update on india

The COVID-19 surge in India has continued over the last week, reporting 414,000 new cases in the last day. Today is the tenth day with more than 300,000 new cases. As with last week, our focus is on our friends, families and employees in the region. We are seeing continued resiliency in IT service provider operations, but we have heard of reports of at least one service provider shifting workloads out of India as part of their preparedness planning. Many of the largest firms in the service sector also have stepped up to supply aid in the relief effort, vaccines to employees and expanded benefits to their India-based employees.

it sourcing spend on the rise

Large enterprise IT spend as a proportion of company revenue decreased by more than 15 percent from 2019 to 2020. And the total amount of IT spending likely decreased more than that as many enterprises found their revenue decreasing at the same time. During the chaos of the early pandemic, many cloud infrastructure, software and IT services providers chose not to strictly enforce the volume-based provisions of their contracts in an effort to extend aid to their clients in the hardest hit industries. This means they had to absorb some costs on behalf of their clients.
 
In addition to the overall decrease in IT spend per revenue, other shifts in the way spend was allocated point to a trend we have seen accelerating over the last several years. Enterprise spend on software increased from 16 to 19 percent during the pandemic year, and spend on IT services increased from 30 to 33 percent. Taken together, this represents a 6 percent rise in enterprise IT spending. Personnel spending took the greatest hit, which is no surprise as unemployment rates have remained high throughout the pandemic. Hardware saw only a 1 percent drop in spending year over year, which is part of a larger trend in the commodification of hardware. Its importance to overall IT strategy is diminishing.
 
The increase in outsourced services spend underscores the stability of the IT services sector through the pandemic. Most providers and contracts were able to maintain delivery quality after the initial adjustment period, and the globally distributed nature of the industry facilitated a shift to full remote work. Many enterprises also felt the pandemic as a driving force in their digital transformations. As physical workplaces shut down, work relied – and continues to rely – more than ever on software.
 
This year will be a telling year. As much of the world prepares for a gradual return to work, will we see a return of previous staffing numbers to enterprise IT and a reduction of outsourced services? Or will the catalyst of the pandemic and the long-standing labor shortage in technology permanently shift enterprise IT spend toward outsourcing partners and software? The data from our Q1 ISG Index suggest that the increase in services is continuing into 2021.

Data watch

deal activity

M&A

noteworthy

If you like this content, please forward this email to a friend. And, as usual, feel free to send us a note at [email protected] with your feedback.
 
Have a great weekend!

isg insiders

Alex Bakker, Cynthia Batty, Dr. Daniel Gerster, Steve Hall, Stanton Jones, Mrinal Rai, Ron Exler, Sashidharan Balasundaram, Troy Williams

Contributing this Week

Chris Karalis, Bret Breeding