What do Wave 3 companies look like?

By Sudhakar Ram, Guest Author

In response to Hari Swaminathan’s questions, I found it appropriate to explore what Wave 3 companies look like and how they will be different from the current set of IT service providers. Given that this is an emerging area, I am offering a set of models and expect that through dialog we will be able to enrich the base of possible models as well as their descriptions.

IT Budget Owners

These will typically be large Indian services companies who graduate to owning the IT budgets of customer organizations and committing to business deliverables rather than providing capacity at a cost. While service level agreements (SLAs) may be adequate to manage uptimes, response times and turnaround times, these are inadequate to manage and monitor business alignment and business impact. In fact, large outsourcing engagements often fail for these reasons.

Apart from bringing new efficiencies to the current set of commoditized services, the IT Budget owners will commit to highly personalized service offerings as well as providing a risk cover (at a premium) to technology obsolescence and refreshes. The more sophisticated players will evolve to committing business improvement metrics relating to end user productivity, customer service levels, new business through eCommerce platforms etc. and drive higher revenues and profitability to their companies.

Software Product Providers

This model is well understood and the Indian companies playing in this space need a deep understanding of the horizontal or vertical domains that they are building solutions for, typically with strong front end teams or partnerships. The play for Wave 3 companies here is to maximize bang for the R&D dollar – by generating twice or thrice the functionality for the same R&D spend, thus out-developing the local players.

The other opportunity for Wave 3 players is to focus on the unique requirements of emerging market players in Asia and Africa and build products that are very specific to these regions.

Software Solution Integrators

Some Wave 3 companies will take the route of becoming solution integrators. They will be focused on delivering complete solutions to end-customers through a combination of their own intellectual property and third-party components, combined with configuration, customization and integration services.

Solution integrators who are willing to bear project risks and work on a fixed price mode could benefit from better pricing and margins. Further opportunities for value creation will emerge when the integrators are also willing to link part of their compensation to some specific business results / metrics. This will call for deep domain expertise and vertical specialization among the integrators.

Platform-Based Services

I consider this the most exciting area of opportunity for Indian companies. One set of opportunities revolves around platform-based BPO services like credit card processing, claims processing etc. Here, the application platforms provide the differentiation, but the business revolves around the actual processing – a convergence of IT and BPO. This is similar to what First Data Resources provides for credit cards and ADP for payroll.

The other set of opportunities lies in leveraging the Web and the India presence to provide specialized services at an affordable cost. As an example, we could have a travel booking service aimed at individuals and families that could guarantee the lowest rates or the best travel experience. This would mean providing travel and ticket expertise from India at an affordable cost to a western customer, who may lack that expertise.

I see growth in Wave 2 services starting to taper off; I don’t see the IT services industry being able to achieve the 100 billion dollar mark any time soon with just these services (I am not including BPO / ITeS in this). To be able to accelerate our growth as an industry, it is important that the established players as well as new entrants actively pursue the Wave 3 opportunity. The payoffs to the successful aspirants are enormous!