COVID-19 forcing service providers to slash prices
The whole world is surprised as the first of a kind black swan event named COVID-19 gradually spreading over the landscape. Consequently, the IT services industry is having a significant impact due to the pandemic over the last two months.
With this, most of the businesses are trying to respond to this critical situation in their own way, managing cash flows in different sectors of the organization. Such a crisis has caused financial distress as companies witness a downfall in their revenues with stringent cash flow. To manage this, they are exploring various options:
- Holding off their non-critical projects: The focus of businesses in this pandemic is to ensure continuity in business crucial functions comprising supply chain systems, data centers, transaction systems, etc. Nevertheless, they are putting aside their non-priority activities typically including the development of new applications, feature upgrades, and many more.
- Postponing investments for seamless top projects continuation: Businesses are making strategic decisions to invest in top-notch business engagements that can lead to meaningful returns. On the other hand, deferral requests are reaching its high peak particularly in distressed sectors like travel, transportation, hospitality, etc. It is expected that such deferment will lead to the establishment of balance sheet financing. This will enable billing deferrals and put ‘deploy now pay later’ models into action.
- Cisco has come up with a solution to help its clients shelve payments until 2021 by leveraging its balance sheet and setting up a US $2.5billion war chest.
- Hunting for discounts: The unavoidable coronavirus outbreak has made companies rethink their investment strategies. Moreover, they are asking for discounts on their managed service engagements, time and materials (T&M) project to extend their contracts with respective IT and tech vendors.
Service Providers (SP) have always been the key enabler of technologies/solutions/services for these companies. Now, when the companies are in a dilemma about where to invest and where to not, it is a critical time for SPs to leverage the vital serviceable areas at an optimized cost. Though this distress has brought a recession mindset among the business leaders, they will prioritize their resources (vendors, talent, money) as they move forward with critical projects.
SPs who understand this are preparing themselves to lower their costs to serve their clients in a better way. Top MNCs like TCS and Infosys have reduced their sub-contracting costs, putting aside variable payments, travel expenses as a part of cost-cutting measures amid crisis.
As the companies struggle to invest with restricted cashflows, SPs can give a helping hand by creating bill deferment options, reduce repayment plans, negotiate reduced fees for continuing supply chain operations/functions. Software as a Service (SaaS) providers are charging based on the ‘seats’ availed by the companies eliminating the extra charge of unavailed seats.
Draup is constantly helping service providers to navigate through various scenarios and seek opportunities that can preserve it and enable sustainable value. With long-term and short-term implications for the organization and key stakeholders, they can search for the sequence of events to win huge sales enablement deals in the near future.