The middle order challenge

This is a story waiting to be told. A story of how midand small-sized systems
integrators (SIs) and solution providers in the country are fast ramping up
their services business. No longer contended with the fringe margins, offered by
pure hardware solutions, these SIs today are investing time, money and people to
ensure that their service offerings contribute a significant share to their
toplines and even more to the bottomlines. And having scaled up the entire value
chain of products, they are now looking to make a similar climb on the value
ladder of services.

Share in the Revenue Pie

A quick look at the revenue break-up of many mid-sized SIs (with revenues
between Rs 20-200 crore), and one can notice a very significant affinity towards
services. Most of these companies today have between 20-30 percent revenue
contribution, coming from services while in terms of profitability, it goes as
high as 50 percent. Even the growth in service revenues on a year-on-year basis
has been between 30-50 percent for these players. But growth figures apart,
noteworthy is the fact that these SIs are looking much beyond AMCs. Today their
service portfolio proudly speaks of offerings like facilities management,
application management, network design and audit, disaster recovery services,
information security services, remote management and even consultancy to some
extent.

Not only that, they are also adopting frameworks like ITSM (IT Service
Management) for service delivery and going for stan-dards like BS 15000. Another
significant trend that's giving these mid-sized SIs an advantage over other
bigger players like HP Services, IBM Global Services or Wipro Infotech, is their
increas-ing geographical footprint in the domestic market. Companies like Allied
Digital boast of a direct presence across over 50 locations in the country while
others like Network Solutions, Apara Enterprises and Omnitech Infosolutions too
talk of similar reach (either directly or through partners). This clubbed with
the inherent cost-advantage that they carry by virtue of being a mid-sized
organization has made the landscape very competitive.

On a different note, HP Services, IBM Global Services and Wipro Infotech even
engage a large number of SI partners like the ones mentioned above for last-mile
service delivery or implementation. "In fact, more and more partners would
be responsible for carrying out last-mile activities for the projects acquired
by us in the days to come. Currently only 20 percent of that is done by
them," said Rajat Mathur, Business Head-Solutions Division, Wipro Infotech.

Product Development for Differentiation

What makes the entire domestic services more exciting is the deft move by
these mid-sized systems integrators to enter into the indigenous product
business apart from custom application development. Quite a few of these have
put large resources to develop software products in-house that they are clubbing
with their overall solution. These companies claim the products to be at par
with similar solutions offered by many MNC vendors. Netsol, for example, has
used its expertise in the network integration business to develop tools for
network management, application management and help-desk or other
service-related functionalities. Last year, the company did a business of Rs 8
crore purely from its software tools (SNAPiMON, QWAN, WAN Insight, IP Meter, AV
Detect, coDesk, etc).

Some of the integrators have even started productizing their service and
support offerings. This way, they are finding it more easier to get their
customers pay for the same. However, making them realize that any kind of
service comes at a cost, is a big challenge that these SIs continue to face.

"Making our clients appreciate and hence pay for the value that we add
by way of our service offerings is a Herculean task as services are still an
intangible entity. Hence productization of the same helps to an extent,"
said Bimal Raj, CEO, Allied Digital Services. Another noticeable development is
that most SIs have converted their service activity into independent cost
centers. This way, they ensure that their services team doesn't come under
undue pressure from product sales team to compromise on pricing.

Further, realizing the fact that profitability factor is much higher in
services, the integrators are not shying away from investing on training and
certifications to further ramp up their service capabilities. "Around 6
percent of our last year's service revenue is invested back on training alone
and we intend increasing the percentage in coming times," says Avinash
Pitale, director, Omnitech Infosolutions, adding, training investment to improve
service capabilities in niche areas would differentiate it from competition more
distinctly.

Entering Foreign Waters

Finally, this is one move by the mid-sized systems integration organizations
that would surely make the big five players sit up and take notice. They are
going offshore!

While until recently, only large SIs like Wipro Infotech, CMS or Tata
Infotech were offering a bouquet of services in the interna-tional market, the
mid-sized players have also joined the party. And between them, they are
spanning the better part of the globe with their diverse infrastructure
management service offer-ings. Currently, Middle-East and African markets are
the hottest among these players. Moreover, recognizing the immense poten-tial
that exists in the emerging trend of total IT outsourcing, the SIs are also
sprucing up their infrastructure and skill sets to remo-tely manage the IT
infrastructures of global clients. Companies like Netsol have already put in
place a Remote Management Center (RMC) to monitor and manage IT infrastructures
existing in foreign shores. Companies worldwide are looking at improving their
RoIs on IT investments, outsourcing the management services to low-cost yet
highskill destinations like India is inevitable as is already evident by the
ongoing BPO boom.

Realizing this fact early enough, the mid-sized companies are slowly exiting
the game of Rs 500 per PC-kind of AMC business to graduate into becoming
value-added service companies. And in the way software services exports are
currently bringing wide recognition to India, domestic service business-with
significant impetus from these mid-sized SIs-too promises to shine brightly on
its own. And soon!

Goldie