in BPO) and tosome extent on business outcomes. (e.g.cycle time reduction, percentage of revenue generated)

In the non-linear models, the break-evenperiod for platforms is signi cantlylonger (at least 18 months), largely because the vendors need to set updata-centers themselves, incur capitalexpenditure, licensing costs (SAP, Oracle)and upfront expenses before clients adopt

the platform on a monthly subscription oron a pay-as-you-go model.

Drivers for the success of the newplatform-based outsourcing modelProspective customers/buyers face the

following issues as on date, which haspropelled the growth of the PlatformBPO Model: Economic uncertainty forcing

organisations to reset theiroperational costs and technology

related spending. The customers intent on transferring

ownership of processes andexpectation of an integrated packagefrom the BPO players.

Compliance to standardizedprocesses, regional statutory normsand internal controls.

Decentralised operations and theneed for uniformity acrossbusinesses and geographies.

Well suited for small and mid-sizedcompanies who cannot make largeupfront investments .

Chart : The global sourcing landscape is maturing Application Developmentand Maintenance

Contact Centre

HorizontalSolutions

VerticalSolutionsEngineering

Services

KnowledgeProcesses

PlatformBPOs

M a r k e

t V a

l u e

C r e a

t i o n

Emerging Growing Maturing

Maturity

The ability to service niche sourcing areas brings an opportunity for emerging locations Source: NASSCOM, Literature Reviews & Hewitt Analysis

Commodisation of ITand Contact CenterServices

Emerging Nichevertical offerings

Knowledge processesgoing offshore

R&D Offshoring andPlatform basedBPOs emerge


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Business Bene ts of the PlatformBPO model

The bene ts from a service providersperspective are as follows: A key advantage of the Platform BPO

model is that it offers morecredibility to the capability of theBPO service provider . In todayscompetitive marketplace, prospectivecustomers expect to view domainapplications which can prove thecapability of the service provider. Theplatform BPO model provides asolution approach to the buyers.

A Platform-based BPO would allowservice providers to de-linearisegrowth through standardisation and

large-scale productivity payoffs .Since it is an end-to-end processapplication it can be easily re-usedand con gured to meet customersbusiness needs.

Better pro ts by charging a premiumfor the value created and the risksundertaken.

A Platform BPO model showcasesexpertise and contributes to

branding . Licensable solutions by showcasing domain-centric ability could act as a pull for the client topush through implementation-oriented work. The model can serve asa useful branding exercise despite its

modest revenues. This acts as adifferentiating factor whileshowcasing services to the client.

The bene ts from a customersperspective are as follows: The service provider executes,

maintains and takes care of up-gradations, thus, freeing the clientsresources .

More exible and scalable pricingmodel

Reduces implementation time/business cycle tim e by incorporatingcon gurable plug-in templates andshared synergies through a multiclient system architecture.

Effective selection of serviceprovider based on per transactionprice.

As per PwC-CII survey, about 34%of IT users are planning to avail platform BPO services and they intend to avail them for bene tslike operational ef ciency and process standardisation thereby

better quality.

Shared Service Platform

Integrated offering powered by industry

best businessmanagementsolutions

Reduced Total Cost ofOwnership (TCO)

Shared ServicesOutsourcing model

client speci ccustomisations

Industry best practices:

pre-con guredplatform

reusableindustry frameworks

de ned processes

Move from Capex toOpex

pay-by-volume(transaction) pricing

ease of scalability optimal utilisation of

resources

PlatformBPO


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Key challenges for the PlatformBPO model Being a relatively complex model , thisrequires a good understanding of thetransactions and costs by both thecustomer and the service provider . From a customers perspective , thechallenges are: Being a new service delivery model,

customers are not overtly convincedto adopt the model as it is not yet aproven methodology. Additionally,

this calls for a cross-functionaldecision process cutting acrossbusiness functions and IT within thecustomer organisation. This needs aholistic mindset from customers.

Customers have some securityconcerns with the Platform BPOsystem as the same platform is usedto service different clients . Theplatform based model requires thecustomers to look at the BPO provideras a trusted partner who will manage

critical functions and handlecon dential and sensitive informationfor them.

From a service providers perspective ,the challenges are: Many organisations operate

fragmented, heterogeneous ERPsystems. As a result, achievingseamless global delivery and costeffectiveness is an uphill task for theservice provider.

Also, as large potential buyer/customer organisations have alreadyinvested in their own complex ITsystems , targeting and convertingthem to Platform BPO users wouldbe dif cult.

A Platform BPO requires highupfront investment in xed costsfor the service provider andrelatively low variable costs. This isthe reverse of the traditional IndianBPO model. Basically, this means thatuntil the business gets to scale,margins remain negative. This is one

of the prime reasons that only largeservice providers who have thecapability to make such an investment would be able to cash in on this trend. As a result, the smaller companies willbe left behind.

Suggestions to overcome thechallenges:

Emphasis on uniformity in processesacross business verticals and locationsfor the customer.

Plan for a comprehensive changemanagement effort which mustinclude getting the support from thetop management, syndication of key stakeholders and end-usereducation programs.

Develop an environment of trust by incorporating transparent practices.


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Major segments in the Platform BPOspace 1. Finance & AccountingF&A platform BPO helps clients streamlinetheir nance and accounting processes,and also contain the high costs of implementing, maintaining and upgrading

nance applications.

A key consideration in this case would beto identify the nance and accountingprocesses that need to be outsourced.Transactional processes (such as accounts

payable, travel and entertainment,accounts receivable, billing, cashmanagement etc.) tend to be the mostpopular to outsource. More recently, withimprovements in provider capabilities,there has been a move to outsource higherend or higher value services such asstatutory/regulatory accounting, nancialreporting and tax. In some cases, morestrategic processes such as managementaccounting, budgeting & forecastingand nancial analysis may be suitable

for outsourcing.

2. Human Resources Outsourcing (HRO)The HRO Platform is pre-con gured toalign to the industrys best practices for HR

Amongst the IT users who are planning to avail platform BPO services, 75% of them prefer the following platform based services - Human Resource outsourcing (HRO)and Analytics / Business intelligence.

processes and frameworks. The Platformoffers standardised, global HR outsourcingservices with a combination of technology transformation and service delivery. Itdrives on operational expertise gainedthrough various HR outsourcing projectsacross administrative activities, withproven results.

Some of the key services provided by thePlatform are mentioned below:

Key service Areas covered

ResourcingServices

Candidate sourcingand screening

New employee onboarding

WorkforceManagement

Personnel & eventmanagement

Payrollprocessing

Generation of paycheck Tax processing &

reporting online Managing attendance

TalentManagementServices

Setting goals Managing competency Performance appraisals

& analysis Career management

Compensation

& Bene ts

Salary administration

Job evaluations Managing monetary rewards/bonus


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3. Analytics / Business IntelligenceThe key focus areas for the Platform BPOservice providers are:

Customer Analytics

Customer segmentation Customer acquisition

optimisation Cross sell analytics Service analytics Retention / attrition analysis Customer scorecards

Supply Chain Analytics

Supply and demandanalysis

Strategic sourcing analysis Vendor manufacturing Scheduling and quality

control Regulatory management Network optimisation

Risk Analytics

Behavioural risk analysis Risk models Risk analysis scorecard Collections & recovery

analytics Risk model development Model performance tracking Risk management dashboards

Marketing Analytics

Sales pipeline analysis Sales performance analysis Media analysis &

optimisation Data survey Sales effectiveness Competitor analysis Campaign analysis

Apart from these, BPO companies areplanning to extend Platform offerings

to product, price, online andoperations analytics.

4. Procurement OutsourcingThere has been an increased focus onProcurement BPO services as the return oninvestment of 10-20% acts as a key valuedriver. It involves outsourcing key procurement activities relating to sourcingand supplier management, helping reducecost of purchasing goods and relatedservices. Companies now offer

comprehensive Source-to-Pay offeringsthat ensure streamlined and standardisedbusiness processes on a superiortechnology platform.

Some of the key services provided as partof the procurement platform services:

Key service Areas covered

e-procurement Supply Sourcing (onlinetendering & auctioning)

Vendor Management Catalogue & Contract

Management Inventory Management

Web based ERP Resource planningimplementation

TacticalProcurement

Purchase Order AwardChange Management

Contract Execution,Compliance,AdministrationManagement

Receipt and ReturnManagement

Supplier Helpdesk Vendor MIS Payment Processing

Procurement Analysis

Market/Demand analysis Master Data

Management Research and

Remodeling


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Recent Platform BPO deals

TCS has several deals for its platform-based BPO services. TCS has signed a largedeal with the Nielsen Company where it would deliver outsourced nance,accounting and HR services on proprietary platforms built by the company. TCS alsoacquired Diligenta , a BPO platform forprocessing insurance policies.

TCS views non-linearity as a large revenuedriver (opening up the market throughits uni ed in-a-box offerings for the

SMB segment).

Infosys approach towards BPO platformslies in making multiple smaller themes. InFY10, Infosys rolled out a SaaS version ofits banking product Finacle (not afundamentally new domain offering).

Infosys has developed platforms in HR,procurement and media &entertainment . For example, Newspaper-in-a-box (NiaB), HR outsourcing (Hire-to-

retire) and Shopping Trip 360 (retailanalytic solution). One of the biggest BPOplatform play for Infosys is its acquisitionof McCamish Systems (a platform-basedinsurance processing solution provider)in FY10. Wipro , has an order-to-cash platform(ready-to-market platform basedofferings using SAP as the backbone) for manufacturing companies that itmonetizes based on the number of concurrent users.

Caliber Point , a subsidiary of HexawareTechnologies, recently launched Republic, a multi-tenant HR services delivery solution on the platform as aservice model.

a shift in strategy to verticalspeci c processes

Platform BPO provides an immediate andsustained cost savings solution that can bedeployed in a short period with no upfrontcapital investment. At the same time, ithelps the buyer organisations gain controlof their operations and supplierrelationships.

Platform BPO provides a comprehensivesolution and an ideal outsourcing modelfor the small and medium businesses for a

nominal operating expense.

Many service providers have already beenoffering such services for a while. A welcome feature of the platform basedBPO service is that it appeals to SMBs withtremendous market potential. Thisprovides an opportunity to progress fromtransaction processing to truly transformational service.

A shift in strategy to vertical-speci c

processes is expected henceforth. Over thenext 18 months, the suppliers will reorienttheir approach to target industry-speci cprocesses. This refocusing will enablethem to turn their platform developmentinto a more IP/expertise-led approach.Instead of a pure cost-reduction story, this vertical model will enable rms toshowcase the process improvements thatthey have built into the platform.


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Top 100 Indian Software Product vendorsRanked by world-wide software product revenues (in INR crore)


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NOTE

The Top 100 Indian software product vendors is an extraction from PwCs Global Software 100 Leaders report

Software includes application software, system software, tools, SaaS, and open source fees Software revenues include licence + maintenance and support + SaaS / ASP fees + open source

fees Pierre Audoin Consultants (PAC) / Springboard research excluded consulting, training and

integration revenue This ranking is based on the product (licence and maintenance) and support revenue earned by

the companies Only companies with their headquarters in India are considered for the ranking OEM activity is included in the software vendor gures PAC estimated the revenues of software vendors, using PAC knowledge, database, methodology,

and additional research. Figures are PAC estimates and have not been validated by the companies


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Rank Company Name Software productrevenues -Worldwide

Total revenues Worldwide

Software productrevenues - India

1 Tata Consultancy Services

943.7 30029.0 129.9

2 Infosys 925.0 21140.0 165.63 3i Infotech 790.1 2469.0 355.5

4 Teledata 725.1 3030.0 10.6

5 Persistent SystemsLtd

601.2 601.2 120.2

6 Geodesic 579.9 644.3 463.9

7 Educomp 467.8 1039.5 374.2

8 Cranes 461.3 508.7 52.1

9 Rolta 459.8 1532.6 253.3

10 Geometric Limited 409.6 512.0 163.811 Sonata Software

(SITL)379.2 1393.0 379.2

12 Subex 375.1 463.1 98.2

13 Take Solutions Inc,Hyderabad

293.1 366.4 58.6

14 OnMobile 272.6 454.4 203.7

15 Polaris Software 270.6 1353.0 52.7

16 Ramco Systems 175.8 175.8 86.1

17 Nucleus Software 174.0 291.8 27.618 KLG Systel 169.5 242.2 169.5

19 FT India Ltd. 164.3 310.0 136.4

20 CMS 155.9 1039.5 155.9

21 IBS SoftwareServices

148.8 372.0 119.0

22 Tally Solutions 128.4 151.0 127.1

23 Quick Heal 105.0 105.0 94.5

24 Vsoft TechnologiesPvt. Ltd.

94.9 146.0 14.2

25 Four-Soft 93.1 133.0 9.3

26 InfrasoftTechnologies

67.9 97.0 23.8

27 Lasersoft InfosystemLtd.

60.4 71.0 59.7

28 ElitecoreTechnologies Ltd

51.8 74.0 36.3

29 Seeinfobiz Pvt. Ltd. 45.0 90.0 31.5


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30 K7 Computing 45.0 45.0 30.6

31 ExcelsoftTechnologies Pvt. Ltd

42.5 85.0 4.3

32 Nelito SystemsLimited

40.7 67.9 40.3

33 Path nder Software 40.5 45.0 24.3

34 Accel Frontline Ltd. 39.8 265.2 27.8

35 Sify 37.3 745.4 36.5

36 Busy Infotech Pvt Ltd 35.0 50.0 31.5

37 Manthan SoftwareServices

33.0 55.0 16.5

38 Bodhtree 32.0 80.0 20.839 Wings Infonet

Limited27.0 30.0 18.9

40 AdvanceTechnologies

27.0 45.0 17.6

41 Magna Quest 27.0 45.0 13.5

42 Nucsoft Ltd. 24.0 40.0 20.4

43 Godrej Infotech Ltd 21.4 47.5 4.3

44 ChainSys 20.0 50.0 8.0

45 Chenab InformationTechnologies Pvt.Ltd.

19.3 35.0 15.4

46 Intense Technology Ltd.

19.2 19.2 8.7

47 NihilentTechnologies Pvt Ltd

18.0 150.0 5.3

48 Sanovi Technologies 17.3 23.0 14.7

49 PramatiTechnologies

16.1 23.0 6.4

50 Gamut InfosystemsLimited

16.0 20.0 15.2

51 Unistal Systems Pvt.Ltd.

16.0 20.0 4.0

52 Fusion Charts 15.2 19.0 15.2

53 Aptegra Solution PvtLtd

14.8 37.0 14.8

54 Ontrack SystemsLTD

14.8 29.6 7.4


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55 GoFrugalTechnologies Pvt. Ltd

14.4 18.0 14.4

56 Srishti Software 13.5 15.0 8.857 RDM India 12.5 25.0 3.8

58 Integra MicroSoftware Services

12.3 35.0 11.0

59 Nextstep Infotech 12.0 20.0 10.8

60 Nippon Data SystemsLtd.

12.0 20.0 10.8

61 Shawman Softwares 12.0 12.0 9.0

62 ACS Infotech Pvt.Ltd.

12.0 12.0 7.7

63 Suntec BusinessSolutions Pvt. Ltd.

12.0 20.0 3.6

64 Compulink SystemsIndia

11.3 16.2 5.1

65 Infosoft Consultants 11.2 32.0 11.2

66 Marg 10.8 18.0 10.6

67 Anadocs 10.8 18.0 6.5

68 Eastern SoftwareSystems

10.0 25.0 4.5

69 Wrench Solutions 9.8 14.0 3.970 Dewsoft Solutions

Pvt. Ltd.9.4 17.0 5.6

71 Ho nsoftTechnologies

9.0 10.0 5.4

72 Product DossierSolution Pvt Ltd

9.0 15.0 4.5

73 Xalted InformationSystems Pvt. Ltd.

8.8 16.0 5.3

74 NMSWorks SoftwarePrivate Limited

8.4 12.0 8.4

75 Phoenix IT SolutionsLtd., Vizag (A.P.)

8.4 12.0 7.6

76 Micropro 7.7 11.0 6.9

77 SathguruManagementConsultants

7.2 18.0 3.6


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78 Summit India 7.2 8.0 3.6

79 In-Solution GlobalPvt Ltd

6.6 11.0 5.6

80 Pratham Software 6.0 10.0 6.0

81 Net Guru Ltd 5.9 23.8 5.9

82 CooptionsTechnologies Ltd.

5.9 9.0 5.9

83 Technoforte 5.6 8.0 4.5

84 Mithi SoftwareTechnologies Pvt Ltd

5.4 9.0 5.4

85 Quantum Link Communication PvtLtd

5.3 15.0 5.1

86 Interface BusinessSolutions (I) Pvt. Ltd.

4.9 7.0 4.9

87 Excellon Software 4.8 6.0 4.8

88 Sapphire IT SolutionPvt Ltd

4.8 6.0 3.4

89 Dynamic VerticalSoftware Pvt. Ltd.

4.5 7.5 3.2

90 Seabit Technologies 4.4 5.5 4.4

91 ParamatrixTechnologies Pvt. Ltd

4.3 5.0 4.3

92 Ginni Systems ltd. 4.0 5.0 4.0

93 Micro Pro, TheComputerprofessionals

4.0 5.0 4.0

94 Kalsofte 3.6 4.5 3.6

95 Valgen InfosystemsPvt. Ltd.

3.6 4.5 3.6

96 Orell 3.3 6.5 3.3

97 R. K. Softwares 3.2 4.0 3.2

98 Soft World India 3.2 4.0 3.2

99 Infoton 3.2 4.0 3.2

100 Odyssey Technologies

3.2 4.5 3.2

Source: Springboard Research (PAC Partner for Asia), Year ending 2010 gures (wherever not available, gures are as of year ending 2009)


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Concentration of Top 100 Indian Software product revenues

Top 11-50

Top 51-100

Top 2-10

Top 136%

10%3%

Figure 15: Concentration of Top 100 Indian software product revenues

Global and Domestic activity of the Top 100 software vendors(% of aggregate revenue from the home country and outside of home country)Figure 16: Global and Domestic activity of the Top 100 software vendors

Source: Springboard Research (PAC Partner for Asia)

Domestic

Global

32.8%

67.2%

59.2%

40.8%

74.8%

25.2%

Top 1-10 Top 11-50 Top 51-100

100%

90%

80%

70%

60%

50%

40%

30%

20%

10%

0%

51%

While larger companies are export focussed, smaller ones are home focussed vindicates the premise thatthe nancial and marketing muscleis required to establish a brandbeyond Indias shores.

Source: Springboard Research (PAC Partner for Asia)


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34 PwC

An overview

The Indian IT industry is primarily identi ed with software services. The

focus on services had relegated the Indiansoftware products industry to thebackground. The software productssegment, excluding offshore productdevelopment and engineering services,contributes only about 5% to the $73billion Indian IT industry.

The Indian software products industry,however, has been evolving over the yearsand has grown from just over hundredmillion dollar in FY 1999-00 to about

$3.87 billion in FY2009-10 (refergure 14).

There has also been a steady increase inthe number of software productcompanies in addition to the revenuegrowth. The last decade has seen thenumber of Indian product companies - notincluding captive R&D centres - grow from

about 100 in 1999 to 525 today. But mostof these companies are small and mediumbusiness units with a turnover in the rangeof Rs 2 crore to Rs 50 crore.

According to the study conducted by PwCand Pierre Audoin Consultants (PAC), thetop 10 Indian independent software vendors (ISVs) in terms of softwareproduct revenue worldwide, contribute tomore than one-third of the total revenues.

As per the recent market indicators,weunderstand that the software productsegment is undergoing a rapid change andis approaching a new phase of acceleratedgrowth. We have conducted a study tocompile the Top 100 Indian SoftwareProduct vendors (based on the world-widesoftware product revenues) many of whomare likely to drive this growth in thecoming years.

Unlike the IT services where 75% of the revenues come from exports,domestic revenues form the bulk of the total software products revenues. In 2009-10, the domestic revenuesconstituted more than 70% of thetotal revenue.

2.77

2.681.0

1.12009-10

2008-09

$ 3.87 bn

$ 3.68 bn

Total

1.1

1.0

in $ billion

3.0 4.50.0 1.5

Export

Domestic

Figure 14: Indian Software products industry revenue

Source: Nasscom

Indias Software Product Industry


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Maturing ecosystem drivinggrowthImprovements across several ecosystemfactors such as venture capital funding,disruptive technologies, incubation centersand an increase in entrepreneurial talenthave also spurred the start-up activity withmore than 125 start-up rms beingincorporated in the last three years.

Incubation centersIndian start-ups today have a largersupport system in the form of incubationcenters to help them expand their

operations. The country currently hasabout 40 incubation centres spread acrossand they are keenly focused on assistingtechnology start-ups with funding andmentorship. Incubation programs havebeen complemented by various mentoringprograms by professional/industry associations that are playing aninstrumental role in boostingentrepreneurship by providing activesupport to technology start-ups in India.

Venture Capital Venture capital and private equity (PE)rms, which were earlier focusing on the

services businesses, have now expressed agrowing interest in Indian softwareproduct businesses.

Currently there are about 275-290 venturecapitalists, 250-280 angel investors andabout 10 to 15 corporate VC fundsoperating in India to provide fundingsupport and encourage start ups in India.

Technology disruption Apart from the factors mentioned above,disruptions in the global market in theareas of technology, business and delivery model are also creating opportunities forstart-up rms. Disruptive technologiessuch as virtualisation, Service Oriented Architecture (SOA), innovative delivery models like web-services, Software-asa-service (SaaS) and subscription/transaction/on-demand business modelshave facilitated many new entrants tocompete with incumbents and has helpedexpand the addressable opportunities for

Indian software product businesses in theexport as well as domestic markets.

The SaaS model of software delivery hasincreased the penetration of IT acrosssmall and medium businesses (SMBs) andis likely to be the growth driver.

Growing addressable market According to Nasscoms Software Productstudy, over the next ve years, Indiansoftware product businesses have anaddressable market opportunity of $290 to315 billion. The Indian software productindustry can leverage on emergingbusinesses from sources such as the UIDproject the worlds largest biometricproject that is slated to provide newbusiness worth $4 billion by 2015.

Enterprise application software willpresent the largest opportunities with BI

MaturingEcosystem

Incubationcenters

Technologydisruption

Growingaddressablemarket

Venturecapital


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36 PwC

with infrastructure products is creatingnew challenges for domestic softwareproduct companies. Additionally, MNCshave also started targeting small andmedium businesses, which have been theprimary target for Indian companies as well, thereby creating furthercompetition.

Entry barriers for large dealsFor many of the large deals, there arebarriers created for the smaller rms by setting higher quali cation criteria interms of turnover or number of

deployments. This acts as a major set back for the smaller companies as these largedeals otherwise would have created moreopportunities for growth.

Lack of suf cient talent As mentioned earlier, India already has astrong base of R&D talent in the industry with capabilities of working across theproduct business value-chain. However,about 85% of these professionals areemployed with MNC subsidiaries orIndian service providers leaving only about 20,000 to 25,000 individuals in theIndian software product business.

The current available talent pool in India,moreover, rates low in the skills category for product architect, productmanagement, product marketing, userinterface and design and release andcon guration which are critical for thesoftware products business. A recentemployability study of technicalgraduates, by Aspiring Minds, has shown

and ERM, with storage and security beingthe key priorities. The global demand forBI software and ERM software products isexpected to reach $15 billion and $59.8billion respectively by 2015.

Further, vertical-speci c software demandfrom BFSI, Telecom and Retail will alsooffer considerable opportunities forgrowth. Search Engine Marketing, Mobile Applications and Online Gaming will beother high-growth areas, especially in thehome-user segment of the domesticmarket.

With the evolution of the above ecosystemparameters, the Indian software productindustry is poised for growth.

Challenges faced by the Indiansoftware product industry

The Indian software product industry hasbeen showing remarkable growth duringthe past decade and with the maturingecosystem, is likely to meet Nasscomsestimated revenues of $9.5 to 12 billion by the FY2015. But growth could be stunteddue to the challenges being faced by theindustry.

Entry barriers due to MNC presenceThe various liberalisation andderegulation initiatives taken by thegovernment in the early 1990s havebrought in many MNCs into India andcreated intense competition in thedomestic market. A few of the establishedMNC vendors with their nancial andmarketing muscle are able to attract morebusiness and their bundling of software

Entrybarriers dueto MNCpresence

Lack ofsuf cienttalent

Attractivenessof IT services

Entry barriersfor large deals

Challenges


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that the employability with regard to ITproduct companies is as low as 4.22 %

(amongst computer and electronics relatedbranches).

Attractiveness of IT servicesThe increased focus of IT companies onthe opportunity in IT outsourcing takesaway a lot of focus from the Indian productbusinesses. If the software product rmsface slow growth or a lack of growth, they switch their focus to services for survivaland growth, thereby, abandoningproducts.

.well poised for the next phase of growth Banking sector products from India havebeen the most visible in the internationalarena. iFlex (acquired by Oracle in 2005) was the most notable example with its corebanking solution, Flexcube. Other corebanking solutions being sold worldwideare Finacle (from Infosys) and BaNCS(from TCS - Tata Consultancy Services).Companies like Polaris, Nelito systems, 3iInfotech, Infrasoft and Nucleus softwarehave also made a mark in banking.

More recently, software productdevelopment in education and training,logistics, healthcare, cleantech, talentmanagement and mobile applications(including mobile stock trading) aretriggering what industry observers believe will be the next wave in the Indiassoftware revolution.

Developing and commercialising softwareproducts have traditionally required

signi cant investments in productdevelopment, branding and marketing, which have put this beyond the reach of smaller rms. Disruptive technologies likecloud computing, social networks and thetelecom revolution have reduced the costof technology development and the cost of market reach.

For example, for mobile applications, adeveloper uses shared resources on a cloudto build applications and leverages the

marketing muscle of a telecom provider tosell them. Traditional software servicescompanies are building standardplatforms for service delivery which couldbe sold as products in their own right.

With innovation and Intellectual Property (IP) led growth strategies becoming moremainstream, in addition to the maturingecosystem, we believe that the Indiansoftware product industry is well placedfor the next phase of growth. The Indiansoftware industry body, Nasscom, expectsthe revenue from this industry to bebetween US$9.5-12 billion by 2015.


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38 PwC

The tier 1 or the larger cities in India havebeen the initial torchbearers of the IndianIT/ITeS industrys remarkable growth. Availability of talent, better infrastructure,connectivity, and an evolved ecosystem were some of the major drivers for

focussing on these larger cities.

This unprecedented growth was not easy to handle. While the large cities witnessedsevere pressure on the civic infrastructure,service providers faced myriad issuesaround the rising cost of operation,employee attrition, employee work-lifeimbalance etc.

During this phase, many other states inIndia woke up to the bene ts that the IT/ITeS industries could bring to theireconomy and began to frame bene cial ITpolicies to attract the companies. The IT/ITeS industries which were looking foralternative locations to increase theirdelivery footprint and tap more resources, were happy to leverage this. The gure 17provides the service providers perception

As per PwC-CII survey, about 50% of the IT/ITeS service providers are

looking to move or expand to tier 2cities for perceived bene ts likeavailability of low-cost skilledresources, lower real estate cost andlower attrition.

Figure 17: Potential bene ts of moving or expanding to Tier 2 cities (among IT/ITeS service providers)

Source: PwC-CII IT/ITeS Survey 0% 20% 40% 60% 80% 100%

29%

36%

50%

57%

71%

Corporate Social Responsibility(CSR) initiatives like Rural BPO

Regional language capabilities

Presence of SEZs

Lower attrition

Lower re

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