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 technology services industry. Top Indian technology service providers have performed better than analyst estimates in the second quarter of FY21, according to the National Association of Software and Services Companies (NASSCOM)'s ‘Future of Technology Services – Navigating the New Normal’ report. Independent third-party research and analysis were conducted by McKinsey & Company as Knowledge Partners.

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During a virtual press conference today, NASSCOM highlighted via its report that Tech Natives and Digital Reinventors with revenue over $3 billion have driven 65 percent of the $ 6 trillion growth in market capitalization between January to July 2020.

COVID-19 has accelerated digital adoption and digital transformation deals have seen a 30 percent jump, 80 percent jump in cloud spending, and 15 percent in customer experience since the pandemic.

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.

Debjani Ghosh, President, NASSCOM said, “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. To 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.”

Noshir Kaka, Senior Partner and Global Leader, Analytics, McKinsey & Company added, “The report suggests that the world has leapfrogged on digital adoption by 3-5 years in the last 9 months. We are seeing an increased emphasis on digitization across verticals and our analysis shows that 80 percent+ of the near-term spending may be driven by COVID-19 resilient digital offerings."

Looking ahead to 2021, however, analysts are cautiously optimistic, especially in the area of enterprise software which is expected to take the biggest leap on the back of remote working and other virtual services. Certain micro-verticals (e.g. travel, hospitality, heavy engineering) which have been massively affected by the pandemic will also take longer to recover. Technology service providers will need to actively rebalance their portfolio to play in the high growth micro-verticals in the next normal.

In the next normal, discussions with enterprise CIOs suggest that 70 percent of enterprises are looking to either increase or reprioritise their outsourcing spend, with business digitization (including remote enablement) and cloud transformation being the top two spend priorities over the next 12-18 months. Nearly 50 percent of CIOs will be focusing on efficiency, resilience, and optimizing spend wherever possible.

Further, an increase in enterprise demand for digital technology and the rise of remote working is forcing service providers to revisit their delivery operating model, talent acquisition strategies, and people supply chains. Enterprises are adopting an analytics-driven, recruitment process for improved efficiency and digitizing the recruitment process by using social media profiling, hackathons, video interviews for improved conversion rate and offer to join ratio.

It is estimated that COVID-19 could be one of the pivotal shifts that define the next wave of reimagination for the technology services sector, both on growth and operating model. However, to achieve the pivot, technology service providers need to remain flexible and maintain pace with the changing times by proactively adapting to new demand themes and buying behaviour, galvanizing operating models, and revamping people supply chains.