At Prayag, we had recently completed a study on non-linear models prevalent in the IT services industry. Non-linear models are those that include any form of revenue contribution that is not directly linked to headcount. Typically, among the Indian IT services players, revenue growth implied proportional headcount growth as well. This is not a sustainable model for various reasons – talent shortage, attrition, training costs, and so on. As a result, companies need to explore non-linear strategies where revenue growth is not directly proportional to headcount growth.
For our study, we spoke to several senior industry experts including those in charge of non-linear initiatives, delivery, sales, marketing, industry analysts, equity analysts and other experts. The insights we derived from our research and interviews helped us arrive at the big picture.
Overall, our findings showed that all leading offshore players are looking at non-linear initiatives in a similar way – delivery initiatives and outcome based models. Here again, more progress has been made on the delivery initiatives front in the form of solution accelerators, platforms and shared services.
However, we need to be cognizant of the fact that these non-linear initiatives form at the most 10% of overall revenues and more work needs to be done for it to scale and address some of the serious challenges . For now, our assessment is that non-linear initiatives need another five years or so to scale and contribute meaningfully, provided customers cooperate and companies continue to view it as an important part of their strategy. With the tepid Q2 results announced by the large offshore players, it appears that will necessarily have to focus – anyway, at Prayag we will continue to monitor this important trend and keep you posted.
For our study, we spoke to several senior industry experts including those in charge of non-linear initiatives, delivery, sales, marketing, industry analysts, equity analysts and other experts. The insights we derived from our research and interviews helped us arrive at the big picture.
Overall, our findings showed that all leading offshore players are looking at non-linear initiatives in a similar way – delivery initiatives and outcome based models. Here again, more progress has been made on the delivery initiatives front in the form of solution accelerators, platforms and shared services.
However, we need to be cognizant of the fact that these non-linear initiatives form at the most 10% of overall revenues and more work needs to be done for it to scale and address some of the serious challenges . For now, our assessment is that non-linear initiatives need another five years or so to scale and contribute meaningfully, provided customers cooperate and companies continue to view it as an important part of their strategy. With the tepid Q2 results announced by the large offshore players, it appears that will necessarily have to focus – anyway, at Prayag we will continue to monitor this important trend and keep you posted.
Here are some of the key findings of our study:
- Pressure on margins, desire to increase revenue without increasing workforce and increasing adoption of the cloud are the prime drivers for non-linear growth models, rather than customer intent.
- Tier 1 companies are marketing the win-win nature of these models through white papers and independently written case studies to customers.
- IBM has the most solid story in implementation among both Indian and international companies.
- The non-linear growth model is important in driving growth for the future and is a management priority across companies, but the intent is still only percolating to the next levels.
For more details on our study, refer to http://blogs.prayag.com/NLM/findings/