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8/8/2019 Survival of the Differentiated the New Mantra of Success for Tier2 Service Providers[1]
Today’s Webinar is brought to you by Everest Group
Today’s Webinar
“Survival of the Differentiated” – The New Mantra of Success for Tier-2 Service Providers
Synopsis:Everest Group will highlight the findings of its analysis on the role and relevance of Tier-2 IT service providersin the global sourcing of services and the implications for buyers seeking to design optimized global sourcingportfolios. In addition, Everest Group will highlight the differentiated and distinctive value propositions of fiveleading Tier-2 service providers – Headstrong, Microland, MindTree, MphasiS and Sonata Software.
About Everest Group
Everest Group is an advisor to business leaders on global services with a worldwide reputation for helpingGlobal 1000 firms dramatically improve their performance by optimizing their back- and middle-office businessservices. With a fact-based approach driving outcomes, Everest Group counsels organizations with complexchallenges related to the use and delivery of global services in their pursuits to balance short-term needs withlong-term goals. Through its practical consulting, original research and industry resource services, EverestGroup helps clients maximize value from internal transformations, shared services, outsourcing and blended
model strategies. Established in 1991, Everest Group serves users of global services, providers of services,country organizations and private equity firms, in six continents across all industry categories. For moreinformation, please visit www.everestgrp.com and www.everestresearchinstitute.com.For more information, contact Mark Williamson at [email protected]
Source: Everest Research Institute (2010); NASSCOM
~52%
~48%
India continues to dominate the offshore IT Services,with ~50% share, with a diverse provider landscape
India continues to remain the singlelargest location for offshore delivery of ITApplication Development andMaintenance (ADM) and RemoteInfrastructure Management (RIM) services
Indian service providers played animportant role in firmly establishing theproposition of the global delivery modeland delivering high quality IT services in acost-effective manner
The landscape of Indian service providershas exploded over the last two decadesand exhibits variances in terms of scale,breadth, and depth of capabilities
8/8/2019 Survival of the Differentiated the New Mantra of Success for Tier2 Service Providers[1]
Everest analysis of the Indian IT services landscapereveals four distinct categories of providers operatingin the market
Source: Everest Research Institute (2010)
Global majors
Tier-1 Indianmajors
Tier-2 Indianserviceproviders
Other serviceproviders
Description
Large, diversified global IT-BPO majors (>US$5 billion in revenues)that have established presence in India and several other globallocations to serve the local markets and also take advantage of low-cost locations for service delivery
Global majors have aggressively leveraged inorganic means to growIndia delivery presence
India-based service providers with revenues over US$1 billion From their legacy strength in IT ADM, these providers invested
aggressively to build an end-to-end proposition spanning consulting, IT
infrastructure, IT applications, and BPO These providers are also building a global delivery footprint (including
onshore presence) to compete effectively with global majors
Mid-sized service providers with revenues in the range of US$100million to US$1 billion
Select providers in this segment developed mature delivery capabilitiesaround select verticals and specific services and increasingly competewith global majors and Tier-1 Indian majors
Delivery footprint is concentrated largely in India; however, theseproviders aspire to expand to other low cost locations
Smaller players with less than US$100 million in annual revenues Includes select “specialist” providers with narrow focus on a specific
service line or vertical Segment also includes “generalists” that are focused on small buyer
organizations with a limited proposition for mid-sized and large buyers
Source: Everest Research Institute (2010); NASSCOM
While global majors and Tier-1 providers dominate mindand market share, Tier-2 providers also have asignificant share in the Indian IT services landscape
Tier-2 or mid-sized service providers(revenue range in the US$100 million -US$1 billion) are often an overlookedcategory
Despite their relatively smaller
operating scale, these service providersplayed an important role in India‟s
growth as an offshore IT hub andcurrently account for 25-30 percent ofIndia‟s offshore IT services market
Over the past few years, these serviceproviders developed credible,
competitive offerings in offshore ITservices (especially for mid-marketbuyers) and have established animportant position in the Indian offshoreIT market
8/8/2019 Survival of the Differentiated the New Mantra of Success for Tier2 Service Providers[1]
Despite their notable contribution to the growth of theIndian IT services industry, uncertainty surrounds thefuture of Tier-2 providers
Even prior to the economic recession, the average Tier-2 provider witnessed slower
growth than its larger counterparts
In a post-recession environment, Tier-2 providers continue to face increasedchallenges in the form of: Aggressive buyer-driven service provider portfolio rationalization Enhanced competitive pressures from global and Tier-1 Indian majors Limited mindshare of capabilities among global buyers Market speculation about acquisitions in this segment
These challenges raise questions about the role and relevance of Tier-2 serviceproviders in the next generation of global service delivery
8/8/2019 Survival of the Differentiated the New Mantra of Success for Tier2 Service Providers[1]
Everest analysis indicates the criticality of specialization and differentiation for Tier 2 providers tosurvive and thrive in the offshore IT services market
Our assessment of the demand- and supply-side dynamics in the current global
sourcing environment confirms that Tier-2 IT service providers are likely to remainrelevant and continue to play an important and meaningful role in the future
Through focused differentiation initiatives, Tier-2 Indian IT service providers can survivethe imminent consolidation in the industry, thrive in the current challenging environmentand continue playing an important and meaningful role in buyer portfolios
This requires providers to carve out niches and demonstrate a differentiated valueproposition that goes beyond pure labor arbitrage and lower billing rates
Specialization is critical for Tier-2 providers to differentiate themselves from the packand build mindshare and credibility based on unique value propositions (e.g., domainexpertise, service expertise) in order to remain relevant and deliver compelling value to
their customers
8/8/2019 Survival of the Differentiated the New Mantra of Success for Tier2 Service Providers[1]
Tier-2 providers can architect differentiated propositionsby specializing along three distinct themes – industryvertical, service offerings, and geographic market focus
Specialization themes
Services expertise
Distinctive capabilitiesdemonstrated in a specific ITservice offering (e.g., testing,business intelligence) or technologystack (e.g., .NET, SAP IS-OIL)
In several instances, serviceproviders try to customize theseservice offerings for specificverticals. Testing services forinsurance products, outsourcedproduct development for hi-techvertical are examples of vertical-
focused service specialization
Vertical expertise Geographic expertise
Distinctive domain expertisedemonstrated for clients in aspecific industry vertical
To build and demonstrate industryexpertise, service providers hireindustry practitioners, invest inintellectual property and developreusable frameworks to improvetime to market
Further, most providers aim tospecialize in sub-verticals such ascapital markets within financial
services, airlines in travel andtransportation, etc.
Distinctive capabilitiesdemonstrated for clients in aspecific geographic market
Service providers adopt a focusedstrategy of pursuing clients inspecific geographic segments andoffering a compelling valueproposition by adapting theirofferings to meet unique market-specific requirements (e.g.,language, regulations)
In select instances, these service providers combine two of these themes to create “super specialized” offerings
Service providers also leverage other differentiated propositions structured around the delivery model (e.g., nearshoreor onshore specialists), engagement models (e.g., virtual captive, BOT), or pricing models (e.g., gain- sharing,transaction-based pricing). However, these are more suited to succeed in specific client engagements and are notusually relevant as enterprise-level differentiation themes
8/8/2019 Survival of the Differentiated the New Mantra of Success for Tier2 Service Providers[1]
Everest has examined the distinctive value propositionof five Tier-2 providers that have demonstrated robustgrowth over the last few years
RevenuesUS$ million
215272 291
874
100
Microland Headstrong MindTree Sonata MphasiS
1
Growth comparison
2006-2009 CAGR; Percentage
20%
17%
30%
Showcased
Tier-2 service
providers
Tier-1 Indian
majors
India's offshore
IT market2
3
2006-2009CAGR
45%
13%27%
30%
18%
1 Everest estimated revenue. Microland does not report financials being a privately-held firm2 Headstrong, Microland, MindTree, MphasiS, and Sonata Software3 Cognizant, HCL, Infosys, TCS, and Wipro
Sources: Everest Research Institute (2010); provider inputs
8/8/2019 Survival of the Differentiated the New Mantra of Success for Tier2 Service Providers[1]
In addition to building scale, the showcased Tier-2service providers have further strengthened their valueproposition by diversifying footprint beyond India
Headstrong
Sonata SoftwareMindTree
MphasiS
Sources: Everest Research Institute (2010); provider inputs
8/8/2019 Survival of the Differentiated the New Mantra of Success for Tier2 Service Providers[1]
Summary assessment: Headstrong‟s specialist focus on capital markets, its broad suite of service offerings across sub- segments, a marqueeclient base, and domain investments in people, process, and technology, position the company as a major contender for delivering IT services toglobal capital markets clients.
Capital markets Vertical expertise 75 % of total revenue share 1,500+ financial domain experts globally 70 % on-site resources recruited from local securities industry Broad suite of services for capital markets clients that span multiple
domains and competency centers Demonstrated credentials in serving capital market clients. Clients
include: Nine of the world‟s top 10 investment banks
Two of the top five asset managers Multiple exchanges and electronic marketplaces
159 179
215
131
2006 2007 2008 2009
18%
Company overview: Headstrong is a privately-held specialistservice provider of information technology, operations, andconsulting services, focused primarily on buy-side and sell-sidecapital markets clients.
Headquarters: Fairfax, VA, U.S.
Website: www.headstrong.com
Sources: Everest Research Institute (2010); provider inputs
Summary assessment: A pioneer of the remote infrastructure management (RIM) model, Microland established a prominent position as anspecialist IT infrastructure service provider. Given its scale, strategic alliances, and flexible, multi- tenanted delivery model, Microland is wellpositioned to further strengthen its competitive position in the Tier-2 IT services landscape.
Service expertise Offers the full realm of ITIL service functions through an IntegratedService Management model based on an automation platform„smartcenter‟
2,500 infrastructure employees 20+ years experience More than 75 clients, including Fortune 100 Strategic alliances with Avaya, ChangeBASE AOK, Cisco, Microsoft,
Sybase, Symantec and Vmware
Company overview: Microland is an IT infrastructure servicesspecialist, offering a comprehensive range of services to globalclients. A pioneer of the remote infrastructure management model,Microland has its operations hub in India with a global presence
across the United States, UK, and Middle East.
Headquarters: Bangalore, India
Website: www.microland.com
2,040 2,240 2,3002,500
2007 2008 2009 2010
Note: Revenue-based CAGR between 2007-2010 is 30%Sources: Everest Research Institute (2010); provider inputs
Summary assessment: MindTree‟s strategic focus on information management services which include BI/DW and analytics, testing services,and product engineering services position it as a leading mid-sized player in the Indian IT services industry.
Service-vertical expertise 8% of revenue and 700+ employees including 125
statisticians/business analysts 90 % of revenues from clients in manufacturing, BFSI, and travel
clients Offers data, business intelligence and analytics offerings, as well as
advanced statistical and data mining services
Testing services Service expertise 17% of total revenues and over 2,200 employees 90% of employees are engineers Tested 2,000+ products and enterprise applications from chip to cloud Strategic relationship with many customers including Microsoft, CCH,
Symantec, SITA, Avis Budget, Volvo, NFUM
Product engineering services(PES)
Service expertise 46% of revenues and 3,700 employees Developed and tested over 2,100 software products Key clients – Microsoft, Yahoo, eBay, Symantec, Cisco, UTC, AOL,
Real, CCH (Wolters Kluwer company)
Company overview: MindTree is a global provider of ITapplications, information management, independent testing,infrastructure management and technical support, and productengineering services.
Headquarters: Co-headquartered in Bangalore, India, andWarren, New Jersey, USA
Website: www.mindtree.com
192
269 272
132
2007 2008 2009 2010
27%
Sources: Everest Research Institute (2010); provider inputs
Summary assessment: MphasiS‟ distinctive focus on services and solutions for the insurance vertical, its mature capabilities in enterprise webtechnologies, and its infrastructure assurance services make it a credible service provider for global customers.
Insurance Vertical expertise 25+ active insurance clients globally 280+ active/completed projects with total annual revenues of US$81
million 2,900+ resources across applications, BPO, and ITO with a
combination of domain experts and techno- functional consultants Comprehensive portfolio of consulting, business, technology and
infrastructure services
Enterprise web technologies Service expertise Comprises various areas of specialization including enterprise portals,Web apps, enterprise content management, security and identitymanagement, eCommerce, open source, and Web 2.0 / socialcomputing
Invested in architectural frameworks such as Mframe, Content
management, and Flex component framework
Infrastructure assurance services Service expertise 90% of MphasiS Infrastructure services workforce are ITIL trainedprofessionals
Serves 70+ global clients
Company overview: The largest among the showcased Tier-2providers, MphasiS operates as an independent Hewlett Packard(HP) subsidiary with its own board of directors. It deliversapplications services, infrastructure services, and business
process outsourcing (BPO) services to its clients
Headquarters: Bangalore, India
Website: www.mphasis.com
493
695874
285
2006 2007 2008 2009
45%
Sources: Everest Research Institute (2010); provider inputs
Summary assessment: Sonata‟s distinctive focus on solutions and services for the Travel, Transportation and Logistics (TTL) vertical,
Outsourced Product Development (OPD) services for the Hi-Tech and Technology verticals, and a strong Continental Europe-focused serviceand delivery portfolio are its key differentiators versus its peers.
Vertical expertise 43% of international revenues and 900+ employees JV with TUI, a leading European integrated travel company 450+ nearshore employees based out of client locations and delivery
centers in Hannover and Salzgitter in Germany 50+ people with industry or domain certifications 100+ travel projects delivered
Outsourced product development(OPD) for hi-tech and technologyvertical
Service-vertical expertise Delivered OPD services to software product companies since 1992 1,000+ resources in the OPD space Served 100+ product companies Alliances with Microsoft and Oracle
Continental Europe Geographic expertise 48% of offshore services revenues from Europe and a near-shorecenter in Continental Europe
Unique delivery model for serving customers in Continental Europe –
through TUI Infotec Service offerings include IT infrastructure management services
including datacenter, application hosting, server monitoring andmanagement, and 24x7 centralized helpdesks
Company overview: Sonata Software Limited is an IT consultingand services company with delivery centers in India and Germany.With ~13 percent compounded annual growth since 2007, Sonatadelivers services to clients across the United States, Europe, Middle
East, and the Asia-Pacific region.
Headquarters: Bangalore, India
Website: www.sonata-software.com
RevenuesUS$ million
364344 291
203
2007 2008 2009 2010
13%
CAGR
Sources: Everest Research Institute (2010); provider inputs
Recognize the importance and value of the large Tier-2 segment of the Indian service
provider landscape. Leveraged optimally, these service providers can often deliversuperior value in comparison to their larger counterparts
Invest time and effort to “cherry pick” Tier -2 service providers from the vast landscapeto enhance value capture in line with portfolio objectives
Define appropriate and realistic roles for Tier-2 service providers that align theircapabilities with desired sourcing outcomes and overall portfolio objectives
Build plans to manage service delivery disruption due to the imminent consolidationand M&A in the Tier-2 service provider segment. In most cases, Tier-2 serviceproviders will be acquired by larger providers, which will create “distractions” rather
than “disruptions”
8/8/2019 Survival of the Differentiated the New Mantra of Success for Tier2 Service Providers[1]
Recognize the need for differentiation and specialization as critical factors for survival
in this intensely competitive marketplace as sub-scale “generalist” service providers areunlikely to succeed in the future
Re-evaluate the portfolio of offerings to identify select core offerings/focus segmentsthat will drive differentiation compared to the broader marketplace and serve as growthengines for the future
Build deep vertical-specific expertise to demonstrate differentiation in light of increasedbuyer emphasis on industry knowledge for IT ADM services
Invest in targeted marketing and branding initiatives to build recognition and recall withglobal buyers in areas of differentiation
8/8/2019 Survival of the Differentiated the New Mantra of Success for Tier2 Service Providers[1]