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Global IT talent: Accelerated hiring for IT services counters persistent attrition

In TBR’s latest Global Delivery Benchmark, one particular number leapt out as both surprising and indicative of the sustained battle for technology talent.

Acquiring digital skills enables vendors to build local resources to expand revenues in APAC

Key Insights

IT services vendors are ramping up activities around building local market resource capacity on top of locally sourced global IT services delivery resources that have existed for decades.

Revenue growth leaders are eyeing opportunities to further penetrate the APAC market by leveraging digital design and creative capabilities to drive high-value opportunities.

Hiring local market resources, appointing leadership and pursuing acquisitions will improve vendors’ ability to diversify global revenues during 2022.

Acquiring digital skills enables vendors to build local resources to expand revenues in APAC

Note: TBR is expanding the IT Services Vendor Benchmark with industry-specialized and geographic deep-dive research, which we will alternate every quarter. In this 2Q21 edition of the report, we have added analysis around strategies, key developments and performance in the APAC region for select vendors in the benchmark.

The IT Services Vendor Benchmark details and compares the initiatives of and tracks the revenue and performance of the largest global IT services vendors. The report includes information on market leaders, vendor positioning, the IT services market outlook, key deals, acquisitions, alliances, new services and solutions, and personnel developments.

Headcount growth decelerated, revenue declined even faster as vendors felt the whiplash of pandemic-induced downturn

Headcount growth decelerated, revenue declined even faster as vendors felt the whiplash of pandemic-induced downturn

Overview

The 14 vendors benchmarked in TBR’s Global Delivery Benchmark continued to hire and acquire resources, albeit at a much slower rate in 1H20 than in 1H19 due to COVID-19, a trend we expect to accelerate in 2H20.

As vendors went into damage-control mode amid the pandemic, most deployed proven legacy cost rationalization methods, including layoffs, salary freezes and limited SG&A spend to protect profitability.

COVID-19 has accelerated digital transformation-related opportunities around cloud, AI and cybersecurity, demanding vendors develop right-skilled and right-sized benches to provide support beyond technology excellence.

The Global Delivery Benchmark provides efficiency comparisons, assessments and insights into global delivery strategies and investments across 14 leading IT services firms. The research highlights overarching resource management market trends, discusses implications to operations from increased labor automation and examines disruptors that shape new business models and KPIs.

India-centric IT services vendors focused on protecting margins to survive rough market conditions

Select vendors pursue alliances and deals in the growing cloud market to offset choppy financial performance

During the first couple quarters of the pandemic, Cognizant (Nasdaq: CTSH), HCL Technologies (HCLT), Infosys (NYSE: INFY), Tata Consultancy Services (TCS) and Wipro (NYSE: WIT), the India-centric vendors covered in TBR’s IT Services Vendor Benchmark, looked to form partnerships and sign new deals, especially those around cloud capabilities, with strong patterns of continued growth in cloud implementation, migration and advisory to offset deteriorating areas in traditional outsourcing engagements. For example, Wipro’s partnerships with cloud infrastructure experts, such as Google (Nasdaq: GOOG) and Microsoft (Nasdaq: MSFT), will allow Wipro to build solutions off these technologies and pair them with its advanced AI and automation capabilities to strengthen its position in the market.

To mitigate the damage caused by COVID-19, the India-centric vendors will also make resource management improvements, such as enhancing their training and hiring efforts, and solidify existing client relationships by supporting clients through optimization and digital transformation offerings as they transition to digital business practices. Cognizant must secure alliances to bolster the company’s cloud and analytics capabilities while focusing on internal stability.

HCLT performed rather well financially, all things considered, and should utilize its cloud and software power to further develop its portfolio mix, leading to improved client satisfaction. TCS, on the other hand, should capitalize on its global presence as well as its diverse portfolio to gain traction and improve its financial performance. Wipro also struggled during 1H20, but its financial performance is expected to improve if the vendor focuses on acquisitions, similar to its recent purchase of Europe-based 4C, to add new sources of cloud services revenue in the region while driving portfolio investments around cybersecurity. Similar to HCLT, Infosys came through 1H20 mostly unscathed, due to its healthy pipeline and a strong first quarter. The company should continue to tap into new areas of opportunity, such as digital transformation and blockchain, using its recent partnerships with Essential Utilities and the National Bank of Bahrain.

True to their business models even in a pandemic, India-centric IT services vendors prioritized margin protection as a primary damage control strategy during COVID-19. To adjust management operations and combat growing company expenses, IT service vendors will likely increase employee training and look to hire internally to fill positions. Additionally, TBR believes it is imperative for vendors to continue their focus on upselling to existing clients and leaning on strategic partnerships to offset revenue losses due to geographic macroeconomic disruptions.

Infosys must learn from missteps over the past 5 years to become a partner of choice for managed services

From time will tell to now is the time

In late 2013 TBR published The next 5 years: A successful strategy for Infosys that examined what it would take for Infosys to catch up with multinational corporation rivals such as Accenture and IBM. We believed Infosys needed to build up nearshore Americas capacity and capabilities, acquire consulting capacity in Europe, and invest in IP — and we were right. More than five years later, Infosys is aggressively executing in all of these areas. But success did not come easy, as the company witnessed a spate of executive departures, including its CEO. Additionally, revenue growth fluctuated: 5.8% in FY13, 11.5% in FY14, 5.6% in FY15, 9.1% in FY16, 7.4% in FY17, 7.2% in FY18 and 7.9% in FY19.  While Infosys is showing appetite to transform its sales strategy through aggressive hiring and training of sales and support staff, the company’s delivery framework remains fragile.

Investments in onshore and nearshore personnel in the U.S. and Europe, including the opening of Innovation Hubs (five in the U.S. and two in Europe) to support Agile-based projects, are positive steps forward. However, it appears these investment decisions were forced on the company by market demand and peer pressure. Recent purchases, including 75% of Netherlands-based ABN AMRO subsidiary Stater, Nordic-based Salesforce consultancy Fluido, and U.K-headquartered digital agency Brilliant Basics, suggest Infosys is well positioned to grow its revenue share from Europe-based operations from its current 24% to 30% in the next two years. These investments have taken a toll on company margins, which declined from 25.8% in FY13 to 22.8% in FY19.

Departing from a margin-first culture is not easy, especially as founder N.R. Narayana Murthy remains involved in board decisions, although behind the scenes. Infosys is trying to offset some of its resources investments by expanding proprietary and co-developed industry-centric IP, but monetization of such offerings is a challenge. Former CEO Vishal Sikka tried to rotate the entire 200,000-plus services workforce to act as a software-like company with the associated KPIs and culture changes, but he failed.

March marked the end of Infosys’ first year in its three-year go-to-market strategy, during which it vigorously shifted the composition of its sales to digitally enabled awards, which contributed 31.2% of total sales in FY19. Navigating the dynamically evolving IT services market will not be an easy task as the company balances execution with operational efficiency to meet stakeholders’ expectations. While the company had the last five years to stabilize its performance and realign portfolio and skills to market demand, the accelerated cycle enabled by adoption of digital transformation initiatives has invited many new participants into the IT services space, forcing Infosys to look for blind spots.

Infosys is far from reaching the scale of Accenture and IBM. However, the company still has a chance to secure a top 3 ranking among its India-centric peers either by doubling down on what it does best — participating on the services supply side — or becoming an exclusive partner for managed services to one of the many consultancies aggressively moving into the IT services space.

TBR published initial findings on Infosys’ 1Q19 quarterly earnings in its recent Infosys Initial Response. TBR will dive deeper into Infosys’ resource management strategy in the April 2019 edition of TBR’s Global Delivery Benchmark.