Survival of the Differentiated the New Mantra of Success for Tier2 Service Providers[1]

8/8/2019 Survival of the Differentiated the New Mantra of Success for Tier2 Service Providers[1]

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Proprietary & Confidential. © 2010, Everest Global, Inc.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]

mailto:[email protected]









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“Survival of the Differentiated” – TheNew Mantra of Success for Tier-2Service Providers

Webinar

November 18, 2010




Everest is a leading consulting and research firm thatcomprehensively serves the outsourcing and offshoringmarket

IT Infrastructure

IT Applications Human Resources Finance & Accounting Procurement Financial Services

Processes Over 10 other

processes

Areas of expertise

Benchmarking

Market Intelligence Supplier Intelligence Location analysis ITO and BPO markets Global sourcing Mergers and

acquisitions Contracting and pricing

Supporting practices

Enabler segments Software/hardware Industry associations

Provider segments Third-parties Captives Shared Services

Recipient segments Business users Governance Sourcing

Serviceenablers

Serviceproviders

Servicerecipients

Outsourcing

andOffshoring

Market

Service offerings




Introductions

Amneet SinghVice PresidentEverest Group

[email protected]

Jimit AroraResearch DirectorEverest Group

[email protected]








Agenda

India’s offshore IT services market and provider landscape

Specialization and differentiation imperative for Tier-2 providers

Differentiation planks of successful Tier-2 providers

Key implications

Q&A


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The ~US$100 billion global sourcing market has evolvedsignificantly over the last two decades; IT servicesconstitute a major share of the market

Reaching maturity

M a r k e t v a l u e c r e a

t i o n

Offshoring of IT ADM Emergence of India as

an offshore destination Setup of captives

1993-94 2000-01 2009-10

Adoption getting deeper andin more core areas

Back-office offeringsbecoming mainstream

RIMO the next big wave Robust service provider

capabilities and experience

Key characteristics Increased adoption Increased focus on process

capability and qualityassurance amongst providers

Emergence of industrystandards and innovative

operating models

Global sourcing market size2009; US$ billion

ITO

BPO

100% = 92-96

Global sourcing market evolution

Pioneers Emerging rapid growth

Source: Everest Research Institute (2010)



8

2009

Global sourcing IT market size

2009; US$ billion

India

56-58

Other offshore

destinations

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



9

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

Examples

Accenture, Capgemini,Dell Services, CSC, HP,IBM

Tech Mahindra-MahindraSatyam, Wipro, Infosys,TCS, Cognizant , HCL

(TWITCH)

Headstrong, Hexaware,L&T Infotech, Patni,Microland, MindTree,MphasiS, Sonata Software,Syntel

Applabs, AditiTechnologies, InterGlobeTechnologies, KaleConsultants, QA Infotech



10

~10%

30-35%

10-15%

10-15%

25-30%

Tier-1 Indianmajors

Tier-2 Indianservice

providers

MNC captives

Indian IT service exports provider landscape

2009; Percentage

100% = ~US$27 billion

Globalmajors

Other serviceproviders

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



11

Agenda

India‟s offshore IT services market and provider landscape



Key implications

Q&A



12

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




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




Tier 2 providers can enhance value delivered acrossvarious buyer categories by playing a specialist role

Key characteristics

Third-party

outsourcing modes

Ability of Tier-2 providers to create value for

Small buyers

(<US$1b revenues)

High LowMedium

Mid-sized buyers

(US$1-5b revenues)

Large buyers

(>US$5b revenues)

Staffaugmentation

1 Service provider facilitates easier access to specific

skills Leverage for work with volume fluctuations or where

expertise cannot be sourced as effectively internally Performance is viewed as productivity relative to the

utilized staff Manage similar to internal resources

Specializedsupport

2

Utilize best-of-breed providers for relevant areas Leverage provider‟s investments in its domains of

expertise Relationship managed by the organization entity

receiving the services

End-to-endsupport

3 Service provider support spans across multiple areas to

generate value from leveraging the relationship,contract, and other structures

Requires careful structuring and investment in

relationship, including how to grow the relationship tobroader scope/value

Enterprisetransformationpartner

4 Service provider delivers capacity and expertise to

accelerate change Targeted at specific business areas that justify

transformative efforts Provider must work closely across multiple areas of

organizationDifferentiation through specialization is key tosuccess in mid-sized and large buyers




Agenda




Key implications

Q&A




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




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




Manila

New Jersey

Hannover

Salzgitter

New YorkSan Jose

London

Sydney

Shanghai

Tokyo

SingaporeColombo

In addition to building scale, the showcased Tier-2service providers have further strengthened their valueproposition by diversifying footprint beyond India

Headstrong

Sonata SoftwareMindTree

MphasiS





Summary of differentiated capabilities of five showcaseproviders

Differentiated capability Specialization theme

Headstrong

Microland

MindTree

Capital markets Vertical expertise

Remote infrastructure management Service expertise

Product engineering services

Industry specific informationmanagement services

Testing services

Service expertise

Service – Vertical expertise

Service expertise

Mphasis Insurance

Enterprise web technologies

Infrastructure assurance services

Vertical expertise

Service expertise

Service expertise

Sonata Software Travel, transportation, and logistics

OPD for hi-tech / technology vertical

Continental Europe

Vertical expertise

Service – Vertical expertise

Geographic expertise





Headstrong | Differentiated capabilities

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.

Differentiated capability Specialization theme Highlights

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


RevenuesUS$ million

CAGR

http://www.headstrong.com/

http://www.headstrong.com/




Microland | | Differentiated capabilities

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.


Remote infrastructuremanagement (RIM)

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

HeadcountNumber of employees

http://www.microland.com/

http://www.microland.com/




MindTree | Differentiated capabilities

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.


Information management services

for manufacturing, BFSI, andtravel

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%


RevenuesUS$ million

CAGR

http://www.mindtree.com/

http://www.mindtree.com/




MphasiS | Differentiated capabilities

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


Website: www.mphasis.com

493

695874

285

2006 2007 2008 2009

45%


RevenuesUS$ million

CAGR

http://www.mphasis.com/

http://www.mphasis.com/




Sonata Software | Differentiated capabilities

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.


Travel, transportation and logistics(TTL)

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.


Website: www.sonata-software.com

RevenuesUS$ million

364344 291

203

2007 2008 2009 2010

13%

CAGR


http://www.sonata-software.com/







Agenda




Key implications

Q&A




Implications for buyers of global services

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”




Implications for Tier-2 service providers

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




Agenda




Key implications

Q&A




Everest Group leads clients from insight to action

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Contact us for more information about our consulting, research, and industry resources.

Q&A



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Q&A

Attendees will receive an email enabling them to download today‟s webinar presentation. To access

a recorded audio version of this webinar, please contact Mark Williamson,[email protected]

For advice or research on outsourcing and offshoring, please contact: Amneet Singh, [email protected] Jimit Arora, [email protected]

For background information on Everest, please visit: www.everestgrp.com www.everstresearchinstitute.com

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Survival of the Differentiated the New Mantra of Success for Tier2 Service Providers[1]

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