Everyone agrees that the U.S. financial meltdown was the result of several factors, including indiscriminate lending, unprecedented levels of debt, poor assessment of risks, and indifferent oversight by corporate boards. An overlooked factor, however, is the breakdown of systems, especially risk management systems. Large financial institutions have been burdened by several generations of systems that operate in isolated "silos" and rarely talk to each other. These closed systems duplicate functions and make it impossible to get an integrated perspective of the underlying business. The systems kept regulators, investors, clients, and even the executives of the companies themselves from knowing exactly how things worked.
As the U.S. economy revives, it is critical that banks, insurance companies, and other financial institutions do a thorough overhaul of their underlying information technology applications to be able to compete and grow in the future. To do this, they can leverage the next wave of Indian IT outsourcing.
Over the last 30 years, the Indian IT outsourcing industry has gone through two stages. The first wave was characterized by staff augmentation -- "body shopping," as it was then called -- and established that Indian IT professionals were as good as their Western counterparts. The second wave saw the establishment of offshore development centers. Started during the 1990s to fix the Y2K bug, these centers evolved to deliver software maintenance and incremental developmental services for a fraction of the cost U.S. companies would pay for similar work at home. Second-wave firms now also deliver ERP implementation and maintenance, infrastructure  management, and testing services. Today, India exports more than $25 billion of IT outsourcing services and is the mainstream destination for offshore programming. It commands more than a 70 percent share of the global offshore outsourcing market.
Over the last few years, we have seen a third wave emerge: a growing reliance on outsourcing companies for high-end strategic work. Indian firms have won a significant portion of the work through strategic outsourcing deals like the one announced recently with BP. Large Indian IT services firms are today seen as being on a par with companies like IBM and Accenture for delivering strategic cost advantages.
Indian firms leading the Third Wave also have been partners in major consortiums delivering large, greenfield government programs. For example, both Tata Consultancy Services and my company, Mastek, have been involved in Connecting for Health, a multibillion-dollar health-care IT program for Britain's National Health Service. Specializing in large and complex applications for government clients, Mastek has delivered solutions for the London Congestion Charging scheme through its British partner, Capita, and is now involved in an air movement logistics application for the British Defense Ministry in partnership with Thales. (continued...)
© 2009 Business Week Online under contract with MarketWatch. All rights reserved.
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