By asking vendors to manage, host and deliver a software application, such as enterprise resource planning (ERP), these customers are able to avoid large, complex outsourcing contracts and instead pay suppliers on the basis of number of transactions.
Popular business application packages, including customer relationship management (CRM) and ERP, are increasingly being adopted under software-as-a-service (SaaS) model by the customers. According to research firm Gartner, SaaS-based CRM was worth $1.8 billion in revenues, almost 18% of $9.4-billion global market for CRM software.
For Indian IT firms, such as TCS, Infosys, Wipro and HCL, this offers a new opportunity to enhance proximity with the customers and also move away from traditional model of outsourcing, wherein they had dedicated offshore development centres for each customer.
“By offering services under our Flex model, we are able to bring down costs by up to 30%,” said Sangita Singh, senior vice-president and head of Wipro’s enterprise application services business. Wipro’s FlexDelivery model offers ERP software from SAP to customers such as Nokia Siemens.
At least two outsourcing consultants told ET on conditions of anonymity that around 10-12 ERP and CRM outsourcing contracts, each worth $50-100 million, are being discussed by customers, including steel maker ArcelorMittal, Philips and ABB.
“We, currently, have around 15% of application revenues coming from the Flex model, it can surely contribute around half of our total enterprise applications business,” she added. Wipro is moving some of its top customers who already have dedicated offshore centres to this model. Mr Singh declined to name the customers currently exploring this model.
Indeed, as more customers seek to reduce cost and move away from traditional time and material-based pricing models, Indian vendors will have to prepare for more such engagements. Delivering traditional application maintenance and services in its current form will not really take Indian tech firms too far, experts say.
India’s second-biggest software exporter Infosys is not far behind. The company is already offering Oracle’s PeopleSoft HR management software to two of its customers. “By saving software and hardware costs and with our reusable components, the total cost of ownership can be brought down by 25-30%,” said Ravi Kumar S, Infosys’ vice-president and delivery head for Oracle services.
The country’s biggest software exporter TCS currently offers enterprise services under SaaS model to around 60 small and medium business customers.
“This downturn will force vendors and customers to explore newer models, going forward, we will look at many applications to be delivered under SaaS model,” Maarten J de Vries, IT and supply management, member group management committee, Royal Philips Electronics told ET in a recent interview.
For instance, European service providers, such as T-Systems, with capabilities to bundle enterprise business applications from SAP are already
winning more business. Wipro, along with EDS and T-Systems is among SAP services providers currently authorised to deliver such services as part of the Run SAP program.
“During the downturn, this model offers a quick and easy way to save costs, and having noticed that customers were moving towards platform-based services, we realised Run SAP could be a good way to help customers standardise their processes using SAP applications,” said Anja-Christina Bruehling, head of partner management — Active Global Support , SAP. “Apart from selecting a partner, customers are also free to operate RunSAP inhouse,” she added.
Philips will announce a new outsourcing contract with T-Systems, a European service provider, this week, Mr Vries said. “We will also announce SAP as a service as part of this contract,” he added.
“During the downturn, this model offers a quick and easy way to save costs, and having noticed that customers were moving towards platform-based services, we realised Run SAP could be a good way to help customers standardise their processes using SAP applications,” said Anja-Christina Bruehling, head of partner management — Active Global Support , SAP. “Apart from selecting a partner, customers are also free to operate RunSAP inhouse,” she added.
Philips will announce a new outsourcing contract with T-Systems, a European service provider, this week, Mr Vries said. “We will also announce SAP as a service as part of this contract,” he added.
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