Nonlinear IT

The buzz word these days among IT service providers is “Nonlinear”. In the traditional IT services business, the revenue is directly related to the number of employees the organization has. In other words, to grow the revenue organizations need to recruit more people. This is called linear growth. Long term organization growth sustainability based purely on linear model is slim.

As a diversification and de-risking measure, the need of the hour for Indian IT service providers is to add a mix of “nonlinear” growth elements in to their business model and grow the nonlinear business revenue streams over the years.

There are several avenues for building and growing Non-linear business models. Some of the options include:

  • Move to new pricing models
      The old model of charging based on actual effort (T&M) need to change. T&M model is less risky for the service provider since there is little downside. However, there is little upside as well for higher profit recognition in the T&M due to the linear model. This model is only good if one wants to maintain the “status quo”. In my opinion it is risky to overly depend on this model as most of the customer would want to move to newer and better models in the future.
      Bring in new pricing model that delinks the billing amount and the resources. The below models delink (albeit to varying degrees) the one-to-one relationship.

      • Fixed-bid
      • Outcome based pricing (like Service level, ROI, profit sharing )
      • Utility pricing model based on the usage of services, resources etc
  • Consulting
    • Focus on consulting assignments as it provides many downstream opportunities. Indian IT service providers evaluate per-project profitability for all consulting projects like they do for any other normal IT project. My suggestion is not to look at the consulting assignment in isolation and narrow viewpoint as it brings many downstream opportunities, help to establish mindshare and relationship with key client stake holders.
  • Products
      • Develop new products
      • Product development is a different ball game as it involves many facets like risk taking, huge and sustained investment, long gestation period, marketing muscle, subject matter knowledge, product management and engineering skills.
      • India has lost time and need to play catch up
      • The quick strategy is to acquire small to medium niche products/product companies and nurture them as a separate business units
      • Build niche vertical industry solutions from the experience of servicing the verticals
      • Aggressively leverage Managed services/SaaS/Cloud models
  • Offer internal best practices to the world
    • Most of the Indian IT companies have well matured tools and processes that can run any large organization, mange complex projects and vast resources. These tools are tested, proven and scalable. Indian IT service providers can unleash the investments made in some of these tools and processes by offering them as products or managed solutions. For e.g. one of the IT consulting company that I worked for, had state of the art employee portal offering services like employee data management, leave management, time, expense and travel management function, workflow functions and reports. This is a generic solution that any organization can use with very little customization.

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© Dhandapani Ammasai, 2011. Unauthorized use and/or duplication of this material without express and written permission from this blog’s author is strictly prohibited. Excerpts and links may be used, provided that full and clear credit is given with appropriate and specific direction to the original content.

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