Saturday, September 15, 2012

IT companies should not over reach themselves


India's big IT companies are building strong consulting practices that are taking them into spaces traditionally dominated by the likes of Accenture, Deloitte, PwC and even McKinsey and The Boston Consulting Group. 

Infosys' $350-million acquisition of Switzerland-headquartered Lodestone, a consulting firm focused on SAP-enabled business transformation, is only the latest indication of how serious IT companies have become about consulting. 
Cognizant has been organically building its consulting business but has also made five global acquisitions since 2005 that have strengthened its consulting capabilities in telecommunications , media & entertainment, IT infrastructure services , high-end programme management and IT testing. 

HCL acquired UK-based Axon in 2008 that brought capabilities in SAP consulting. Wipro has been focusing on business transformation consulting and its head of consulting services Kirk Strawser has said the company intends to become "the largest pure-play business transformation consulting practice in the world" , with 5,000 consultants by 2015. 
The company now has 1,750 consultants that offer advisory services on designing, adopting and operating new business models to outpace competitors. 

Sundararaman Viswanathan of globalization advisory firm Zinnov Management Consulting says Indian IT companies are increasingly seen as viable options for some of the costlier offerings from global consulting companies. 

For IT companies, consulting brings at least two big benefits . One is, as Gartner India's distinguished analyst Partha Iyengar says, they make for "stickier client relationships". A lot of consulting happens not with the CIO - the traditional interface for IT - but with other CXOs. This helps get mindshare in company managements and boards, which then translates into deeper and longer-term client relationships. 

"We sell 40% of our consulting services through CXOs such as CEO, CFO, COO, chief medical officer, chief marketing officer, chief risk & compliance officer, and chief merchandising officer," says Nat Radhakrishnan, VP in Cognizant's business consulting division. He says in the last one year, consulting also helped to get 25 new clients for Cognizant. 

The second benefit is the downstream one. Most consulting assignments will eventually translate into IT orders, because any business change and transformation today involves technology transformation or the use of technology. Iyengar notes that Cognizant has a strong application portfolio management practice. 

"If a customer hires Cognizant to analyse their application portfolio, and the company spends 6 months doing it, then the customer will inevitably also give the recommended application work to Cognizant. I believe a lot of their application development and maintenance deals are a result of their strong consulting practice," he says. 

Acquisitions can accelerate and add to these benefits. An acquisition not only brings new consultants with access to new customers and geographies (which will eventually help the IT business), it could also bring better tools and frameworks to diagnose problems and recommend new ways. 

It is these reusable tools and frameworks that are a consulting model's strength. Ray Wang, CEO of Constellation Research, says Lodestone's methodology and culture would transform Infosys. "Lodestone brings its trademark IDEA methodology . IDEA represents insight, design, execute and achieve. This approach aligns with Six Sigma standards and SAP ASAP (the roadmap for implementing SAP solutions in a cost-effective , speedy manner ) to improve the quality of implementation outcomes," he says. 

Gartner's Iyengar, however, warns that IT companies should not over-reach themselves. He says consulting's sweetspot is when a company strategizes around the work (IT services in this case) that it is doing; suggest to clients how to do their IT better, how to optimize. 

"But if you try to do high end management consulting (organization design/structure, general strategy etc that the McKinseys do), it may not work out. Many clients have told us the last thing they want from India is another management consulting firm. We don't have the capability and maturity to provide such consulting. And acquisitions will not help either," he says. 

He believes Infosys has tended to get into high end management consulting in the US. "The jury is out on that. There could be short to medium term challenges," he says. 

Cognizant has also been reaching into those spaces. It's working with Saint-Gobain Building Distribution in the UK and Ireland to improve its business processes, and identify areas of improvement and unlock synergies among its many brands. 

It's working with a publishing company to transform them into an integrated media play. Technology is just a small part of these exercises. 

On the contrary, Wipro seems focused on technology-enabled business transformation consulting (transforming businesses through, say, newer technologies like mobility, cloud etc), which some find appealing. 

Research firm Forrester recently analysed IT firms that are into such consulting and said that amongst the pure-play Indian IT vendors, "Wipro is the most advanced in terms of its approach and its vision for transformational consulting".

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