Scoring with service delivery model

In the currently hotting-up US Presidential campaign, Marc Hebert, Chief Marketing Officer of Virtusa Corporation ( www.virtusa.com), finds something noteworthy.

“The issue of immigration is receiving much attention among the candidates, but the sub-issues of offshore outsourcing and the use of visas for highly-skilled workers have received very little attention,” he observes, during the course of a recent interaction with eWorld.

“While an economic downturn could change the climate for offshoring, so far the issue has been less controversial than in the past presidential election cycle,” adds Marc, stirring up a south Indian coffee that caps an uncomplicated vegetarian meal we have together.

Hebert, an expert on offshore outsourcing who has authored many publications and given dozens of invited presentations on the subject to a variety of audiences, holds a Bachelor of Science degree in experimental psychology from Harvard University, and an MBA from Stanford University. He is responsible for corporate strategy, positioning, branding, public relations, analyst relations and lead generation programmes. He also drives alliance relationships for the company and heads its West Coast operations.

Our lunch had started off with a question on a personal note, asking Hebert if his grounding in experimental psychology came handy in the marketing role he now donned. “When I entered my business career, I made a fortunate discovery,” he began.

“The principles of organisational behaviour that global businesses employ in managing their employees are founded on behavioural psychology, the branch of psychology popularised by B.F. Skinner, who headed the Experimental Psychology department for many years at Harvard,” he elaborated.

“It turns out that my psychology grounding prepared me well for a career in business management, and I have had the chance to participate in building several management development programmes in my career, including at Oracle, using my behavioural psychology background.”

Hebert is happy that he has carried these concepts and experience with him into his marketing roles. “It helps me every day in how I build the culture in my team and how I manage my people in the global model across cultures. It also helps me understand how our clients think and why they buy from us.”

Perhaps Hebert also understands how journalists think and work. Which explains why, on his way to Sri Lanka that evening, he catches up with a blog post to give his comments on the latest numbers about US GDP growth, the recession fears and so on. We follow up our conversation over e-mail.

Excerpts from the interview.

What is your offshore-onsite mix? Also, what is the geographical split of your clientele?

We manage our service delivery mix with 20 per cent or less of our work performed on-site at our client locations and 80 per cent or more of our work done in offshore centres.

Our 20/80 on-site/offshore service delivery model is a direct result of our collaborative processes and our ability to apply high performance global teams across all services we provide.

We have operated with a 20/80 or better on-site/offshore ratio for the past five years, and believe that this service delivery mix provides our clients with a cost and time advantage relative to our peers.

Europe represented 31 per cent of revenue for the second quarter of fiscal 2008, with North America accounting for the remaining 69 per cent.

How do you differentiate yourself from other tier-two IT (information technology) companies?

We differentiate ourselves in several key ways, including our consultative platforming approach, our industry expertise in financial services, communications and technology, and media and information, and our enhanced global delivery model.

Through our approach, we help our clients identify and implement efficiencies, whether they be through our technology consulting, systems implementation, or application outsourcing services.

While this approach applies across all services we provide, let me give you an example using application outsourcing. With such clients, we look for commonalities across existing applications with an eye towards consolidating common technology and common business strategies into reusable, plan-specific software frameworks and platforms.

This results in significant business benefit for our clients, including reducing their total cost of ownership, accelerating the launch of new products and services to market, and improving their end customer experience. We apply these same principles across consulting and systems implementation. This approach helps us differentiate and establish thought leadership, continually provide more value than the inherent cost arbitrage benefits of global delivery and gives us the opportunity to build long-term, strategic relationships with our clients.

We believe the combination of our consultative platforming approach, enhanced global delivery model, and industry expertise provides significant incremental value. Our largest client, and a strong example of this value creation at work, is British Telecom. We started working with British Telecom over three years ago and our relationship has steadily grown. This past spring, BT signed a five-year, $200 million strategic IT services agreement with Virtusa.

When will there be clarity in the IT budgets of US companies, especially among the BFSI (banking, financial services and insurance) clients? Your outlook for 2008.

We have seen strong growth in our financial services practice, where we saw double-digit growth both in our first and second fiscal quarters. (We do not publicly discuss our own business outlook except during our earnings announcements.)

With respect to IT budgets, we continue to see strong demand for offshore services, especially for engagements relating to improving productivity and cutting costs. And, we have a track record of service excellence in all of our clients that has led to and continues to lead to expansion of our existing account base.

The research analysts that we follow who issue IT spending forecasts are indicating cautious growth in IT budgets for 2008. They generally project growth in the same range as 2007, but with downside risk in case the US economy enters a recession. That is, IT budgets will continue to grow modestly for now, with reductions possible if the economy slows more.

If the sub-prime crisis turns out to be worse than imagined, will it not be indicative of a slowdown in the US? In this light, is there a possibility of clients across verticals cutting their IT spend?

The research analysts that we follow indicate that the US economy is likely to show slower growth in the calendar fourth quarter just ended than the healthy growth of Q3, and projections for 2008 suggest further slowing is possible in the next few quarters, with some chance of a US recession.

Some of this is attributed to the impact of the sub-prime crisis and housing slowdown. The analysts also suggest that we have not yet hit bottom in the housing sector, which will continue to drag down economic growth in 2008.

At the same time, the US economy continues to show resilience in non-housing sectors, often surprising the analysts, and offsetting the negative impact of the housing sector. As a result, we appear to be in a period of unpredictability in the US economy, which is why analysts are couching their IT spend forecasts as modest growth with downside risk.

You are working on re-branding. Why?

During most of 2007, we were in a quiet period as we prepared for and executed our IPO. As a result, we reduced our press activity in India, and reduced our public visibility. Now that we are re-emerging as a public company, we have the chance to re-establish our image and increase our visibility. We find that this is a good time to fine-tune our messages and brand as part of this evolution.

What, according to you, are the key marketing skills that win in today’s IT world?

IT services marketing has evolved rapidly in recent years. New marketing techniques that we have put in place in the past year are already paying off for us. These include the effective use of our Web site as a lead generation tool through techniques such as search engine optimisation, pay-per-click advertising, and direct e-mail campaigns.

In addition, we are beginning to leverage online content marketing tools, such as white paper syndication and podcasts, for lead generation.

We are finding that these tools offer the ability to target specific market segments with highly-tailored messages to attract new prospects. For example, we are leveraging our premier position as leading IT services providers for key software partners such as Pegasystems and Vignette, and attracting their customers through targeted e-mail and Internet-based messages.

As the Internet continues to evolve rapidly with new tools and models, including social networks, blogging and video sites, successful IT marketing will evolve with the Internet.

In addition, a business such as ours, which targets Global 2000 clients, must successfully employ high-touch marketing techniques that leverage the high-powered personal networks of IT executives and buyers. Accordingly, high-impact marketing programmes that provide interesting content and networking opportunities will continue to be crucial marketing priorities for IT services providers.

Where would you plot the level of current offshore outsourcing from the US, in terms of a potentiality curve?

Research analysts and organisations such as Nasscom (with help from McKinsey) and the Information Technology Association of America, who track the global IT services industry, suggest that the penetration rate of offshore IT services is still low in aggregate, both in the US and in other industrialised countries.

This reflects our own anecdotal experience with clients and prospects in our three key industry groups, who continue to expand the offshore share of their IT budgets, even in clients with mature offshore practices.

We believe that the next major offshoring trend, what we call “next-generation” offshore IT services, has just begun. It is the use of offshoring primarily not for cost savings through labour arbitrage, but rather for the delivery of high-value IT services involving state-of-the-art technology and consulting-led IT services, that benefit clients by giving them speed and productivity advantages to make them more agile, more productive, and more service-oriented.

Are alternatives to India emerging as more attractive cost destinations? On Sri Lanka vis-a-vis India.

On Sri Lanka vs India as offshore destinations – While we don’t discuss cost profiles of our specific operations, I can tell you that both countries offer us cost-efficient and effective ways to serve our clients.

Moreover, salary surveys of popular global offshore destinations continue to show that on average, India’s cost of IT services, while growing, is still ranked among the lowest in the world. In addition, India’s deep experience as a leader in IT offshoring gives it an advantage in productivity levels such that productivity growth largely offsets unit cost increases, keeping India competitive as an offshore destination, particularly for high-value IT services.

http://www.thehindubusinessline.com/ew/2008/02/25/stories/2008022550110400.htm

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Scoring with service delivery model