With global uncertainties and inflationary pressure weighing on clients’ minds, Indian IT companies are seeing significant traction in the number of cost efficiency deals. The share of “cost optimisation” deals in the total deal matrix has grown from 30% to 50% in the last 18-24 months, according to a report by UnearthInsight.
The report said such deals have largely come from regional banks, financial services, enterprise tech and software product, retail and manufacturing clients in US and Europe.
In contrast, capital-intensive deals like digital transformation took a back seat in the same period. According to the report, the share of digital transformation deals has dropped by 15% from 40% in the last 18 – 24 months. Digital transformation is a fundamental change in the way an enterprise’s internal work is done. It also includes transforming how services are consumed externally by customers. Enterprises go for digital transformation to either ward off competition or to better their competition.
Gaurav Vasu, founder, UnearthInsight, said, “Given that there is a margin and growth challenge worldwide, clients are looking at IT companies as how they can optimise their cost.”
According to Namratha Darshan, chief business leader at ISG, cost optimisation has always been there but since last year, there has been an increased focus from clients. “Today there are hardly any deals that come without cost optimisation,” Darshan said.
The uptick in the cost take-out opportunities is because of CXO’s increased need to maintain profitability, given both elevated inflation and muted revenue growth projections, according to Kaushal Tripathi, chief growth officer, UST.
These deals come in vendor consolidation, technology refresh, hyper-automation leveraging Gen AI capabilities, and others, he said.
Vasu said digital transformation deals have a long-term return on investment. Clients are looking at short-term solutions and thus digital transformational deals have taken a back seat in these challenging times.
UnearthInsight further said while cost optimisation deals will contribute 45- 50% of IT companies’ revenue in FY24 and FY25, digital transformation deals will contribute about 30% of their revenue.
Darshan added both cost optimisation and digital transformation deal drive one another. “We have seen enterprises going for digital transformation to optimise costs. On the other hand, enterprises are optimising cost to fuel digital transformation.”