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Covid-19 will leave its legacy on global IT services
IT services buying and selling will go through a transformation during the coronavirus crisis
When the current Covid-19 coronavirus pandemic is over, businesses will start to invest in their operations, with an acceleration of digital transformation to support new operating models and boost resilience in the post-crisis world topping the priority list.
The unprecedented impact of the pandemic on businesses will also reset the rails for the IT services industry that supports them.
With much of the world in lockdown to reduce the spread of Covid-19, business levels are falling and economies are heading for recession. Consumers and businesses are not spending or earning money at normal levels, and the economy is feeling it.
As a consequence, IT leaders are resetting their strategies to survive the uncertainty in the short term. This includes looking for discounts and changes to payment schedules from their IT suppliers, as well as postponing and reducing technology spending.
According to IT services advisory ISG, in its latest update on the global IT services market, discretionary IT spend in businesses is being reduced by up to 25%, while major technology investments are being delayed by between 90 and 120 days at many businesses.
These are short-term strategies to help companies survive the downturn, but another more pressing challenge facing IT and operations leaders is simply keeping the lights on.
Big businesses, more often than not, rely on the operations of third parties to deliver IT and business process services, so it’s a shock to the business when, for example, the supplier of mortgage processing services based in India suddenly can’t let staff into the office due to government restrictions. A mortgage provider that suddenly can’t process mortgages presents about as pressing a challenge as possible. This is happening today.
Reliance on India
The lockdown of India’s 1.3 billion people on 24 March, part of the government’s efforts to limit the spread of Covid-19, put into sharp focus just how reliant global businesses are on services delivered from India. Hundreds of thousands of IT professionals in India form critical cogs in the operations of huge businesses across the world.
Although the Indian government has relaxed the lockdown for IT service providers, with 50% of staff permitted to return to work from 20 April, its impact has been felt.
According to ISG, global IT and business process outsourcing (BPO) service productivity is currently at 80% of their normal levels. The closure of delivery centres in countries such as India and the Philippines are major contributing factors.
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“The pandemic is having a massive impact on our industry,” said Stanton Jones, director and principal analyst at ISG, speaking at the company’s latest quarterly update on the IT services and BPO industry. “Millions of people are now working remotely, and tens of thousands of these work for large IT services providers and are accustomed to working in large delivery centres.”
He said there was good news, however, in that the services sector as a whole is stabilising, albeit at 20% less capacity.
“Steady-state services have stabilised, especially from large suppliers,” said Jones. “But that does not mean we are at the same productivity level as before the lockdowns. The industry is operating at about 80% of previous productivity levels, so clearly there are some challenges to be addressed to recapture this lost productivity.”
Jones said suppliers had made Herculean efforts to meet their customer needs during the lockdown, “buying thousands of laptops, securing them, connecting them and training staff to work remotely”.
For example, Tata Consultancy Services (TCS), India’s largest IT services provider, reacted quickly to the lockdown with a project to quickly enable staff to work from home.
TCS scaled up its Secure Borderless Working Space initiative, which enables staff to service customers securely. Within weeks, the company made it possible for 85% of its global staff to do this. Before the pandemic, that figure was less than 40%.
But Jones said that while the large suppliers, which account for a huge chunk of the productivity, are adapting and coping, smaller players, including captive centres owned by multinational companies, are not.
“The challenge is that the stabilisation is primarily focused on the large service providers. Smaller providers and enterprise captive centres are struggling to react to the unprecedented set of circumstances,” he said.
According to ISG, there are about 1,400 global innovation centres in India, 700 in the Philippines and 450 in China, with another 1,000 or so across other parts of Asia-Pacific.
“Approximately 40% of these centres have less than 500 people, so they are actually quite small,” it said. “What the pandemic is laying bare is that many of these smaller centres are woefully underprepared to respond to a crisis of this magnitude given their lack of scale and logistical expertise. Smaller global innovation centres are struggling and we are seeing a backlog of critical services.”
Covid-19 IT services legacy
If crises bring anything positive to the table, it is lessons for the future. Jones said businesses should already be planning for life after the current pandemic.
“While we’re still in a stabilisation phase, we think it’s just as important to think about what’s coming next. And we believe that is going to be a fundamental rethinking of what it means to be a resilient business,” he added.
Digital transformation will be essential for businesses to increase resiliency, said Jones. “While cost takeout and infusing cash will be the number-one priority in many industries, we think companies will also reassess their digital transformation through the added lens of operational resilience,” he added. “To do this, companies will need to be able to engage customers and employees in both physical and digital worlds, and the ability to switch between them seamlessly as conditions warrant.”
As a consequence, technologies such as automation software, digital labour, cyber security and e-commerce platforms will see “supercharged growth in the coming quarters”, said Jones. “This will not only help them grow, but create a more resilient business.”