|
|
 |
| |
Could the best-known offshore firms (Wipro, Infosys, TPI) steal a march on the large-scale onshore firms such as Deloitte, Cap Gemini Ernst & Young or Booz Allen Hamilton? Dramatically gain market share at the expense of the established consulting brands?
That’s the issue addressed in a new report to be published by consulting industry analysts Fiona Czerniawska and Tom Rodenhauser, entitled “Offshore Consulting: Benchmarking Future Success”.
|
|
 |
| Consulting-Times E-zine
|
 |
|
|
Having reviewed the findings, the conclusions could certainly make for worrying reading within the consulting community. As an Infosys quote puts it, “No one has an advantage that’s unbeatable”
Czerniawska and Rodenhauser assess four alternative scenarios for the offshore / onshore consulting market of the future, highlighting those firms that are likely to thrive under each of the scenarios. Worryingly for the established majors, most large-scale onshore firms such as Deloitte and CGE&Y; fall into the high return, but high risk category – performing very well in some scenarios, but badly in others. The likes of Wipro, Infosys and TPI are low risk / high return firms by comparison – performing comparatively well under all scenarios. As the authors put it, they have Strategic Resilience
Introduction & Backdrop
If the last five years have taught the consulting and IT services industries anything, it’s the dangers of extrapolating trends from the last 12 months to the next five years. Offshore suppliers may have grown rapidly, but will they continue to do so?
Despite the uncertainty, there’s talk of acquisition. Onshore firms are looking to meet clients’ price expectations by building up their own offshore delivery arms; offshore firms are looking to build direct relationships with their clients by fielding onshore account managers and consultants. But is this the right strategy?
In fact, the questions raised by offshoring go far beyond simple onshore/ offshore distinctions. What’s at stake here is how a consulting or IT services firm can create the optimal and sustainable balance of high-cost selling and relationship management (onshore) to low-cost delivery and resources (offshore).
There are two critical questions that can’t be answered. To what extent will clients be prepared to sacrifice face-to-face contact with their suppliers in order to save costs?… and how risky will offshoring be perceived to be? However, put these questions together and it’s clear we face four radically different scenarios.
Future success will be determined by a firm’s strategic resilience – the extent to which its resources can be adapted to face the challenges of each scenario…
Scenario #1: Constant confrontation
While the market for offshoring has grown significantly and now extends to medium as well as large scale organisations, trust has not. Reinforced by constant haggling over price, client-supplier relationships are at an all time low. Clients have established their own procurement departments, staffed by outsourcing and offshoring experts who cultivate a confrontational style. Larger offshore suppliers have responded in kind, recruiting (or acquiring) their own class of aggressive, onshore account managers.
Succeeding in this scenario will require significant resources both onshore and offshore. Suppliers will need locally-based account managers and offshoring experts if they’re to negotiate effectively with clients’ own, in-house procurement teams, but will only be able to secure contracts if they have sufficient offshore resources to keep the overall costs low.
Size is the key. With price competition intense, being able to achieve economies of scale will be an important source of competitive advantage. Onshore firms with a sizeable offshore presence (Deloitte, Covansys, CSC and CGE&Y;) will do well, as will the larger offshore firms (Infosys, Wipro and Satyam), which are already building onshore account managers and consulting teams. Most intermediaries (firms providing advice on how to offshore) will fare badly, squeezed out by a combination of direct negotiation between clients and suppliers with offshore facilities, and fierce price competition.
Scenario #2: Profitable distrust
Continuing concerns over the political and social stability of low-cost economies means that offshoring is seen as a high-risk strategy. Larger companies, still attracted by the cost differentials, manage the risk by relying heavily on the advice of independent intermediaries. The importance of independence also means that those onshore suppliers which combined offering advice and brokering deals with their own offshore facilities have had to choose between the two.
In contrast to the previous scenario, it’s the intermediary firms (DiamondCluster, NeoIT, TPI) that are likely to perform best in this environment, where clients choose to cushion themselves against the perceived risks by using third-party advisors, negotiators, even deal-makers. Also likely to benefit are the larger, better branded offshore companies (Infosys, Satyam, Wipro). Combining low costs with the security of comparatively well-known names, these firms will appear to be particularly attractive partners from the point of view of the intermediaries who will be responsible for brokering the majority of offshoring deals.
Scenario #3: Onshore returns
A gradual upturn in the world economy post-2003 puts a break on the seemingly inexorable expansion of offshoring. Clients turn increasingly to their more familiar, onshore suppliers to explore revenue-generating ideas: demand for outsourcing and offshoring has levelled off, while demand for traditional management consulting is growing.
Unquestionably, the primary beneficiaries under this scenario will be conventional, onshore management consulting firms (Booz Allen Hamilton, Deloitte, CGE&Y;). Onshore IT services and consulting firms will also do well (AMS, Dimension Data, Fujitsu Consulting, LogicaCMG and Sapient), as clients look to buyer higher-end IT skills, rather than commodity body shopping.
Scenario #4: Offshore rules
A succession of stories in the press, highlighting the proven advantages of offshoring, together with continuing budgetary pressure on clients, result in an explosion of the offshoring market. Offshore suppliers have grown rapidly. Increased access to clients has meant that many of the larger firms have succeeded in their aspirations to move up the value chain. Mounting revenues have allowed them to expand their onshore resource base without compromising their economic advantage. Some have acquired onshore suppliers to boost their immediate presence in local markets. Most have abandoned any pretence of working through third-party, onshore partners.
Access to offshore resources will be a critical determinant of success in this scenario. Not surprisingly, therefore, it’s the likes of Infosys and Wipro which stand to do best in this scenario, and may even find themselves turning clients away, much as the fastest-growing e-business consulting firms did in 1998-2000.
Taking the scenarios together – who has Strategic Resilience?
But, if individual firms’ performance varies across these different scenarios, which firms are likely to perform well across all of them? The low risk and high return firms fall into two groups: they’re either the larger scale offshore companies (Wipro, Infosys) or they’re intermediaries specializing in complex deals (TPI).
Most large-scale onshore firms (Deloitte, CGE&Y;) fall into the high return, but high risk category, performing well in some scenarios, but badly in others. These firms have lower strategic resilience, according to the report, meaning they are less able to adapt and thrive under all the possible scenarios.
Time to start hoping for an upturn in the mature consulting markets so that scenario 3 prevails?…
* Report details: “Offshore Consulting: Benchmarking Future Success” analyses the resilience and strategies of 26 leading consulting firms. Click here for more details (in PDF format)
|
|
|
|
|
|
|
