IT services firms sweeten deals to retain clients

With new business hard to come by and pricing of deals under pressure, Indian Information Technology firms are bending over backwards to retain clients.

Among the ways of sweetening deals are cost-saving assurances, doing portfolio assessment or feasibility studies for free, opting for fixed-price contracts, picking up smaller engagements with existing clients and offering more services for the same money.

It is three times more expensive to get new business and most IT firms are opting for smaller engagements with existing clients, says Sabyasachi Satpathy, CEO, Mindplex Consulting. "In fact, as part of cost savings, companies are now focussing on fixed-price contracts," he said.

They are trying to become cost-competitive companies, says Vinu B Kartha, partner at Tholons, an IT research and advisory. IT vendors are also offering innovative pricing, not through rate discounts but through value discounts. So, they are offering more services to clients using same or less resources and then the client doesn't ask for a discount, adds Kartha.

India's second-largest IT company, Infosys Technologies, for instance, is giving its clients multiple options. "We are telling them that the more work they do, using the global delivery model, their cost will come down proportionately. We are being flexible and saying we can pass on some more benefits and savings to them. There are other models which we have introduced in the market.

For instance, transaction-based pricing and ticket-based pricing are some of them," CEO Kris Gopalakrishnan told Business Standard.

Impact sourcing from Zensar Technologies is another such example. It's a focused offering to help clients formulate and implement strategies to achieve optimisation.

The impact sourcing 10/10 formula means savings of 10 per cent in any chosen process within 10 months of engagement with Zensar, claims the company.

"We have trained about 40 people in the consulting practice who will identify our clients' weak processes," said Ganesh Natarajan, CEO of Zensar. The company has done a pilot with four clients, two of which are existing ones, and expects to get 20-25 clients for impact sourcing in the current year.

"Such strategies not only help clients cut costs but also help vendors retain them," notes Natarajan.

To retain clients, IT majors are also improving utilisation and reducing the bench strength. The utilisation, for instance, has gone up from 65 per cent to around 70 per cent.

"IT vendors have to pay salaries to maintain a bench and this is a cost to them. So, some of them have started using the bench strength on internal processes," said Alok Shende, principal analyst, Accendia Consulting.

Others like HCL Technologies are doing more onsite hiring to garner additional market share. "Offshoring is not the correct strategy for us and the only way to garner market share in the US, the UK and continental Europe is by focusing on onsite business," says CEO Vineet Nayar.

The company added more than 2,500 employees in the UK and the US last year and is trying to put in place a new strategy that will require onsite hiring.