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India’s IS Outsourcing Market: Adapting to Megatrends – Reinventing Business

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Changing relevance of IS Outsourcing drivers altering core value proposition

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Page 1: Is outsourcing

India’s IS Outsourcing Market:Adapting to Megatrends – Reinventing Business

Page 2: Is outsourcing

Next phase of growth will ride on end to end infrastructure management

Core Value Proposition

Enablers

Provider scenario

Outcome

Focus areas

Lower TCOTalent pool and expertise

Delivery excellence through automationTransformational capabilities

Available talent and skillsBandwidth availability at affordable prices

Automation tools and platformsStandardised processes

Service providersTicket based resolution

Transformation expertsConsulting led services

Global delivery capabilitiesCredibility in brand and customer confidenceMature business model

Expansion of remote servicesAutomation of L1,L2, L3IP based process and delivery tools

Service deskData centre and networksHardware support

End computing devicesCore infrastructure, hardwareDatabases

End to end IT infrastructure managementBusiness enablement

Optimising & operating capabilitiesSLA maturity Domain knowledge

Business process ownersProactive approach

Broader scope of servicesOutcome based pricing modelsNon-linear growth modelTransformed brand image

Applications stackCore infrastructure, hardwareEnd computing devices

2000 - 2008 2008 - 2012 2012 - 2020

Source: Frost & Sullivan Analysis

Phase 1: Provide Phase 2: Automate Phase 3: Manage

Page 3: Is outsourcing

Changing relevance of IS Outsourcing drivers altering core value proposition

2012 2015 2020Relative importance

Achieving lower Total Cost of Ownership (TCO)

Need to standardise IT operations and align to business

Technology mega trends demanding greater transformation

High Medium Low

Importance

Access to skilled talent pool and capabilities

IS Outsourcing Drivers

Source: Frost & Sullivan Analysis

Page 4: Is outsourcing

Emerging growth opportunities demand extending beyond core markets

• Data centre and network services form bulk of IS outsourcing revenues

• Among emerging services, cloud computing contributes 70–80 per cent of the revenues with rapid growth rates of >30 per cent

• Enterprise mobility and UC related services opening up new service line opportunities

0

2

4

6

8

10

90%

10%

Traditional Emerging

Services FY2012

0

5

10

15

20

‐1

1

3

5

7

9

11

13

15

70%

30%

Traditional Emerging

80%

20%

Traditional Emerging

Verticals FY2012 Geography FY2012

Cloud Computing

Mobility

Unified CommunicationsEducation

Healthcare

India

Middle East

APAC

Retail

Rev

enue

Sha

re F

Y201

2 (%

)

Rev

enue

Sha

re F

Y201

2 (%

)

Rev

enue

Sha

re F

Y201

2 (%

)Source: Primary interviews, Frost & Sullivan Analysis

• Mature outsourcing verticals like BFSI, manufacturing and government contributed  nearly 70 per cent in FY2012

• Healthcare is a rapidly growing vertical segment and forms a sizeable share in terms of revenue

• Retail and education are the other emerging verticals driving IS Outsourcing growth 

• Government, a large untapped opportunity

• Traditional markets comprising of US and Europe contribute > 70 per cent of revenues

• APAC ‐ increasingly important from  revenue and growth perspective 

• Continental Europe emerging; already has mature outsourcing practices

• Domestic market witnessing  traction making it an important target segment

Presenter
Presentation Notes
The Indian IS Outsourcing market is witnessing a shift in the addressable markets and service opportunities. Emerging opportunities require providers to rethink strategies, reinvent business models and form alliances to reduce time to market. Traditional IS services of datacentre management, network services, managed security, desktop and service desk services contribute nearly 90 per cent of overall service revenues. The rest is being contributed by emerging service lines of cloud computing, mobility and unified communications. While the rapid growth of these service lines broadens service opportunities, the high impact on provider ecosystem and customer expectations increases its relevance multifold. The maturity in remote infrastructure management and increasing customer confidence with respect to outsourcing benefits and data security is expanding the industry verticals now willing to consider offshoring IS. Verticals like healthcare, retail and education are leading this change by outsourcing a significant portion of their infrastructure management needs. A significant shift in mindset towards IS offshoring is resulting in the rise and rapid growth of new market segments like APAC, India and Middle East, offering large untapped markets. The emerging market segments vary significantly both in terms of growth opportunities (China being a high potential market while Australia and New Zealand at a very nascent stage) as well as the drivers for outsourcing.
Page 5: Is outsourcing

Transformational needs dominating customer expectations

Changing customer expectations

Transform and operate infrastructure

Holistic approach to IT with increased accountability

Higher sensitivity to industry domain and business dynamics

Overcoming inclination towards multi vendor engagements

Demand greater visibility to operations and control over processes

Investments in best in class infrastructure, tools and solutions

Acceptance of  shared services models

Outcome based pricing and risk / reward sharing

Large gamut of bundled value added services (for e.g.: advisory on emerging technologies)

Source: Frost & Sullivan Analysis

Presenter
Presentation Notes
As new customer segments emerge, existing customers increase scope of outsourced IS and organisations are impacted by global mega tends, there is a considerable change in customer behaviour and expectations from IS providers. Nearly 25 per cent of all IS engagements in 2011–2012 were transformational in nature. The operational to transformational outlook to projects requires substantial advisory services, optimisation of IT landscape, and technology, people and process improvements to gain operational efficiencies and incorporation of global best practices and standards. Irrespective of single vendor or multi vendor scenarios, customers expect service providers to adopt a holistic approach to IT with a long term roadmap. Customer preferences and trends reveal increasing overlaps between pure play ADM and IS outsourcing services that is extending to non-IT devices like IP phones, UC equipment. Strong domain knowledge and understanding of the business processes is today an inherent expectation especially for partnering in large transformational deals. Customers expect greater accountability by providers and thereby SLAs that extend beyond network uptime to providing availability of business applications at peak loads to meet end user expectations. Significant customisation of services, SLAs and pricing models is being witnessed. The scope for organisations to adopt and gain from rapidly changing technologies, advancement in tools and IT applications in ‘as a service’ models is directly dependent on the provider’s focus on IS outsourcing business and capital investments in emerging areas. Customers seek partners who exhibit continual investments in building scale, updating technologies which will eventually benefit organisations. Deploying a shared services model is critical for service providers to gain business advantage. Over the last few years, providers have been actively exploring the possibility of moving majority of the projects in this form rather than a dedicated resource format. Global firms now recognise the advantages of shared services (decreased attrition, cross learning) to the provider and the positive impact on the engagement. There has been an increasing acceptance for this model across business domains. Several emerging service offerings by providers are expected as value added services and a part of the conventional IS outsourcing service rather than separate service offerings. Examples of these include several advisory services, managing mobility devices as part of service desk, planning for cloud strategy. Although considerable investments are required in developing and providing these capabilities, they are being bundled as part of the core service to ensure account penetration and create customer stickiness.
Page 6: Is outsourcing

Global offshoring locations offers strategic advantage

Source: Frost & Sullivan Analysis

India continues to enjoy advantages of strong fundamentals over other emerging low cost offshoring locationsGDCs enabling penetration of new markets & build customer confidence

Locations:• Chile, Brazil, Mexico, Argentina,

Canada (Toronto, Montreal)Advantage:

Ensure inclusive growth through recruitment of local talentTime zone advantage for regional markets

America

Locations:• DubaiAdvantage:

Access to Arabic speaking workforceServe MENA clients

Middle East

Locations:• India (Mysore, Chennai, Pune,

Noida, Hyderabad, Bengaluru, Kolkata)

Advantage:Cost advantage from labour arbitrageAvailability of skillsetsTap domestic market

India

Locations:• China ( Tianjin, Shenzhen,

Hangzhou), Malaysia (Kuala Lumpur), Philippines (Manila)

Advantage:Leverage local language workforce and BPO presenceServe China, East Asian nations (Japan, Malaysia, Singapore)

APAC

Extent of delivery centre focusSample list

Locations:• Germany, Hungary,

Luxembourg, Spain, UKAdvantage:

Access to local workforceProximity to European clients

Europe

Presenter
Presentation Notes
India continues to be the preferred offshoring location with IS providers optimistic about the competitive advantage it enjoys. String fundamentals of lower costs, availability of talent pool, business environment, maturity of IT services and accepted brand for offshoring still offers India several advantages. However, players are expanding into new offshoring locations to be able to serve new markets and gain advantages of availability of local language speaking workforce, time zone advantages and as a means to expand in an inclusive manner.
Page 7: Is outsourcing

3.7

7.2

FY2008 FY2012

IS Outsourcing: Fastest growing segment in IT services at ~20 per cent

IS Outsourcing Revenues*

USD billion • Fastest y-o-y growth segment within IT services (~20 per cent in FY2012)• Revenue growth: nearly 2x over five years (CAGR ~18 per cent)• Exports:

• ~90 per cent share of revenues• ~26 per cent share of incremental IT services exports

• Contributes ~8-10 per cent of revenues for Tier I Indian IT services firms –highlighting its strategic importance

• Deal sizes for Tier I Indian offshore providers comparable to those of MNCs over the recent past

• Large total strategic outsourcing gaining significance

* Includes exports and domestic revenuesSource: Frost & Sullivan Analysis, NASSCOM

Tren

ds

• Exports:• Leverage expertise to manage increasingly complex IT infrastructure

landscape• High maturity of Indian providers in delivering services globally• Compelling cost competitiveness

• Domestic:• Increasingly global nature of Indian firms demanding heightened focus on

core business• Adoption new technologies and maintaining global standards

• Lack of standard global practices for technology deployment necessitating outsourcing of infrastructure management

Gro

wth

Driv

ers

Indian IS Outsourcing market – Overview

Presenter
Presentation Notes
The IS outsourcing business is now a well established service line in the Indian IT services portfolio and a very critical component of the growth story. IS outsourcing contributes nearly 8–10 per cent of revenues of large Indian IT firms and plays a vital role in driving non-linear business growth. Indian service providers have been relentlessly innovating and delivering services to capitalise on the market opportunity . During FY2012, aggregate revenue from this segment reached USD 7.2 billion (90 per cent of this is from exports), a growth of nearly 2x in the last five years. It has also been consistently the fastest growing segment within IT services. Over the years, this segment has been driven by various factors beginning with improvements in the country’s infrastructure backbone especially telecom and its increased reliability, availability oflow-cost, high speed bandwidth, cost reduction, move to asset light models, development of remote management tools, etc. The latest impetus for IS outsourcing has come from Cloud computing/Virtualisation, mobility and unified communications. The accelerated growth continues despite the economic uncertainty emphasising the non-discretionary spending aspect of infrastructure services. The need for organisation’s to optimise costs and focus on core business to cope with macroeconomic challenges synergises well with the IS Outsourcing value proposition.
Page 8: Is outsourcing

Changing customer value demands re-architecting market strategy

Domestic market

Preferred onsite managed model

Close proximity of provider’s infrastructure set up preferred

Market dominated by few Tier I players

Rapid adoption of private and public cloud across enterprises

Majority of business growth from existing customer base

Shift from T&M based to SLA and delivery led deals

Characteristics Trends

Source: Frost & Sullivan Analysis

Large un-penetrated market offers high potentialDistinct proposition required to tap domestic marketsSegmenting market based on nature of enterprise critical for successOpportunities for smaller providers through sub contracted L1 support

Indian IS Outsourcing market – Domestic

Presenter
Presentation Notes
A significant shift has been witnessed in the domestic market from the perspective of maturity of IS Outsourcing business models, services offered and industry adoption. The increased scope of IS Outsourcing by service providers coupled with rising number of firms willing to leverage expertise is driving the domestic market opportunity, growing at a CAGR of over 13 per cent. The comparatively lower penetration of IS Outsourcing services in India along with the compelling drivers for outsourcing makes domestic markets an attractive segment for IS providers. Rise in Total strategic outsourcing deals from larger organisations is creating a potential for providers to offer services in a managed model, thereby breaking away from linear growth. The large engagements front ended by larger brands is also creating new service avenues for Tier II and Tier III players by partnering to offer sub contracted L1, L2 service support. Indian firms are today competing with their global peers and need to provide best-in-class service to end customers. By out-tasking the management activities of IT infrastructure, firms are successfully freeing up resources and are able to focus on their core business. The benefits of outsourcing infrastructure and gaining access to new technologies and global best practices is well understood in the domestic market supported by the y-o-y revenue growth witnessed by service providers serving the Indian market. Certain service providers have been witnessing y-o-y growth rates of over 30 per cent in core infrastructure services and cloud computing, marking the continued traction in this space and the potential this market has to offer.   Globally, the foundation of outsourcing infrastructure management has been on the key benefit of lower total cost of ownership, primarily driven by cost advantage. However, he compelling drivers for IS Outsourcing in India have been very different:   Focus on core business: Indian organisations are increasingly looking for ways to make businesses more efficient and streamlined, by focusing on core revenue-generating business units and establishing a partner for IT infrastructure outsourcing Expertise in IT service and prevention of obsolescence: By tying up with a partner for services, enterprises are seeking to leverage expertise - this also mitigates risk of technology obsolescence, as it is imperative of the service provider to advise, transform and manage the infrastructure Need for consolidation and streamlining of IT resources: The need to balance operational excellence through effective planning & management and meet business objectives with an aligned IT system landscape is a top priority for the IT teams. This involves consolidation of infrastructure and a holistic approach brought in by the IS providers offering high quality SLA driven solutions   Despite significant evolution in the domestic market favouring IS opportunities, in order to emerge as winners players will need to help customers overcome the following concerns:   Fear of Loss of control and security concerns: One of the key reasons for resistance to IS outsourcing continues to be concerns around loss of management control over IT resources, concerns over risk of data leakages and fraud   Established existential IT teams: Many large firms already have large IT teams in place and have invested in their skill development. The workforce is highly trained and comfortable with managing the customised and complex nature of the organisation’s IT infrastructure. The providers need to show the value of strategic outsourcing to these customers from a long term perspective. Customers will have to be guided in a phased approach with a well drawn change management plan. Despite a noticeable change in delivery mechanism with larger, more global organisations willing to adopt centralised remote management, Indian firms by large prefer a onsite / on-premise management model. The reason for this is a mix of customer mindset and the lack of standardisation of technology practices internally. Non-standardised practices like that of a single desktop image, and multiple operating systems makes remote management a complex task. As customer interest in remote management is increasing, service providers are enabling phased transition with a robust change management approach involving adequate training.   An interesting characteristic of the domestic market is the preference of organisations to select an IS provider who has a local / regional presence. Although, Indian service providers remotely provide services (increasing for routine tasks), regional and local proximity of provider’s infrastructure to customer’s premise is an important selection criterion, especially in government and quasi-government projects. This assures minimum time lag for physical presence of the engineer. Thus domestic players with pan India reach and presence have been able to gain an edge in winning specific deals over their counterparts. The competitive landscape in India is getting more intense as Tier I, II and III service providers (both MNCs and Indian) attempt to capture the domestic market opportunities. However, the top three players today attribute to more than 50 per cent of the managed services market share in India. The rest of the market is highly fragmented with several system integrators offering a variety of services. This is resulting in several service providers focusing on building domain expertise and targeting niche areas to increase market penetration. Offering specialised services with well-defined SLAs provides significant revenue potential for smaller providers.   Nearly 70 per cent of the revenues and the growth momentum is coming from existing customers, while only 30 per cent is from new accounts. An increasing number of organisations are looking at Total Strategic Outsourcing deals with the objective of gaining comprehensive cost and non-monetary benefits. Tapping into the large un-penetrated market will be based on a well segmented strategy and value propositions developed appropriately. Nearly 20 per cent of the infrastructure resides with global Indian firms (for example, Indian IT-BPO firms) who have mature IS approach and are well penetrated. Another 40 per cent of the firms can be classified as ‘IT savvy’ that form the addressable market. This includes verticals like telecom and government. The balance 40 per cent is a highly fragmented market space preferring the onsite management of services. This segment offers a large domestic opportunity which would be based on higher volumes and comparatively lower billing rates.
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Mega trends disrupting conventional business models

Rate of Adoption

Impact on Organisations

Impact on business

Mobility

Cloud Computing

Unified Communications

Strong Weak

ImpactMega Trend

Cha

nges

requ

ired

in

Bus

ines

s M

odel

High

Low

Extent of New OpportunitiesLow High

Cloud Computing

Unified Communications

Source: Frost & Sullivan Analysis

• Rapid adoption of cloud computing accelerates the need to define strategic roadmap and align business plans

• High impact of mobility provides industry players the potential to enhance customer value

• UC brings in incremental revenue opportunities through strategic vendor partnerships

Enterprise Mobility

Presenter
Presentation Notes
Although IS outsourcing has undisputedly been the growth engine in the last few years, the next decade will witness significant change in the provider’s service portfolio, their go-to-market approach and the value proposition offered to customers. One of the key forces causing this shift is the technology trends of enterprise mobility, cloud computing and unified communications. These are the mega trends that are radically reshaping the IT landscape of enterprises and thereby the outsourcing needs as well as the expectations from a service provider. While there will be demand for new services, some core offerings will be at risk due to rebalancing of services within ecosystem.
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Private Hybrid  Public

40

650

2010 2020

Hybrid cloud dominates the preferred cloud deployment model

Private

USD billion

Global Cloud Computing

• Managed by organisation or third party

• Flexibility for customisation • Greater control• Higher degree of ownership• Data privacy and stronger SLAs

Hybrid• Balance of on-cloud and on-

premise workloads• Best of breed solutions• Better integration and security• Mitigates vendor lock-in concerns• Demands increased management

and governance

Public• OPEX based model• Utility based pay per use model• Off-premise management• IT management responsibility with

service provider• Greater impact on infrastructure

landscape

Cloud Computing - Trends• Supply and demand side drivers cohesively result in rapid adoption rates• Drivers and delivery models for large and SMB firms are different• Growth implies a phenomenal change in the enterprise IT landscape• Enabling cloud consumption for enterprises brings in new opportunities

for application vendors, services firms and infrastructure service providers• Capitalising on the impact of cloud computing however will need re-

evalutaion of service portfolio, business models and growth strategies

Source: Frost & Sullivan Analysis, NASSCOM,-Deloitte Cloud Computing report

Presenter
Presentation Notes
The debate on whether the uptake of cloud computing will be driven by large or small enterprises is now a thing of the past. The benefits of the utility based model are now well established and realised by organisations across the globe. While different market segments may be at different stages of cloud adoption, the benefits of as-a-service model has been proved for both the categories. Concerns over data security are being addressed with increasing maturity of providers and investments in process certifications. Organisations have choices in deploying their IT equipment and processes beyond just private and public clouds. Whether or not they use the word ‘hybrid’, most providers offer configurations that combine various environments from their own product portfolios. Organisations are neither shutting down their private datacentres nor for the foreseeable future, will they migrate significant volumes of workloads from traditional hosting options, such as co-location, managed and dedicated hosting. What they will do is incorporate cloud services into their heterogeneous datacentre environments in ways that protect their operations, provide value, and reduce costs. This hybrid cloud will enable enterprises to configure and manage all their disparate IT environments: on-premises and hosted; dedicated and shared; physical and virtual. Furthermore, the hybrid cloud is the bridge to the ‘intercloud’ of the future - a vast array of standardised, accessible cloud computing resources from multiple providers, seamlessly interconnected.
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Convergence driven by need to collaborate driving demand for Unified Communications globally

Key Adoption Trends

Need for cost cutting and higher productivity

Need for multi channel communication

Global nature of enterprises Adoption of enterprise

mobility

IP Gateways

Contact CentresTele presence

Unified Collaboration Platforms

Video ConferencingVoice Mails & Messages

Instant MessagingIP Telephony

Audio/ Web Conferencing

Office Phones

Work e-mails

UC adoption is growing at over 11 per cent driven by multiple internal and external factors

Source: Frost & Sullivan Analysis

Presenter
Presentation Notes
Unified Communications (UC) converges disparate communications systems and applications to improve enterprise user productivity and enhance collaboration via uniform access on multiple enterprise communication channels. The key adoption characteristics in a UC scenario span telephony, conferencing, integration of work mails, voice mails, messaging, tele-presence, contact centres and IP gateways. As organisations move to a fully integrated workplace enabled with real-time collaboration, the evolution towards an end-to-end seamlessly integrated IT infrastructure and applications backbone is evident. The adoption of on-premise and cloud based solutions is thus witnessing strong interest and quick adoption among both developed and developing markets. As a result, the global Unified Communications market is estimated to be growing at a CAGR of 8-9 per cent. The merging multichannel communication landscape in hybrid models demanding 24*7 support access to the mobile workforce puts forth a set of new challenges for the organisation’s IT teams. The need for turnkey management of these services is creating opportunities for IS Outsourcing providers.
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Shifting customer value

Mega Trends

Changing competitive landscape

Emerging geographies

Emerging verticals

Emerging service portfolio

Devising strategies around mega trends essential for accelerated growth

2 Build value proposition around IP led differentiation

1 Define role in cloud ecosystem and align datacenter strategy

3 Strengthen end to end provisioning and SI capabilities

4 Develop operational readiness to provide business centric SLAs

5 Form strategic partnerships to bridge execution gaps

Source: Frost & Sullivan Analysis

Page 13: Is outsourcing

Cohesive ecosystem effort needed for winning value proposition over the next decade

Industry challenges

Global economic slowdown

Global competition

Skilled talent availability

Business environment

• Grooming available talent pool for new services• Aligning academia to industry needs• Inclusive growth through near shore delivery

Brand Building Industry support

• Annual conference to showcase capabilities of IS Outsourcing services providers in India

• Showcasing projects executed by firms through case studies on NASSCOM web site

• Regional chapters for RIM at Pune, Bengaluru, Chennai to provide thrust to the sector and build on the image of RIM as a sector for potential employees

• Educational initiatives to identify talent pool requirements of the industry and building industry wide interventions on skilling the available talent pool

• Governance structure of steering committee to identify key areas and driving actions like government level policy interventions

Key NASSCOM Initiatives FY2012

• Tapping discretionary spending through innovation• Strengthening client relationships with differentiated

offerings

• Strong IP laws• Mitigating customer data security

concerns

• Value beyond cost advantage• Leading the business model

reinvention from the front

Presenter
Presentation Notes
The need for transformation, emerging market segments and interests in ‘as a service models’  puts forth immense opportunities for the Indian IS Outsourcing services segment. However, to be able to capture this market potential and compete successfully in an increasingly competitive scenario, a cohesive effort by industry players and government bodies will be essential. While industry players are channelling efforts to build business service capabilities and overcome commoditisation challenges, the industry and government bodies are taking  steps for providing a conducive business environment. � One of the key steps for developing a winning story in the next decade will be to further gain customer confidence by overcoming data security concerns around offshoring. This is leading providers to invest proactively in process certifications to achieve the goal (investing in  ISO 27001 certifications). There is also the need to develop and groom a scalable talent pool equipped with domain and technical expertise for next generation services. � From a industry perspective, IS providers will need support with building a stronger “ brand India” associated with secure business environment, strong data security laws,  established IP regulations and governance frameworks. Industry participants seek assistance for  addressing the supply chain issue by improving the quality of education in India and establishing an international body that has participation from major offshore and nearshore countries. � NASSCOM has relentlessly been working with industry participants, spearheading initiatives and programs to build the sector in the country and globally thereby supporting India’s leadership as a hub for innovation and professional services.