FINspeak

It doesn’t need an opinion poll to concur on the kind of times we are living in today. Amidst a new vocabulary where A stands for Assets, B for Bailout, C for Crisis and D for Depression- there is sense of déjà vu that we have seen it all. Amidst confused reports of whether we are at the beginning of the crisis, in the midst of it or at the tail-end, every morning continues to deliver bad news, as predictably as the rising sun.

What does this mean for IT service providers? Is this a time to sit back, blame it on the bad times and hope the good times will return (while taking a well earned break)? Or is this an opportunity is disguise – an opportunity to recoup, reinvent and rebuild? The following areas stand out as potential opportunities for service providers.

Improving Predictability for customers - Predictability of top line, predictability of spend and predictability of risks are on top of the priority list for most clients. Service providers couldn’t have asked for a better time to convert legacy engagement models into predictable transaction/ outcome based models that result in win-win solutions for both parties.

A dollar saved (for the client) is a dollar earned (for the service provider) – At a time when every dollar counts, service providers will gain a lot of trust and brownie points (not to mention some valuable revenue) by providing quick value adds that expedite the cost reduction initiatives of the client. “Quick win” ideas with a self sustaining business case - will only be too hard to resist.

Flattening clients operations to suit a flat world – While adapting operations to a “flat world” always seemed like a great idea, the heady pace of things just didn’t allow some customers to do so. Service providers now have the opportunity to work with clients in helping them remodel their business and operations to suit the flat world.

Working with Clients offshore centers – Clients with offshore centers in locations like India are increasingly faced with the necessity of increasing the quantum, breadth and depth of work being done at their centers. Service providers with an existing relationship with the client (and larger scale and set of mature offerings) have an opportunity to work with clients towards possible “win win” outcomes in this scenario.

Enhancing human capital – Slowdowns can be a great time to add sheen to the skills of the workforce. This can be done through deepening existing competencies, bi-skilling employees or building a niche workforce/practice with special skills.

Building Competitive differentiation in Delivery – With a never-before pressure on unit rates, service providers should focus their efforts on usage of tools, improving productivity, benchmarking with the best and try to win by value than by rates. Value Articulation should become the mantra of every Service provider. Newer ways of collaboration can help cut down onsite ratios while usage of newer concepts like Mashups will help crunch cycle time – a vital differentiator in today’s scenario. This is also a time to look at successful models from other industries and apply a few best practices to the software world. Increased efforts on IP creation will also help providers break away from the pack.

Moving Crowd-sourcing from lip service to action – Now that service providers have the time and a few extra hands to help, this could be a great time to bring back some of those long lost ideas. Tapping the collective efforts of the workforce will help providers A) Be ready with that next killer idea/product/platform when the time is ripe, as well as B) Work on solutions that have critical relevance in today’s times (example –Risk and compliance). Some of these investments can perhaps be structured as gainshare models and offered to customers.

Consolidate, Consolidate, Consolidate –Service providers will need to continue to look at options for getting more out of less. Usage of every resource – be it space, computing equipment etc has to be questioned and newer models should emerge on how to break the 1 space and 1 desktop for every employee and 1 server for every project paradigm. Trends like Virtualization will have to be more closely looked at. This is also a time to relook at traditional Knowledge Management techniques and evaluate how to improve reuse.

Last but not the least - Engaging Employees – Notwithstanding the efforts to bring in non-linearity of revenues, service providers performance will continue to remain dependent on the commitment, quality and passion of their talent pool. This is a great time for managers to invest any extra time on hand to engage employees through creative means, seek their collective mindshare and go the extra mile for all initiatives listed above.

To quote Andrew Grove - We are clearly at a Strategic Inflection Point in our business and well and truly, only the paranoid may survive.

Posted by Gururaj Deshpande at 06:12 AM | Permalink | Comments (1) | TrackBacks (0)

As President Obama signed the Economic Stimulus into law on Monday at the Denver Museum of Science and Nature, the sails of the clean energy sector were suddenly full of wind (and bunch of earmarked dollars) after months of stalled projects, an inability to receive private funding, and low oil prices.  With the Stimulus Package, President Obama continues to make good on his promise of ensuring 10% of the US’s electricity comes from renewable sources.  New funding and, most importantly, government mandate for the use of renewable energy will continue to drive the prominence of renewable energy in the US and the world.

Fortunately, the US is not foreign to mandates for renewable energy.  In fact, the state of California introduced legislation mandating that 33% of electricity in 2020 be from renewable sources.  While we are far out from 2020, a California utility has already penned a large solar contract with BrightSource Energy, a company producing “concentrating solar technology”.  BrightSource intends to build a large solar farm in the desert of Ivanpah, California with the ability to produce 286,000 megawatt hours of electricity per year.

I’m excited to see California take the lead for renewable energy mandates at the state level.  Not only is California a suitable location for renewable energy, especially solar, with a number of deserts near large cities, the state also maintains a burgeoning high-tech and green-tech industry (BrightSource is based out of Oakland, CA).  The role of the Government cannot be downplayed in stimulating investments in renewable energy and California, the 7th largest economy in the World, is a shining example of an economy with a progressive, carbon-conscious energy policy.

Now, my question is:

Who is going to take the lead next?

To learn more about BrightSource Energy’s project in California, check out this Datamonitor article.

Posted by Jitin Goyal at 03:31 PM | Permalink | Comments (0) | TrackBacks (0)

This might be an unsurprising fact, but the LBO (leveraged buyout) market is under significant distress. To put it simply, it is harder for Private Equity to support LBO activity without having the “L” due to a tighter credit market that is restricting lending and many buyout firms already supporting high leverage ratios with current investments from previously looser lending. Because of this, new deal flow has dropped precipitously (over 80% YOY according to Reuters) and many are calling for a complete shake up in the Private Equity industry. David Rubenstein from Carlyle Group mentioned this and more during his presentation to his industry colleagues at SuperReturn this year in Germany in addition to providing a 15 point plan to fix the systemic problems. (http://graphics8.nytimes.com/images/blogs/dealbook/superreturn2009/rubensteinsuper09.pdf). Time to write the epitaph and move on right? Well, nothing is always that simple.

First item to note is that money is still being committed to Private Equity. The mega firms, such as Apollo with its recently closed $15B VII fund, have still been able to draw on a significant amount of capital. I won’t say this luxury is available for all firms and some past limited partners may be adjusting future pledges if their portfolio value has dropped too much to skew their Private Equity contribution percentage above agreed thresholds. With all of this, new money is being committed. Secondly, deals are still out there, they just require a larger percentage of equity. Higher debt leverage provides greater return on the equity investment when valuation increases, but adding more equity lowers the ceiling potential and flattens the overall participating fund performance. This just means that the deals will be smaller and require a better eye for growth potential (the way it was before the 2005-07 boom). It is also possible to have an even greater focus on operational performance from those investments to help valuation as well. The last point to note regarding the continued importance of Private Equity is the new role they may play in the banking bailout. Carlyle is rumored to be setting up a $3B financial assets fund and many others will follow. Once the Treasury fully works out the public-private partnership structure, expect a significant amount of new activity. While has been stumbles into banking (TPG Capital and Wachovia), expect those issues to be addressed going forward.

The halcyon days from the recent boom may have passed, but Private Equity is here to stay in a new, leaner form. Infosys sees the importance of Private Equity and will continue to forge relationships with these industry leaders. Look for more on this topic in the weeks to come.

Posted by Jeremy Kloubec at 03:15 AM | Permalink | Comments (0) | TrackBacks (0)

At Davos this year, the focus remained steady (as it should have) on the global economy.  However, to my delight, the attendees at the forum did not shy away from addressing the environment. In fact, members of the World Economic Forum’s  Global Agenda Council on Climate Change attending Davos issued a report mandating a need to address global warming and the environment despite the ongoing economic crisis.

Within the report, Shaping an Opportunity out of Crisis, eight points are outlined justifying a need to maintain investments in environmental technology.  The Council believes great opportunities exist for the global economy as job creation will be stimulated while the economy is transformed by environmental technology.  Also, the report emphasized the need for immediate funding to enable the deployment of low-carbon technologies that are market ready via monies from economic stimulus packages.

The report is refreshing for green technology where demand has recently decreased and funding has dried up due to the credit crisis.  My view—much like the authors of the report—is that waiting to invest in green technology will further increase the time to market resulting in grave environmental consequences.  The time to invest in our environmental future is now—economic crisis or not.

To learn more about Davos, the World Economic Forum, and the WEF’s position of climate change, check out weforum.org.

Posted by Jitin Goyal at 04:07 PM | Permalink | Comments (0) | TrackBacks (0)