Metamorphosis of infrastructure management services in India
The market is growing in India amid changes in the delivery model, nature and complexities of work, and duration of the deal cycles
India may still form only a small piece of the cake in the global infrastructure management (IM) services market but the share and momentum of growth is fast increasing. The current size of the global IM services market is around USD 370-380 billion — of which close to 40 percent is outsourced, i.e. around USD 150-180 billion. Today, Indian service providers deliver over about USD 4 billion worth of services in the IM services space. For most Indian providers, the bulk of their revenues come from the U.S., while India contributes only a tad bit of it. For instance, Microland, pioneer in remote infrastructure management (RIM), generates 83 percent of its revenues from the U.S. and 17 percent from India. For smaller players like Zensar, India contributes less than 2 percent of their global IM revenues. These figures are however changing as India is beginning to pump in more revenues.
According to Zensar, a multi-shore end-to-end IM services company, India is a growing destination for IM services but it is a highly commoditized service market, strongly competing on
price and dominated by a few larger players. The key driver of the market and the core differentiator for the providers would be in offering niche and specialized IM service projects with high-end skills. “These are the kind of projects being awarded to service providers like us. More and more companies in India are looking at total IM outsourcing with the objective of generating significant cost savings,” says Krishna Ramaswami, Senior Vice President, Global Infrastructure Management Services, Zensar.
The mode of delivery of the IM services has also changed and evolved over the years. While in India, onsite delivery of IM services has been predominant, the trend is changing to a more hybrid model today. According to Zinnov, there were two reasons that made Indian customers deploy their personnel on-site. First, it gave them a comfort factor. The second reason was the lack of appropriate IT infrastructure and tools in Indian corporations to perform support remotely. However, as organizations are global today, with multiple offices across geographies, the hybrid approach seems to be working out better in many ways.
Most of the providers are experiencing an equal mix of requirements. “While there are multiple requirements for the on-site “fix on fail” and “hands and eye” support, there is an equally large demand to provide remote services especially on the server and network support. The domestic opportunity will largely be on high volumes and lower billings and will form a significant base for growth for IMS companies,” says Ramaswami of Zensar.
Players such as Dell Services are witnessing more and more customers asking them to decide the best model
In the next three-five years, all enterprises will run a hybrid infrastructure environment and the role of IM service providers will evolve
VP & Business Head- Cloud Services, Microland
for delivery of services to them. “We have capabilities to deliver services both from customers’ premises, as well as from our remote delivery centers. Both these models have their own advantages and a final decision is taken based on what works for the customer based on their requirements and strategic priorities,” says Sumed Marwaha, Country Manager - IMS, Dell Services India. “In India, we are focusing on some key customers where we already have existing relationships. We focus on value-added SLA-based services rather than just the provision of manpower-based services. We also have a customized go-to-market model for India. This model brings in the global best practices to India at a market price point.”
Given that globally, RIM is the preferred model, Indian providers are utilizing this opportunity in a big way. RIM is the remote management of the IT infrastructure of a company, such as its workstations (desktop PCs, laptops, notebooks), communications and networking hardware and software, as well as applications by a service provider. Remote monitoring and management is undertaken through global delivery centers, where skilled staff monitors and manages the infrastructure, ensuring uptimes and availability. With a growth of over 30 percent CAGR during the initial years and sustaining above 15 percent CAGR for the past couple of years, RIM has contributed significantly to the overall IT services exports in the country. One of the significant innovations that have occurred much earlier in RIM compared to application development management (ADM) services is the disruption in linearity between revenues and effort. The companies were quick to move to an outcome-based pricing model and offer efficiencies through automation.
All industry verticals are now considering India as a preferred location for outsourcing their infrastructure and application services. While some of it is in the form of setting up captives (predominantly the BFSI organizations), others are adopting more conventional outsourcing models. “While initial interest in India as a RIM service provider was mainly due to the significant cost arbitrage, this was soon overtaken by other benefits such as labour arbitrage, productivity improvements through improved operations, productivity from better tools and incremental value from value-added services,” says Rama Murthy Prabhala, AVP, Practice Head, Manufacturing at Infosys.
Kaseya, a pioneer in automated managed services (AMS), says the recent trend points to an increase in adoption of AMS among the small- and medium-
sized businesses in India. Enterprises with highly distributed, complex IT environments, such as those in the retail, BFSI, healthcare, and education verticals, have adopted AMS. “Kaseya’s low-cost, highly flexible AMS solution can ensure very low downtime, superior visibility and control of IT through single pane of glass interface, enhanced security of data and assets, ease of IT management and more,” says HS Shenoy, Director of Marketing, Kaseya India.
DEALING WITH SLOWDOWN
As the major revenue generator, the economic slowdown in the U.S. and the eurozone crisis has had a partial impact on the IM services industry. Infrastructure, especially the “run” part of it, is part of non-discretionary spend and hence companies are bound to invest in keeping their basic infrastructures running. However, transformational infrastructure projects, which form part of discretionary spend, are being delayed and cancelled, which is hitting the industry hard.
“We are seeing a fairly robust demand environment. Enterprises need to keep their IT infrastructure running and therefore it is not a discretionary spend. Offshoring/RIM can help them cut costs and hence there is continued strong interest. Clearly, pricing becomes an important variable where customers expect yearly discounts during the term of a contract. Microland’s focus is to improve our productivity using automation and better processes to be able to support that expectation,” says VM Kumar, Chief Marketing Officer at Microland.
The durations of annual IM services contracts have also shortened. The clients, which earlier signed contracts for seven years have now shortened it to about three years up to a maximum of five years. The decision-making cycles have become longer and most of the clients are not comfortable with signing deals longer than five years.
Apoorva Singh, Senior VP, iGate, says the primary reasons for shorter deals are business uncertainty and the need to have IT aligned to business. “Also the buyer is much smarter now and wants to evaluate the sourcing decision in shorter time periods. The buyer also wants a greater transparency and ‘skin in the game’ from the service provider which is more easily obtained by shorter deal periods.”
THE CLOUD IMPACT
Cloud will change the way infrastructure management is looked at. “While the underlying pieces of infrastructure will remain same even with the advent of cloud, the increased business focus in the new environment will make significant changes in the way we approach infrastructure management across all the components. IT as a service is the new delivery paradigm and infrastructure management will continue to evolve to handle this new paradigm effectively,” says Vaibhav Tewari, VP & Business Head- Cloud Services, Microland.
Cloud will eat into the IMS market only to the extent of software-as-aservice (SaaS) wherein the providers manage all the layers. But this, Tewari says, is only a small segment of the business. “Bulk of the enterprises will retain portion of their physical infrastructure or move to the private cloud where they would still require somebody to manage it for them and help them re-architect it with the changing business environments. Going forward, in the next three-five years, all enterprises will run a hybrid infrastructure environment and the role of IM service providers will grow and evolve.”
Most companies are preparing themselves for the cloud wave that is coming their way. For instance, Microland, a pure-play IM services provider today offers consulting services to companies in their journey from the traditional IT to a cloud environment. “We enable enterprises to transform their delivery and consumption of IT services to an on-demand model leveraging hybrid cloud environments through our consulting, solution integration and IM service offerings. We work with global enterprises helping them with their cloud roadmap across different stages. It’s easier for us because we understand our customer’s infrastructure requirements best as we have been managing their physical infrastructures for a long time,” says Tewari.
As companies are not likely to move their entire physical infrastructure to the cloud, IM service providers will still have their share of business. The nature and complexity of their work will however change. Customers will look for a single point of contact for all their infrastructure management — be it physical, virtual or cloud. The infrastructure management and monitoring tools will have automation, self-service, chargeback etc., as the key components and the providers will have to evolve accordingly. The focus will change from managing IT to delivering business value.