IT outsourcing, which helped put India on the global tech map and was responsible for the coining of the term “Bangalored,” has been caught in a catch-22 for some time.
Global clients have been cutting down on deal sizes, and many have moved significant parts of their operations to the cloud. This has forced giants like Infosys, Tata Consultancy Services (TCS), and others to focus on what is called SMAC (social, mobile, analytics, and cloud) services.
IT firms are rushing to update their operations and acquiring smaller companies in the hope this would be easier than re-training all of the hundreds and thousands of engineers on their rosters. Meanwhile, a crop of digital service providers have reared their heads, making many think that Indian IT’s cheap-talent fueled growth is running out of breath.
Global delivery models (read: servicing clients’ Oracle and SAP enterprise resource planning) have given way to artificial intelligence, data analytics, Internet of Things, mobile technologies, and cloud-based computing.
While giants like TCS and Infosys are feverishly remodeling themselves to be in sync with the times, this flux has allowed smaller companies, IT startups, if you will, to approach tech outsourcing in newer, more flexible ways.
ET Marlabs, a four-year-old IT services firm, is hoping to ride the wave of Salesforce’s success. Founded in 2012 by former Infosys employees George Varghese and Sreekanth Keshava, the company is using Salesforce’s customer relationship management product to service clients like Urban Ladder, Flipkart, Cleartrip, CEAT, Coca Cola, Unilever, United Breweries – the total client tally goes up to 100.
ET Marlabs came into existence when Marlabs, a digital technology solutions provider, bought a stake in Extentor Tquila (ET), a Salesforce partner. Marlabs bought the stake held by Tquila in ET, and Tquila was acquired by Accenture.
Last year, ET Marlabs billed US$1.7 million in revenues. This year, George is expecting a 70 percent growth. That’s peanuts compared to the US$16 billion India’s biggest IT company, TCS, raked in last year.
But the rise in growth at ET Marlabs is telling of a much broader trend in the industry.
“A TCS or an Accenture are competitors to us. They do the same thing as us and provide the same services. In fact, most of the time we face them in the market during pitches,” George said as we met up one afternoon in Bangalore.
Up in the cloud
George, a former Infosys and IBM employee, recounts how he made his big win while pitching for CEAT, the tire manufacturing giant. ET Marlabs, a green shoot, was pitching against industry giants – the regular suspects (George asked not to name them in the article).
“Each team went through a whole process where we were given an hour to present to a group of 17 people – the evaluation team of the client. We went in last. We could see the others’ presentation, and we could see them do presentation after presentation for an hour,” he recounts.
“When we walked in, the director, who was very skeptical about us, asked us ‘who are you?’”
Instead of trying to beat institutional rivals on presentations and numbers, George and his team took an “use case” (industry speak for an analysis to identify and organize a real-time requirement) of the client’s business, and built it on the Salesforce platform right in front of the client team. They won the account.
That is a vast departure from the months of hierarchical implementation traditional IT companies see. Traditionally, billing clients for time of engagement has been one of the biggest revenue generators for IT firms. ET Marlabs says it is changing that with what it calls “sprints.”
“What we’ve done is, we have a delivery model which can be broken down into two-week deliverable cycles. So every two weeks we give our clients a deliverable, showing them something about a system that’s being built for them,” explains George.
To be fair, big IT companies have started breaking down their delivery cycles into smaller terms too, but the rate of success has differed. It is, after all, hard to change the culture and instilled practices of a company with hundreds of thousands of employees. Moreover, there is the all-important debate: if traditional IT firms move most of their business to servicing cloud-based CRMs (and work like startups), what happens to their old businesses? Is transforming an old project into digital enough to call it “new age”?
New age projects are those that are widely boxed under “digital.” This involves cloud and mobile technologies, IoT, artificial intelligence, and machine learning, to name a few.
“Digital transformation requires a great deal of change management and design thinking up front. It’s not like the old days of ERP (enterprise resource planning software like SAP), where you bought a software suite and then tried to retrofit a company’s processes around it. The ‘digital shift’ is essentially businesses driving IT, not IT driving businesses. It appears that Indian providers are now badging any ‘custom project’ as a ‘digital project’,” Phil Fersht, chief executive of US-based HfS Research, an outsourcing-research firm, told the Mint newspaper earlier this year.
Companies like ET Marlabs don’t have that baggage to carry. The firm was set up as a Salesforce service provider, and plans to continue being so.
“We provide services around implementing the Salesforce products. We take a Salesforce product and customize it for a client’s requirement and business processes,” George says.
Currently, about 85 percent of the company’s business is in India. The plan is to expand to the United States, where Salesforce implementations are more widespread, and state of the art, he says. Average ticket sizes for projects range from US$100,000 to US$250,000.
“That’s the range we are working at. But a lot of clients we have, particularly in ecommerce, want to use Salesforce ecosystem for newer things, so we are always working with them.”
The ET Marlabs team is made of 100 employees – ten percent of it consultants, there’s a five-member UX/UI team, the rest are the tech team, testers, and sales.
“At project level, we could hit a gross margin of 55-60 percent. That is the same as any other IT company. However, we also invest, so it comes down,” explains George.
“We have to hire, and also maintain the right kind of bench to be able to take on more projects. We have built a team that comprises all the skill sets needed for an enterprise project,” says George.
Bench, in IT parlance, is the state of being employed by the company, but with no real work. Big IT firms have institutionalized the practice of keeping armies of engineers “on the bench” as they pitch for big projects – it is a way of showing clients the companies have the numbers to deploy on a project as needed.
ET Marlabs says it has a bench size of about 20-25 percent of its workforce, but the small size of the team and fast project delivery means employees are rotated fast as well.
“When our larger competitors talk about years, we talk about months; when they talk about months, we talk about weeks,” George says.
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