While digital transformation isn’t something new, Covid-19 has simply sharpened its focus. There has been a notable acceleration in technology spending during the pandemic as enterprises were forced to come up with new delivery models, rethink workforce of the future and find new ways to serve the digital consumer. In fact, two recent and independent research reports conclude that in a contactless world, where the vast majority of interactions with customers and employees must take place virtually, operating digitally is the only way to stay in business.
Sailing through the crisis
The first one, a Nasscom report prepared jointly with McKinsey & Company, shows that digital transformation deals have seen a 30% jump since the pandemic, with an 80% jump in cloud spending during the same period. Covid-19 also resulted in a sharp growth in digital deals.
Another new report by HFS Research in partnership with Infosys, released around the same time finds that 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 digitization, a trend that is set to be the ‘next normal’.
Both the reports predict that technology spends in the areas of cloud and automation will take the biggest leap backed by remote working and other virtual services in the posy-pandemic era. In fact, Debjani Ghosh, President, Nasscom, believes that 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. She says, “Too 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.”
The Infosys research shows sees that almost 70% of respondents believe that Covid-19 will have a bigger impact than the 2008 downturn with budgets, supply chains, employee availability, and customer intimacy being impacted the most. The technology sector, BFSI, healthcare and life sciences are relatively confident as they see emerging opportunities for making appropriate investments amid the crisis.
“We are seeing an increased emphasis on digitization across verticals with 80% of the near-term spending may be driven by Covid-19 resilient digital offerings,” Noshir Kaka, Senior Partner and Global Leader, Analytics, McKinsey & Company says.
He also observes over the past nine months, agile companies have made the most of this situation by reimagining the way they look at growth (microverticals, customer segments, geographies etc.) and re-wiring their operating models for the new normal.”
In that context, the Nasscom report highlights that top Indian technology service providers have performed better than analyst estimates in the second quarter of this financial year, and those with revenue over $3 billion have driven 65% of the $6-trillion growth in market capitalization between January to July, certain micro-verticals like travel, hospitality and heavy engineering – which have been massively affected by the pandemic – is expected to take longer to recover.
The report authors recommend that IT service providers will need to actively rebalance their portfolio to play in the high growth micro verticals in the next normal.
Digitize and Adapt
From both the researches it is clear that enterprises are looking to invest in creating a virtual, secure, and cloud-enabled IT environment that enables remote working at scale (virtualization, collaboration, security). Investments in the cloud, cybersecurity, and modernizing core IT apps and infrastructure are at the top of the priority heap.
“Investment in digital re-invention and resilient operations saw a dramatic acceleration since the start of the pandemic. The report suggests that the world has leapfrogged on digital adoption by 3-5 years in the last 9 months,” says Kaka.
Enterprises are cautiously optimistic, with over 60% of enterprises in the Infosys study planning to accelerate their digital transformation initiatives and over 70% plan to change their product and service portfolio to drive greater customer value. Also nearly two-thirds of respondents are insulating their business from volatility by building diverse customer pools and investing in an agile business model.
The Nasscom report further said that extensive acceleration in digital adoption by enterprises and a potential increase in outsourcing intensity due to remote working are contributing to the faster than expected recovery for the industry.
“In the current scenario, CIOs suggest that 70% of enterprises are looking to either increase or reprioritize their outsourcing spend, with business digitization (including remote enablement) and cloud transformation being the top two spend priorities over the next 12-18 months,” the report says, predicting that nearly 50% of CIOs will be focusing on efficiency, resilience, and optimizing spends wherever possible.
Unleashing people potential
Both the studies bring to light that organizations realize they need to reposition to unleash people in the new reality. Post-COVID, working arrangements will change dramatically. In the Infosys study, only 37% prefer a return to an office-based environment. Pravin Rao, Chief Operating Officer at Infosys mentions in the report, “With so much at stake to drive customer centricity and productivity, investment in employees and ensuring their well-being is of paramount importance.”
According to him, “In a distributed work environment such as today, employees are an important centerpiece within the companies’ strategy framework and therefore, it is imperative for organizations to see how the hybrid work model can be made more effective, productive, resilient, and secure.”
Nonetheless, a big lesson from the pandemic is that the work culture will evolve from a siloed approach to a more collaborative one in the coming days and here technology will continue to have a vital role to play.
The silver lining
The silver lining is that enterprises have accelerated the adoption of automation, digital business models, and the hyper-scale cloud to respond to customer needs quickly and competitively, which in turn has brought to fore a shift in corporate mindset to advocate change and digitize businesses, as Phil Fersht, CEO and Chief Analyst, HFS Research says, “We must embrace this brave new business world where a perfect alignment of business outcomes and their enabling technologies demand all our focus and creativity.”
“We are living through the emergence of dynamic digital organizations where people are energized by technology, where they plug into business experiences that are progressing rapidly to places where the possibilities are limitless, where the future is unraveling before our eyes. What we have experienced – inside of a single year – is the coming together of people to confront their fear of change to face the reality that their organization will sink without it,” he sums up.