A part of my work profile is to meet with executives from small to medium sized software companies which are into providing software services to companies in the US, Europe and other developed nations. It is a joy to say that I have learnt a lot in this process – about running these companies, their positives and the problems faced by the respective management teams. Since my company Tekriti also has a profitable software services arm, I could connect even more with these positives and the problems. Without going into the listing of the above mentioned positives / problems in this post, I will first talk about my classification of these software services companies and their characteristics and touch upon the problems in a later post. It is important to understand the various tiers to be able to create different solutions for IT industry.
Tier 1 IT Outsourcing company – These are the big guys of IT outsourcing in India and responsible for putting India on the map when it comes to IT outsourcing. Infosys, TCS, Wipro, Polaris, Cognizant are a few and notable examples. But, overall, any IT outsourcing company which typically has more than 2500 people on their rolls is classified under this category. These guys have very strong processes, from generating and capturing sales leads to closing of leads, delivery and employee training and performance appraisals. From a client’s perspective, these companies make a very strong fit for somebody who needs process excellence more than the product excellence. Testing and maintenance projects are the best fit here.
Tier 2 IT Outsourcing company – These are typically the companies who have focused on 1-2 verticals and have developed strong expertise in these domains. They thrive mostly on the testing and maintenance projects from companies who find Tier 1 companies too big for their comfort and budget. Obviously, if your contribution to a company’s top-line is very insignificant, there are chances that you will not get the necessary attention that is required. Most of these companies will have some certification, whether it is in the CMM series or ISO series. These will typically be between 350 – 4000 people strong. They will also be interested in taking development work, as long as it is not too small.
Tier 3 IT Outsourcing company: This is where the companies really starts becoming a company. The size typically range from 75 to 500 and they rely on the individual brilliance of a handful of people rather than the processes. The company has figured out that to move to Tier 2, they need to have stronger processes. These companies thrive on the new product development projects and most OPD (outsourced product development) companies define their strategy when they were still in the Tier 3 classification. In the Indian market, there is a lot of technology talent in the companies in this tier – what they lack is the expertise in sales and marketing and bandwidth for project management. Only those companies who are operating in certain niche segments here (instead of doing everything), move from Tier 3 to Tier 2.
Tier 4 outsourcing company: These are either the entry level startups or your mom-and-pop shops. More than a company, this acts more as a partnership firm. Every founding member will be involved in active project delivery and the company has not even gotten a chance to think about the processes. They are struggling to find people, retain people and unless they move fast and reach a critical mass – they will either cease to exist or convert themselves to a mom-and-pop shop. They are good for projects where the client need certain number of people on retainer for some time.
A small graph representing the classification is shown below (you will notice that the membership of these tiered companies is fuzzy instead of being discrete).
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Next on, I want to talk about where Tekriti currently is and also a few possible business opportunities in this sector.
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