Issue No.

21 Page 1

NASSCOM TM

NASSCOM/ MEM - 101 / 2002 - 03

28 October 2002 Market Intelligence Service
Geography : Global
Service Line : System Integration

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research@nasscom.org

Introduction The Indian software and services industry, even

today, operates in a very narrow sandbox of
We are pleased to release the 21 issue of st
services.
NASSCOM Market Intelligence Service.

India’s presence in the global IT services market

This week, we focus on System Integration
is today largely restricted to two out of ten IT
globally..
service lines – custom application development
and application outsourcing. While these service
We sincerely hope that the service is able
lines are large and likely to exceed US$ 80 billion
to meet its objectives. In order to do so,
(in terms of spend by 2008), it is important to
we need your feedback. Do tell us whether
note that they will constitute less than 15 per
it is useful, ways to improve relevance and
cent of the global IT services market in 2008. In
other topics to cover in order to enable us
the remaining 8 service lines, India’s market
t o t a i l o r - m a ke t h i s f o r y o u r n e e d s . To
share is negligible.
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email to research@nasscom.org
This is, however, beginning to change. While
these service lines have historically been
Thanks and looking forward to serving you better.
considered difficult to penetrate from an offshore
base, it is important to note that customers are
With warm regards
now increasingly willing to disaggregate service
lines in order to maximise offshore leverage,
thus making it more possible for India to finally
penetrate these service lines. Also, certain
leading Indian companies are building onshore
Sunil Mehta
skills and beginning to win contracts in head-
Vice President - Research
on competition with global majors. Both these
phenomena augur well for India’s foray into new
service lines.

The size of the off-shoreable component in a

service line, we believe, is a strong driver of
India’s potential long-term market share. Based
on interviews with numerous leading Indian
vendors and also closely examining the
offshoring service mix of leading edge customers,
we have analysed the off-shoreability of

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 Issue No. 21 Page 2

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different service lines and estimated the
potential market share that India could capture
in each of these. Current Indian market share
influences the likely speed of ramp- up.
In addition to existing service lines like custom
application development and application
outsourcing, other high-potential service lines
in the near term are packaged software
installation and support, and, systems
integration. Many leading software vendors
already have a strong presence in the
packaged software installation and support
market and we believe up to 40 per cent of the
activities involved are off-shoreable. Similarly,
systems integration is off-shoreable to the tune
of at least 30 per cent.
Services like IT consulting, network consulting
and integration, and, hardware installation and
support will continue to be predominantly on-
site plays. The high competitive intensity in most
of these service lines will make cornering a
huge market share challenging. However, we
feel that quite a few Indian companies, today
have built up significant skills to be able to
compete in these service lines. However, they
need to focus on attracting and retaining world-
class talent, building a network of best-of-breed
partnerships and develop best-in-class project
management skills to completely leverage this
opportunity
SYSTEMS INTEGRATION
Systems integration is the implementation of
technology that enables disparate systems to
effectively share data. Systems integration is
also referred to as solutions integration since
a comprehensive systems integration
engagement often involves not just systems
but also applications and people. A
comprehensive systems integration
engagement includes initial consultation,
planning, design, implementation, and project
management of a solution that addresses a
customer’s specific technical and business
needs. It involves systems and custom
application development as well as
implementation and integration of enterprise
packaged software. The ultimate aim is to
provide end users with a complete solution that
includes hardware, software, and systems
Systems integration includes consulting, custom
software development, implementation and
project management

Span of systems integration is expanding to include more than merely integration

Systems
Integration

IT SERVICES LANDSCAPE

Hardware and network Hardware and network

Applications outsourcing

integration maintenance

Hardware
Package software Software maintenance
and support

Custom software IT education and

training
Business process outsourcing

IT consulting
Platforms
Systems
Operational
consulting

Business Strategy
consulting

Consulting Development Implementation Operations

Activities/Typical Services
Source: McKinsey Analysis

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l Consulting:
♦ Identifies optimal solution for client
♦ Integrates solution into business
process through business consulting,
change management, and training
l Custom software development:
♦ Involves development of application/
software tailored to meet client’s needs
l Implementation:
♦ Involves installation, systems migration,
testing and debugging, training and
maintenance
l Project management:
♦ Ensures delivery of systems integration
project on time and on budget
♦ Coordinates work with sub-contractors
The process of systems integration involves
four major steps :
l Recognize need for integration (Conceive):
♦ Derive need for integration from
business processes or business strategy
l Identify integration model (Design) :
♦ Evaluate criteria for integration
♦ Choose most suitable model using
decision matrix
l Initiate integration project/apply
methodology (Develop)
♦ Set up integration project
♦ Create environment for successful
implementation
l Deploy integrated system
♦ Begin project-based implementation of
integrated IT system
Highly varied requirement of capability sets
command charge rates ranging from 70-480
$/hr
l For Level I Staff (skill levels defined in
Appendix), the rates vary between $ 70 per
hour to $ 190 per hour; approximately 45
per cent of the team comprises Level I staff
l For Level II Staff (skill levels defined in
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Issue No. 21 Page 3
Appendix), the rates vary between $ 75 per
hour to $ 240 per hour; approximately 30
per cent of the team comprises Level II staff
l For Level III Staff (skill levels defined in
Appendix), the rates vary between $ 90 per
hour to $ 310 per hour; approximately 14
per cent of the team comprises Level III staff
l For Level IV Staff (skill levels defined in
Appendix), the rates vary between $ 125
per hour to $ 360 per hour; approximately
7 per cent of the team comprises Level IV
staff
l For Level V Staff (skill levels defined in
Appendix), the rates vary between $ 150
per hour to $ 480 per hour; approximately
3 per cent of the team comprises Level V
staff
Various contract arrangements and payment
methods are accepted in the industry
l In terms of contract arrangements
♦ 46 per cent of the respondents use
inhouse IS staff to manage multiple
vendors
♦ 42 per cent of the respondents use a
single vendor for the total solution
♦ 9 per cent of the respondents use a
prime vendor who manages other
vendors
l Pricing models also vary
♦ 42 per cent use Time & Materials
♦ 47 per cent prefer Fixed price/Fixed
schedule
♦ 35 per cent use pricing by project phase;
while
♦ 22 per cent use incentive (penalty/
bonus) pricing
Systems Integration: Market trends
The worldwide systems integration market grew
to $71.7 billion in 2000, an increase of 14% over
the previous year. The market is expected to
grow to $142.1 billion by 2005
Key drivers of growth in the systems integration
services market include:
l There is a slew of new applications and
infrastructure which were purchased at the
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height of the dot-com boom, all of which
need to be integrated. Business need to
implement, integrate, customize, and
optimize their IT investments and
infrastructure across the front-office, back-
office, and extended back-office
environments.
l Implementation of Enterprise Applications
will drive growth as companies look to
transact/ collaborate with customers,
suppliers, and partners more effectively. Pre-
packaged enterprise applications such as
Microsoft’s .NET have very limited traction
in the market today.
l In-house IT staff are increasingly likely to
fall behind the continuous changes and
evolution in the technology landscape. This
will provide growth opportunities for SI
firms.
US still continues to account for the largest share
of the worldwide market, making up 45.5% of
the market in 2000. Western Europe, the
second-largest market, accounted for 27%, with
Asia Pac region expected to grow the most
rapidly.
Implementation activity coupled with project
management will continue to be the largest
contributor to systems integration revenue.
Contribution from Custom Software
development is expected to decline due to
increased use of Off-the-shelf software and
reusable software modules.
Financial Services will continue to be the largest
spender on systems integration revenue, with
the manufacturing sector and government
spending
The systems integration market is an attractive
one dominated by traditional integrators and
big 5 firms, however there is increasing
competition from substitutes and new entrants
The top ten players in the SI market have strong
positions although they come from at least three
different legacies.
l The first, is the Big Five firms, who come
from an accounting and consulting legacy.
They emphasise total business solutions
and leverage smaller scale front-end/
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strategy issues to win SI projects. They
invest significant resources in marketing and
brand building.
l Large outsourcers such as IBMGS, EDS, and
CSC focus on large mission- critical SI
projects. They have solution centers that
design, showcase, and implement solutions
with a mix of technology and in-house
customisation.
l The third category of players who are making
an aggressive play in this market, more
recently, are services arms of traditional
technology vendors (e.g., HP Services). They
are leveraging technical expertise to
develop large components of software
solutions. They also have the privilege of
leveraging existing client relationships.
However, there is significant pressure on all of
these incumbents due to the poor ROI impact
of past IT investments.
In a survey conducted by IDC, CIOs were asked
to rate on a scale of 1-10 the ROI impact that
according to them had been brought about by
major enterprise application investments. The
results reveal that CIOs are extremely
disappointed.
The ERP market is probably one area which has
drawn widespread flak from customers.
An analysis of major ERP projects that was
carried out by McKinsey’s Business Technology
Office (BTO) shows that a mere 5% of projects
can be considered a major success. In an
astonishing 80 per cent of cases, ERP is
considered to be just “new legacy”. This is
supported by findings of other research
agencies: In a recent Gartner Dataquest survey
on ERP deployment, 95% of respondents that
implemented ERP software expressed
significant dissatisfaction. The dissatisfaction
was not expressed towards the ISV but to the
SI that had led the implementation of the
project.
Thus, global SIs are facing pressure from
customers to demonstrate tangible impact. A
senior partner at a large global SI that we spoke
to revealed that they were finding it hard to
continue to sell; in the context of past
investments of US$ 100 mn .
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This presents a breakthrough opportunity for
Indian companies who enjoy enormous goodwill
for being excellent on execution.
Systems integrators have tremendous
opportunities to combine their technical and
business expertise as well as industry
knowledge to bring value to clients. This
provides significant opportunities for systems
integrators who can bridge the business and
technical gaps, but the challenges will be in
managing revenue growth while the
expectations for quality, reliability, and
timeliness are at an all-time high.
A clear assessment of the forces at work in the
systems integration market are:
l Medium to High barriers to entry
♦ + Significant scale provides market
advantage; top 10 players account for
40 % of the market
♦ +Assembling capabilities across
complete spectrum of systems
integration value chain is an enormous
task for an entrant
♦ +Niche players have found it difficult to
exist
♦ - OEM’s, software service and IT arms
of large corporations are gradually
expanding their service offerings to
develop systems integration capabilities
l Substantial buying power
♦ +Increasing trend towards purchasing
one-stop solution”
♦ +Overall tightening of IT budgets
♦ +Vulnerability of project-based work
makes it easier to postpone, cancel, and
reduce the scope
♦ +Moderate switching costs for client
♦ - Top Systems Integrators command a
price premium
l Moderate supplier bargaining power
♦ +Strong partnerships/Alliances with
technology vendors/ISV’s are essential
to providing best-of-breed solutions
♦ +Highly varied requirement of capability
sets coupled with business / vertical
expertise
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♦ -Layoffs announced by many of the
leading systems integrators, such PwC
and CE&Y creates adequate supply of
professionals
l Increasing threat of substitution
♦ +Increasing trend towards adoption of
pre-integrated software application
suites
♦ +Development of Advanced middleware
EAI technologies might affect the
demand for systems integration services
♦ +Large corporations strengthening in-
house IT divisions to provide systems
integration services
Successful systems integration requires six
key elements
l Clear description of business activities and
responsibilities
l Intense communication/collaboration
l Best of breed partnering
l Definition of the integrated business
processes supported by IT
l Effective project management
l Rigorous economic assessment of systems
options
Systems Integration: What Indian vendors
need to do
To successfully capitalise on this opportunity,
Indian companies will need to focus on multiple
enablers. Some of the key enablers include:
l Attracting and retaining world-class talent
l Building a network of best-of-breed
partnerships
l The ability to assess economic options for a
system
l Best-in-class project management skills
Most important and central to the success of
Indian companies in the SI market, though, is
building a differentiated proposition. This is
fundamentally because Indian companies are
late-movers.
Sapient is the best example of a company that
was late to enter the SI space but has managed
to grow and establish a sizeable presence in
this space.
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Right from the beginning, Sapient realised that l Skills

differentiation was the name of the game and ♦ Proficient in at least one programming
relentlessly focused on building numerous language
differentiators.
♦ Analytical and problem-solving skills
For example, they pioneered the concept of ♦ Prototyping skills
fixed-price, fixed-time projects when the world ♦ Maintains knowledge through training
was full of time and materials based projects and study
that constantly overran budgets and timelines.
♦ Acquires knowledge through training
and study
They developed several proprietary
methodologies. QUADD, for example, was a ♦ Acquires knowledge of customer’s
rapid-development approach that emphasised business and industry
active client participation to deliver mission- ♦ Writing, speaking, and presentation
critical technology solutions. It also developed skills
Fusion workshops as a critical tool to engage
clients. These workshops helped clients drive Level II (3-8 years experience)
critical decisions, develop a project roadmap and
shared vision, and define measurable business l Responsibilities
outcomes quickly and collaboratively. ♦ Application development and systems
integration solutions
They also brought in world-class talent that ♦ Task management
would help distinguish them from other players.
♦ Subcontractor management
For example, in the energy market, it hired a
sales person who was with a major energy ♦ Develop/evaluate system solutions to
company for 10 years and then was an IT meet customer requirements
director for another utility. ♦ Perform needs analysis
♦ Analyze and research business
APPENDIX : SKILL LEVEL DEFINITIONS
solutions
Level I (0-2 years experience) ♦ Leadership for junior consultants
♦ Technical leadership on small projects
l Responsibilities
♦ Perform competitive analysis
♦ Programmer support
♦ Lead technical portion of
♦ Program application code
demonstrations
♦ Software implementation/updates
♦ Recommend opportunities for follow on
♦ Data entry business
♦ Applications/system development
l Skills
♦ Configure, test, debug
♦ Proficient in multiple programming
♦ Support development of technology
language
architecture and system solution
♦ Possesses knowledge of the customer’s
♦ Benchmark needs analysis and
industry
requirements
♦ Conducts training sessions for peers
♦ Project team member
and customers
♦ Design client solutions
♦ Advanced system, database, and
♦ Contributes to development of network engineering and development
proposals, presentations, and
♦ Project management (entry level
demonstrations
certification)
♦ Client relationship
♦ Project management methodologies

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Level III (5-10 years experience) ♦ Manage large, complex engagements

l Responsibilities ♦ Quality control at account level

♦ Design applications , process ♦ St technical direction for project/

architectures, and systems application

♦ Systems, data and network architecture ♦ Design, sell and deliver enterprise- wide
business change programs
♦ Technical leadership within specialty on
client engagements
l Skills
♦ Maintain in-depth functional services
♦ Exhibits ‘boardroom presence’
♦ Provide technical solutions to meet
♦ Ability to recommend and implement
customer requirements
enterprise-wide technology solutions
♦ Manage development/integration of
♦ Ability to recommend appropriate
sub-segment or entire project
technology for project tool selection
♦ Design enterprise-wide solutions
♦ Account planning and management skills
♦ Facilitate business strategy
♦ Business development skills
development
♦ Enhanced leadership and technical skills
♦ Create leads for new business and
with larger engagements
identify follow-on business
♦ Knowledge of business, strategy and
l Skills technology trends

♦ Ability to recommend and implement ♦ Advanced diagnostic analysis and design

changes to customer processes skills

♦ Maintains high-level expertise in area of ♦ Change management for process

technical discipline through active
research and study
♦ Business needs analysis skills
♦ Client communications, learning,
analytical and financial skills
♦ Team leadership
redesign and information planning
♦ Risk management
♦ Relationship management
♦ Resource management
Level V (upto 15 years experience)

♦ Resource planning l Responsibilities

♦ Relationship management ♦ Project management
♦ Performance management ♦ Business development
♦ Change management ♦ Provide technical leadership across
♦ Information planning complex engagements and teams

♦ Process redesign ♦ Assume significant sales responsibility

♦ Assume profit/loss responsibility
Level IV (upto 15 years experience) ♦ Responsible for project execution and
l Responsibilities business development

♦ Facilitate business strategy ♦ Strategy design and implementation

development ♦ Establish performance metrics
♦ Oversee project execution and business
development l Skills

♦ Lead technical design work ♦ Practice management and budgeting

♦ Assume project management ♦ Vision creation and articulation

responsibility ♦ Expert knowledge in field

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♦ Responsible for marketing area of ♦ Subject matter expertise

expertise to business base ♦ Business development
♦ Leads specialty-area strategy, mentors
others

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