News: Digital transformation deals may weather COVID-19 storm: Analysts-14-04-2020
Updated On : 14-04-2020
Service contracts for works such as automation of processes, movement of business applications to the Cloud (remote servers) and Artificial Intelligence-based process transformation are expected to continue since they result in short-term cost savings for businesses, analysts said.
BENGALURU: Indian IT firms are likely to persist with ongoing digital transformation projects that save costs for clients, even as they witness a drop in discretionary spending as businesses focus on survival in the wake of the Covid-19 pandemic, said analysts. Service contracts for works such as automation of processes, movement of business applications to the Cloud (remote servers) and Artificial Intelligence-based process transformation are expected to continue since they result in short-term cost savings for businesses, analysts said.
.where digital transformation saves the client money in the form of lower operating costs, we do see an appetite to move forward,” said Peter Bendor-Samuel, chief executive officer of Everest Group, a US-based IT advisory and research firm.
“Having said that, it looks like we are entering a recession where capital for projects may be hard to find, hence these digital projects which save money have a quick ROI (Return on Investment),” he added.
This is, however, a “mixed bag” and many organisations have started cutting discretionary projects including digital transformation contracts, Bendor-Samuel cautioned.
IT firms generate higher margins in projects that are discretionary as it is outside planned budgets. Clients of the Indian IT services companies in the travel and transportation sector, including airlines and hotels, have begun to cut services and outsourced staff.
Top tier software services exporters such as InfosysNSE -3.14 % and WiproNSE -1.74 % reported 40.6% and 39.8% revenue, respectively, from digital technology-led services for the October-December period last year.
Technology services providers have seen outsourcing work across various industry sectors and types of projects being suspended. However, some large clients have continued discretionary spending on digital technology transformation despite a dip in overall business in the United States and the United Kingdom.
“Large companies may absorb the cost of contracts in such difficult times, but small enterprises in the UK and other markets are more interested in saving their current business and not ready to spend on any incremental technology projects,” said a senior executive at a large Indian IT services firm, who did not want to be named.
Many such projects would be deferred, the executive added.
“I want to stress (on the fact) that there are lots of examples where digital transformation does lead to cost savings, and this is the area where the Indian firms can focus on to offset the loss of discretionary spends,” said Bendor-Samuel.
