A look at Verticalization strategy adoption by Indian Outsourcing Vendors 2012

Indian outsourcing vendors have adopted verticalization strategy since 2008 and they have restructured their organizations based on specific industry verticals like Banking Financial Services & Insurance (BFSI), Pharmaceutical, Manufacturing, Retail, etc. and have appointed business heads for each vertical with significant responsibility and accountability in terms of revenue maximization, profit & loss, developing specific domain skills and expertise that includes acquiring the required human resources for this purpose and train them accordingly.  All the Indian Outsourcing vendors like TCS, Infosys, Wipro, HCL Technologies and even BPO players like Genpact, WNS, Aditya Birla Minacs, etc. have all adopted the verticalization strategy and invested significant amounts in developing the domain skills, products, platforms, and intellectual property and also used M&A strategy to acquire companies/players with specific domain skills.  According to NASSCOM, the Indian BPO industry is moving from efficiency to effectiveness while focusing on re-engineering themselves in order to deliver transformational impact to customers. The industry is developing future-ready solutions by following a verticalized approach by developing in-depth capabilities across verticals and creating customer impact through service delivery excellence.

Indian Outsourcing industry that included IT and Business Process vendors both are experiencing slower growth rates since past five years where the slowdown is because of the Global Financial Crisis and European Sovereign debt crisis. Outsourcing clients are constantly demanding lower prices for the work, increasingly rationalizing their portfolio, looking to do more work with fewer Vendors and are also demanding the Indian Outsourcing Vendors bring more value to their relationships by providing them services that will have significant impact on the clients businesses. These are some of the reasons that have forced the Indian Vendors to adopt Verticalization strategy and Verticalization is one of the ways providers are seeking to deal with this changing industry and looking to create more value to their clients. According to Peter Bendor-Samuel, Chief Executive Officer, Everest Group, the move to verticalization is a reflection of a maturing services industry and secular pressures on the provider community. Large Indian IT Vendors like TCS, Cognizant Technologies, Infosys, Wipro, and HCL Technologies have realized and adopted the vertical strategy for the past five years and have reaped significant benefits from this strategy.

Verticalization strategy helps the vendors to focus on key verticals and since organizations are aligned according to key verticals, accountability and responsibility at the account level and enterprise level will help in increasing revenues and also enable sharing domain specific knowledge and expertise across accounts thereby enhancing vertical group’s ability to engage with existing clients and potential clients in the specific industry verticals. Products and Platforms based on reusable IP can be developed based on the domain specific offerings of the existing accounts/clients, thereby increasing the nonlinear revenues of the vendors as the Indian vendors are aggressively looking to increase nonlinear revenues. Biggest challenges for the Indian vendors are recruiting the domain specific skilled talent and training the existing talent to enable them offer innovative and client requirement based offerings and also vendors have to invest millions of dollars for developing the products, platforms and Intellectual property. Acquisitions is another way Indian Vendors are looking to build industry vertical expertise where in TCS acquisition of Citi Bank back office in India and its acquisition of Diligenta, insurance outsourcing specialist which got the US$ 2.2 billion Friends Life deal, Infosys acquisition of Lodestone Consulting and sourcing & procurement vendor Portland Group and Infosys 3.0 strategy emphasizes the vertical specific focus, HCL Tech acquisition of Axon and Wipro acquisition of Promax and it also kept a budget of US$ 1 bn for M&A. Vertical strategy is key for the nonlinear revenue growth that all the major Indian Outsourcing vendors are focusing on for future revenue growth.

Discussion Points : 
1.Is the present verticalization strategy adopted by Indian Outsourcing vendors is effective?
2.What factors forced the Indian Outsourcing Vendors to adopt the Verticalization Strategy?
3.What are the advantages of the Verticalization strategy particularly for Indian Outsourcing Vendors?