Business Analyst

Experience Program

Project 1

Submitted By -
Name: Amaan Abrar Kazi
Email: [email protected]
College: Vivekanand Education Society’s
Polytechnic
Case Study
An Indian IT Service and product company has an employee base of 5000+ resources all
over the globe. Around 73% of the resources are based out of India (Mumbai, Pune,
Hyderabad and Ahmedabad). Total employee strength includes 690 contractors out of
which 60% are in India, 5% in Australia and 7% in Asia Pacific centers. These
contractors are on an average 1.4 times costlier than permanent employees.

Its customers are across 35 countries mainly in the US (32%), Middle-east (27%) and
Europe (20%).

Its main business is providing IT solutions and Annual Maintenance Services. Though
they provide IT solutions in all the domains, 46% of their revenue comes from BFSI
sector, 21% is from the Healthcare sector and the rest from other sectors like Retail,
Public sector, Manufacturing, Travel, Entertainment etc.

Its product-based business is providing pre-made softwares and applications for

companies. The three products they offer are DevOps bundle, cybersecurity and digital
marketing. 90% of revenue comes from the digital marketing product.

It enjoys a good margin from BFSI (42%) and Retail (39%) sectors and also from
business in the US (48%) and Europe (44%) region. The margin is very low in business
in India (9%) and other Asia Pacific countries (14%).

It is finding it difficult to be at par with its competitors on a year-on-year margin

improvement rate which is 11% v/s 26% by other comparable IT companies in India. To
address this, it is thinking of acquiring smaller organizations which specialize in niche
technologies and having a larger customer base which will help them in increasing its
employee base and expand the business with cross-sell opportunities.

Will the acquisition help in the improvement of margins? If yes, then why? If not, then
what alternate strategy should the company follow?

Instruction Set

1. Identify the root problem and use the MECE (mutually exclusive,
comprehensively exhaustive) principle, discussed already in the module
videos, to break down the problem.
 2. Using the profitability tree down structure, divide it in two parts ‘Revenue’
and ‘Cost’.

3. Further branching can be done according to your logic but do keep in mind
that those parameters shouldn’t overlap. E.g. Revenue and profit are
overlapping parameters.

4. For revenue, 60% of it comes from IT solutions and maintenance, and rest
comes from its products.

5. The company is looking forward to investing in India, US and Europe. See

the potential growth for different sectors in these geographical locations.

6. In the US and Europe, the healthcare sector seems promising and the same
for India with the BFSI sector. Explore other options and see what could be
done differently.

7. Finally, provide recommendations for where the company should invest and
what kind of acquisitions it should do.

Root Problem
The root problem for the Indian IT Service and product
company is its inability to achieve a year-on-year margin
improvement rate comparable to other IT companies in
India (11% vs 26%). This indicates that the company is
facing challenges in increasing its profitability and
staying competitive in the market

Factors Contributing to The Problem

 Heavy dependence on the digital marketing product
 Low Margin in India and other Asia Pacific Countries
 Inefficiencies in Contractor Utilization
 Limited Growth in Sectors other than BFSI
 Challenges in Expanding to New Geographical
Markets
 Lack of Product Diversification
 Inability to keep pace with competitors in Margin
improvement

MECE (Mutually Exclusive and Completely

Exhaustive)
It is a problem-solving technique that divides the problem into various
parts and forms a kind of an Issue Tree
 BSFI Sector (46% of
Revenue)

IT Solutions and Healthcare Sector (21%

Maintenance of Revenue)

Other Sectors
(Remaining Revenue)

Revenue Analysis

Digital Marketing
Product (90% of Revenue
High Margin

Product Based Buisness DeveOps Bundle

Profitabilty Analysis
Cybersecurity

Permanent Employees
Fixed Costs
Salaries

Cost of Goods Sold for

Product Based Buisness
Cost Analysis

Sales and Marketing

Expenses

Variable Costs

Product Development
and Marketing Costs

Contractor Expenses

Geographical Revenue Distribution

 Geographical Revenue Distribution

Other Asia Pacific Countries

India

Europe

Middle East

US

0% 10% 20% 30% 40% 50% 60%

Percentage of Customers Margin

Other Asia
Middle
US Europe India Pacific
East
Countries
Margin 48% 44% 9% 14%
Percentage
of 32% 27% 20%
Customers

Revenue Analysis

IT Solutions and Maintenance -

BFSI Sector: Explore opportunities to expand IT solutions and
maintenance services in the BFSI sector, leveraging the company's
expertise and reputation in this domain. Targeting new BFSI clients and
increasing the scope of services can boost revenue.
Healthcare Sector: Invest in specialized IT solutions and services
tailored to the healthcare sector in the US and Europe. Develop
partnerships and alliances with healthcare organizations to increase
revenue from this segment.
Other Sectors: Identify potential growth areas within the other sectors
and develop customized IT solutions to cater to their specific needs,
increasing the customer base and revenue diversification.

Product Based Businesses -

Digital Marketing Product: Continue to invest in the development and
marketing of the digital marketing product, targeting new clients
globally. Explore opportunities for upselling and cross-selling to existing
customers to maximize revenue from this product.
DevOps Bundle and Cybersecurity: Allocate resources to enhance the
features and capabilities of the DevOps bundle and cybersecurity
products. Conduct market research to identify customer needs and tailor
the products accordingly to increase adoption and revenue.
Geographic Revenue Distribution -
US and Europe: Strengthen sales and marketing efforts in the US and
Europe, especially targeting the healthcare sector. Focus on building
strong relationships with existing clients to foster repeat business and
referrals.
India and Other Asia Pacific Countries: Explore opportunities to
increase revenue in India and other Asia Pacific countries by targeting
high-margin sectors and promoting the company's product-based
business.

Cost Analysis

Employee Cost –
Contractor Management: Assess the need for contractors and optimize
their utilization. Identify areas where permanent employees can handle
tasks traditionally assigned to contractors, reducing overall costs.
Operational Efficiency: Implement measures to enhance operational
efficiency, which can lead to cost savings. Streamline processes and
workflows to minimize waste and redundancy.
Cost-effective Alternatives: Consider outsourcing certain non-core
functions to regions with lower labor costs, allowing for cost reduction
while maintaining service quality.

Potential Growth for Different Sectors

India –
The company has a significant employee base in India, and it can
strategically leverage this advantage to explore various sectors for
potential growth. While the BFSI sector seems promising in India, there
are other sectors worth considering as well.
BFSI Sector: The company can further strengthen its position in the
BFSI sector by offering specialized IT solutions and services tailored to
the unique needs of financial institutions. This could include advanced
analytics, digital transformation, and cybersecurity solutions to cater to
the evolving demands of the sector.
Healthcare Sector: While the BFSI sector is strong, the company can
also tap into the growing healthcare industry in India. The healthcare
sector in the country is witnessing rapid digitization and technology
adoption, creating opportunities for IT service providers to offer
solutions in electronic health records, telemedicine, healthcare analytics,
and patient engagement platforms.
E-commerce and Retail: India's e-commerce and retail sectors have
seen significant growth in recent years. The company can develop IT
solutions to support e-commerce platforms, supply chain management,
inventory optimization, and customer experience enhancement.
Government and Public Sector: The Indian government's focus on
digital initiatives presents opportunities for the company to provide IT
solutions for e-governance, smart cities, and public service delivery.
US and Europe –
The US and Europe are lucrative markets for IT services, and the
company can focus on specific sectors to drive growth in these regions.
Healthcare Sector: The healthcare sector in the US and Europe is
technologically advanced, and there is a continuous demand for IT
solutions to improve patient care, data security, and operational
efficiency. The company can target electronic health records, telehealth
solutions, health information exchanges, and healthcare analytics.
Banking and Financial Services: Similar to India, the BFSI sector in
the US and Europe offers significant growth potential. The company can
offer advanced banking software solutions, payment processing systems,
fraud prevention tools, and regulatory compliance solutions.
Manufacturing and Industry 4.0: With the ongoing Industry 4.0
revolution, manufacturing companies in the US and Europe seek IT
solutions for process automation, IoT integration, predictive
maintenance, and supply chain optimization.
Cybersecurity Services: Given the increasing cyber threats, there is a
growing demand for cybersecurity services in both regions. The
company can expand its cybersecurity offerings to cater to the unique
needs of businesses in various industries.

Exploring Other Options

While the BFSI sector in India and the healthcare sector in the US and
Europe offer promising opportunities, the company should also explore
other options to diversify its revenue streams and improve its margins:
Retail and E-commerce: Expanding IT solutions for the retail and e-
commerce sectors in all regions can drive revenue growth. Offering
services like personalized marketing, inventory management, and
omnichannel customer experience can be beneficial.
Digital Transformation and Cloud Services: Emphasize digital
transformation and cloud services across all sectors and regions. Many
companies are undergoing digital transformation, and the demand for
cloud solutions is increasing. The company can position itself as a
reliable partner for businesses looking to adopt modern technologies.
Emerging Technologies: Invest in emerging technologies such as
Artificial Intelligence, Machine Learning, Internet of Things (IoT), and
Blockchain. Offering cutting-edge solutions in these areas can attract
new customers and improve margins.
Partnerships and Acquisitions: Collaborate with strategic partners and
consider acquiring smaller organizations specializing in niche
technologies. This can expand the company's capabilities and customer
base, enabling cross-selling opportunities and revenue growth.
By diversifying into various sectors and focusing on specific growth
areas in India, the US, and Europe, the company can improve its revenue
streams, achieve higher margins, and stay competitive in the IT industry.
Will the acquisition help in the improvement of
margins? If yes, then why? If not, then what alternate
strategy should the company follow?
To determine whether the acquisition of smaller organizations will help
in the improvement of margins, let's analyze the potential impact on both
revenue and costs. We'll also consider the company's current challenges
and the effectiveness of this strategy in addressing them.

Revenue Analysis –
Acquiring smaller organizations specialized in niche technologies with a
larger customer base can potentially lead to several revenue-related
benefits:
Increased Customer Base: Acquiring companies with a larger customer
base can expand the IT service and product company's reach, enabling
cross-selling opportunities for its existing products and services. This
can result in increased revenue from both the IT solutions and
maintenance business and the product-based business.
Access to New Markets: If the acquired companies operate in different
geographic regions or industries, it can open doors to untapped markets,
allowing the IT company to diversify its revenue streams and reduce
reliance on specific sectors and regions.
Leveraging Niche Technologies: Acquiring organizations with niche
technologies can enhance the company's service offerings and product
portfolio, potentially attracting more clients and generating higher-value
contracts, leading to increased revenue.
Cost Analysis –
While the acquisition may offer revenue benefits, it's essential to
consider its impact on costs:
Integration Costs: Acquiring and integrating smaller organizations can
involve significant costs, including due diligence expenses, legal fees,
and integration efforts. These costs can initially impact the company's
financials.
Operational Efficiency: The success of the acquisition depends on how
effectively the company integrates the new resources and optimizes their
productivity. Inefficiencies during integration can lead to increased
operational costs.

Addressing Margin Improvement –

The company's main challenge is achieving a year-on-year margin
improvement rate comparable to other IT companies in India (11% vs.
26%). While acquisitions can contribute to revenue growth, they may
not directly address the root cause of the margin challenge. To address
the margin improvement issue effectively, the company should consider
the following alternate strategies:
Cost Optimization and Efficiency Improvement: Instead of solely
focusing on acquisitions, the company should assess its current cost
structure and identify areas for optimization. This may involve
streamlining operations, reducing redundant expenses, and enhancing
employee productivity.

Investment in Research and Development: Investing in research and

development can lead to the creation of innovative products and
solutions. New, unique offerings can potentially command higher
margins and strengthen the company's competitive advantage.

Strategic Pricing and Contract Management: Reviewing pricing

strategies and contract management practices can help the company
negotiate more profitable deals and avoid revenue leakage.

Client Retention and Satisfaction: Improving customer retention and

satisfaction can lead to repeat business and positive word-of-mouth
referrals, reducing customer acquisition costs and contributing to
sustained revenue growth.

Focus on High-Margin Markets and Products: The company should

prioritize its efforts on high-margin markets, such as the US and Europe,
and focus on its high-margin products, like digital marketing. This
targeted approach can yield better financial results.

Enhanced Sales and Marketing Efforts: A stronger sales and

marketing strategy can help the company attract higher-value clients and
effectively communicate the value of its products and services, leading
to improved revenue and margins.

Potential Strategies and Recommendations

1. Investment in Promising Sectors: The company should focus on
investing in the promising sectors in each geographic region to
maximize revenue and margin potential. This includes:
 India: Further investment in BFSI sector, considering its potential
growth.
 US and Europe: Capitalizing on the growth potential of the
Healthcare sector.
2. Product Focus and Cross-Selling: Since the digital marketing
product brings in 90% of the revenue, the company should continue to
focus on this area and explore opportunities for cross-selling the other
two products (DevOps bundle and cybersecurity) to existing customers.
3. Acquisitions in Niche Technologies: To address the margin
improvement challenge, the company should consider acquiring smaller
organizations that specialize in niche technologies. These acquisitions
can provide access to a larger customer base and offer cross-selling
opportunities, leading to potential revenue growth and improved
margins.
4. Geographic Expansion: The company should strategically expand its
presence in the US and Europe to tap into the higher-margin markets and
leverage the potential growth in the Healthcare sector.
5. Efficient Cost Management: Since contractors are 1.4 times costlier
than permanent employees, the company should focus on optimizing its
workforce mix and try to minimize the dependency on contractors where
possible.
6. Competitive Benchmarking and Innovation: The company needs to
closely analyze its competitors and identify areas where it lags behind,
particularly in terms of margin improvement rates. Emphasizing
innovation and staying ahead in the rapidly evolving IT industry can
contribute to improved margins.
7. Customer Retention and Satisfaction: Retaining existing customers
and ensuring their satisfaction is crucial for generating recurring revenue
and maintaining long-term relationships. Happy customers are more
likely to provide repeat business and refer new clients.
8. Market Diversification: While BFSI and Retail sectors provide good
margins, the company should explore opportunities to diversify its
market presence across other industries and geographies. This
diversification can reduce dependence on specific sectors and regions,
providing more stability in the long run.

Conclusion
In conclusion, the acquisition of smaller organizations with niche
technologies and a larger customer base along with a strategic focus on
promising sectors and geographic expansion, can help the Indian IT
company in improving its margins and staying competitive in the
industry. To achieve sustainable margin growth, the company should
focus on optimizing costs, investing in R&D, refining pricing strategies,
improving customer satisfaction, and strategically targeting high-margin
markets and products. These strategies can position the company for
improved financial performance and enhanced competitiveness.