April 25, 2007

iGate : An Interesting (and Innovative) story

In India; TCS,Wipro,Infosys and other IT services companies have become household names.IT services companies have a simple rule of thumb:"They charge their clients based on Hourly basis of the employees that are in a team.This also includes the team members who are on bench ie they are a part of the project but unfortunately they are left with no work sad So with this saturated model being followed by all the IT services companies in India,time had come for some innovative model ie question the existing model and innovate to define a new one.This innovation came from IGate CEO Phaneesh Murthy......Keep on reading rest of the story(Note:Inputs taken from "How Innovators Connect" by Rohit Agarwal)

Phaneesh Murthy left Infosys in 2002 to start Quintant(which was later acquired by IGate).Murthy always knew in order to succeed,he should differentiate his company from the other players in the services industry.During his stint at Infosys,he had noticed the following problems in the business:
  1. Service providers get paid regardless of whether they succeeded with a project
  2. Service provider employees are usually very young and hence customers have to pay for their training
  3. Service providers had no stake in a project's completion and hence,they benefited even if the project deadline has missed
  4. Service providers talked about YOY increase in cost and salaries,while customers talked about YOY reductions of cost.
Now with so many weaknesses in the existing model of IT services industry,Murthy decided to be different from the crowd by implementing the following strategy.
Rather than asking his international clientele to pay for effort or input,customers would pay for value or output.
But when you try something innovative,initial hiccups are bound to happen,same was the case with Murthy as well.Below is a short glimpse of how Murthy convinced his initial clients to prove his point:
It is not wise to compare in Dollars per hour.But when the output is compared,definitely IGate is more competitive due to its strength of experienced employees.His point was that many IT services companies hire young employees so companies can mark up their hourly rates to make profit,on the other hand,IGate hired employees with more experience,who are more productive.
There were six companies who were competing for the bid but in the end,IGate won the bid and the reason was quite evident-"None of the companies who were competing for the bid were able to quote on price per transaction"

This was just a small example of Innovation born out of existing problems.There might be many such examples of innovation born when long standing flaws have been tolerated but only few like Phaneesh Murthy try to question them and than correct them(to get an upper hand over the competitors)

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9 Comments:

At Apr 26, 2007, 11:55:00 AM , Blogger Tarak said...

Hey

This is good way of winning clients but this has its own pitfalls . You are charging for the output with definite timelines. Now IGate was working with experienced employees but what suppose the project does notget completed on time. and another question how is the money being paid . based on milestones . now in IT circles on start of the project the initial sum is paid . In this case the initial sum would be paid post completion of the first module. Attrition is another huge issue as even expeienced empl leave. so I find it risky . would love to hear from you on this

 
At Apr 28, 2007, 1:38:00 AM , Blogger Wanderer said...

I'm not sure what the innovation is in this case except for maybe talking about it. I know this model in my company for at least 4 years. Someone like Jace does it day in day out. Of course no one else makes a big hoopla about it.

 
At Apr 28, 2007, 6:31:00 PM , Blogger Piyush said...

This comment has been removed by the author.

 
At Apr 28, 2007, 6:33:00 PM , Blogger Piyush said...

This comment has been removed by the author.

 
At Apr 28, 2007, 6:34:00 PM , Blogger Piyush said...

This seems to be a very humble & simple case of evolution rather than any innovation.

Probably at some minute level Innovation and evolution might have an intersection point, this doesn't necessarily mean that we can term any evolution an innovation.

 
At Sep 20, 2008, 11:26:00 PM , Blogger Salil said...

Hi Himanshu,
Nice to hear about this.
Cheers,
Salil

 
At Sep 20, 2008, 11:49:00 PM , Anonymous Himanshu Sheth said...

Hey,
@Salil:
Thanks for the comment and I am happy at least you liked the story :)

Just checked on LinkedIn, are you this Salil? Would like to see your reply on the same.

-Himanshu Sheth

 
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