A strategic study about an I.T industry sector in India
By Group 6
Shusant Kumar jha
Vyas V A
Strategies a Firm use 4
SWOT analysis 5
External analysis (strengths and weaknesses)
Internal analysis (opportunities and threats)
Porters five force model 8
Threat of new Entrants
Rivalry among existing players
Bargaining power of buyers
Bargaining power of sellers
Threat of substitutes
PESTEL analysis 9
Corporate Level strategy 13
Business level Strategy 15
Focused Cost Leadership
Integrated cost leadership/Differentiation
Functional level strategy 17
Product Development strategy
Market Development strategy
Human resource strategy
IT sector in India has increased at an incredible rate of 35% per year for the last 10 years
reinforces the view that India is world class in IT In IT services, India is emerging as one of
the most preferred destinations for BPO‟S. It is playing an important role in economic
development in a broader sense, beyond just economic growth. The IT sector is one of the
largest employers of women, and therefore, can play a crucial role in women empowerment
and the reduction of gender inequalities.
Over the past few years, India’s top software companies have acquired foreign firms to
increase their local presence in the US and Europe, their main markets, or to acquire
employees with a specific skill set or strengthen their capability in a particular sector
Top 5 IT companies In India
TCS: - It is the largest IT employer in India, with more than 316,000 employees.
INFOSYS: - it has more than 1, 64,850 employees.
WIPRO: - it has carved a unique position in the outsourcing company operates from 10
different locations. It has more than 98,000 employees.
COGNIZANT:-it is a Forbes global 200 companies, and is a member of fortune 1000, and is
ranked among the information technology companies.
HCL TECH-It has more than 54,000 employees and HCL‟S BPO‟S focuses on sectors like
telecom, retail, banking and financial services.
Current Employment in IT And ITES Industries the Indian IT and ITES industry currently
employs about 2.2 million persons in comparison to 0.8 million in 2004. In the context of
growth forecasted for the industry, availability of skilled human resource supported by
appropriate skill building initiatives will be Key to this growth. In the near term, it is
expected that the IT and ITES industry can achieve an export target of USD 60- 62 billion by
FY 2014, employing 2.5-3 million professionals directly in the export segment and
contributing substantially to the socio-economic development of the country.
“Indian IT companies have thoroughly realized the value of making strategic cross-border
acquisitions as demonstrated by Infosys Ltd’s acquisition of Lodestone, MphasiS Ltd’s
acquisition of Digital Risk Llc and Wipro Ltd’s acquisitions of Promax, and we believe the
cross- border activity is expected to increase in 2013,” said Arunkumar Krishnamurthy,
partner (transaction advisory services) at Grant Thornton India.
Strategies a firm uses
Strategy is a set of related actions that managers take to increase their company’s
Phases of strategy
The following figure gives the description on flow of strategy evolution to implementation
Large Pool of Knowledge Workers: The basic raw material for any software development
activity or a dotcom start up is the availability of quality knowledge workers. India's main
competitive advantage is its abundant, high-quality and cost effective human resources.
Currently, India trains more than 20 million professionals a year and has around 40% of them
working in the software and services sector. This is the second largest I.T. work force in the
world. NASSCOM says that Indian IT workforce will touch 30 million by 2020, becoming
the highest sector employer
State-of-the-art Technologies: A majority of Indian software companies use state-of-the-art
technologies, including the latest in client-networking, E-commerce, Internet, ASP, CASE
tools, communication software, ATM, protocols, GUI etc.
Flexibility and Adaptability: Indian software professionals easily adapt themselves to new
technologies. In the software industry, where technological obsolescence is the order of the
day, flexibility to adapt to new technologies a major strength
Reliability: Software programmers from India are able to provide expertise for all or large
projects with dollar savings. The motto is ultimate adherence delivery schedules and
Off-shore Development through Datacom links: Off-shore software development in India
especially through high-speed datacom (satellite links), provides immense cost and time
Large Projects: Indian companies increasingly large numbers are demonstrating their ability
to handle large projects (more than 500-700 man- ears), including turnkey projects.
High Growth: Software exports as well as the domestic demand in the last few years have
been consistently growing at annual growth rate of about 50 per cent.
High Quality & Price Performance: Quality is the hallmark of Indian I.T. software and,
services. ISO 9000 certification and SEI Level 5 are the order of the day. High quality
knowledge workers and attractive price performance have been and will continue to be a key
component of India's value proposition.
Engineering Base: A strong base of national institutes, engineering college and universities
has laid a strong foundation of education in engineering skills amongst Indian software
professionals. The IIT’s (Indian Institute of Information Technology) in various cities are the
new institutions to join the bandwagon.
Mathematical and Logic Expertise: India’s success in providing efficient software solutions
can be also attributed to the mathematical and logical ability Indian’s.
High Aspirations: The Indian IT software and services industry has set itself higher
aspirations and goals. The recent aspiration is to reach annual revenues of U.S.$ 7.50billion
by 2020 (from a level of U.S.$3.9 billion ), achieve 100 per cent literacy, more, employment
and entrepreneurship opportunities.
Indians in Silicon Valley: As per a recent survey, 23 of the Fortune 500 company CEOs are
of Indian origin. It has been reported that a business plan of a dotcom company in Silicon
valley, U.S.A. receives higher priority if an Indian name associated with it. The successful
India in Silicon Valley has organise themselves under the Indus Entrepreneurs Group (TiE).
Government Encouragement: Since 1999 the Government of India has accorded thrust area
status to the software sector. The Government has amended the Copyright Law to make it one
of the toughest in the world; eliminated import duty on computer software; exempted profits
derived from software exports from Income Tax etc. The Government of India has also set up
innovative scheme like Software Technology Parks, etc., for promoting software exports.
Infrastructure: A growing number of State Governments and cities are building hi-tech
buildings and habitats to accommodate the ever increasing numbers of software companies
and enterprises. These are in the form of intelligent habitats and buildings and include
infrastructural support like high- class value-added data communication services, captive
power, recreational facilities, etc. They incorporate state-of- art facilities viz. plug-and-play
features. This is assisting companies to quickly set up their software operations in India.
Global Research & Development: More and more multinationals are setting up their global
R&D units in India, recognising the immense power of local talent.
Lack of Package Orientation: Although, a few companies have started making shrink-
wrapped software packages, the industry as a whole is still not oriented towards development
of world class 'shrink-wrapped' software packages. Thus, the industry is not able to take
advantage of a multiplier effect for growth in revenues.
Lack of Domestic Computerisation: Lack of adequate computerisation has led to a relatively
weak domestic software market. Even, the PC penetration rate is very low.
Lack of Internet Penetration: With low penetration of PC’s, it is obvious that Internet
penetration is also poor. At the end of the year 2014, India could only boast of Internet
connections with about 243 million users. The penetration by 2014 is only 19.19%, while US,
Japan and UK have more than 85% internet penetration
Original Technology: The Indian software industry possesses the expertise to absorb and use
the latest technology. However, barring a few exceptions, it has still not produced enough
original technology breakthroughs. Succinctly put, the industry has not created original
operating systems or new computer languages and technologies, which could be used
Mission Critical Real Time Operations: Some of the leading companies in India have handled
software development for mission critical real time operations. However, the industry as a
whole does not have much experience in this field.
Project Management Skills: As the Indian software industry has been growing at a fast rate,
most of the project managers are becoming entrepreneurs, thus creating a gap in demand and
supply of project management skills.
Venture Capital: In building a robust venture creation process, India still faces few
constraints. To build a prolific venture community, India needs to focus on boosting all stages
of venture creation process and have simplified procedures so that the domestic Venture
Capital movement can flourish and overseas Venture Capital funds can be attracted.
Internet Service Provider (ISP) Policy: Localisation: With the exception of isolated cases, not
much exists in providing software applications in innumerable local languages. Thus,
computer penetration in India is restricted to merely the English speaking population.
Global Market: The market is large and rapidly changing-from a mix of legacy client server
to web / package-based services. Market openings are emerging across I.T. services, software
products, I.T. enabled services and E-businesses, and creating a number of new opportunities
for Indian companies.
Domestic Demand: According to the NASSCOM estimates, analytics will present a $7.5bn
opportunity – including domestic demands and exports by 2020 for Indian IT companies
Outsourcing: The global outsourcing business was worth U.S.$ 170 billion in 2008 and has
been growing at the rate of 15-18 percent per annum. A recent survey indicates that by 2020,
more than 75 percent of the Fortune 1000 companies and other multinationals will outsource
some part of their application development and maintenance activities. India can gain and
corner a greater marketplace.
E-Commerce/E-Business: India not only has a huge opportunity to service this market but
also has a unique opportunity to address the needs of the NRI community around the world.
Overseas Listings: India today commands a very high respect among investors in India and
overseas. Almost all major overseas stock exchanges -are keen for Indian software companies
to list themselves on their respective exchanges. This is a major opportunity for the Indian
software industry to attract the requisite investments.
The permission to allow private ISP's operate in India and set up their own gateways will
unprecedented Internet proliferation throughout India. Moreover, the internet penetration
grew by 14% in 2014 compared to 2013
Government Interference: In the past decade, the Government and industry have worked very
well together in India for the success of the I.T. software and services industry. Now the
Government's role needs to be increasingly directed towards providing suitable infrastructure
and continuing its role in the simplification of policies. Any further plans for Government
control, restrictions or undue interference could well pose a threat to the industry.
Telecom Infrastructure: The immediate need of the hour in India is to have a world class
telecom infrastructure at globally competitive tariffs. The Department of
Telecommunications has taken a number of initiatives including the National
Telecommunication Backbone, National Internet Backbone, and plans for providing high
bandwidth Internet connectivity to remote corners of India. However, Government
monopoly, lack of speed and adherence to archaic telecommunication rules and regulations
can prove to be a threat to the industry.
Lack of Speed: The world is moving at the speed of Internet. The decision- making and time
taken for implementation in India needs to be at a much faster pace so that the Indian I.T.
software and services industry does not lose any opportunities.
Infrastructure: Although, the software industry is growing at a phenomenal rate, many other
sectors in India have not yet been able to keep pace with it. Lately, almost all major cities are
building hi-tech buildings to house the software industry. These buildings have state-of-art
infrastructure, data communication facilities, captive power etc. But, lack of power,
highways, housing and international airports is some cities has become a major constraint.
Cost: Rising cost of infrastructure, basic amenities and salaries can pose a threat if not
adequately balanced with value addition.
Protectionism by Export Destinations: Many countries in North America and Western Europe
are creating protective and non-tariff trade barriers, especially with regard to the movement
of skilled manpower. Visa issues and non-tariff trade barrier may prove to be a threat. India
should insist for removal of non-trade tariff barriers at WTO.
Porter’s five force model for IT Industry
Threat of New Entrants:
The I.T. Industry is a lucrative industry which attracts many entrants as it shows a rapid
growth and profit margins earned per projects. But it displays high entry barriers to new
entrants as it works on the principle of cost advantage and economies of scale, so the entry
barriers are high. Any new comer in the industry can face a huge retaliation from existing
players. The best way for a new entrant in this field to be successful would be if they had a
brand new idea for a product or service; the lack of differentiation in the industry is one thing
a newcomer could exploit.
Overall, the IT industry isn't overly attractive, but it is routine and profitable enough that a lot
of people try and enter it.
Rivalry among Existing Players:
The IT industry is known for its rapid growth, effectiveness and competition. A main reason
why many new entrants are not successful is the intense rivalry between existing players.
Large companies in this industry benefit from economies of scale, which is valuable and
something they try very hard not to lose. Products in this industry are well branded and tend
to have a strong customer base. Market share is unevenly distributed among existing players,
who are often in various kinds of legal and advertising battles with one another.
As earlier said, there is no differentiation exhibited in this industry, so the rivalry is intense
for acquiring the market share.
Bargaining Power of Suppliers:
IT firms are very important to suppliers because they are their primary customers, but I
believe suppliers are even more important to buyers (IT firms). The inputs in this industry are
pretty standard, with differences being speed, memory etc. Though the inputs are standard,
new companies find it difficult to enter this industry as a supplier because of the existing
relationships between current suppliers and IT firms, the ever changing and improving
technologies of the world and the intense rivalry between existing players. Suppliers are not
"locked" into deals with specific firms but most of the relationships between the firms and
suppliers in this industry are well established, and these suppliers would most likely not want
to end their relationships with firms in the first place.
Many projects accepted by IT firms are based on the comfort and the ease of the technology,
service provided by their suppliers. So the suppliers have better hand in bargaining
Bargaining Power of Buyers:
In an industry as massive as Information Technology, the term "buyers" refers to almost
everyone in the world. While there are countries that are behind technologically, a majority of
locations in the world have access to computers and the internet etc. Given the large number
of buyers, it is safe to say that the customers control the IT industry. There are so many
choices for a buyer and there are minimal switching costs, so customers aren't typically
"locked in" to one firm. Also, because a lot of IT sales come from companies that make large
purchases, those companies are powerful and important to the IT firms. Customers are
sensitive to price, but IT products and services are necessary to the success of businesses, so
they are willing to spend a lot of money to get a good product. There are typically many
interactions between buyers and IT companies because of the need for training to use
products, constantly upgraded technology and an abundance of advertising.
Generally IT firms tend to stick to their profit margins, but some do keep long term relations
in mind and do accept projects lesser than the profit margin estimated .
Threat from Substitutes:
There is not much of a threat from substitutes to the IT industry, mostly because there aren't
true substitutes. We live in a digital age, so we rely on IT to run our lives and businesses. An
example of a substitute would be a scientific calculator, but to compare the two is a stretch.
Nothing can really replace all that computers do for us as a society.
Although the software has no substitute, there are traditional methods which can replace the
PESTEL ANALYSIS OF IT INDUSTRY
This past presidential election was posed to be very impactful on the information technology
industry. DLA Piper, a law firm, recently released a survey on technology leaders’ opinions
on the Presidential election, which candidates they’d like to see win, and how such a victory
could help the technology industry (The IT Industry Gets into the Political Swing of Things,
2013.) The so-called Bush-era tax cuts, which are set to expire, next year, are integral to
technology investment. According to the study, 60 percent of IT leaders say that if the cuts
are allowed to expire, investment in the technology sector will decline. Obama will allow the
cuts to expire, while Romney would probably have extended them realizing how important
the Industry is to the sustainable growth of the country. Looking at market opportunities,
DLA Piper found that IT respondents ranked mobile computing as their biggest future
opportunity. Most respondents believed that even if Obama was elected, the Industry is far
too powerful and growing too rapidly for such a policy expiration to cause any detriment to
The information technology Industry is one of the fastest developing markets in the United
States and is a key factor in driving the growth of the economy. Information technology, and
the hardware and software associated with the IT industry, are an integral part of nearly every
major global industry. The information technology (IT) industry has become of the most
robust industries in the world. IT, more than any other industry or economic facet, has an
increased productivity, particularly in the developed world, and therefore is a key driver of
global economic growth. Economies of scale and limitless demand from both consumers and
enterprises give a snapshot of this rapidly growing sector. Economies of scale in the
industry means that the marginal cost of each unit of additional software or hardware is
insignificant compared to the value addition that result from it. The IT Industry is knowledge-
based; therefore efficient utilization of skilled labor can lead to a rapid pace of economic
growth. Looking at the economy as a whole, 72 percent of technology leaders say that they
expect their companies’ sales to increase over the next year.
Social Cultural Trends:
The information technology industry is one that thrives off people’s need to have the latest
and most up to date gadgets. People like to be seen with the latest and greatest in information
technology to look as though you are ahead of the game. You are seen as being cool and a
trend setter if you have the newest computer or tablet. It seems to be a generational wide
trend to be on the technology bandwagon. The trend also seems to be that smaller is better.
From the time this industry began that housed computers that took up entire rooms to today’s
computers that can be made to fit in your hand, there has definitely been a trend to downsize
things. This seems to be the trend industry wide now for the most part. In the automobile
industry the cars are getting smaller, the telecommunications industry the phones are getting
In the industry titled information technology; there are several technological features that
influence the industry. First, technology is growing at a rapid rate, if you look at the past 10,
15, and 20 years and look at how far technology has come, it is remarkable. Technology is
money, so it’s a race to see who can figure out the newest trend that’s going to change how
society thinks about things. The industry does not show any signs of slowing down anytime
soon so the possibilities are endless.
Cellular mobile telephony tariffs in India are the lowest in the world. A comparison of Indian
cellular tariffs vis-à-vis the tariffs prevailing in comparative emerging economies in South
America & Asia-Pacific region, clearly brings out the affordability of Indian cellular mobile
The airtime tariffs have plunged by over 75% in the last three years alone. According to the
TRAI, the average monthly rental and airtime being realized for cellular services stands at Rs.
202 and Rs. 1.99 per minute respectively. Prepaid services have been introduced by all
operators at an extremely affordable tariff of Rs. 300 per month. Roaming charges have been
cut by 70% down from Rs.10 to Rs.3 in early 2002 and now to as low as Rs. 1.50 by several
service providers. India has the second largest telephone network after china.
Teledensity - 19.86 %
INTERNET: India had as on September 2008 45.3 million active internet users. This is an
internationally accepted benchmark for enumerating internet users. Urban users continue to
dominate internet use contributing to 42 million of the 45 million odd users. In September
last 2007, the number of active internet users in urban India was 32 million showing a year on
year growth of a little more than 30 per cent.
NEW IT TECHNOLOGY:
With the evolution of SOA and semantic web services, enterprise solution heeds to the
limitations of conventional enterprise systems by providing data convergence and concept
reutilization with intelligence.
Web2.O represents the next transition in the evolution of web applications; they promise to
restore the richness, interactivity and usability lacking in many web applications. As with any
technological transition, for an enterprise this implies that there are new opportunities to be
explored and new challenges to be negotiated. To maximize the benefits of Web2.O, an
enterprise should assess. SOA has benefited enterprises with benefits such as standardized
patterns, interoperability, centralized governance, easy integration etc. Almost all industry
domains have benefited from SOA strategy in order to build more flexible and malleable IT
architecture involving re-usable services. On the other hand, Web 2.0 practices like
communities and folksonomy are much centered on end-users. They involve frequent
communication among large consumers dispersed all around the world over the Internet.
They have become extremely popular among internet users. This brings the interesting idea
of bringing enterprise products i.e. services and consumer-savvy applications from Web 2.0
Computer-aided design (CAD) is the use of wide ranges of computer-based tools that assist
engineers, architects and other design professionals in their design activities. It is the main
geometry authoring tool within the Product Lifecycle Management process and involves both
software and sometimes special-purpose hardware. Current packages range from 2D vector
based drafting systems to 3D solid and surface modelers.
It is pretty obvious in today’s society that most people are trying to be more environmentally
friendly. It has been shown that these resources we have are limited and are not going to be
around forever. Not only does it take up resources to create computers, but once they go
outdated, which could happen overnight, there needs to be a way to dispose of them. It used
to be in the United States, we could give our older models of computers to developing
nations, but now they even need to dispose of outdated computers. The actual manufacturing
of computers is very material intensive. The total amount of fossil fuels to make one
computer is equal to almost ten times what the actual computer ends up weighing. Computer
manufactures are now trying to make computers that last longer and can just be updated with
the latest software periodically to reduce the amount of waste.
This speedy growth of IT Sector is undoubtedly due to the efforts of Indian government and
the other developments that took in the other parts of the globe.
IT Act 2000: The arrival of the Internet and the World Wide Web made it possible for people
to communicate and transact over cyber space. It was a revolutionary step for humanity, but it
also created a significant need for the regulation and governance of these activities, a
requirement that lead to the creation and implementation of cyber laws across the globe. India
became the 12th nation in the world to adopt a cyber law during 2000.
Indian Copyright Act: The copyright of computer software is protected under the provisions
of Indian Copyright Act 1957. Major changes to Indian Copyright Law were introduced in
1994 and came into effect from 10 May 1995. Copyright Act clearly explained:
• The rights of a copyright holder
• Position on rentals of software
• The rights of the user to make backup copies
• Most importantly the amendments imposed heavy punishment and fines for infringement of
copyright of software.
Income Tax: Deduction under sections 10A/ 10B of Income tax Act, 1961 (“IT Act”) in
respect of profits derived from export of computer software. Following undertakings are
eligible to claim deduction in respect of profits derived from export of computer software
under the provisions of sections 10A/ 10B of the IT Act:
• Existing units which commenced operations prior to April 1, 2000 and claimed deduction
under the provisions of erstwhile sections 10A/ 10B, can continue to claim such deduction
under the provisions of newly substituted sections 10A/ 10B for the unexpired period of ten
consecutive assessment years. Deduction would continue to be available in case of corporate
re-organizations by way of amalgamation or demerger.
Depreciation on computers and computer software at 60 percent
As per the provisions of the IT Act, annual depreciation on computers and computer software
can be claimed at the rate of 60 percent of written down value at the beginning of the relevant
financial year for income tax purposes. Therefore, under the written down value method, 84
percent of cost of computers and software can be depreciated in first 2 years.
IT SEZ Requirements:
IT companies can set up SEZ with minimum area of 10 hectares and enjoy a host of tax
benefits and fiscal benefits. Software Technology Parks of India (STPI) is a society set up by
the Department of Communication & Information Technology, Government of India in 1991,
with the objective of encouraging, promoting and boosting the Software Exports from India.
Companies operating in software Technology Park (STPI) .Scheme will continue to get tax
benefit till 2010.
STPI maintains internal engineering resources to provide consulting, training and
implementation services. Services cover Network Design, System Integration, Installation,
Operations and maintenance of application networks and facilities in varied areas ranging
from VSATs to ATM based networks.
Setting up of the Software Technology Parks of India (STPI), by the Ministry of Information
Technology, Government of India and the International Technology Park in a joint project by
the State Government, the TATA Group and the Singapore Consortium to promote and
facilitate the software exports is another major step towards the growth of Indian Information
Anti Monopoly Laws:
From the 1950s, IBM had a virtual monopoly of computers in India. The 360 series release in
1960s was the major workhouse of the large organizations. They even maintained a chain of
programmers who could write down software's for their machines. However in 1978, when
George Fernandez, ministry of industries at that time, commanded IBM to take local
shareholders into its subsidiary, the company refused strictly and went back after winding up
its all operations in India.
CORPORATE LEVEL STRATEGY
Companies in industries around the world are in a race that gets more difficult every year,
with bigger, stronger, and more innovative competitors. This is the current scenario in the IT
industry. the rules of the race are constantly changing with the emergence of electronic
business, globalization, disruptive technologies, innovation and convergence of industries.
Competitors who have been in other races suddenly join your race with strength, technology,
and new approaches to the market often becoming instant leaders.To do this, companies need
a strategy that sustains their strong position in the race, anticipates changes, and helps them
continue to lead. The rules of the race are simple:
Competitive advantage is short-lived
Today’s competitive advantage is tomorrow’s competitive requirement
Companies without a competitive advantage should expect, at best, zero return.
Corporate level strategies answers the primary questions: What business or businesses should
we be in to maximise the long run profitability and profit growth of the organisation. How
should we enter and increase our presence in these businesses to gain a competitive
advantage. The strategies are explained below
It is the process of acquiring or merging with the industry competitors to achieve the
competitive advantage that arise from a large size and scope of operations. An acquisition
occurs when one company uses its capital resources like stock, debt or cash to purchase
another company and a merger is an agreement between equals to pool their operations and
create a new entity
E.g. IBM has undergone a large number of mergers and acquisitions during the corporate
history lasting over a century. Some of the important M&As are given in the table below
COMPANY BUSINESS VALUE
Informix Corporation Database software $1bn
PWC consulting firm Consulting and technology
Access 360 Software $55mn
Software Development $2.1bn
Daksh e services BPO services $170mn
Viacore Supply chain optimisation $865mn
Unicorn Solutions Metadata development $365mn
MRO Software Asset management $740mn
Bid Fix Inc. Security and IT automation $190mn
Cloud Security Not disclosed
The table shows that an IT industry does not only merge with an organisation that does a
similar business, but also can integrate with an organisation that have an expertise in different
business, and that expertise is needed for the IT firm (IBM) to achieve competitive
advantage. This may be provided due to lower cost structure or increased product
A company pursuing a strategy of vertical integration expands its operations either backwards
into an industry that provides inputs for the company’s products (backward vertical
integration) or forward into an industry that uses, distributes or sells the company’s products
(forward vertical integration).
E.g. IBM is a highly vertically integrated company. It integrated backward into the chip and
memory disc industry to produce the components that go into its mainframes and servers, and
integrated forward into the computer software and consulting services industries. IBM
initiated vertical integration and it is now followed by many companies like Apple, Google,
Microsoft and Intel.
Strategic outsourcing is the decision to allow one or more of the company’s value chain
activities or functions to be performed by independent specialist companies that focuses all
their skills and knowledge on just one kind of activity. When a company chooses to outsource
a value chain activity, it is choosing to focus on a fewer number of value-creation activities to
strengthen its business model.
E.g. In 2006, IBM announced it was outsourcing its purchasing function to an Indian
company to save $2bn a year, and it has steadily increased its use of outsourcing ever since.
In 2009, it announced, it would lay off 5000 IT employees in the United States and move
their jobs to India.
Similarly, American Express outsourced its entire IT functions to IBM in a seven year deal
Tata Steel, Ballarpur Industries, Siemens, ABB and Whirlpool are some of IBM’s key
strategic outsourcing customers in India.
It is a corporate level strategy that is based on the goal of establishing a business unit in a
new industry that is related to a company’s existing business units by some form of
commonality or linkage between the value chain functions of the existing and new business
For example, Fuhu began life as a software company, buying hardware from suppliers or
partnering with hardware vendors. However, the owners saw an opportunity to gain entry into
the children's market by manufacturing hardware. As they made further inroads into the
children's market they began offering companion low-tech offerings to protect and
personalize their hardware offerings.
Oracle, which specialises in developing and marketing computer hardware systems, ventured
to enterprise software products. They also diversified relatively into Database management
system (DMS), Enterprise Resource Planning (ERP) software, Customer Relationship
Management (CRM) software and Supply Chain Management Software (SCM)
It is a corporate level strategy based on a multi-business model whose goal is to increase
profitability through the use of general organisational competencies to increase the
performance of all the company’s business units.
As the scope of an IT company cannot involve other businesses, unrelated diversification is
not possible in IT sector.
Business Level Strategies
There are two types of Competitive advantage firms must choose between
There are two categories a firm must choose between
Combined together we can get 5 business strategies
Focused cost leadership
Integrate cost leadership/differentiation
Business level strategies adopted by information technology industry
Cost leadership strategy:
The ability to have a cost leadership advantage requires the firm to be able to produce the
Product at a sustainable low cost that their competitors cannot achieve. Information
technology industry is an industry which is ignorant of being differentiated industry; all the
players in this industry try to cut down on the cost to achieve cost leadership and try to get
their margins to win over the competitors.
Example: Dell’s business strategy is a successful cost leadership strategy. The company's
formula for success has been based upon its unique customization, delivery, and cost
proposition. In reaction to faltering performance and the need to pursue new growth
opportunities, a dual-strategic approach is required to confront rapidly changing market
conditions. First, Dell must integrate its cost leadership skills with differentiated product
features and related services to create value for its customers and achieve the benefits of an
integrated cost leadership/differentiation strategy. Additionally, becoming a diversified IT
company opens up opportunities in related businesses, where similar products, buying
processes, target customers, or other operationally-related activities can produce synergies.
One strategy to win the competition is differentiation strategy. Differentiation strategy
highlights the striking difference in its brand with competitive brands. Product differentiation
may come from a variety of factors, including product quality, product features, durability,
reliability, exceptional product design, reliability, easy to fix and styles. Sustainable
differentiation advantage requires that the firm is able to provide clients with Some unique
service or product.
Example: It was at the end of the 1990s that IBM realized that remaining competitive would
require a shift to a different range of activities and services that would provide additional
value to the clients. The management team at IBM thought being just a provider of products
did not present adequate differentiation in the marketplace. Among the changes made at IBM
were decisions to refocus and expand higher value-add areas such as servers and mainframes.
Important keys to the company's current revenue performance involve decisions made to add
more software, consulting services and system integration activities. IBM's 2002 acquisition
of the consulting arm of PricewaterhouseCoopers marked an important moment in the
transition. That acquisition, although many years ago, has helped make IBM's recent results
possible. The acquisition of the consulting arm of PricewaterhouseCoopers enabled the
transition from hardware products emphasis to a services/system integration focus.
Focused Cost Leadership Strategy:
A focused cost leadership strategy requires competing based on price to target a narrow
market. A firm that follows this strategy does not necessarily charge the lowest prices in the
industry. Instead, it charges low prices relative to other firms that compete within the target
Example: Microsoft has announced two big changes in its leadership for the Middle East and
Africa (MEA) region, with a new focus on growth in underdeveloped markets and countries
such as Iraq, Lebanon, Ethiopia, and Zambia. Its main intention is to target the competitors
there and get the require market share. It has introduced the products like Microsoft office for
the low cost.
A focused differentiation strategy requires offering unique features that fulfil the demands of
a narrow market. As with a focused low-cost strategy, narrow markets are defined in different
ways in different settings. Some firms using a focused differentiation strategy concentrate
their efforts on a particular sales channel, such as selling over the Internet only. Others target
particular demographic groups. As there is no requirement for channel or sales related work
in IT industry, so no IT firm plans to implement this strategy
Integrate cost leadership/differentiation:
It’s a hybrid strategy may become even more important--and more popular--as global
competition increases. Compared to companies relying on a single generic strategy,
companies that integrate the generic strategies may position themselves to improve their
ability to adapt quickly to environmental changes and learn new skills and technologies. This
would more effectively leverage core competencies across business units and product lines
and would also help produce products with differentiated features or characteristics that
customer’s value and provide these differentiated products at a low cost, compared to
competitors' products. This is because of the multiple, additive benefits of successfully and
simultaneously. Differentiation enables the company to charge premium prices and Cost
leadership enables the company to charge the lowest competitive price. Thus, the company is
able to achieve a competitive advantage by delivering value to customers based on both
product features and low price.
Example: Amazon’s Strategy, of offering its customers “Premium Products at Non Premium
Prices” Jeff Bezos deploys an Integrated Cost Leadership /Differentiation Strategy. Amazon
is offering kindles at low prices with product differentiation.
Functional business strategies
Functional business strategy is an area of operational management based on a specific
department or discipline within an organization, such as human resources, finance or
marketing. To say that a business has a functional level strategy for product development, for
instance, means that the company has developed a strategy for selling its goods and services
to customers. Functional business strategy is part of an organization's wider strategic plan.
Functional business strategy enables a company to deal with the nuts and bolts of its long-
term organizational plan and short-term goals and objectives. While businesses of all sizes
are interested in making a profit, smaller companies sometimes find it easier to define plans
and goals in a more meaningful way because there are less levels of hierarchy. Functional
business strategy helps smaller businesses to evaluate the effects of plans and goals specific
to the industry they operate within. Technology companies, for example, might adapt a
functional strategy for HR which seeks to hire well-qualified employees with diverse skills in
social media, programming and website design. Such an approach looks at the specific needs
of the function -- IT, HR, marketing, research and development -- and then sets objectives to
fill gaps in those functions.
Functional business strategy is often used by small businesses to focus on and manage the
business's constituent’s parts. By developing individual goals and objectives for specific
functions in the company, business owners and managers can assign the right people and
resources to the right tasks. An employee with skills in technology, for example, can be given
work in that field as opposed to one with which she isn't familiar. The advantages of
functional business strategy therefore rely on seeing employees and resources as ends, not as
a means to achieving something else. This often means assessing the strengths and
weaknesses of the business's functions and of its resources, including employees.
While functional business strategy is very useful in helping an organization to value its
resources, there are some disadvantages to functional strategy. For small businesses, these
downsides are even more pronounced. It is often not possible in a small business to have
separate departments for HR, finance, marketing and other business functions. Sometimes all
of these tasks are assumed by one person or by a small group of people. This makes
functional business strategy quite hard to implement because developing individual goals for
each function won't make sense in an organization where all of the departments are more or
less combined. In these cases, strategies must be fluid, adapting to the diverse skill sets and
competencies of the resources.
Product Development functional strategy
Defining the Current Market: To tell about the countries they are currently functioning
Creating New Product:
Consultancy and package implementation services in relatively growing sectors esp.
healthcare, life sciences and aviation sector, and KPO services etc can be mentioned by the
Result of Strategy: The end result (better the company acquired, the better the result)
Market Development functional strategy
New Market: India, Middle-east and Australia etc., which they want to target.
Current Product: ADM, BPO, KPO, consultancy services (in BFSI, manufacturing and retail)
and software products (financial products) etc comes under this category.
Recommendation: Since these are fast developing IT market, IT industries needs a paradigm
shift in focus from US and EU markets to these markets.
Result of strategy: The end result
In response to the challenges in functional business strategy, all IT industries adopt an
operational strategy. An operational business strategy seeks to deal with all of the minutiae
that encompass the IT industry’s day-to-day routine, such as filing invoices, scheduling
employee shifts and dealing with customer complaints. Operational strategy sees resources as
a means to an end of effectively managing the business. In the small business setting,
operational strategy is attractive because it allows the particular industry to see one employee
as a resource for many different functions. Operational strategy also helps an IT industry to
identify its weaknesses in functional areas.
While the downsides of functional strategy are pronounced and evident in many small
businesses which can’t be a problem for the huge IT industries, operational strategy also has
its shortcomings. These include the tendency to view employees as just a pawn in the larger
organizational planning process. Knowledgeable business owners and managers are therefore
able to combine elements from both functional and operational business strategy to help plan
for the business's longevity. Seeing employees as the company's most valuable resource helps
to focus on them as ends in themselves while still being able to view other business tools like
technology and money as means to achieving the overall goals of the business.
HUMAN RESOURCE STRATEGIES
Employee productivity is one of the key determinants of an enterprise’s efficiency, cost
structure and profitability. Productive manufacturing employees can lower COGS as a
percentage of revenues. The challenge for a company’s HR is to device ways to increase
employee productivity. Companies have specialized hiring strategy or employee training to
achieve the result. Some examples are mentioned Infosys Technologies, a leading software
company based in India, was voted the best employer in the country in many HR surveys in
the recent years. The company was well known for its employee friendly HR practices.
Infosys attracted the best talent from across the world, and recruited candidates by conducting
one of the toughest selection process. All the selected candidates were required to go through
an intensive 14 week training program. All the employees were required to undergo training
every year, and some of the chosen employees were trained at the Infosys Leadership
Institute to take on higher responsibilities in the company.TCS provides HR services in 3
Integrated hosted technology and services on a process as a process service
Customer preferred environment followed by transactional services
Transacted services on customer-owned technology environments
TCS’ HR Services are backed by industry experience, HR expertise and global coverage TCS
provide comprehensive traditional and IT-enabled multi-process services that are specifically
designed to allow you to concentrate on your core business activities.
IBM When employees were asked to rank the most significant external pressures on their
organization, more than 340 chief human resources officers interviewed worldwide1 cited
technology factors and people skills among their top concerns.
External factors, including an overall increased urgency for focus on the customer, are
dramatically shifting the way business is done from the outside. IBM has following solutions
to the existing problems in the form of
HR services for cloud application
Service sector is showing a tremendous growth in India, with IT sector contributing a major
chunk of it. With the large pool of knowledgeable workers, state of the art technologies and
outsourcing, the sector is expected to show a rapid growth. All the players in the industry act
as threats to one another and every one of them wants to achieve competitive advantage. So,
strategy formulation and implementation is quintessential.
From the corporate level strategy point of view, horizontal integration and vertical integration
seems to be the best strategies that the companies are following and are willing to follow.
They have achieved success by adhering to the same. IBM is a good example of this. It
initiated vertical integration, followed by Apple, Microsoft, etc.
Coming to the business level strategies, Integrated cost leadership / differentiation helps them
gain a competitive advantage over its peers. This is because they offer differentiated
customised services at low cost. Functional Level strategies are equally important and must
be in line with the corporate strategies. This, in turn must be in line with the vision, mission,
goals and values of the company. The strategies help improve the company’s ability to attain
superior efficiency, quality, innovation and customer responsiveness. Efficient managers at
each of the levels are the need of the hour, which actually helps a company to have an
advantage over their peers. So, in order to reach the goals, we should formulate all 3
strategies in line with the company’s mission and need a manager at all these levels that help
the company attain superior profitability and competitive advantage