As we move to what Forrester calls ‘The Age Of The Customer,’ enterprises will need to reinvent themselves to systematically understand and serve increasingly powerful customers, we are seeing a notable shift in what the business expects from IT. IT requirements are increasingly being influenced by the business leader who wants technology to not just enable efficiencies but to also provide an edge over competition by helping to develop things like new marketing and sales channels, and applications that provide greater insights on buyer behavior and what influences them.
By 2020, we anticipate that evolving customer expectations will open up tremendous opportunities for businesses, but at the same time, they will evolve so rapidly that businesses that are unable to keep pace will face the threat of extinction. Therefore, the need of the hour is for speed. Getting software products and services to market quickly, cutting product development costs, while continuing to maintain high standards for flexibility, nimbleness, and time-to-market – this is leading to a tremendous increase in interest around Agile development.
Many organizations have already adopted Agile to some extent within their organizations. According to Forrester’s Forrsights Developer Survey Q1, 2013, 19% of developers stated they use Agile (Kanban, Scrum, TDD, XP). However, most of these initiatives are primarily in-house – Forrester’s Agile Survey Q3 2013 showed that the majority of organizations continue to use Agile more widely in-house, than with systems integrators.
Infosys held their 3rd annual analyst meet in Boston on the 30th of July. There was none of the usual hullabaloo about growth in revenues or the usual marketing speech that characterizes such events. Instead, Infosys focused on talking about initiatives around Agile, updates about their Edge portfolio and Cloud-based offerings. So, where are they on their 3.0 journey? What have they got right? What more needs to be done?
Infosys’ 3.0 strategy stretches over at least 7 years (both 1.0 and 2.0 lasted about 15 years each) and they are at the tail end of year 2 of the journey. Infosys 3.0 is driven by a focus to be more client-centric by focusing on non-linear growth and increasing stickiness through a vertical-specific go-to-market strategy. This will be supplemented by increasing geographical closeness to clients and supported by a deepening of their horizontal technology portfolio. The ultimate aim is to totally revamp their revenue mix with a heavy focus on driving growth through consulting and products, with objectives to derive 40% revenues from consulting & SI, 20% from products, and the remaining 40% from their traditional basket of business IT service offerings.
Consulting & SIis doing remarkably well and contributed about a 30% of Infosys’ revenues for FY13. The addition of Lodestone has added muscle to their consulting business and this service line may well cross the target of 40% revenue contribution within the next year or so.
On June 6, iSoftStone announced plans to make the company a wholly owned subsidiary of China Asset Management Co., Ltdand delist from the U.S. stock market. This is the fifth IT services (ITS) provider headquartered in China to announce plans to go private in the past 9 months. The others were Yucheng Technology, AsiaInfo-Linkage, Camelot and Pactera.
Why are these firms going private? Despite ambitious global growth plans, Chinese ITS providers have largely failed to articulate a compelling value proposition to U.S. and European clients. By focusing mainly on low-end application development services they have instead primarily competed with much bigger and much more experienced Indian providers – but without the ability to offer lower costs. In fact, the average profitability of Chinese ITS providerswent down from 10-15% to less than 5% over the past 2 years, when most large Indian firms are in the 15-25% range. Going private will give these5companies a chance to transform their current model relieved from the quarterly pressure to meet Wall Street analyst expectations.
Existing and potential customers of these ITS providers may have concerns seeing these providers going private, particularly regarding overall company transparency, including financial strength and corporate governance. I believe clients will have to balance their concerns against the potential benefits that going private may deliver, which include:
While not the top priority, more than a quarter of respondents to Forrester’s Forrsights Services Survey, Q2 2012, stated they were looking to implement or expand their use of offshore resources. Motivation for new offshore geographies is driven by a range of factors, from seeking new sources of talent to risk mitigation, cost savings, innovation, and local market knowledge and access.
My recently published report analyzes the attractiveness of the three largest economies in Latin America as outsourcing locations: Brazil, Argentina, and Mexico. Latin America presents an attractive location, particularly for US and Canadian companies. However there is wide variation in the suitability between different countries. Some of the high-level findings of the research include:
Brazil has clear strengths with its size, scale, wealth of IT skills, and array of local service providers such as BRQ, Ci&T, and Stefanini. Most service providers are focused on the domestic market, however, and don’t have the same export focus as providers in other countries. In addition, overly complex legislative and bureaucratic hurdles, as well as, to some extent, language issues, continue to prevent it from reaching its potential. Ci&T however is one exception, providing a model for Agile development and entrepreneurship.