Business Today
Loading...

Recessions Are the Mothers of IT Invention

As IT is transitioning from a support function to becoming the business itself, great fortunes will be made and lost in the next half decade
Malcolm Frank | Print Edition: July 26, 2020
Recessions Are the Mothers of IT Invention
Representative Image

The next five years will prove decisive in our industry, as massive change produced by the Covid-19 recession will drive renewed double-digit growth for certain firms and send others to irrelevance. This dynamic has occurred during the three prior recessions, and early indicators are this downturn will be the most consequential by far.

When I started my career in the late 1980s, one could not overstate the dominance of IBM and Digital Equipment Corporation (DEC). IBM accounted for a staggering 6 per cent of the cumulative value of the S&P 500. And the press would gush over the ascent of DEC, with its CEO Ken Olsen being referred to as "the most successful entrepreneur in the history of American business."

After the recession of 1991, these two venerable firms had ceded industry leadership to a new cohort of upstarts: Microsoft, Oracle, SAP, EMC and Cisco. The client/server movement had become a phenomenon.

The pattern occurred again a decade later with the Dot-Com - 9/11 recession. Entering that recession, the IT services sector was dominated by multinationals. Yet five years later TCS, Infosys, Wipro, Cognizant and HCL were mainstream providers, had collectively quadrupled in size, and proved that the world was flat. In Infosys' 2006 Annual Report, Narayana Murthy titled his letter "On Entering Adulthood." The firm and the entire sector certainly had grown up. Global delivery had become a phenomenon.

The pattern repeated itself again a decade later with the 2008 credit crisis. Heading into that recession, cloud computing was viewed as an interesting but risky concept. Five years later, Amazon Web Services and Microsoft Azure growth rates were between 40 per cent and 80 per cent, became the default solution for much of enterprise IT, and have now generated over $1 trillion in market value combined.

Today the pattern continues, and this time around, the prize is larger than ever. IT is transitioning from being a support function for industrial business models to becoming the business itself. Great fortunes will be made and lost in the next half decade.

Clients Lead The Way

Three months into this recession, what are the clues to this new future? From a client perspective, they're emerging with clarity.

First, clients, regardless of industry or location, are reacting to the new normal in three inter-related dimensions:

Virtualisation: Anything that is currently "on prem" that can go virtual will be the workforce, the customer experience, core processes, core computing power and risk.

Variablisation: Shifting fixed costs (captive centres, physical spaces, equipment) to more variable, as-a-service, cost structures is becoming the norm.

Anti-Fragility: Transitioning to a networked business model that is more resilient, more anti-fragile. Business models must now move from linear supply chain models to more networked approaches, which have inherent fault-tolerance and resiliency.

Second, with this context, several new solution areas have emerged, including:

Virtual Workforce: Firms like Zoom, Slack and Microsoft Teams have initially benefited from this move. However, the more interesting and valuable work will come from digital service providers who can virtualise core processes (think a trading desk in a bank, claims processing at an insurance firm) by integrating collaboration platforms with core enterprise applications.

Data Modernisation: Today's crisis has exposed the cracks in how nearly every company manages data. Modernising data making it accessible, integrated, real-time, trustworthy, and valuable delivers near-term cost savings and also lays the foundation of a truly digital business.

Application Modernisation: The vast majority of today's enterprise apps were designed for "on-prem" consumption. Modernising the application estate which starts by determining which apps should be shut down, migrated, re-engineered or simply left alone will lower cost and increase productivity along every value chain.

Virtual Agile SW Development: DevOps and Agile methods are central to building the digital enterprise, but in a post-Covid world, they must be delivered virtually. A Virtual Agile software engineering model allows a global model to deliver software products at speed.

Virtual Marketing Operations: Every company must now build one-to-one customer relationships with software. And they must greatly increase their sales through online channels.

Cloud Acceleration: Cloud enablement will accelerate as leaders seek to move even more to providers like AWS, Azure, and Google, while maintaining hybrid and "on-prem" processing power.

Safe Buildings: The pandemic has forced a complete re-evaluation of our physical plants, and even the definition of a building itself. Large facilities from corporate offices to distribution centres, shopping malls, airports, concert halls and sports arenas all need to be transformed into safe buildings as companies must ensure all occupants are fever-free and are maintaining social distancing.

The implication For Digital Services

Our industry is a large one, and yet the vast majority of our collective work has been tucked into the 3 per cent of revenue that the average Fortune 500 company spends on IT. Post-recession, the SMAC model (of social, mobile, analytics and cloud) will be applied at scale to cost of goods sold (COGS) at the heart of a client's business. This represents over 60 per cent of client spend in the Fortune 500; a massive leap in the addressable market for IT services providers. Such solution areas represent massive growth opportunities but they also require new competencies, including:

  • Creativity with technology: Leading digital services firms deliver innovation at scale, and must have depth in design thinking and the associated agile methodologies, which can quickly turn client ideas into software-driven businesses.
  • Industry depth: Long-gone are the days when IT services players could provide horizontal capabilities with a smattering of vertical expertise. Digital services providers must now have a level of industry insight, which not only matches, but surpasses, that of the client.
  • Change Management chops: By definition, every scale digital initiative in a 100-year-old company is a significant change management exercise. Processes, people, incentives, and cultures will all undergo dramatic transformation. Lack of change management is the Achilles heel for most digital initiatives, and the services firms with strong change management capabilities will distinguish themselves.
  • Technology ecosystem strength: Clients need assistance in making sense of the new technology landscape and applying the SMAC Stack at scale. No client can do this on their own, and thus they will rely heavily on digital services providers who can make sense of the technology architectures and associated vendor landscape.

As history has proven, the winners that will emerge from this recession are currently hiding in plain sight. We already know most of their names. The scale and growth prospects of the digital services market are unprecedented, and the next two years will prove decisive. Game on.

(The writer is President, Cognizant Digital Business)

Youtube
  • Print

  • COMMENT
BT-Story-Page-B.gif
A    A   A
close