Wednesday, March 25, 2009

NINE TRENDS FOR IT IN 2009 - II

Chandra Ranganathan
The Economic Times

Contracts - Vendor is King

Typically, an Indian IT company enters into time and material linked contracts, where the billing is done based on the number of people working on a particular project. "In T & M projects, companies build in a lot of buffer, where if 20 people are billed, 15-16 would be working. But, now companies might negotiate with vendors to work on the same projects with lesser people. They will enter into service level agreements to ensure that quality is maintained even with lesser resources," said an analyst who did not wish to be named. Apart from this, fixed price contracts will also pick up. "Scale and capability – you cab lock it in revenue," Dhavse said.

"About 86 percent of the 15 deals with a contract value of over $1 billion signed in the year-ended June 2008 were structured as fixed price and output-based contracts, where the potential to earn better margins is higher through productivity gains," said S Premkumar, Corporate Officer & Global Business Sponsor– Financial Services, HCL Technologies. Further, iGATE technologies global HR head Srinivas Kandula said, "We encourage our vendors to opt for 'Pay by Drink' pricing model. Certainly, outcome based pricing model has the efficiency advantage."

Techies will head home

IT employees nurturing hopes of onsite projects in exciting locales have to get used to the idea that more work will happen offshore. This trend will happen because of two reasons- increase in revenues from offshore friendly services and more focus in domestic software projects. While RIM, BPO and testing are offshore- friendly, consulting and ERP implementation are onsite intensive. Indian IT companies will also throw more resources in domestic software projects, as they find the demand inside show promise like never before.

"If Indian IT companies don't look at the domestic market now, then the likes of IBM and Accenture will dominate. So they are bringing some of their bright engineers from onsite locations to the domestic market. There is an increase in the quality of employees working on domestic projects," said Pari Natarajan, CEO of management consulting firm Zinnov. "The margins are better now because companies have a better idea about how to price their projects here. Also, they can use the processes and solution components that they used for their clients globally for the domestic clients," Natarajan Currency

Headwinds

The year began with rupee at Rs 38-40 to the US dollar and is ending at Ts 48-50 levels, leaving in its wake losses due to hedging and more confusion. While they contend that currency headwinds would continue, no one is willing to take a bet on the direction or pattern. Kotak's Shah said, "It is very difficult to estimate."

Companies, on the other hand, did not respond to the question on currency headwinds. But broadly, observers say that the dollar appreciation against the rupee is unlikely to continue for long. "I don't expect a sharp movement in the US dollar for another 6 months. It won't go to a 15-20 percent upside. Rs 42-46 levels should make it profitable for companies," said Dhavse.

Headcount Addition

There has been a lot of discussion on the non-linearity model, where companies are trying to break the relationship between headcount addition and revenue growth.

Companies will push for this in the coming year by using automation tools, increasing the utilisation rate and improving employee productivity.

As a result, the campus intake would be flattish. Productivity measures could include an increase in working hours but no company has confirmed this.

Increments will be lower as well. But, some players disagree. "Often employees' productivity is largely influenced by their competency levels. So far, organizations have been thinking that productivity is a mere quantitative measure. As a result, the emphasis has been on number of working hours and days and not so much on 'real productivity'," iGATE's Kandula said.

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