The year 2019 saw several global enterprises, across industries, enter into partnerships with technology firms to push their digital transformation efforts forward.
Global accounting and professional services giant KPMG closed the year with a big announcement, saying it will invest $5 billion over the next five years to enhance its capabilities in the digital transformation of professional services. As part of the investment, KPMG has partnered with technology major Microsoft to accelerate its capabilities using cloud and AI (artificial intelligence).
The size of the budget was surprising though it lacked details on how the investment will pan out. Nevertheless, it is a sign of things to come in 2020 and in the years ahead.
In December, Paris-based information technology services company Capgemini won a six-year digital transformation deal from German pharmaceuticals giant Bayer AG. The deal is worth over 1 billion euros.
Bengaluru-headquartered information technology (IT) services firm Infosys was also signed on by Belgian telecommunications provider Telenet early December.
Companies worldwide are trying to catch up with the increase in demand for a better digital experience. The partnerships will bear fruit over the next few years as enterprises shift focus to implementation.
What the deals signify
KPMG is expecting new products built on these technologies to help their customers achieve greater accuracy and decision-making capabilities at the same time reducing costs and increasing productivity.
Meanwhile, Capgemini will help transform Bayer’s enterprise resource planning (ERP) system, business intelligence or analytics domain management as well as digitise the pharma firm’s entire supplier ecosystem.
Enterprises are now increasingly seeking outcomes. They are looking for better customer experience, risk mitigation and new business models for digital transformation. Implementing latest technologies can be an expensive affair even for large enterprises.
With 5G on the horizon, enterprises, especially large manufacturing firms are looking to digitalise their factories with connected machines. Engineering giant Siemens is opening connected factories worldwide and shipping and logistics giant Maersk is tying up with startups to accelerate its digital transformation..
For instance, Swedish multinational and motor manufacturing giant ABB told TechCircle that software applications now account for the bulk of the total contract value in its motion business, alongside motors and drives with a third of the company's customers have adopted digitised motors.
The role of Indian IT
Thanks to the rapidly evolving technology landscape, large enterprises are looking to outsource their technology research to IT companies with deeper domain expertise in emerging technologies like artificial intelligence, automation and analytics.
A large part of digital transformation investments of these large enterprises will be deployed by multiple IT service players such as Accenture, Tata Consultancy Services, IBM or Infosys apart from several software-as-a- service players. Also, some of the work could be carried out by the global in-house centres across the world, of which India houses a majority of the technology offices.
The country is a big delivery centre for Accenture. Its lab in Bengaluru focuses on software engineering and AI.
Partnerships and acquisitions played a key role in helping enterprises streamline business. In September 2019, Bengaluru-based IT services firm Wipro signed a $300 million deal with Vara Infotech, an IT services provider offering digital transformation solutions to private lender ICICI Bank. As part of the deal, Wipro agreed to absorb Vara Infotech's operations temporarily to provide these services to ICICI Bank.
The country’s over $180 billion IT services industry is eyeing a larger share of the outsourcing contracts which is expected to grow at a faster rate in the event of a slowdown on the back of an imperative among enterprises to adopt digital transformation.
Insourcing deals to accelerate?
The return of insourcing has helped accelerate the growth of Indian IT in the last 18 months.
Mumbai headquartered TCS, the country's largest software exporter, recently inked a deal with US-based automaker General Motors (GM). The agreement involves acquiring some of the assets at GM’s offshore development centre in Bengaluru and absorbing nearly 1,300 workers.
In March last year, Infosys announced its third largest acquisition ever when it bought a majority stake in Stater NV, a Netherlands-headquartered mortgage services provider, for Rs 1,000 crore. Dutch banking giant ABN AMRO will retain a 25% stake in Stater NV after ceding control to Infosys. The company had done a similar deal with Singapore’s investment firm Tamasek.
Deals like Wipro-Vara and Capgemini-Bayer show the increasing frequency of such insourcing acquisitions.
Some of this could also be attributed to the difficulty that such enterprises face in acquiring cutting edge talent in emerging technology areas such as artificial intelligence (AI) and analytics.
“While the Global Capability Centres (GCC) bring additional domain capabilities, the service providers bring in the technical capabilities, scale in operations as well as better productivity and efficiencies to the table," KS Viswanathan, vice president at software industry body, Nasscom said.
This will not hamper large enterprises from setting up global in-house centres (GIC) in the country as they will want to keep much of the technology capability in-house.
Win-win for India
Indian talent has continued to attract international firms to rapidly expand their GICs in the country besides setting up new ones.
According to a recent Nasscom report, as of FY 2018, GICs (also known as Global Capability Centres or GCCs) employed around 900,000 direct employees as opposed to 745,000 in FY15. Almost 40 per cent of the talent pool working at GICs are in Bengaluru.
It is estimated that digital transformation spending by business worldwide is expected to touch $1.97 trillion in 2022. But, the worrying report from Gartner says over 70% of the employees have not mastered these skills yet.
Nasscom had said in a report that about 40% of India’s total IT workforce has to be reskilled over the next five years to cope with emerging trends like AI, IoT, machine learning and blockchain. But plans are afoot in the country to ramp up the reskilling and upskilling of its IT workforce.
In order to get the digital transformation exercise right, Harnath Babu, CIO, KPMG India has made the reskilling and upskilling of employees his top priority.
“People will have to understand if they want to be relevant for the future or not. We have training programmes happening at our office and they are mandatory for everyone,” he told TechCircle.
The government has also stepped in and announced an expanded digital platform, called Future Skills PRIME (programme for reskilling/ upskilling of IT manpower for employability), which is expected to train more than four lakh professionals over the next three years.
With most IT firms reporting robust deal-flow and companies continuing to expand the Indian technology centres, the country will be at the centre of digital transformation.