Slowdown: IT Services now focus on value

BANGALORE, INDIA: Zinnov Management Consulting Pvt. Ltd, a leading Management Consulting Firm, has launched a study, highlighting that R&D Service Providers in the country have started emphasizing on ‘customer experience’ and ‘reinforcing greater value’ that they bring onto the table for their clients, as a resultant of the current economic slowdown.

The study said that all Indian R&D Service Providers (tier I and tier II) have indeed realized the inherent need for them to showcase value to their customers, to ensure business continuity and maximize ROI in tough times.

While it was always important for companies to stay abreast with customer business requirements, with the global dynamics changing every day, it's become imperative for Indian services companies to keep themselves tuned to the market/customer dynamics.  Understanding the customer pulse and aligning their service innovation to resonate value is the key theme for companies to emerge out of recession, it read.  

The study highlighted that majority of the tier I and tier II vendors get more than 65 percent of their revenue from their Top 10 clients. Under the current economic conditions when it is becoming increasingly difficult to acquire new clients and with existing clients looking to rationalize the number of vendors, Indian firms need to proactively approach their top clients to showcase top line and bottom line impact of their partnership to the client.

Additionally, it read that China is emerging as an extremely cost competitive destination for offshoring with billing rates lower by 5 to 10 percent compared to India, specifically for QA/ Testing and localization related activities and under current circumstances service providers need to differentiate themselves from global peers by showcasing the additional value they give their clients like innovation, access to new markets etc., and not just labor arbitrage.

“Customer retention is a direct co-efficient of customer satisfaction and experience.  Hence, it is important for companies to attract repeat business from existing customers as the cost of sale can be significantly lower and has a direct cost implication”, said Mr. Chandramouli, Director-Advisory Services, Zinnov Management Consulting Pvt. Ltd.

“History has proved that companies who have been adding value to customers and continue to do so, have weathered out any economic slowdown and market fluctuations in the long run.  Customer is the heart of any business and there is no way a company can survive (forget thrive) by ignoring to hear their voice,” he added. 

Additionally, the report brought to light that the current services market is getting way too crowded and hence it’s of innate importance for each one of these players, including the tier-II vendors to create a differentiator for themselves. While large vendors such as TCS, Infosys, Wipro and Cognizant have been able to separate themselves from the pack and establish their position at the top of the IT services market, the tier II vendors from India and few others from different countries are emerging as strong competition to them, whose manageable size and focused offerings are rapidly becoming a point of positive differentiation.

The study says that they have witnessed a lot of tier-II firms facing high cost pressures due to the economic situation off-late and hence are coming up with innovative pricing models that enable clients to share risks and rewards. Vendors are internally making extensive investments to improve delivery, quality, governance and metrics.

 “Larger deals are hard to come by in the current market. Further, managing cash flow for continued operations will be crucial for the next few months given that clients are pushing for rate reductions as well as delayed payments. Therefore, repeat business from existing clients become utmost important”, said Chandramouli.