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