The ‘disruption of the century’ has triggered the fourth wave of growth in Indian IT services and technology consulting
Indian IT services has always witnessed surges of business growth triggered by global events. While Y2K (year-2000) created one of the first outsourcing waves, the 2001 recession, and the 2008 financial meltdown also proved to be tipping points for Indian IT services, which rose to the occasion to help its clients with cost-effective outsourced IT services. The COVID-19 pandemic has also triggered a spurt in demand for IT services and technology consulting, as organizations unleashed digital transformation to stay in business in a remote-everything contactless economy. While cost arbitrage was the key reason behind outsourcing in the first three waves, this time the industry must deliver value-based consultative model and digital solutions. Skills around Cloud, edge computing, analytics, cybersecurity, automation, among others will witness intensified demand.
Winning major transformation deals
A few months ago, TCS announced its highest ever contract wins worth $9.2bn in 4Q21, up 4.2% from the previous quarter. Infosys reported new large contract wins of $9.3bn while HCL reached a $10bn revenue milestone at the end of 2020. Wipro which has regained its number-three ranking among Indian IT service vendors, is focused on providing digital transformation solutions leveraging its Artificial Intelligence platform HOLMES.
In a major deal, TCS announced it will apply its machine-first delivery model (MFDM) framework to streamline Skanska’s, a Swedish global construction company, migration to Cloud. TCS will also be responsible for the application management of the company’s Oracle Cloud applications. The deal has been estimated at a total contract value of $110.4m over five years. Arcelor Mittal has chosen Infosys to accelerate the company’s digital transformation journey and enable application management and business process management (BPM) services. Analyst firm Omdia estimates a TCV of $393m over six years. HCL has announced major digital workplace and IT services projects with Kone and UPM Kymmene.
Changing client expectations, hiring, attrition at all time high
With changing client expectations, digital transformation is becoming crucial in identifying and responding to these changes. This is making businesses embrace digitalization as an important strategy that will help businesses grow and achieve efficiencies. Indian IT service players having an established and proven track record are benefiting by becoming the platforms for this transformation.
This sudden growth in business has, while increasing hiring activities, also impacted attrition, which is at an all-time high and companies are responding with salary hikes. Top Indian IT services companies added 72000 employees in Q1 of this year, up 44% from last year. Hiring in the IT-software/services sector grew 5% month-on-month in June as demand for technology increased, per a report by Naukri Job Speak. Not only did the sector continue its recent surge of 14% in May but achieved an all-time high growth of 52% compared to pre-COVID-19 levels in June 2019.
Hybrid IT Consulting & Integration Services
The pandemic has forced organizations to adapt to a hybrid working environment thereby creating demand for Cloud-enabled services. A hybrid workforce also means that enterprises will need to re-examine their digital strategies, by moving workloads to the Cloud so that employees anywhere may access company data to remain productive.
It has spurred demand for hybrid IT consulting & integration services according to an IDC report. Worldwide hybrid IT consulting and integration services is expected to grow at a CAGR of 7.4%, reaching $39.9 billion by 2025, from the current levels of $27.9 billion. Hybrid IT infrastructure includes traditional, on-premises, off-premises, public, dedicated, and hybrid Cloud infrastructures. IDC’s infrastructure services taxonomy incorporates services that span the whole of the life-cycle functions encompassing plan, design, implement, adopt, and optimize.
Catching up on Cloud
Customers that have been slow to adopt Cloud will need to quickly catch up. Most enterprises do not have the IT staff nor skills to move quickly and will leverage professional services for an expeditious and de-risked move to adopt Cloud. As customers embrace digital strategies, evaluating the right Cloud, multi-Cloud, and an intelligent connected Cloud strategy with the appropriate architectural design will be a driver for professional services.
Defining that Cloud strategy will be a strategic imperative for enterprise IT organizations as assessing, prioritizing, and migrating (including possible refactoring, potential repatriation), workloads to the right landing zones with the appropriate infrastructure will be overwhelming for many IT organizations with limited IT staff and the right skill sets. As such, enterprises will turn to professional services organizations for help in defining and executing the right digital strategy.
Automation to drive services spend
Automation will drive efficiencies for services delivery allowing for faster integration with less risk. It will also require services firms to re-evaluate their business models, as traditional close to the box services will be automated, investment in higher value services surrounding new complex IT issues will be the new norm.
Automation is a fundamental driver for IT spending and has weakened the link between technology budgets and some metrics such as employment. In the short term, this will be a gradual process rather than a macro event but will continue to represent a key value proposition in prioritization of IT projects alongside other business funding initiatives.
Alongside these trends IDC also expects to see growth in higher-value and higher-margin consulting activities, such as strategy and design because of increased complexity and more choices in architectures, platforms, and consumption models that support digital imperatives. These will be the new growth drivers for services firms.