FINspeak

Yes Infosys is surely ready for this. And why shouldnt I believe that other companies that directly compete with Infosys arent prepared?
So now we are talking about a very interesting scenario. Its called competition in the times of adversity. Transaction based pricing is surely the future model. But the IT service sector will have to integrate consulting in such a way that it becomes an integral part of their core competency. Now that we know clients are going to slash their IT budgets, we, the service sector should actually help them doing that. We should plan for them and then service it. Sounds outrageous, isnt it? This way we are actually adding value by offering consulting to cut costs thereby increasing their operational efficieny.
So how do we do it? Remember what Wal-mart did to survive in the so called 'marginal profits' industry called supply chain??
The risk is on the service industry. Desperate times call for desperate measures. The service firms that can offer good consulting and operational insight will survive better.

Its like telling your client "You wanna cut costs right? I will tell you where all you can cut your IT costs. If you are satisfied let me execute your plans."

Do what UPS did for small firms...They innovated and expanded their core competency.

Yes and that's what companies like us are doing. Bundling in the whole gamut of servic, like strategic cost reduction to process outsourcing. In fact, for one of our client, we did a study and found out that they can cut as much as 1 billion in cost if they took a holistic view.

I agree with Munjay’s view on what next of IT outsourcing? But wasn’t it there always? The moment outsourcing became a way of doing business, the objective was to reduce cost and in turn increase the profit. Difference now is the IT outsourcing industry is mature and businesses know what they should expect in IT outsourcing to maximize the profit. Be it passing the risk to the service provider, increase their own efficiency or going that extra mile of taking risk to select a little known service provider as partner. It does not matter if any service provider has won any awards or not. Remember, past performance does not guarantee future returns in any investments, those are only guidelines to take informed decisions. Companies like Infosys are certainly ready for the shift in thinking and gearing up to reduce customer cost and own the risk. Still a lot of ground work is required to show our skin in the game. When we discuss reducing cost of doing business for businesses, are we ready to reduce the IT outsourcing cost itself? I think we are, but in segments. While we discuss and strategize moves, our competition is surely not sitting and watching to see their business getting wiped out during the "wave of change". They may also have the same or a better strategy. What they may or may not have is the right people to do the right job and make the right judgment on time. We also need a change in mindset, need to bring little risk taking appetite backed by owning and “earning” every penny we earn as salaried employees. Individuals need to own the business rather than the job.

Well, both of you have a point that our competition is not sitting idle and not for a minute I suggest that they are.
I believe that everyone is trying to do something and none of these ideas are new. Difference is that clients are ready to experiment and service providers need to be "ready" to deliver. To me, that's what will differentiate the next generation of SPs.

The question is that with all these "strategic" initiatives like readiness to deliver, consulting, risk appetite, will the "net" volume of business available reduce or increase. In my opinion it will decrease at least for this year and perhaps next year too. One view point is that smaller players might get knocked off leaving a larger share of the pie for the bigger players even with the pie itself shrinking. Another contrary view point is that if the bigger players do not rationalize/improve their price-benefit ratio, smaller players might improve their chances of surviving.
In any case I think that the days of organically adding 20 to 25K resources every year to up the topline and the bottom line are over.

Interestingly, I met a CEO of a small IT company focussed on outsourced product development and his view was that the IT budget will shrink as much as 60-70%. That's an interesting take, as it will do two things: it will push companies to deliver more at steeply lower price points and will prove to be a killer for firms not innovating fast enough.

"This will require service providers to be able to understand the business a whole lot more" - This is the crux of the issue. My background is in the Engineering Consulting business (EPC Contractor), which has operated on this LSTK model for quite some time now. Inspite of all the in-house core engineering expertise, it has been a mixed bag of successes till date. Technical complexity of projects, lack of clear project scope from clients' side, confusing/changing specifications, regulatory issues, etc., lead to major execution problems and cost overruns. As the IT outsourcing industry shifts to a model where risk is entirely on the service provider, the challenges will be to hire the right kind of domain/industry experts who have in-depth knowledge of the sector and can help in identifying the pitfalls .Needless to say, these neither come cheap nor easily.