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Era of Intellectual Arbitrage by Chaitanya Srinivaspura, Pre-Sales, Business Development Support , Keane

Era of Intellectual Arbitrage

By : Chaitanya Srinivaspura, Pre-Sales, Business Development Support , Keane
Industry : IT Services Functional Area : Growth
Keywords :

Service

Value Chain

Era

Intellectual

Arbitrage

Surpluses

Activity:  5 comments  618 views  last activity : 07 06 2010 20:18:04 +0000
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Era of Intellectual Arbitrage“Future Winners will be Companies that can demonstrate and sustain Intellectual Arbitrage”   !!
-Francisco D’Souza
Companies have finally established and learnt the art of operating companies and business conglomerates in the Knowledge Economy. An exemplary illustration of a business operating in the knowledge economy is the Indian IT industry. IT industry is a knowledge intensive industry, thriving by having knowledge, skills and processes as its foundations.  All major players in the IT market space have developed and mastered the art and science of using the Global Delivery Model (GDM). All companies are leveraging on GDM to plan their IT strategy. Companies are using the GDM to deliver value to the customers in terms of lower risk (Business continuity plan), shorter lead time, cost benefits, quality of work by establishing standard processes across the delivery centers and faster response time. Amidst all the talk and frenzy about the IT companies moving up the value chain and NASSCOM advising the IT players for the need to innovate, the IT landscape in its entirety is undergoing a powerful shift. It's a very powerful paradigm shift—an evolution far beyond and far more sophisticated than what we've historically seen in the offshoring industry.  This paradigm shift can be envisioned with an analogy. An analogy between Manufacturing supply chain and the Services value chain.  Just as the manufacturing supply chain has gone global, the IT service value chain has shown the same characteristics by going global. There is no denying the fact that senior corporate leaders increasingly recognize that business success is closely tied to effective supply chain management; especially, as they globalize and expand in to emerging markets. Similarly in the IT service industry the next generation of competition in this knowledge intensive industry will not be solely among companies, but will also include their service value chains.Supply chains consist of all parties involved in order fulfillment–manufacturers, suppliers, transporters, warehouses, retailers, and end customers. End-to-end processes in both the cases (manufacturing and services) are getting dissected into small slivers and parceled out to different parts of the world, based on the expertise (best place) held in that part to deliver the sliver. And then, almost in real time, they are getting reassembled to create a seamless end-to-end business process. A supply chain’s objective is to maximize the supply chain surplus (the difference between generated revenue and the overall costs across the supply chain). The more efficient and effective the supply chain the higher the surplus generated. A new player entering the supply chain must add to the surplus; else, it erodes the existing players’ shared value. This basic rule is true for the service value chain as well. Just as manufacturing supply chains strive to build surpluses across the supply chain, IT companies will need to build surpluses (value to customer) across the service value chain. The similarity between the manufacturing supply chain and service value chain ends with the way surpluses (value) built across the chain. IT services industry is more knowledge intensive where knowledge is the asset. Manufacturing supply chains bring in more value by making it more agile and responsive. IT service value chains need to bring in value through intelligence and knowledge.The task of building surpluses and generating value is getting to be tougher with the Indian IT major players going on an acquisition spree and launching verticals by the hour. The IT industry is at an inflexion point where just labor arbitrage can no more be a Differentiator. The companies that will leverage on Intellectual Arbitrage will make the leap and differentiate themselves as delivering more value to the customer and not just as another IT services provider delivering only cost advantages.  In the IT service industry, we are seeing an early shift from Labor Arbitrage to Intellectual Arbitrage. Labor arbitrage is about relatively cheaper labor skills. Intellectual Arbitrage happens in knowledge or service-intensive industries, where there's an opportunity to apply intellect at price points, in order to achieve dramatic business outcomes. Indian IT service providers have human resources from varied backgrounds, nationalities, educational backgrounds and unique sets of skills. The IT companies will need to take advantage of the varied skills at their disposal and tailor them to the need of the clients. The companies that can handle this challenge will come on top.The surest way of building surplus in a services value chain is by leveraging on Intellectual Arbitrage. Future winners in the IT industry will be companies that can figure out how to tap the global talent pool and take advantage of intellectual arbitrage.     

 

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5 comments on "Era of Intellectual Arbitrage"
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  Commented by  Ramdas Pawar, Sales/BD Manager, Oracle    | 04 14 2009 11:42:22 +0000 
Definitely Chaitanya sir,the companies who are willing to change with time and are ready to innovative will be the leaders of the future and they will be the ones who will take advantage of the global clients by addressing their needs.
  Commented by  Rajan Agarwal, Program Manager, Ebix    | 01 27 2009 07:51:46 +0000 
Good one and worth reading
  Commented by  Bellala Gopinatha Rao, Project Manager Promax Management Consultants    | 01 01 2009 13:29:20 +0000 
Nice one, Thanks
  Commented by  Vinayarajan KV, Head/VP/GM-Sales Tech    | 01 01 2009 06:11:05 +0000 
Good article thanks for sharing
  Commented by  varsha ., Technical manger(QMS)    | 12 30 2008 18:30:45 +0000 
gud one....
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