Just Another Buzzword?

7 05 2008
In a column in The Economic Times last Monday,  Mr. Francisco D’Souza, the CEO of Cognizant Technologies made a proposition to the potential clients in the US and EU. He urged the companies looking for outsourcing deals to look beyond labour arbitrage and consider Indian firms such as his, for high-end work also, which he referred to as ‘intellectual arbitrage’ .
 
The basic idea of intellectual arbitrage : by applying new knowledge, skill-sets or business savvy that were not previously affordable or available, organizations can enable new services or capabilities that, in the past, could not be considered feasible, and can therefore achieve a totally unexpected outcome.
 
In the past, when the large Indian firms were being labelled as body-shopping outfits or programming shops, the management of these firms made a lot of noise about ‘going up the value chain’. In simple terms, this meant getting a higher billing rate from the client or realizing higher revenue per employee.
 
In the 90s, when it was not clear which way the Indian firms will take, i.e services or products, some of these firms announced ambitious targets for getting revenue from software products. TCS had proclaimed that by 2000, they will have 30 % of their revenue coming from software products. Software products, while more profitable, is quite a different ballgame altogether requiring high levels of investment, risk taking ability, technological capabilities and superior sales and marketing abilities. Realising the audacity of this goal, these firms started talking about “productizing” and launching “apps-on-taps” rather than products itself.
 
Parallelly, these firms started offering consulting services aiming to solve the clients’ problems from ‘end-to-end’ and thereby projecting themselves as a ‘full-service firm’.  One used to hear claims that we no longer want to enter the client through the CIO, we want an entry through the board. The consulting divisions of these firms do exist but they do not contribute any significant revenue nor do they help in improving the perceptions of the client about these firms.
 
The CEOs of the big six, sometimes referred to as SWITCH (Satyam, Wipro, Infosys, TCS, Cognizant and HCL), are trying hard to improve the perceptions about their companies not only with their clients but also with the analyst community, faced as they are with decelerating business and declining stock prices. 
 
The idea of ‘Intellectual Arbitrage’ l is one more attempt by an Indian IT Services firm to differentiate and improve perceptions. Is this a new idea or just old-wine-in-new-bottle?
– G. Mohan
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8 05 2008
Venkat Subramaniam

You have made some very interesting observations about the top management of IT companies thriving on buzzwords.

More than 80% of the revenue of the Indian IT companies comes from Application & IT Infrastructure Maintenance for clients. In these IT companies, the junior management and their team are actively involved terms of strategizing, planning and rendering of these services. Challenges like branding, positioning and selling which are prerogatives of middle and top management in the manufacturing and FMCG companies are hardly there in the Indian IT companies.

Even though most of these IT companies are structured in terms of Business verticals like Banking, Finance, Telecom, Manufacturing etc, bulk of the work they do is the same across domains.

My question is: can the top management of these companies really do anything very differently from their competitors, when all their so-called strategy can fall flat or really look great depending on whether the rupee is stronger or weaker.

Hence to justify their salaries they have to invent buzzwords.

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