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Tuesday, March 14, 2006

The Service Industry Players Compared

Ed Caso & team at Wachoviaresearch have just published the Wachovia’s IT Services Statistical Quarterly report. A publication of immense value, it includes within it, details of cross-sectional and time series metrics of 32 global enterprises – it starts by classifying service organizations into three categories:
- Commercial
- Government
- Offshore

The well compiled report compares financial metrics all readable in the same page format – that includes quarterly data and trends of margins (gross & operational), growth (organic & actual),tax rates, billable headcounts, voluntary turnover , bill rates and utilization etc.IBM data is not available in the format and hence not included and EDS is not included in the analysis. Data of all leading India headquartered service firms are available therein the report.Confirming the widely held belief, the report notes, Accenture as the best positioned amongst the commercial firms to benefit from an overall market improvement. I am not too sure why the average billing rates for Accenture’s consulting and BPO operations can’t be acquired. – may be they do not report this separately as needed for comparison ( so much for disclosure). However,in fairness the report suggests that data on this for most of the firms across categories are not available. Bill rates and utilization for enterprises across categories make interesting reading - however I am aware that there is scope for enterprises to tend to marginally play around these two figures for balance. On all conventional financial metrics – Growth, margins, offshore firms have established new records. Average attrition levels at offshore firms are far less than that reported by the likes of Accenture – across quarters – an important trend to watch. Talk of some having mastered the global delivery model gets decimated by the fact the average billing rates for firms in the commercial firms stand approximately three- four times more than that of the offshore firms.The upside potential for expanding GDM capabilities and for the offshore firms to increase marketshare is apparent based on this. Three things in a way summarized the scene better:

1. Accenture’s sale is more than the combined sales of all the ten offshore firms listed therein – the list includes the top five offshore players.
2. Surprisingly I found that in the four quarters preceding Dec 2005, Accenture recruited more people than the likes of Infosys ( however adjusting for attrition, offshore firms may be seen as doing marginally better)
3. Infosys marketcap stands higher than that of Accenture ( as seen from public data)
A very impressive report – must read for all interested in the happenings of the industry. These financial data are indeed very real and truly reflect the strength of the players therein – the report is also helping with a trend analysis by presenting in a nice – comparable format. Stakeholders may like to read this report alongside some qualitative metrics like comparison of maturity of service offerings, vertical and geographical strengths and penetration productivity levels, relationship management indices, average experience of employees within the enterprises etc.

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