Outsourcing: how far up the value chain?

The move by India's top IT companies to develop industry specific applications left me wondering about the changing definition of what's considered core IT assets to businesses. Typically, companies would outsource their backoffice operations to India.

The move by India's top IT companies to develop industry specific applications left me wondering about the changing definition of what's considered core IT assets to businesses. Typically, companies would outsource their backoffice operations to India. But with wages rising in the country, Indian IT companies are moving up the value chain to provide higher end services, such as developing vertical applications. These may include customized applications that companies already develop in-house, to gain a leg up over their competitors. For instance, Emirates uses a self-built application that allows crew members to view CRM-related information onboard. Incidents with passengers can also be recorded for future references to improve customer service. This has allowed the airline to stay on top of the pack. However, during my visit to India this week to Tata Consultancy Services' innovation centers in Chennai, I'm not sure if companies would be willing to invest in template systems that may not set them apart from their rival next door. The centers build solutions for industries such as travel, banking and retail. Do businesses already see their retail and airline management systems as commodity items ready to be outsourced? If they do, how do they differentiate themselves from the next TCS customer through IT? TCS chief executive S. Ramadorai's answer was that if the capabilities that improve business processes are available outside the walls of a company, then there is reason to outsource. "Part of the definition of what's considered core [IT assets] is changing. Anything that can be commoditized for a period of time becomes non-core," he said. Indeed, technology change is happening so quickly that what may seem like a comparative advantage today may become a commodity item tomorrow. Here's a look at what's going on in TCS' innovation labs in Chennai.


Tata's innovation center for banking and finance sector is located 45 minutes away from the Chennai airport, and packed with 1,300 IT workers who contribute 43 percent of TCS' total revenues.

A 24-hour library for employees to do their research and enjoy some quiet moments. It houses close to 5,000 books.

A training session for employees, who are the company's prized assets in a tight Indian IT labor market.

The TCS Smart Store showcase of the next-generation retail store.

With a loyalty smart card, shoppers can create shopping lists online before heading down to the store. RFID tagged items can also be checked out using mobile terminals. Smart shelves will also notify store managers if items are out of stock.

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