IT service providers struggle to deliver value-added work as they seek to shed image of ‘order takers’

However, this has not stopped IT services companies from encouraging employees to generate ideas for value-addition, which experts said are aimed at changing the image of Indian IT services companies as ‘order takers.’

Value-addition initiatives include developing software or software products for clients and incorporating additional features that were not initially agreed with them.

HCL Technologies Ltd delivered $1.4 billion in customer-acknowledged value to its customers in the year ended March 2024 through its grassroots innovation platform, according to its annual report. The Noida-based company generated more than 17,000 ideas in this period, of which more than 7,800 culminated in initiatives.

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However, this ‘value,’ which is about 11% of the company’s full-year revenue of $13.3 billion, is lower than in the year ended March 2020, when the company delivered $1.7 billion worth of customer-acknowledged value despite generating fewer ideas from its employees. HCL Tech is the only large Indian IT services company to disclose the customer-acknowledged value it adds to clients in monetary figures.

Cognizant Technology Solutions Corp. started its idea-incubating programme called Bluebolt in April 2023. As part of this effort, employees across ranks and domains could come up with fresh ideas that could translate into value addition for their clients.

The Nasdaq-listed company said in an April 2024 press release that it helped clients save $150 million in costs annually through its Bluebolt programme. This would translate to 0.8% of the company’s revenue of $19.4 billion.

Crowdsourcing ideas

Such idea-incubating platforms are not new. Cue, Infosys.

In July 2014, then Infosys chief executive officer Vishal Sikka launched ‘Murmurations,’ a crowdsourcing initiative to encourage employees to come up with innovative ideas that they believed the client could focus on. To ensure the ideas attained fruition, Sikka implemented 10 of the 2,700-odd ideas received. Cognizant CEO S Ravi Kumar was working at Infosys at that time as executive vice president.

Analysts are divided on the reasons for the dip in value-addition by software services companies.

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"Most of the value-added work is part of discretionary spending and not business-as-usual spend. When IT services companies have to deliver extra work than what is planned, the clients must have discretionary funds and also be ready to commit their own resources to take that work up. Clients are unwilling to take up that extra commitment to justify the value-added work," said Ashutosh Sharma, vice president and research director at Forrester Research in Massachusetts.

Last year, Fortune 500 companies held back their tech spends for new IT services projects, contributing to India’s $254 billion IT services sector growing at its slowest clip on a yearly basis.

Another analyst attributed the decline to lower demand.

“During Covid, the market pivoted to work focused on building new capabilities and hence was often referred to as value added. For the last year, there has been a pullback on discretionary spending focused on new capabilities and an increase in work focused on cost savings," said Peter Bendor-Samuel, chief executive of Everest Group, an IT research firm in Dallas.

A third analyst discounted the concept of value addition but stressed that it was important for employees to ideate.

“These are all these gimmicks and nothing material. All that the IT services companies talk about is a subjective assessment of their work. The true value of the company is the business it gets. However, employees ideating and helping clients understand a better way of doing things helps change the perception of homegrown IT services companies as being mere ‘order takers,’" the Mumbai-based analyst said on condition of anonymity.

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A fourth analyst said clients have started looking internally for much of the value addition they seek.

“There has also been a significant move to enterprise clients moving more of their value work into their global capability centres," said Phil Fersht, CEO of HFS Research, a US outsourcing research firm.

However, Forrester’s Sharma said there is scope for value-added work to pick up.

“Value-added work will pick up in the future if inflation eases out and the macro-economic environment becomes better," said Sharma.