Information technology companies are realising that just adding to their headcount (termed linear) is no longer enough.
Both Indian and multinational IT companies, including HCL Technologies, TCS, IBM, Infosys, Satyam, Wipro, Genpact, and NIIT Technologies, have implemented a host of non-linear initiatives, such as the reuse of assets and codes, the creation of templates and intellectual property (IP) and the use of platform business process outsourcing (BPO).
The concept has been around for over a year, and the platform model is also known as ‘software as a service’ (SaaS) for BPO. These initiatives are paying dividends by increasing their operating margins per employee, while simultaneously reducing capital expenditure for their clients, according to analysts.
Platform BPO, for instance, involves a bundling of technology, consulting and BPO, and helps in offering models which can be replicated, with some customisation for new customers, instead of reinventing the wheel. Around 40 per cent of all IT services are estimated to come as templates. This helps in saving costs.
HCL BPO, the business process outsourcing arm of IT major HCL Technologies, has been able to reduce costs by 15-20 by such use of non-linear initiatives, which include a platform-based BPO.
The BPO division contributes 9.3 per cent to HCL’s total revenues according to the company’s figures for the quarter ended September 30, and employs 11,362 people. HCL BPO has moved to an outcome-based pricing model from its current input-based model.
If it were to continue its linear growth (headcount-related) strategy, it would require 50,000 staffers to become a billion-dollar business, which is unsustainable from a cost-point of view.
“We are looking at more platform-based services from data which will focus more on automation and less on manual services. Also, the technology headcount has been reducing year-on-year because our business is using less manpower. Automation and centralisation have been the two pillars of this non-linear approach,” says Vijay Reddy (Head – Technology). At present, there are around 200 people for the IT and infrastructure part of the business.
As part of this drive, HCL BPO is automating its IT management platform, by which the number of complaints can be reduced by 50 per cent in a year. The platform was launched three years earlier. This process of rejigging the IT platform started three months before and the new platform will be implemented by 2010. “This is also a part of our strategy for reducing network and services costs. The new platform will give more visibility to the end-user and businesses will know what is happening to them,” adds Reddy.
India’s largest IT services provider, Tata Consultancy Services (TCS), was the first to identify and invest in various non-linear opportunities, namely, software products, platform BPO and software as a service (SaaS), as well as focus on unit-priced contracts, according to Macquarie Research Equities analysts. Infosys Technologies has a supply chain management (or ‘Procure-to-Pay’) platform in alliance with SAP and an HR (‘Hire-to-Retire’) platform with Oracle/PeopleSoft. It also has offerings in the software as a service (SaaS) space.
Global IT giant IBM, too, has an asset-based model as opposed to a labour-based one. It has created assets around each vertical. It re-uses these assets even as it creates “industry templates” that serve as roadmaps in understanding verticals and the players within. For instance, most telecom companies grew by acquisitions.
Wipro, on its part, is known for its capabilities in the infrastructure management services (IMS) space and gets around 12 per cent of its revenues from such services — it has the largest IMS practice among peers. Wipro has been able to capitalise on the experience gained over the years in managing customers’ infrastructure and offers element-based pricing (i.e payment per server, desktop, network switch, etc) for IMS contracts.
The maturing of the new non-linearity initiatives and generation of higher-than-average earnings before interest and tax (Ebit) per employee, predict Macquarie analysts, should provide the leeway for investments in more non-linearity initiatives.
