Indian outsourcers keep investing in consulting

BANGALORE, INDIA: Indian IT outsourcing suppliers continue to invest in consulting capabilities, despite this strategy yielding minimal returns globally, according to consulting and research firm Everest Group.

The study, 'IT Consulting as a Catalyst of ITO – The Pursuit of a Vague Synergy' identifies that although IT consulting services often lead client companies toward outsourcing, there is no evidence that outsourcing suppliers with consulting practices perform better than suppliers without consulting units.

In spite of this, the Indian suppliers have been active of late in acquiring or building their consulting practices. There have been no less than 9 acquisitions targeted at obtaining consulting capabilities during 2007 and 2008, by Indian outsourcing suppliers like HCL and Patni, Everest said in a release.

The study characterizes the IT consulting market in terms of size, segments and models; analyzes the linkage between drivers of IT consulting and IT outsourcing; and provides recommendations for buyers and suppliers to develop successful business strategies.

Everest estimated the total IT consulting market to be $116 billion with package implementations driving nearly 40 per cent of engagements.

Consulting engagements position enterprises for transformation which may lead to higher readiness for outsourcing, and IT outsourcing suppliers are pursuing this linkage between consulting and outsourcing by establishing consulting practices or acquiring consulting companies, according to the study.

While some U.S. multinational suppliers are implementing this strategy, Indian outsourcing suppliers have been particularly active over the past five years in acquiring consulting practices and are projected to continue building or enhancing consulting capabilities.

“The relationship between consulting and outsourcing is complex and is subject to multiple interpretations. The most common notions in supplier strategies are that business consulting increases the chances of winning outsourcing deals and IT consulting leads to downstream outsourcing work,” said Nikhil Rajpal, principal, Everest.

“However, a few suppliers are successful in grabbing the purported benefits because buyers may retain flexibility by selecting a different supplier for downstream outsourcing work. Historical market observations show many suppliers’ previous efforts were not highly successful,” Rajpal added.

Evidence of the consulting-outsourcing disconnect is that suppliers with consulting practices haven’t grown outsourcing revenues beyond competitor suppliers that don’t invest in consulting services, the study said.