At the risk of sounding cliché, we have to say that FY 16 was all about Digital. It is a logical compulsive evolution for enterprises and this digital disruption is all set to become the heart of enterprise IT across the world. Emerging tech is no longer rhetoric. IT Organizations across the world over the year were rather compelled to revisit their technology architectures and ink a bold new strategy aimed at meshing IT with the new normal digital economy business demands. One saw transformation events like legacy modernization, infusing agile methodologies like DevOps in the software development lifecycle, leveraging big data and unbundling ‘On Prem’ and moving to an ‘on demand regime’- all these topped the agenda of technology decision makers across the world.
THE DQ TOP 20 COMPANIES
While the brick and mortar to online transition happened few years back, what is happening right now is the beginning of what some companies call as ‘Application Economy’. Bask Iyer, CIO of VMware in an interview to Dataquest told that ‘every business has the potential to be ‘Uberized’ right now. In a way it indicates how computing, as we know now is going to undergo a fundamental transition from current Enterprise 2.0 to a completely new demand scenario.
Two things are happening here. One is on the disruption happening on the supply side and the other is on the demand side. The CXOs on the one hand are grappling with digital transformation challenges and expect the vendors to address those challenges. On the other hand the vendors are caught in the nexus of forces and invested on staying relevant to the demand side.
Overall the outsourcing global delivery models are on the threshold of a major transformation, while they embark on creating a digital backbone- whether it be hardware or software, it need to be agile and elastic enough for this transition. One of the biggest challenge as well as an opportunity for ISVs relate to the shrinking of packaged software deployment slice. Increasingly CIOs opted for a Cloud model and decreased their ‘On Prem’ IT investments.
Meanwhile on the distribution side, the creation of a seamless omni-channel ecosystem is the key. So the biggest challenge here related to crating a balance between brick and mortar channel vs online retailing.
DQ TOP 20 FINDINGS
Coming to the Top 20, there are some significant changes in terms of the overall ranking. With HP splitting into two independent listed companies changed the Top 5 ranking. HCL Technologies took the #5 spot vacated by HP combined. Interestingly, now the Top 5 DQ Top 20 are all pure play services companies with the exit of HP combined. HPE India managed to stay within Top 10 at # 9.
While for the print edition we have estimated HP Inc India revenues at Rs 10,500 crore. We have factored in only the PC, Printer and the Supplies revenues. But, upon feedback from industry sources, the inclusion of partner margins, taxes and revenues from Services & Graphic Solution Business (GSB) makes HP Inc India a Rs 14, 567 crore entity as per our revised estimates.
The next big event over the year related to Capgemini acquiring iGate and as a result, it climbed up to #12 from last year’s 18th position. Lenovo due to its impressive traction in Government vertical managed to make it to the Top 20 for the first time, and made it to #19 on the list.
In terms of growth Cognizant (26%) and Dell (25%) saw the highest growth among the Top 20 companies. Overall when one looks at Top 20, 15 companies secured double-digit growth ranging from 11% to 26%, while 5 companies Intel, Redington, Ingram. SAP and Wipro managed only single-digit growth ranging from 4% to 9%. Interestingly, Wipro was the only company in Top 5 list to have registered a single-digit growth. The total size of Top 20 companies’ sums up to Rs 555,864 crore and the Top 5 contributes 62% to the overall Top 20 revenues, with TCS alone chipping in 19% of the revenues.
In terms of verticals, BFSI continues to be the revenue magnet followed by others like Manufacturing, Telecom, Retail, and Life Sciences etc. In all, FY 17 will see the solidification of the emerging tech play of many companies and one will see Automation and Agile development methodologies like DevOps bringing in a clear value proposition to services companies and this will become their key differentiator in the crowded IT services marketplace.
Lets look at an important pillar in this whole IT transformation cycle. Clearly, to reiterate again, the predominant and over arching theme that came in from both supply and demand side was digital transformation over the year. Vishal Sikka, CEO, Infosys Technologies remarked while announcing Q4 FY 16 results. “The world of our future looks entirely different – it is a world that is being fundamentally reshaped by digital technologies.”
Predominantly, vendors of all hues, not only the Top 20 took on to digital evangelization and projected their competencies and delivered home the message that why they need a digital transformation partner.
While every IT vendor lip synced on ‘Digital’. It is imperative to get a sense on what exactly the vendors meant by digital. In a PwC report titled- What ‘digital’ really means by Karel Dörner and David Edelman aptly said, “ Digital in the context of IT is focused on creating a two-part environment that decouples legacy systems—which support critical functions and run at a slower pace—from those that support fast-moving, often customer-facing interactions. A key feature of digitized IT is the commitment to building networks that connect devices, objects, and people. This approach is embodied in a continuous-delivery model where cross-functional IT teams automate systems and optimize processes to be able to release and iterate on software quickly.”
Mark Livingston, Executive Vice President, Cognizant Business Consulting last year made a significant point, he said: “Innovation and differentiation are at the core of the business transformation we lead for clients today. Clients face a complex digital landscape and want a partner who will bring their new enterprise strategies to life.”
Abidali Z. Neemuchwala, CEO & Member of the Board, Wipro while reflecting on the company’s performance during FY 16 said, “Our focus is to drive significant growth in our ‘run’ business through integrated services and hyper-automation while gaining leadership in the ‘change’ business through investments in Digital and Consulting capabilities, IP-based platforms and products and creating a differentiated domain solutions for non-linear growth.
Moreover experts say that Digital transformation is at the core of all businesses across industries. From a technology standpoint, most clients cannot make an immediate clean sheet of paper transition to a digital technology backbone. Clients will typically build a digital architecture on top of their legacy technology and the integration between these two layers is a very critical part of the transformation. A new broader set of capabilities is required to help clients navigate the digital transition.
Due to the aggressive Digital push by the current Government with ‘Make in India’, Skilling and Smartcity initiatives, has made India one of the biggest market opportunities for all vendors. The domestic IT services market is all set to spike up significantly in FY 17. For instance, for TCS, during FY 16, India crossed $ 1 billion milestone in annual revenues while overall revenues from new Growth Markets exceeded $ 3.3 billion on in FY16.
Meanwhile the recently implementation of the GST Bill, is expected to usher in a significant positive impact on the overall Indian economy and IT Distribution companies will greatly benefit from the Tax parity GST will bring in.
The above sentiment amply manifested in this year’s DQ Top 20 and companies and CEO’s we spoke to talked about the digital transformation development and the agenda they have for FY 17. They are taking on to a multipronged strategy in which they are blending their traditional strength areas with the new thinking. One of the significant areas that is gaining traction by the day is Automation. Most of the IT Services companies are taking on to a platform based intelligent automation approach. Clearly all the major IT services companies over the last year invested on automation and inked up a road map in which repetitive mundane jobs like testing will be completely done by software bots.
FY 16 was also about consolidation and divestiture. While globally the consolidation trend will manifest more in FY 17, but at the same time, companies will increasingly divest low margins businesses to stay relevant and profitable. Moreover, to shy away from the prying eyes of the markets and quarterly pressures, some of the global behemoths will go private the Dell way.
As we look at FY 17, the biggest challenge will be adding incremental revenues Q-O-Q and securing a robust sequential growth. With the escalation of automation, the companies will also face pressures relocating employees doing respective mundane jobs. All the vendors will go for big ticket multi-million large transformative deals that will help them meet the overall revenues guidance they have given for FY 17.