‘Per man hour’ billing thrust at IT firms

Top firms increase focus on consulting

MUMBAI: Even as revenue from fixed-cost projects shows a gradual increase in most top information technology companies in India, billing clients on the ‘per man hour’ basis will get prominence again due to IT firms’ growing appetite for gaining consulting capability, say experts.

Though the per man hour method of billing, generally called time and material (T&M), contributes more than half to most top Indian IT companies’ revenues, it is earnings from fixed-cost projects that have grown consistently in the last couple of quarters.

For example, in the April to June quarter of FY08, fixed-cost projects for Tata Consultancy Services (TCS), Infosys, Wipro, Satyam accounted for 43.4%, 27.8%, 26.6% and 33.2% of revenues, respectively. In the September quarter, the contribution rose to 45.4%, 33.3%, 28.6% and 31.2%, respectively.

Even in the June quarter of FY09, TCS, Infosys, Wipro saw their fixed-cost project revenues share increase. From 42.8%, 32.8%, 30.6%, the contribution of this segment to revenues increased to 43.7%, 34.1%, and 31.6%, respectively.

But these figures are set to change now. Shiraz Ritwik, a research director for IT Outsourcing (ITO) practice at US-based consultancy advisory firm Everest Research Institute, said, “What most Indian IT firms are doing for some time now is developing templates on a certain business process for software deployment or adopting repetitive process-driven framework or even providing some of their proprietary solutions for completing projects for their clients. This is being done mostly on a fixed-cost basis.”
However, unforeseen changes required in those solutions increase project deadlines.  This makes billing on a per man hour basis necessary because consultants with business domain expertise are expensive, for example, those with SAP ERP knowledge.
Nitin Padmanabhan, an analyst with brokerage firm Centrum Research, said, “A SAP consultant in Accenture commands a market rate of $250 per hour.”

The signs of a greater bent towards consultancy are already visible. “Companies are now scouting for acquiring consultancy capabilities,” added Shiraz. The most recent example of this is the bid made by both Infosys and HCL Technologies for UK-based SAP ERP consultancy Axon. HCL’s bid seems to be winning out.

Infosys has a SAP ERP strength of about 3,000. And Satyam has a sizeable pharmaceutical consultancy practice.

A November 3 report released by US-based consulting advisory firm Everest Research Institute, pegs the global IT consulting market at $104 billion. “The shortage of IT talent in developed countries and the growing sophistication of offshore IT labour markets are supporting healthy growth in the consulting market,” the report said. Everest Research also believes that consulting, which has mostly been an onsite activity, will witness offshoring as well.
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