Digital could drive over 80% of spend for enterprises in near term: Report

By: |
December 3, 2020 9:07 PM

The COVID-19 pandemic  has accelerated digital adoption across industries, technology service providers are witnessing a sharp growth in digital deals.

The report is titled ‘Future of Technology Services - Navigating the New Normal’ (Photo source: nasscom.in)

The pandemic has accelerated digital adoption, and over 80 per cent of the near-term spending may be driven by COVID-19 resilient digital offerings as enterprises look at re-wiring their operating models for the new normal, a report by Nasscom said on Thursday.

The report titled ‘Future of Technology Services – Navigating the New Normal’, compiled by McKinsey & Company as knowledge partner, said there has been an extensive acceleration in digital adoption by enterprises and that there is a potential increase in outsourcing intensity due to remote working.

Digital transformation deals have seen 30 per cent jump; 80 per cent jump in cloud spending, and 15 per cent rise in customer experience have been witnessed since the pandemic, it said.

These are contributing to the faster than expected recovery for the technology services industry, and top Indian technology service providers have performed better than analyst estimates in the second quarter of 2020-21.

The report highlighted that ‘Tech Natives and Digital Reinventors’ with revenue over USD 3 billion have driven 65 per cent of the about USD 6 trillion growth in market capitalisation between January to July 2020, highlighting that technology is now core to future business recovery.

“The report suggests that the world has leapfrogged on digital adoption by 3-5 years in the last 9 months. We are seeing an increased emphasis on digitization across verticals and our analysis shows that 80 per cent-plus of the near-term spending may be driven by COVID-19 resilient digital offerings,” McKinsey & Company Senior Partner and Global Leader (Analytics) Noshir Kaka said.

The strategic gameboard has changed tremendously in the last nine months and agile companies have made the most of this by reimagining the way they look at growth (micro verticals, customer segments, geographies etc.) and are re-wiring their operating models for the new normal, he added.

The COVID-19 pandemic  has accelerated digital adoption across industries, technology service providers are witnessing a sharp growth in digital deals.

“…in the short period of 6-9 months during the pandemic, we have demonstrated resilience and I am extremely confident that we will take advantage of the opportunities in front of us and that industry will become very strong in the next 12-18 months and also pivot itself for the next three to five years to take advantage of the business shifts that we are seeing today,” Infosys Chief Operating Officer Pravin Rao said.

He added that companies need to invest in building capability of people, including through inorganic acquisitions.

“…M&A will also be an opportunity for you to fast-track some of the capabilities. And if you are able to do it successfully then obviously you can build mind share with the client, you can proactively reach out to the clients,” he said.

Rao said the hybrid model of work will continue for some time, and could increase the propensity of outsourcing.

“…future of work will be hybrid. People will have the ability to work anywhere, and there is an increasing acceptance from the client and this also increases the propensity to outsource as well,” he said.

With an increasing focus on remote enablement, companies are also reporting an increase in the digital dexterity of their employees and are actively reviewing processes to identify opportunities for automation and digitisation, the report said.

“The next 10 years will be fundamentally different from the past and require all stakeholders to develop strategies and insights to identify new opportunities and mitigate the risks. To ensure faster recovery, companies need to develop a two-part response to the evolving landscape: near term plan of action and long-term strategic rethinking,” Nasscom President Debjani Ghosh said.

Discussions with enterprise CIOs suggest that many enterprises are looking to either increase or reprioritise their outsourcing spend, with business digitisation (including remote enablement) and cloud transformation being the top two spend priorities over the next 12-18 months. They are also focusing on efficiency, resilience, and optimising spend wherever possible.

An increase in enterprise demand for digital technology and the rise of remote working could also force service providers to revisit their delivery operating model, talent acquisition strategies, and people supply chains.

Enterprises are already adopting an analytics-driven, recruitment process for improved efficiency and digitising the recruitment process by using social media profiling, hackathons, video interviews for improved conversion rate and offer to join ratio.

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