Business process management (BPM) companies are trying to bag so many cost-saving deals as clients prioritize on cost-cutting & beating inflation.
Genpact, the largest homegrown BPM player, said around two-thirds of deal conversations with clients are about reducing costs amid macroeconomic uncertainties, from a situation over the last three years where the focus was on growth.
“If I now look at our demand view today versus 12 months back, one of the biggest changes that have happened is many of our clients and their industries are worried about a slowing world in terms of growth,” said NV Tyagarajan, CEO, of Genpact. Macro uncertainties coupled with rising inflation have forced clients to cut costs.
Big Tech companies such as Meta Inc, Google, and Cisco have had to let go of employees and have also curbed marketing and another discretionary spending.
“... it (inflation) is still higher than in the past and interest rates are higher (despite improvement). Therefore, costs become much more important today than it was one year back,” the head of the NYSE-listed company.
WNS, another key BPM player, said digital demand was no longer seen as discretionary while cost saving plays a bigger role and delivers a greater impact for clients.
The service providers are also upping their offerings in specializations such as data analytics and automation to deliver results.
“Driven by a team of over 4,000 data scientists, data engineers, and domain experts, our analytics practice WNS Triange is focused on solving industry-specific problems by harnessing the power of data and analytics and ‘co-creating’ data-driven transformational solutions with our clients,” said Keshav Murugesh, group chief executive, WNS.
Global IT research firm ISG has said that BPO/BPM firms witnessed a “banner” year in 2022, with the annual contract value growth rising by a record 36% year-on-year.
“Most of that growth in the BPO sector is coming from the industry-specific BPO. It is (about) using analytics and data to rethink business processes (and) and less about labor arbitrage and more platforms and data,” said Stanton Jones, distinguished analyst at ISG during a quarterly review call.
Banking, financial services, insurance (BFSI), and healthcare were the top spenders, he added.
In the medium- to long-term, Murugesh said there is a trend of clients leasing out their captives to BPM players and focusing on core operations instead
“A number of them realize that it would be a better strategy to focus on their core business, instead of trying to run a captive organization. Perhaps, they figure, WNS could run these operations and processes better,” he added.
Analysts said most of the operating costs, and not IT spending, have been spent on these deals.
“The global macroeconomic uncertainty is driving a pivot in the deal pipelines towards cost optimization and vendor consolidation consisting most of the won deals,” said Moshe Katri, managing director of equity research at Wedbush Securities.
Though there has not been much talk about the calendar year 2023 IT budgets, Katri said there was likely less correlation between the current cost takeout deals and the actual budgets as some are funded by operational, rather than IT budgets.
Budgets in most industrial sectors are up slightly over 2022, but many firms have been unable to spend their full budgets last year, said Peter Bendor-Samuel, chief executive of IT research firm Everest Group.
“Hence, we expect to see a growth of 5-7% for the industry over last year. This is down from the 12% of 2022 but still healthy,” he said.