For many years now, companies have been building large data warehouses. But simply storing more and more data is pointless. To provide value from the data, its interpretation and predictive value is crucial.

But high quality analysis skills are rare and don’t come cheap, and increasingly companies are looking to outsource these services. Cost pressures and labor arbitrage are secondary factors in these decisions now: more important factors include access to a skilled and experienced talent pool, domain expertise, availability of tools and technology needed for analytics and the business value added by these services.

India remains the preferred destination for analytics outsourcing over its Asian counterparts like China and Philippines. Major analytics staff employers in India include Genpact, TCS, IBM, Cognizant, HP, Accenture, Infosys, and Wipro. We are also seeing the emergence of niche start-ups providing innovative solutions and capabilities in analytics, with an estimated 500+ start-ups in India providing analytics solutions.

These companies are using a range of pricing models, from traditional effort-based, to output-based (transactional) pricing, to pure outcome-based models. In line with the maturing Indian outsourcing industry, newer pricing models are being widely accepted, and traditional effort-based models are less favored. A recent industry survey by TCS showed the change in attitudes very clearly:

Source: “Increased Business Agility through Outsourcing Analytics: An Industry Perspective”, 2012, TCS

PAC View

Of course, the newer pricing models are not without practical challenges. PAC sees these as heavily dependent on the company’s depth of relationship with its service partner. Outcome-based models are successful only where the correct outcomes are identified. In all such contracts buyers must beware the “law of unintended consequences”!

More generally, PAC sees analytics playing an important role in steering the Indian outsourcing business towards more advanced business models. The new pricing models are more performance based and the positive impacts of these pricing models depend on the ability of the service providers to acquire the required skills. The good news is that India’s talent base is expanding rapidly: it added around 4.4 million graduates and postgraduates in 2012. Service providers now have to look for the best talent and provide adequate training to cash on the opportunity.

Post by Rajeev Suman