Embracing digital tech across industry

Published: May 2, 2019 12:48:38 AM

Consequently, the deal market is also expected to witness more such investments and acquisitions in the future, where platforms and automation become a key value driver for investments to enable growth and unlock shareholder value.

This combination of “push” from the vendors and “pull” from the market is driving digital transformation at scale, at offshore cost advantages and process adherence.

By PN Sudarshan  

Throughout the world, there is an increasing adoption of exponential technologies such as artificial intelligence, robotics, blockchain and Internet of Things (IoT) across industries. The mainstream adoption of exponential technologies is not only transforming the way businesses are managed, but is also creating new sources of revenue and business models. Digital-first organisations that have an integrated approach towards technology-driven business operations are more likely to focus on new and emerging business opportunities using tools such as IoT and AI/machine learning (ML) rather than merely using them to optimise their operations. To put it simply, digital is becoming the CEO’s agenda rather than CIO’s or CTO’s agenda.

The key challenge for such organisations to harness the real potential of digital tools is to have an integrated strategy and holistic approach towards their entire value chain, across customers, employees, partners, and internal business processes. What they seek from their technology partner is a deep-rooted experience in the domain, strong expertise in digital tools, and the creativity to imagine the possible. This troika is the key to succeed in today’s digital world, and we are witnessing design and consulting expertise becoming as much a sought after skill for the technology vendors, ranking high on their investment agenda.

India is becoming an integral part of the global digital value chain, and is also emerging as one of the largest suppliers of digital talent. The industry is steadily responding to this demand through various initiatives such as upskilling and reskilling of the existing talent base, investments in design, consulting, platforms, automation, and start-up engagements. While we are witnessing early successes in this arena, continuous investments in domain skills and digital tools, along with creative design and consulting capabilities become key success factors to thrive in this evolving market, and niche acquisitions and consolidation will continue to augment organic investments in this domain.

For more than two decades, India’s technology services industry was at the forefront of driving technology-enabled transformation of businesses around the world. As new age digital technologies disrupt industry value chains, the industry is again at the forefront of driving this change in the global market. As digital transformation moves from “pilot stage” to “industrial scale”, Indian vendors are becoming an integral part of the global digital value chain. Digital now contributes anywhere between 20-30% of revenue of our Tier 1 and Tier 2 service providers, and is also the fastest growing practice, amidst secular growth witnessed in traditional services. The recent spate of large deal announcements in the market also points to the important role of Indian vendors in the global arena. While these are complex and structured multi-year deals, which in some cases also include the rebadging of client employees, what is interesting is the transformational nature of such deals, with an increasing share of digital components such as platforms, automation, and analytics services. A combination of factors is driving this change. While maturing digital use cases and successful pilots give enterprises the confidence to implement such large-scale transformational programmes, Indian service providers have also been investing continuously over the years to build capabilities and scale in digital tools, through organic as well as inorganic routes. This combination of “push” from the vendors and “pull” from the market is driving digital transformation at scale, at offshore cost advantages and process adherence.

This changing market dynamic is also evidenced in the nature of the acquisitions and consolidation that is driving M&A deals in the technology sector in the last three to four years. Domestic technology vendors, especially the Tier 1 and Tier 2 service providers, have been looking at overseas investments to augment capability and capacity in niche design and consulting skills closer to the target markets such as the US and Europe. On the other hand, global technology vendors have also been active in the deal market, focusing on acquisitions in India to optimise their delivery infrastructure, access large talent base, and also to address emerging market opportunities in India.

Another theme that is playing out in the market is the private equity buyouts and consolidation amongst tier 2 and tier 3 service providers to unlock strategic and operational synergies and stay competitive. While the industry is not new to such phenomena, what is interesting this time is the changing nature of such deals, with a specific focus on digital platforms, rather than the traditional value drivers, to drive scale and profitability. To put it simply, platform is a hybrid between product and service, or a “productised service”, in which service delivery is accelerated and augmented through certain product-like tools and technologies.

Platforms help bring certain amount of non-linearity to the service delivery, and also help in driving scale and efficiencies in implementation. Platforms are becoming an integral part of digital transformation, especially in domains such as analytics, IoT, etc, where the implementation cycle is shorter and agility becomes a key success factor. For tier 2 and tier 3 service providers, who have traditionally operated in a focused set of industry and service domains, investments in platforms is helping them thrive in the evolving market landscape.

Consequently, the deal market is also expected to witness more such investments and acquisitions in the future, where platforms and automation become a key value driver for investments to enable growth and unlock shareholder value.

Partner and technology leader in Deloitte Touche Tohmatsu India LLP, and also leads M&A transactions in technology sector

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