I wrote a news story recently following a report from Deutsche Bank sent to me by a reader.
The report was the result of interviews carried out with four of Europe’s top ten banks. The research was carried out by the German bank and management consultancy group Value Leadership Group.
It said that the big banks want to increase the proportion of work done offshore but incumbent suppliers most notably Accenture and IBM are not playing ball. IBM and Accenture have huge workforces in India but the banks are saying that they are moving more of the work onshore. This is adding cost for the customer.
“Most banks we polled complained that despite the service agreements, during the last financial year [multinational] firms like Accenture and IBM saw resource issues offshore and used a greater proportion of their onsite headcount while executing application development projects,” said the report.
These service providers seem to be playing a risky game and the research revealed that the big Indian suppliers such as TCS and HCL are taking business from some incumbents.
For example HCL and TCS recently won sizable deals with Deutsche Bank itself. The HCL deal, which is for five years, will transform the support of Deutsche Bank’s core applications with a service that will meet ITIL and LEAN global standards. Although no value was announced for the deal a source told me it is £300m. Then TCS won a deal with Deutsche Bank to transform IT support in its investment arm.
If this is right it would seem shocking that the Western multi-national suppliers would risk losing deals with big banks. It seems some suppliers haven’t learnt from their mistakes of the past.
I met up with one of the pioneers of Indian IT services last year. Ashok Soota was the executive chairman of tier-two Indian service provider MindTree when I spoke to him last year. He is better known for being the president of Wipro in the 80s and to late 90s. When Soota was at the top of IT India some of the senior executives of the big Indian players today were out in the field.
He said the reason the Indian suppliers became such big players in the IT outsourcing sector was because they took their eyes off the ball.
I think it is interesting to republish what he said back then given the trend revealed by Deutsche bank and Value Leadership Group.
“The suppliers in the West only started to feel threatened by us in 2000.”
“Before 1994 Western IT companies were not really noticing us because we were mainframe maintenance.”
“Then client/server came and they thought we could not do it. But we were.”
“Then Y2K came along (millennium bug) and they thought we would go away afterwards. But Y2K gave Indian companies entry into big global companies.”
“Then they did not think internet work could be done offshore, because of the need for a quick turnaround. But distance can be an advantage because you can work around the clock.”
“The internet reduced transaction costs. Before this big players had dedicated pipelines. Now it became possible for a mid sized company to communicate with a mid sized company.”
“It was 2004 by the time the big Western suppliers became anxious.”
So what did they do? Well obviously they all moved to India.
So could the mistakes be being repeated? I mean banks are pretty important customers so you don’t want to be losing too much business.
It might start with low cost services around application management and IT support but if the banks and Indian suppliers bolster their relationships there will probably be much more on offer.