Thanks Vinne and Sadagopan for responding to my earlier post on the battle between India 5 and Old 4. I have couple of observations.
First, a bit about convergence. Sometime back Infosys overtook Accenture in market cap; now they are about to overtake Accenture in profitability as well. In financial terms the gap is certainly closing. Let’s assume, just for a moment, that the HC gap will close in the future. It’s only after that will the revenue gap close. Vinnie, my point here is that revenue gap is a rather lagging indicator of convergence and understates what’s happening in the field.
Now to competitive strategy. Both of you point out that the mid-tier firms have a future if they can reinvent themselves around new markets and new technologies. I agree with you on that.
But I can also foresee a time when Infosys and Accenture (I am using them as proxies for India 5 and Old 4) will no longer be able to gain market share by squeezing out the mid-tier players. They will have to take share from each other. This is when the game changes. For years both Wal-mart and K-mart took share from traditional retailers and grew. Then the slack disappeared. It caused a phase transition in the competitive landscape. Now they had to take share from each other. It was a new type of competitive situation. Wal-mart adapted to this by building-out new markets better than K-mart (e.g. groceries, music, etc.) Yet they failed with new store formats leading to withdrawals from Germany, Korea, etc.
A similar challenge awaits the SI firms. They will have to extend the offshoring model to new areas (like has been done to Remote Infrastructure Management recently) or will have to develop new service models involving shorter/smaller projects for SaaS implementations. Who will extend or reinvent themselves better? It seems to me that the India 5 will have an edge in both these cases.
Extension or reinvention doesn’t come naturally to a firm. It has to prepare for it. The time to do that preparation is now while the going is good. This is the time for formulate the new competitive strategy.
Sooner or later, as convergence kicks in and the slack disappears, the firms will hit a stall point. Arguably, this is what has happened to Dell today. It’s been caught unawares and is now scrambling to develop a new competitive strategy. If only they hadn’t been so smug earlier.
and my response is you are comparing Accenture and Infosys which make up 2% of the global services market - as compared to HP and Dell which have far greater market share of the PC laptop market. When I was at pwC a long time ago, we primarily focused on Accenture (then Andersen) - the reality is services is an incredibly fragmented market.
The services industry is still a fragmented market where the top 20 global players account for approximately 35% of the market opportunity. Best illustration of fragmentation – An analysis of top 100 global consulting & outsourcing deals show that over a period of years the number of players competing for such deals have steadily increased! – from 26 to 45, tracked annually in the last three years.
I agree with you that it would be very difficult for well established players to change their business models and their organizational DNA to come out with a winning competitive strategy. The offshore players have in a way grown faster on this count. All indications are that the stronger players would continue to do so in the near future. But consolidation is far away but tiering of service providers in terms of scale, expertise, geographical reach growth rates and capabilities would happen and this would happen faster than were seen in the past. See my brief post on this.
Thanks Vinnie and Sadagopan for your useful comments!
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