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

The Economic Times - - Disruption: Startups & Tech - Jochelle.Men­donca @times­

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.

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