Blue Ocean Strategy (BOS) – Aditya Birla Minacs India

Aditya Birla Minacs ranks 8th among the top 10 Indian ITeS companies with revenues of Rs. 1,692 Crore (USD 375 million) ending march 2011. The company offers Customer Lifecycle, Marketing, Finance and Accounting (FAO), Procurement and IT solutions and services.  FAO contributes major part of revenues and it is a second tier FAO player and with intention to ramp up its offerings, UK-based F&A services provider, Compass BPO was acquired for an undisclosed sum in March 2010. The acquisition would give entry into sectors like foods &beverages and US government business where they don’t have any footprint. Presently Manufacturing (54%) followed by TIME (Telecom, Technology Infrastructure, Media and Entertainment) (33%), Banking and Financial Services (12%) and Insurance and Healthcare (1%) contribute to revenues.

Aditya Birla Minacs has set a target of US$1 billion in revenue by 2013 and it plans to achieve this through both organic and inorganic routes. To achieve this target company is looking for further acquisitions in FAO space and it is also looking at acquisition in the cloud computing area and infrastructure management segment. Another area of focus is the IT enabled BPO services like the Sales and Marketing Support services which currently contribute 25% of revenues and plans to increase it to 50% of revenues in next three years. The margins in these services are 8-10% higher than traditional BPO services. The company is planning to provide end-to-end solutions by bundling people, process and technology. It also adopted Blue Ocean Strategy for the FAO segment growth.

Blue Ocean Strategy – FAO Market

Target Market Led - The market lies in the Mid-market & SMB players who are looking for cost reduction and profit maximization through process improvements, both in North America and EMEA and this segment is expected to grow until 2015. Asia Pacific market is the second target market as the FAO in this region is gaining momentum and present good opportunities for growth. APAC market presents challenges in terms of low tech adoption, manual and non standard processes. SMBs are often neglected by large players and often left out for medium players; hence it is a good opportunity. With North America and Europe slowing down the company has no other option but to look at APAC and Middle East region for improving the revenues.

Process & Domain Led - FAO has become matured market and highly commoditized business. Analytics Services, Industry & Domain specific services, Spend Analysis, Procure to pay services and Financial Planning & Analysis services help the providers to differentiate from the others. Services that address the CFO and Finance department needs and have impact on the balance sheet of the clients generate higher billing and increase the revenues. Clients are looking for more value addition, innovation and transformation from vendors and thereby evolving from playing tactical vendor role to being of strategic benefit to clients.

Technology Led – Technologies like Oracle, SAP, Cognos, Crystal Reports, Qlik View, Deltek & Yardi are used to deliver various services to the clients and also develop end-to-end managed platform for Automation. BPO players are forging alliances with the technology players particularly F&A and Business Intelligence players to develop platforms and products for the clients. Automation of the processes will help in reducing costs to the clients and platforms and products help in. Customers also benefit from hosting and data service centers and optimize their costs by deploying Virtualization of hardware.

Aditya Birla Minacs is supplementing the Blue Ocean strategy with low cost development centers, near shore centers and centers in North America. It has 35 operations centers in Canada, Germany, Hungary, India, Jamaica, the Philippines, the United Kingdom, and the United States. The US contributed 71% of revenue while Canada, Europe and India contributed 15%, 6% and 8% respectively. With Europe debt crisis and US slowing down the company is focusing on improving its revenues from APAC and Middle East regions. The company is building capabilities, expanding into new regions, planning to do further acquisitions to improve the revenues and achieve the target of US$1 billion in revenue by 2013.

The company is expecting tight monetary and economic conditions will force the clients to look for cost reduction, process improvements and help in increasing the profitability. It is also focusing on providing high end services and moving up the value chain. It expects the outsourcing market to see positive growth in the future and is focusing on increasing global footprint, its capabilities and multiple industry verticals. But the target of reaching US$1 billion in revenue by 2013 is looking tough unless it acquires a large player or multiple small players. The company is still around US$ 400 million range and market rumors that the current management is planning to sell stake to Private equity players who can bring in money and clients or sell out completely.

Discussion Points:

1. Will Blue Ocean Strategy help in achieving the Organization goals?
2. In the highly commoditized FAO market will this Blue Ocean Strategy Work?

Third Party Data Center Market in India

The Indian data center market is forecasted to be around US$ 2bn by end of 2011 and third party data center is estimated to be around 25% to 30%. According to IDC, third party Data Center space in 2009 was 2 Mn sq. f.t and is estimated to grow at a CAGR of more than 30% and reach around 9 Mn sq. f.t. by 2014. Brokerage Analysts forecast 6-7 mm sq ft of new data center space requirement by 2014, of which over 90% will be used to hosted / outsourced data centers. Springboard Research (Forrester Acquired) estimated third part data centers market to reach US$1.1 billion by 2015 (CAGR 29% 2010-15).

Source: IDC & Springboard Research

Key Growth Factors

Third party data centers are expected to drive growth in Indian Data center market and expected to grow faster than the Captive data centers. This growth is driven by enterprises that are looking to reduce IT infrastructure costs (CAPEX Costs) and reduce management focus on IT and focus on core processes. Other pressures like increasing productivity, requirement of highly skilled technical consultants, huge maintenance costs are also forcing the enterprises to depend on third party data centers. Third Party data centers offer superior expertise that are critical for reliably running the data center, end to end processes and solutions and scale of operations also help in reducing the cost.

Dropping International bandwidth cost is another growth driver that led to growth. Compliance to clauses of the Indian IT Act (maintaining records for 7 years and messages for 5 years) or ISO certification is another major trigger for rise in demand for data centers. Adoption by Small and Medium Business is fast increasing which is another factor. Third Party data centers are moving from co-location services, which presently contribute more than 55 percent of revenue, to managed services and cloud based services like Infrastructure-as-a-Service (IaaS) and Platform-as-a-Service (PaaS).

Key Concerns

One of the major concerns of third party data center are reliability in terms quality, server downtimes, network connectivity, maintenance , security-both physical and virtual like hacking, spam, viruses, data theft, natural calamities, corporate espionage, and intellectual property. Security has emerged as the most crucial concern of potential customers. There are more concerns like reliability-respect for SLAs and during events like server downtime, network connectivity, and expertise to take up L3 & L4 services. Comprehensive Service level Agreements (SLAs), regulatory compliances, security audits, uptimes, disaster recovery plans, latency issues, energy efficiency and quality in terms of capacity, availability and security requirements have to be clear between the customers and the third party data centers to avoid the migration concerns.

Key Vertical Adoption

BFSI, Manufacturing, Public Sector, Telecom, Retail and other verticals are the drivers of growth. Improved reliability, lower capex, technology skills and expertise, disaster recovery plans, data storage and security, comprehensive SLAs and bundled services offered by third party data center service providers have led to increased adoption of third party data centers. 

Central & Eastern European IT Outsourcing – 2011 Market Overview

IT Outsourcing to Eastern and Central Europe is on the rise and the market comprises of sixteen countries Ukraine, Romania, Hungary, Poland, Czech Republic, Belarus, Bulgaria, Estonia, Serbia, Slovakia, Lithuania, Croatia, Moldova, Latvia, Slovenia and Albania. This market has seen good YoY growth since 2009 (31%) and 2010 (24%). Growth was very low in 2008 (2%) due to the global financial crisis. Total revenues were close to US$ 5Bn in 2010. Eastern European outsourcing handles tasks that are more complex and knowledge-intensive; IT projects like software engineering and R&D which require expertise and innovation. Young and talented IT professionals in this region are low cost but handle low-level as well as high level projects which include developing software for financial institutions to developing sensitive software for defense projects.

Education and Scientific Culture

Erstwhile Soviet Union has to be credited for scientific education that most of the countries in this region have. Ukraine, Belarus that were part of Soviet union and the countries like Poland, Hungary, Romania and most of the other sixteen nations share borders with communist Soviet Union that needed people with technology and engineering brain for the high technology oriented industries like space, heavy engineering and defense. The need led to an productive education system with large number of universities with big scientific faculties have been set up for quality technical education and the popularity of engineering and scientific professions have spread throughout the occupied and allied Eastern countries.

Central and Eastern European region has the highest concentration of scientists, mathematicians and highly qualified technical engineers. Many of them migrated to US and Europe, during and after the collapse of Soviet Union and were able to integrate themselves in those countries and rapidly grew in the organizations and attained key positions. Some of them even became highly acclaimed and successful entrepreneurs in the IT Industry. The scientific culture and educational system still prevail to this day and companies have realized this potential and have been utilizing it successfully for the growth of their businesses. Not only the high skilled processes but also the low skilled processes such as BPO processes like payroll, Finance and Accounting, HR etc are also being outsourced to the providers in this region. BPO industry is fast growing.

Key Country Analysis:

Ukraine has seen good 25-35% growth in the past two years and it is expected reach US$ 1Bn in revenues in 2011. Software development, software testing and application maintenance are major services that are offered.  With favourable tax regime and more than 20,000 professionals in the industry, Ukraine is expected to keep its market dominance in the region. English language proficiency is an area of concern. Highly qualified and technically skilled professionals are the key for Ukraine outsourcing success. AT Kearney 2011 Global Services Location Index (GSLI) rank 38.

Romania is the second dominant player in the region which is a well known destination for outsourcing like IT services and support, contact centers and back-office support. Around 100,000 professionals are employed in this industry with major Outsourcing vendors like, Genpact, Wipro, etc and MNC players like HP, Oracle etc have set up operations here. Even without much support from the government, Romania with its multi lingual skilled population is attracting lot of outsourcing business. Infrastructure in Romania is also good for the industry. AT Kearney GSLI 2011 rank 25.

In the Eastern Europe region, Hungary has a 25% share for Outsourcing and sector is relatively well developed. Many international players like Morgan Stanley, GE, Nokia etc (also Indian outsourcing players like TCS, Genpact) have local delivery capabilities built. Application-related outsourcing, payroll & HR management, accounting and billing are the key processes outsourced here. Budapest is known as the most desirable outsourcing destination in the whole region. Hungary has seen steady growth (27%-33%) in revenue terms in past two years. AT Kearney GSLI 2011 rank 31.

Poland is a high skilled destination for IT outsourcing. Polish ITO and BPO providers are capable of serving the wide variety of services that are in huge demand. Poland is among the top 10 preferred Outsourcing Nations due to highly-qualified IT community and world-class education system. Krakow and Wroclaw are the latest preferred outsourcing destinations developed by Poland government and the government provides incentives for this sector. Poland has seen good growth (30%) in past two years. Multi lingual capability is an advantage. AT Kearney GSLI 2011 rank 24.

Czech Republic has seen normal growth (15%-20%) in the past two years. Apart from the low cost and proximity advantages the country also has highly skilled professionals and good education system which is helping it in becoming a dominant player in the Knowledge process Outsourcing Industry.  Prague has been a well know outsourcing destination for the past ten years.  Many MNC like IBM, Accenture, and Microsoft have all set up operations in Czech Republic. AT Kearney GSLI 2011 rank 35.

Belarus outsourcing industry survives due to the availability of low cost resources and support from the government policy –“IT Country”. Other benefits are large local pool of talent with high quality of education, geographical and cultural proximity to Europe. The presence of bigger outsourcing vendors focusing on Germany, here is a testimony of the fact of presence of highly skilled labor force. The market has grown around 24-28% in past two years.

Bulgaria has good potential in outsourcing industry and is expected to grow by about 50% in 2011. Analytical skills, language skills, cultural and geographic proximity, low tax rates, are the basis of competitiveness. BPO followed by ITO is the predominant form of outsourcing. High knowledge and competence are critical success factors. Majority of the outsourced work come from the UK, US and Germany. MNC like Microsoft, CSC, SAP, Boeing, Ford, Nortel etc have centers in Bulgaria. AT Kearney GSLI 2011 rank 17.

Estonia has pool of highly educated, tech-savvy workers; a modern telecommunications infrastructure; and low cost of operations that has attracted companies like eBay. Since it gained independence, Estonia has invested significant resources in improving its technology infrastructure. Tallinn is the major outsourcing destination in the country. Work is mostly outsourced from the Nordic region, Russia, Poland and Germany. AT Kearney GSLI 2011 rank 11.

Serbia geographically proximity and cost effective are key factors. Intellectual capital, attractive labor costs, high fluency in English and strong engineering education are other factors. Government offers a range of incentives aimed at enhancing the country’s competitiveness as an investment location. It has been a good two years for Serbia as the outsourcing industry performed well and has moved up in the region.

Slovakia outsourcing industry is supported by good quality infrastructure like telecom, power and real estate. Multi national players like Dell, HP, Accenture, and IBM have operations in this country. Technical support centers, software development & maintenance, BPO, and other services are provided. Bratislava and Kosice are the outsourcing centers in the country. AT Kearney GSLI 2011 rank 40.

Lithuania Outsourcing industry is ranked 14^th globally according to A.T. Kearney GSLI 2011. Lithuania has the largest IT industry among the Baltic nations – nearly 75 percent of all Baltic IT companies are located in Lithuania. BPO, CRM and call centers provide services in English, German, Russian, Polish and Scandinavian languages for the entire European market. Geographical proximity to clients, a quality infrastructure, and an educated workforce are the primary drivers.

Croatia is a country with good talent and growth opportunity. International companies such as Microsoft, Ericsson, Siemens, and IBM have operations in Croatia. Outsourcing services such as software consultancy, custom application development, consultancy, customization services and system integration services are offered here. Zagreb is the destination for outsourcing. Tax incentives are provided by the government.

Moldova has a good pool of well educated, highly skilled, multilingual professionals, geographic proximity, cultural affinity and compatibility with Europe. Companies like Adobe, Endava, Pentalog, Cedacry, and Allied Testing have centers in the country. Services that are offered here are Financial and accounting Outsourcing, QA and testing and BPO. Government provides tax exemptions.

Latvia's IT capabilities already gained some recognition as the IT BPO sector is not much popular. But there is a potential for growth and the government is investing on improving the scenario by providing tax incentives. AT Kearney GSLI 2011 rank 13.

Smaller nations in this region are slowly increasing their share in the outsourcing industry in this region. These nations with smaller populations and good scientific and engineering education system due to the erstwhile Soviet Union influence are producing good local talent. These small countries that broke away from Soviet Union and that gained their independence in the early 1990 are establishing themselves and rebuilding the nation by overcoming  the political and infrastructure hurdles. Some of the nations like Serbia are recovering from civil war and rebuilding their nation and Outsourcing industry will help them get revenues, provide jobs to the citizens and showcase themselves as technology oriented and highly skilled nations.

Growth story continues

Central and Easter European outsourcing is expected to grow at a healthy rate in the next few years. Traditional Indian Outsourcing firms that dominate the Global Outsourcing Industry have built up significant capabilities in this region by setting up their own operations and acquiring firms in this region. Good scientific and engineering education, multi lingual capabilities, local talent pool at low cost is going to fuel the outsourcing market in this region. Governments across this region have announced economic incentives, favorable economic policies and developed the education system by investing in monetary and human resources are a major initiative for growth. Innovation, R&D and high end technology outsourcing along with BPO processes like FAO, HRO, etc are also being outsourced by major Multi National Companies to this region and profit from the low cost and high quality services from here.

Countries in this region are also forming Industry association in the lines of NASSCOM in India who will be doing the necessary lobbying and showcase the region in the outsourcing industry. Near shoring is another trend that is fueling growth as the region has geographical proximity to European Nations, similar time-zones and cultural affinity. Language capability is critical as India and China do not have the European language capability and this region can take advantage by producing more talented professionals with specific language ability that can join the outsourcing industry. Most of the dominant Industry players in IT, IT Outsourcing, Business process Outsourcing, Manufacturing, Engineering and Automobile etc are setting up operation centers and also outsourcing to the regional outsourcing vendors to benefit from the low cost and highly qualified and talented professionals. 

Please click here for the Chart : http://analyzechartsgraphs.blogspot.com/

Source: CEEOA Outsourcing Review

Global Outsourcing Industry 2011 - Year End Analysis of F&A, HR and Procurement Outsourcing

According to the Canadian-based ICT research and advisory think tank, XMG Global, the global outsourcing industry, including offshoring and onshoring, is estimated to reach $464 billion in 2011, a 9.2-percent increase from 2010’s $425 billion. The year 2010 has seen stronger growth at 13.9 percent from 2009’s $374 billion. India will capture 42.5 percent of the offshore market to reach $61.5 billion in revenues, while China will continue to lag India with revenues reaching $45.7 billion equivalent to 31.5 percent of the market, XMG said. The Philippines will still hold the third spot with estimated revenue of $10.7 billion capturing 7.4 percent share, the analyst firm said.

According to Everest Group Finance and Accounting Outsourcing (FAO) market is expected to grow 15-20 % and reach US$4 billion (ACV) in 2011 from US$3.5 billion in 2010. Human Resources Outsourcing (MPHRO) market is expected to grow by 8-10 % and will reach $3.35 billion in 2011 from US$3.07 billion in 2010.Procurement Outsourcing (PO) market is expected to grow by 15-20 % and reach US$1.5 billion in annual contract value (ACV) in 2011.

Please Click here for (Global Outsourcing Industry, HRO,FAO, PO Industry - 2006-2011 detailed chart)  http://analyzechartsgraphs.blogspot.com/  

Blue Ocean Strategy (BOS) – Infosys Technologies India- Initiative to Overcome Slowdown

K V Kamath took over as the chairman of Infosys this year, and talked about a ‘Blue Ocean’ strategy with focus on healthcare and government verticals, and expansion into emerging markets India and China. Infosys revenues from healthcare (1.1%) and government (1.3%) verticals are negligible compared to BFSI (30%), Telecom (15%) and Manufacturing (10%). Healthcare and Government verticals are very critical for Infosys to maintain growth as US government announced a major healthcare spend (US$ 40bn by 2011- Total US$100 bn) and Indian Government is spending around rupees 30,000 crore on various IT projects across departments in 2011.

Even before Kamath took over, Infosys Leadership has set up a separate business unit in 2009 for focusing on domestic India Market dominated by Government spending and plan was to get 2-3% of revenues from this unit. India Post, Indian Railways and LIC are planning to spend $3 billion on IT this year. Government-sponsored projects like NREGA, e governance projects of states and 26 core projects in agriculture, income tax, pensions, land records and passports are other projects being planned. Another critical project is the Aadhaar cards by UIDAI with total cost of the project of at least INR1.5bn lakh crore.

According to Blue Ocean Strategy, for Infosys, Government Vertical is an un-entered market and focus on this segment will lead to revenue growth. Recently Infosys has bagged the Rs 700-750 crore financial services systems integrator contract from the Department of Posts (DoP) and 'rural information and communications technology system integrator contract, worth about Rs. 100 crore (Rs. 1 billion). Infosys is looking at public sector contracts in UK and other European countries, which Infosys avoided earlier due to complex contract liabilities and present pricing models don’t work.

Healthcare is the second focus vertical according to Infosys Blue Ocean Strategy. Infosys has established a separate subsidiary in the US for serving government and healthcare customers in 2009. Sources are reporting that Infosys is about to acquire Thomson Reuters’ healthcare division in a US$700-750 million transaction in US which will be the best option for Infosys to gain revenues in this vertical segment instantly. Health care segments require domain expertise, involves regulatory compliances and work is complex. Apart from US, Infosys is searching for acquisitions in Europe and Japan and in both industries healthcare and public services.

Expansion in China and India is another Blue Ocean Strategy of Infosys. Accordingly Infosys is planning to increase the headcount at its India business process outsourcing (BPO) unit by five-fold to 2,000 in one year. In China, Infosys is planning to triple its staff headcount to 10,000 in 2-3 years. Infosys has to focus on this strategy, as US and Europe are facing economic slowdown and debt crisis and businesses and governments in this regions are slowing down their IT spend. To overcome this scenario this seems to be the best strategy not only for Infosys but all other Indian IT vendors.

Discussion Points:

With management shake up as an added trouble along with other problems like Debt crisis and Economic slowdown, attrition, lack of skilled professionals, Will Infosys be able to keep up the revenue growth and stay ahead of the competition? 

Steve Jobs - Innovator & Visionary Entrepreneur - What he believed in and his Innovation Strategy (Apple CEO 1997- 2011)

Return to Apple in 1997

Steve Jobs returned as interim CEO in September 1997, when Apple was struggling with falling revenues and losses mounting to US$ 1.5Bn. Around 25 million customers feared the death of Apple and it was waging war with Microsoft over its copying of its features. Jobs negotiated with Gates to rescue Apple with US$ 150 million investment in return for non voting shares and with assurances of dropping lawsuit and office support to Mac. The deal was remarkable as Microsoft was rescuing its competitor and future nemesis. He actually returned, through Apple acquisition of his company NeXT in late 1996. Upon his return as interim CEO, Jobs terminated some of the projects to increase the profitability of Apple. By that time, he became permanent CEO in 2000 Apple was back in profits with 30% YoY growth in revenue.

Launch of innovative products – Time line

iMac was launched in 1998. But things went bad in last quarter of 2000 and suffered losses in 2001 with failure of iMac G4 Cube model due to slow processor, lack of proper read/write drives etc. Around 20 million units are sold till now. In October 2001, iPod was launched and initially critics were skeptical about the device with scroll wheel. Initial sales were slow, reached 1 million units figure in 2004. Apple sold 315 Million units of iPods till now. Classic, Touch, Nano, Shuffle are the product line up. iTunes was launched in 2001 as a media player program for iPod. iTunes Store is a online digital media store, was launched in April, 2003. Music, Movies, Apps, Books, Games etc are available on the store for purchase. The store served its 16 billionth song recently.

iPhone is a multimedia smart phone launched by Apple in January 2007 and revolutionized the smart phone market with unique features and apps. There are five generations of iPhone models and till 2010; 74 million units of iPhone have been sold. iPad is a line of tablet computers that is a platform for media like books, periodicals, movies, music, games, and web content and Apple released the first iPad in April 2010. Apple is in line to sell 45 million units of ipad by end of 2011.

Steve Jobs Way – His Belief

Customers don’t know what they want

First and most Steve Jobs view on involving consumers in the product design. Generally companies spend massive amounts of money, time and resources in identifying consumer needs and design products accordingly. But Jobs felt otherwise he followed his own vision and accordingly he designed products that are very successful and leaders in their category. He felt involving customers is not going to work effectively which is highlighted in this quote, “You can't just ask the customers what they want and try to give that to them. By the time you get it built, they will want something new." Another of his quotes that highlights this fact is “It's really hard to design products by focus groups. A lot of times, people don't know what they want until you show it to them.”  Another of his quote in this regards “It took us three years to build the NEXT computer. If we'd given the customer what they said they wanted, we'd have built a computer they'd have been happy with, a year after we spoke to them – not something they'd want now."

Innovation is differentiator

Jobs believed innovation is the distinguishing factor between a leader and follower and always focused on designing new products by questioning the conventional designs. He believed innovation makes money and also felt that “Innovation has nothing to do with how many R&D dollars you have. When Apple came up with the Mac, IBM was spending at least 100 times more on R&D. It's not about money. It's about the people you have, how you're led, and how much you get it.” He always controlled the prime technology in everything that Apple does and he was able to design innovative products that created a cult of followers. Apple fans loyalty is a parameter of innovative success of Apple. Innovation requires discipline and years of R&D to turn the ideas into great products.

Leadership Style

Jobs said “My model for business is The Beatles. There were four guys who kept each others, kind of, negative tendencies in check. They balanced each other, and the total was greater than the sum of the parts. And that's how I see business. You know, great things in business are never done by one person. They're done by a team of people.” He always believed in the talents of his employees and he felt that his employees are both good in hardware, software, design and ultimately deliver the best in class products. He led his people from front and motivated them to change the world through the apple products. He always supported his employees working on innovation and design and provided them with necessary space in the organization.

Personal Life

Jobs said he never did it for money. He said he is the only person he knew who lost a quarter of a billion dollars in one year. He could make big choices in life by thinking he is going to die so as to avoid the trap of thinking of loss. He doesn’t want to be the richest man in the cemetery but what matters him most is achieving something wonderful. he was never afraid to accept his mistakes and learn from them. He always wanted to do innovative things in life and he tried to turn his dreams into reality by building innovative products.

Steve Jobs is one of the most innovative entrepreneurs and he built a DNA into his company Apple that merges technology with art and design innovative products for the consumers. His vision and creative genius will be guiding star for the company to move forward and design and develop innovative products. Steve Jobs loves his company and he always struggled and took great risks to keep his company at forefront in the market. It is true that “Three apples have changed the world. One seduced Eve, one awakened Newton, and the third (half bitten) is in the hands of Steve Jobs.”

Discussion Points:

1. Is it ever possible to replicate what Steve Jobs did and the way he built Apple after his return?

Note: Revenue US$ Bn

Captive DataCenter Market - India 2011

According to IDC India captive data center make up four-fifths of the market and is expected to touch $1.68 billion by 2011, growing at a CAGR of 19.9 percent and grew at an average of 1.6x the IT market. Nearly 85 percent large enterprises had a captive data centre in 2010. Manufacturing, BFSI, Telecom and Government are deploying captive data centers the most due to regulatory requirements, data confidentiality, data storage and back up, disaster recovery, high internal data control and data security concerns. Captive centers are expected to grow at CAGR 16% in next two years.

Key Captive Players

Last two years saw large captive data centers being deployed by big banks and state governments. Indian banks like SBI, ICICI Bank, Indian Bank, PSB, and Bank of Baroda have their own data centers. Financial regulations, data confidentiality, strict internal controls and data safety are the reasons for their own data center. Insurance giant LIC also runs its own data center and data warehouse. BSNL, Bharti Airtel, Reliance Communications and Tata Communications are the leading telecom operators that have captive data centers and also offer hosting services to their clients through these centers.

State governments in India have started deploying data centers and the State Data Center policy under Ministry of IT (MIT) with Rs. 1623.20 Crores outlay over a period of 5 years is investing in SDC. According to MIT as on 2nd September 2011, SDCs in 14 States have been operational (Gujarat, Tripura, Rajasthan, West Bengal, Tamil Nadu, Puducherry, Andhra Pradesh, Meghalaya, Karnataka, Manipur, Orissa, Sikkim, Haryana, and Kerala). SDCs in 4 States are under implementation (Nagaland, Maharashtra, Uttar Pradesh, and Andaman & Nicobar). User Identification Authority of India, which issues Aadhaar cards, is also setting up data centers at various locations to store the captured citizen data.

Captive Data Centers -Issues

Running a captive data center involves huge infrastructure cost in terms of Land, buildings, servers and networking equipment, security personal, power and generators cost, electronic surveillance. Apart form these complexity costs like installation, maintenance and monitoring requires highly skilled technical professionals, Data protection and software experts, data warehouse and storage experts, etc. There has been pressure on the enterprises and governments to reduce their costs due to the recent debt crisis which has slowed the economic growth, raised inflation and overall GDP growth slowing down.

Consolidation of data centers, virtualization and optimizing the existing data center assets and leverage the data center to increase the productivity and contribute to the organizational growth are the key focus areas in captive data centers. But consolidation is not an easy process which involves adoption of new technologies, highly skilled technology consultants, and hardware and network storage equipment costs. Consolidation has to be carefully planned so that the organizations benefit. Building and Managing data centers involve huge costs in terms of infrastructure, human, technology and maintenance costs, enterprises are looking to outsource data center operations or use hosted data center services to overcome the cost burden. This option is available for those enterprises where there are no regulations insisting on a captive data center setup.