Verticalization and Indian IT Services Vendors

Verticalization is the process of adapting to a vertical market. Vertical is a group of similar businesses and customers that engage in trade based on specific and specialized needs. IT service vendors have to focus on key verticals and organization are structured with key verticals in focus so that the vendors can focus deeply on the client needs and develop specific capabilities which in turn leads to significant revenue for the organizations. While working with clients’ overtime the vendors develop significant domain knowledge and capabilities and they have to exploit such knowledge for the organizational growth. This will not only help in acquiring new clients but also in retaining the existing clients.

Strong vertical focus and skilled manpower for the specific verticals have worked well for couple of the Indian Vendors like TCS and Cognizant. Infosys and Wipro that initially had such focus have lost focus in between and presently realigning themselves again back. The explosive growth that Indian IT services vendors saw over the past 10 years have been tremendous and the vendors have to constantly adopt to the growth in revenue and employee numbers. Expanding into new geographies and focus on client acquisitions and competition has forced the vendor organizations into complex structures that were not only causing internal conflicts but also affecting the organization growth in terms of revenues. Simplifying the organization structures have suddenly become the only solution and vendors are forced to adopt the Verticalization strategy.

TCS had restructured in 2008 into five major groups — industry solutions, major markets, new growth markets, strategic initiatives and organization infrastructure. The industry solutions group have multiple units, each focusing on the verticals for existing clients and with a director empowered to independently develop resources, technical expertise, financial support and responsible for P&L. This structure helped TCS to ride over the Global recession and have seen good revenue growth in the past three years. TCS has also performed well in their strong verticals like BFSI and has also entered into new verticals and seen good growth all around.

Cognizant Technology Solutions was the first player to have adapted the Verticalization strategy in early 2000. Initially Cognizant decided to specialize in the verticals of financial services, information services and healthcare. Cognizant had achieved not only achieved significant revenues from these verticals but also dominated these verticals for long time. Strong client relationships, domain knowledge gained through project execution in verticals and hiring practice leaders with strong vertical expertise was the success mantra for Cognizant success. Cognizant also acquired companies in the key focus verticals and this has led to it becoming the fourth largest vendor and is soon going to get into the Top 3.

Infosys restructured in November 2007 into six vertical Industry Business units and five Horizontal Business Units which cut across all the verticals. Infy planned to enhance the One Infy experience for the clients and targeted new markets and increase the employee participation and develop the new generation of leadership. The strategy seemed good but it did not deliver the expected results. There were internal conflicts like clients were being approached by multiple teams with multiple offerings. In 2011,to overcome this Infy collapsed six verticals to four (as two of the verticals have low revenues) and new organizational structure will have the verticals as pivot. In the new structure there will be many heads of geographies and several heads of service lines, working closely with the vertical head. The vertical heads will be acting as 'CEO’, make M& A decisions, hire talent and manage their own P&L.

Wipro has been through lot of turmoil through the first three months of 2011. The company scrapped the Joint CEO model and started major organizations rejig. The joint CEO model was adopted in 2008 that lead to more of geographical focus and less of vertical focus and both the CEOs have split responsibilities which even worsened the organization structure. The new CEO has divided Wipro into six verticals, each led by a senior vice-president and P&L and client responsibility now rests solely within the vertical and also have dedicated sales and delivery teams aligned to them.

It is a fact that all the Indian IT Vendors have to deal with geographical development and constantly develop new initiatives to keep up the growth along side the Vertical focus. New geographies like Asia Pacific, Africa and Europe hold significant interest for all the vendors and they have to constantly invest in developing new delivery models and initiatives. India is also one of the biggest market and all the vendors are fighting for the pies. The best strategy adopted by all India IT vendors is to bring all the verticals under one group separate from the new markets and new initiatives. Vertical Heads with autonomy have strong focus and better revenue generation. This will also help in providing the complete solution specific to the verticals.

Discussion Points:

1. What is the best Verticalization strategy for the Indian IT Services Vendors?
2. What will be the effect of the Verticalization on the Clients and internal Organization structure?
3. Will Verticalization strategy work for all the vendors? If not reasons for failure.
4. What will be the overall affect of Verticalization on the Organization?

Web 2.0 Networked Enterprises – Indian IT Services Providers

Web 2.0 include social networking sites, blogs, wikis, video sharing sites etc that allows users to interact and collaborate with each other.  These collaborative technologies are widely being used in the organizations to connect the internal employees of the organizations to share knowledge and expertise that ultimately benefit the clients and customers. These platforms engage employees and encourage them in providing the innovative ideas and discuss and collaborate on the ideas and control attrition. Management also used such platforms as a two way communication channel with employees and invite ideas form employees to tide over the recession and Indian IT service vendors used these well in recent recession. McKinsey has studied the enterprise use for the past four years and found that the adoption has increased tremendously in organizations, saw significant rise in their margins and market share gains and improvement in customer/client relationships.

Tata Consultancy services (TCS) developed a platform called Ultimatix which helps to consolidate internal systems and take advantage of group knowledge. TCS invested in this platform of wikis, personalized sites, blogs that not only bring employees together but also help employees to collaborate for organizational benefits. Justask is similar to that of a Q&A forum that enable employees to ask questions openly, Ideamax encourages employees to share their ideas about a particular technology or a process. Ultimatix integrated 50 core applications to streamline operations and internal collaboration for more than 700 business processes. It integrated all internal processes, including HR, finance, and project management, to support over 100,000 staff.

Infosys intranet Sparsh, the information intranet of Infosys, allows every single member of Infosys to be connected at all times was rated among the world’s top 10.  It serves as an internal social network, and members can exchange ideas by email, bulletin boards and can also hold discussions. Sparsh has helped Infosys in reducing operating costs and meeting clients’ needs even more efficiently, and increase in operating margins. Sparsh is coupled with KShop; a knowledge database where Infosys has book reviews, case studies, even materials, FAQs, tutorials, downloadable software etc for every employee.

Wipro intranet is called as ‘Channel W’, which was launched in 2000 is a communication channel. Employees can discuss what is happening inside the company, share ideas/thoughts and post advertisements (such as, looking for an apartment or selling old furniture) in their discussion boards. The intranet provides a platform to share knowledge among Wipro employees and collaborate with one another across various locations. Wipro launched ‘My Wipro World’ in 2009 on the Web 2.0 platform which is an evolution of ‘Channel W’.

Cognizant spent nearly $10 million on its C2 platform according to IDC. Cognizant 2.0 maps the entire workflow, across varied skills, geographies and business units and it reduces time to identify the best team for the project. The network connects associates, clients, and stakeholders and also helps to share knowledge using blogs and wikis, and manage projects using consistent tools and process. The C2 has around 60,000 active users and the site records over six million page views every month.

HCL Technologies has many initiatives such as social network called U&I that employees can use to interact with CEO, Communities called Employee First Councils around health and hygiene, art, music, corporate social responsibility and business related passions such as a particular technology or a vertical domain area, My Blueprint, another social networking system allowing managers to share plans for their specific business areas and get feedback from another 8000 HCLT managers. The company Employee First and Customer Second policy itself highlights the importance for a strong intranet within the organization to engage in open dialogue with his employees.

Adoption of Web 2.0 technologies into the organizations and use of these technologies by employees on a day to day basis have lead to good operating margins and increase in market share for the organizations. Employees actively participate in such initiatives which will lead to reduced attrition and increased productivity. The organizations can take a step further and use these technologies in managing their relationships with customers which will be a win – win situation for both the parties.

Discussion Points:

1.      How to adopt and invest in Web 2.0 Technologies and how to integrate into Organization?

2.      How to encourage the employees and other stakeholders to actively participate and derive the benefits?

3.      How can organizations profit from Web 2.0 Technologies?