The saga of rupee appreciation against the US dollar has been hanging like a Damocles sword over the offshore IT services firms for some time now. And, though talking about high-value work is di riguer today, the fact is that (ADM) still provides the bread and butter for most of these companies, including the big six of offshoring, often called the SWITCH (Satyam, Wipro, Infosys, TCS, Cognizant and HCL Tech) firms.

The short-term, tactical approach has been changing geographic mix, with more focus on Europe, and in case of a few firms, Apac. But in the long run, they have to tackle it by changing the internal business metrics. The two key variables for protecting the bottom line are, of course, cost per employee and revenue per employee. Though many of these firms have seriously embarked on the path of productivity increase, the gain due to increase in productivity is often offset by hike in wages. The only way, hence, is to look at the increase in per employee revenue, dramatically.

This need has prompted them to look at consulting capabilities far more seriously. But today, there is a lot of grayness to what outsourcing firms call consulting. One, of course, is the consulting capability that is integrated with IT and more often with BPO to give a higher value proposition to customers, thus taking up average billing rates of existing IT and BPO services. The otherwhich is a more radical approachis to pursue business consulting as a separate service line so that the higher rates in consulting engagements will take up the companys average revenue per employee, even if the billing rates in IT and BPO remain in the same range.

The simple difference is that the former is easier to pursue because it does not dramatically change the positioning of the company; but the downside is that the gain due to it is gradual. Consulting as a separate business line is tougher because the IT firmsespecially the offshore firmshave played on efficient execution and not on devising strategies.

The World of Consulting
Today, it is not just the SWITCH coterie, but even many of the tier-2 IT services players which agree that consulting is a must-do for moving up the value chain. That ADM could not have kept them globally competitive much longer was a foregone conclusion, the dollar depreciation is merely pushing them towards going for consulting work to maintain their margins. The name of the game is to shift the touch points in a client firm (the outsourcer) from just the CIOs/CTOs to the business heads. With ADM and to some extent, infrastructure management kind of work getting commoditized, consulting might soon become not just one of the answers, but probably the only answer.

However, it is still a fact that Indian IT firms, not even the SWITCH members, have yet to cut their teeth properly in consulting. Infosys, which was the first of the bloc, and TCS have evolved to some extent on that front, though they still lag behind the IBMs, Accentures and Capgeminis by a long way. These are the only two that at least have consulting as a separate business unit. Wipro and Cognizant would be in the next stage of evolution; they do some pieces of consulting work, but are yet to have separate consulting units. Satyam and HCL Tech would still be in the nascent stage on this front. Tier-2 firms are, of course, far behind.

What, therefore, comes out is that the amount of consulting work done by leading Indian IT firms is quite small. Whats worse, it is difficult to get a precise measure of whatever there is on the ground. This is due to how "consulting" is defined by different firms on different occasions. Many of the software companies claim that there are a lot of consulting inputs that are going into their traditional IT projects. And, though many of them claim otherwise, it is not correct to account them as pure consulting revenues. Bottomline: the amount and nature of consulting work that SWITCH and a few other Indian IT services players do, should not be directly equated with the consulting revenues they declare.

But how does the scope and content of consulting, vis--vis the Indian firms, change so as to enable a proper measurement of the revenues it generates? The simple difference would be between business consulting and IT consulting. The general perception is that when a company moves from offering consulting work on a specific IT implementation towards designing a solution by addressing the clients business needs, it moves on to a higher plane. While it is true that business consulting would be a more matured offering than IT consulting, the difference would not be that simple. To cite an example, at one end of the consulting spectrum are the business strategy consultants like McKinsey and Booz Allen Hamilton, which are regarded as the intellectual elites of the discipline; at the other end, even routine customization advice while installing an ERP can be passed off as consulting.

The ideal position for Indian IT services firms would be between the two, but very close to the former. That is the position that globally an IBM or a Capgemini would be occupying. On the other hand, an Accenture would be more closely straddling on both the worlds; perhaps that would be the model the Indian firms (at least the SWITCH ones) should try to emulate initially.

Creating a mark in business consulting would also require gaining adequate expertise in both domain knowledge and process knowledge. While IBM, perhaps the best example, has acquired expertise in both, Indian firms are currently in a piquant situation. The IT services arms of SWITCH have domain expertise to varying expertise: TCS would be strong in BFSI, telecom, retail, infrastructure and pharma, Infosys in finance, utilities and retail, while Wipro would be strong in technology, energy, utilities and telecom. Even the likes of Cognizant, Satyam or HCL Tech have specific domain expertise in fields like healthcare or aviation amongst others.

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