India’s Greenest Outsourcer?

While a corporate focus on green IT may not attract new outsourcing clients, it’s a great market differentiator that may sway a potential client considering different vendors when all other factors are equal.

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In Bali, delegates from around the world are meeting at the United Nations Climate Change Conference to hammer out a global agreement to cut carbon emissions.

In the U.S., congressional leaders are preparing to vote on an energy bill that may put limits on greenhouse gases and finance further investments in clean energy and efficiency.

And in India, one IT services provider is beginning to tout its own environmental efforts as a potential selling point.

The company is Bangalore-based ITC Infotech, an independent subsidiary of India’s $2.32 billion dollar ITC Ltd. While there’s no evidence that ITC Infotech is any “greener” than other outsourcers all by itself, its parent company became carbon-neutral this year.

ITC Infotech managing director Sanjiv Puri would prefer to talk about the fact that his company was certified SEI-CMM 5 (the Software Engineering Institute’s highest Capability Maturity Model ranking) when it was launched in 2000; its focus on best-of-breed services in vertical industries such as consumer factory goods, transportation and hospitality; or the IT service provider’s financial growth (the company has boasted a compounded annual growth rate of 65 percent since its founding).

But Puri knows that ITC’s corporate focus on sustainability has the potential to woo new IT outsourcing customers away from less green competitors. “No one is going to buy our IT services because we’re part of ITC, which is carbon positive,” says Puri. “Customers have to see the value in the services we bring to the table. We have to be competitive. But, if all other things are equal, we have seen some customers exercise a choice in favor of service providers who are more responsible to society and the environment.”

Green IT Growing on Outsourcing Customers

There’s little benevolent social responsibility behind the fact that many bottom-line-focused outsourcing customers are beginning to value environmental sustainability in their IT services providers. “Customers are becoming increasingly interested in making their IT operations more power efficient, especially their data centers,” says Gianluca Tramacere, IT outsourcing research director for consultancy Gartner. “This is driven primarily by the need to avoid the risk of IT service failure and to reduce cost. The ‘carbon footprint label’ is helping these initiatives to get more visibility, but I doubt many organizations were moved by a green agenda when they first looked at this issue.”

ITC Infotech’s parent company has its own reasons for emphasizing corporate—and environmental—responsibility. ITC, formerly the Imperial Tobacco Company of India, began as a cigarette manufacturer. The 100-year-old conglomerate (still the biggest cigarette maker in India) has since expanded its corporate footprint to include paper, hotels, apparel, agribusiness, transportation and, of course, IT. And each of those businesses comes with its own environmental baggage. So, much the same way an oil company like BP chooses to accent its efforts to offset the damage its products do, ITC in recent years has made it a point to focus on what it calls its “triple bottom line”: economic, social and environmental capital. “By the nature of the industry they operate in, ITC promotes many community-driven initiatives,” says Eugene Kublanov, CEO of outsourcing advisory neoIT. “Being carbon neutral is part of that.”

Whatever the motives, the company is making headway. ITC is among the first 10 companies in the world—and the first from India—to publish a sustainability report in compliance with the latest G3 guidelines of the Netherlands-based Global Reporting Initiative. ITC says it has not only become carbon neutral (through energy conservation and investments in large-scale plantations) but is also “water positive” (the company has increased water conservation and its rainwater harvesting efforts so it produces more water than it consumes). ITC says it is also making strides toward its goal of producing net zero solid waste.

Its outsourcing subsidiary ITC Infotech built its global development center campus in the heart of Bangalore (made of 36 repurposed cigarette warehouses) using recycled materials and optimizing energy usage in its data centers by using virtualization tools. The IT services provider has also worked with its parent company on a digital infrastructure initiative to connect India’s rural farmers to the Internet using solar panels for power so they can monitor global pricing trends, conduct crop research and monitor the weather. ITC’s triple bottom line “permeates all facets of our business,” says Puri.

The Future of Sustainability in IT Services

Environmental responsibility has started to show up on the agenda of other IT outsourcing providers, most visibly at U.S.-based vendors. IBM made a splash earlier this year announcing Project Big Green, a pledge of $1 billion per year across its businesses to “dramatically increase the level of energy efficiency in IT.” Accenture and CSC are at the top of outsourcing consultancy Brown Wilson Group’s Green 50 list of outsourcers (For more, see “Top 10 Green IT Outsourcers”). But Indian IT services companies have shown less interest in pursuing green IT initiatives. “[U.S. providers] are a bit more attuned to what their customers are going to need before being asked,” says Mark Kobayashi-Hillary, author of Building a Future with BRICs: The Next Decade of Offshoring. “I have talked to several of the Indian IT companies, even in the past six weeks or so, and found them totally puzzled by the green issue and why they would need to start considering it.” Green technology has not gotten much media attention in India either, says neoIT’s Kublanov. “I doubt that the Indian players are thinking seriously of incorporating green IT,” he says.

But analysts say that more outsourcing customers will make sustainable IT a mandate for their vendors down the line. “In the future, organizations will look at green IT as a way to underline their policies in terms of social responsibility,” says Gartner’s Tramacere. Many government agencies in Europe are already demanding that their suppliers make efforts to reduce their carbon footprint, says Kobayashi-Hillary. More than 21 percent of publicly traded companies that outsource have added “green policies and performance” demands to their vendor contracts in 2007, and 94 percent plan on adding such clauses during renegotiations, according to the Brown Wilson Group. (Just 36 percent of private companies are considering greening their outsourcing service agreements in 2008, says the consultancy.)

“Its not a do-or-die situation yet, but to hear that this is entering some contracts now means that the supplier who has no answer when asked how green they are will be dead in the water,” says Kobayashi-Hillary. “You can guarantee that two years from now every single contract will have some kind of green clause.” And first movers, like ITC Infotech, may have an advantage.

Environmental sustainability could be a big selling point for small to mid-size IT services vendors. “A smaller player can be audited more easily, can take carbon reduction measures more easily and can be more flexible about changing traditional practices,” says Kobayashi-Hillary. “It could be a great source of market differentiation. If I was running a mid-tier player I would be starting up an audit now to see what it would cost in the short term and how it could benefit in the long term.”

ITC Infotech’s Puri would like to see more customers and competitors get involved in sustainable IT efforts. I hope to see this trend increase, Puri says. “It will motivate others to embrace the concept.”