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IT Services: Building bridges - Views on News from Equitymaster
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  • Feb 20, 2002

    IT Services: Building bridges

    An article in Financial Times has very interesting data, Providence Health Systems, an Oregon-based hospital group, runs about 400 separate software applications. This includes a variety of software that range right from Microsoft spreadsheets to specially developed software applications. And most of these applications do not communicate with each other, they were not meant to. This has lead to islands of information being created. However the irony is that, for the organisation to make the most of its investments in these systems the applications needs to be seamlessly integrated.

    Thus, the communication (between the applications) now takes place via 211 interfaces or bridges (programs that allow the different software to talk to each other) built over the years by in-house specialists. The interfaces need to be maintained so that systems, which are critical to operations, continue to be up and running. Keeping these systems up and running requires additional investments. To summarize the list of problems facing the company: legacy systems, lack of integration, concern about reliability and overheads. This is a very common story with the corporates in the west.

    While the traditional solution has been to implement middleware or write interfaces, organisations are now looking for alternatives. Fidelity, the world’s largest manager of mutual funds, is leading the initiative. The company is making all its application compatible with XML (extensible markup language, an industry standard that was designed to describe data). This allows various applications written in different languages like COBOL and C, operating on different platforms like Windows or SUN to communicate with each other. This makes the need for middleware, which take a lot of time and money to develop and maintain, largely redundant.

    The XML conversion for Fidelity has already taken two years taking two years financial commitment running into ‘tens of millions’ of dollars. However, this is justified by the return on investments that arise from faster execution of transactions and cost savings due to not using the middleware. Indian software companies have been witnessing rapid growth from package implementation in 9mFY02. While a part of the revenues comes from implementing ERP solutions like SAP, a significant portion also comes from implementing middleware solutions. If there is a gradual shit towards XML conversion, companies like Infosys and Satyam might find no takers for their implementation services for middle ware.

    Package implementation: growth driver
    % Contribution to revenues 2QFY02 3QFY02 Change
    Infosys 8.7% 10.6% 23.8%
    Satyam 11.8% 16.4% 41.7%

    However, one thing is for certain. The companies are unlikely to spend on emerging technologies unless they get their systems that are now like a group of people communicating in different languages, understand each other and communicate clearly. Thus, focus will be to make the most of investments that have already been made. Indian companies are already generating a lot of revenues from these markets and will continue to do so for sometime in the near future. Adding XML conversion to their service offering will only add pace.



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