IT’s Changing. Tech Firms Rework their Business Models
Execs say model about to change soon and those unable to adapt may be left behind
Bengaluru: IT companies are reworking every part of their business — from how to win deals to how to cut costs with the help of outside consultants — as they look to weather the perfect storm created by automation, protectionism in their major markets, and investors seeking bigger payouts.
Top executives say that the next financial year is likely going to see changes in business models across all companies, with those unable to adapt being left behind.
“I think, to say the model of 2005 or the model of 2015 will be the model of 2020, would not only be foolish, it would be dangerous,” Malcolm Frank, chief strategy officer at Cognizant told ET.
IT companies also have to determine whether to continue to invest in certain parts of their business, or even retain them, as they focus on building capabilities to compete for new digital deals. “We expect more IT companies to start spinning-off non-core parts of the business. We think there will be more demand for consulting to help IT players relook at their models,” an executive in-charge of the IT sector at the top-tier consulting firm, told ET.
The move is likely to get spurred by investors who are demanding bigger payouts at a time when the sector faces slowing growth, falling margins, and a greater need to invest in new capabilities. Cognizant has already said it hired a consulting firm to help it create a new strategy. “IT companies had been using consulting firms. It is always good to have an external eye. But I think that may increase,” Srinivas Kandula, Country Head for Capgemini in India, said.
In addition to re-examining their core business, changes in the market are also forcing IT firms to retool their sales engines. One of the key ways that things have changed from five years ago is that there are virtually no traditional large deals being signed and the digital deals, though growing in size, have yet to pick up the slack. And clients say that not all IT companies have ma-
de that transition to winning in the new deal structure yet. “How do you sit down with your provider and say I want you to help me build something totally new? How do you contract for that? It’s a very different exchange and I know it is something we are doing because you cannot lock yourself in and be bound by how you did things 15 years ago,” Amy Brady, Chief Information Officer at US financial firm KeyCorp, said. “And I am not sure that every provider has caught on to that yet.”
Indian IT firms have started using technology better to help them win deals. Infosys has said it is using analytics to help its sales executives pitch relevant services to mine customers and even to determine what deals it is likely to lose in a renewal. IT companies have typically either billed on the number of employees, called time-andmaterial, or charged a fixed price to take over the process. But for some the very nature of what they are selling has changed.