By Stephanie Moore
In 2005, Forrester released its inaugural Indian vendor consulting Wave. At that time, Indian BPO vendors were beginning to offer management consulting services, but were not in a position to compete with the major established management consulting firms in terms of scale, brand, or experience.
Considering how quickly these vendors became world-class players in the pure IT services space, the assumption was they would soon enough challenge the dominant providers of management consulting services. But going on seven years later, these ambitious Indian IT service providers are still trailing the traditional management consultants. As the case was in 2005, Indian vendors are still trying to move up the value chain into management or business process consulting in order to stave off commoditization, secure executive-level relationships and endorsements, and increase deal value and margin through preliminary strategy consulting.
Is this lackluster growth fueled by a lack of desire? Although several of the vendors profiled in 2005 know where they’d like their consulting organizations to go, none has achieved its desired end state yet. The top-tier Indian vendors were relatively small and unknown at the beginning of the century, but today they are multibillion dollar IT and business process outsourcing (BPO) powerhouses that dictate the way in which all vendors — including the likes of Accenture, Computer Sciences Corporation (CSC), and IBM — deliver IT services.
Given their meteoric rise to power in the areas of IT and business process services, it seems strange — at least at first glance — that they have not been able to make similar inroads into management consulting. Certainly, Cognizant, Infosys, and Wipro have all grown their consulting groups; however, pure management-consulting-partner–caliber staff still number in the hundreds as opposed to the thousands. When you consider the fact that these vendors employ 118,000, 133,000 and 120,000 people respectively, it’s easy to see the disconnect between what a vendor says about its consulting capabilities and the actual commitment to the model.
Management consulting and technology service delivery require very different business models. The Indian offshore outsourcing model has been predicated on an extremely high margin available to the vendor through labor arbitrage and industrialized delivery. Although in the early days executives thought that the value of Indian vendors performing management consulting was in saving money, it quickly became clear that management consulting had to be done by local consultants, largely on-site.
For sure, tasks such as research and prep work can be performed in lower-cost locations, but that project team distribution looks quite different from an applications maintenance project team distribution. Factors that discourage vendors from investing in management consulting include high startup costs, low margins and volumes, and lack of urgency: Indian vendor growth rates continue to outpace the rest of the IT industry, even during recent economic recessions, so the idea that management consulting is required to feed the huge implementation engines back in India is not yet an immediate concern.
Ultimately, to compete with global multinational corporations (MNCs) such as Accenture, Deloitte, and IBM, the India-centric vendors must have full-fledged management consulting capability in all the verticals they serve. Absent that, they will end up playing the role of technology subcontractors to the management consultants or to internal vendor/demand management organizations — in an increasingly commoditized world. Some vendors, such as Cognizant, Infosys, and Wipro, are well on their way to achieving their vision. Still, given the investments and time required to build up the capability, there is the risk that these publicly traded companies will lose their conviction and go for the short-term gains as opposed to preparing for the future.
Build On What They Have
If the India-centric providers can build up their vertical business consulting capability, they will be very strong candidates for business transformation consulting work. Their deep technology roots, combined with savvy industry and business process expertise, will undoubtedly help companies through innovation, transformation, and optimization cycles as well or better than the traditional management consultants.
Using one vendor to develop and implement a business transformation strategy could drastically reduce the value leakage that occurs when a pure technology vendor is engaged to implement a strategy or solution developed by a pure business consulting vendor.
For now, however, evaluate the management consulting capabilities of their providers on a case-by-case basis. Some of the management consulting capabilities we predicted in 2005 have not come to fruition, but the Indian players are making strong progress, enough to merit consideration by clients seeking to integrate IT strategy with IT implementation.
For compliance and regulatory and tax-related activities, which may be only peripherally connected to technology solutions or only technology-enabled, companies are likely still better off working with their traditional business-focused management consultants and then perhaps implementing solutions recommended using the more technology-focused India-centric providers where required. Vendors such as Wipro are aware of the opportunities in this area and are also building up the capability to qualify for this type of work. In the short term, however — and especially in heavily regulated industries — it may be less risky to use a vendor with a history of performance here.
Stephanie Moore is a vice president and principal analyst at Forrester Research, where she serves Sourcing & Vendor Management Professionals.