Business Analyst

Experience Program

Project 1

Submitted By -
Name: Amaan Abrar Kazi
Email: amaankazi1793@gmail.com
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

Maintenance (21% 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
Fixed Costs Employees
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.