WFH could find permanent home in IT contracts

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Software services exporters, including Tata Consultancy Services, Infosys, Cognizant, Wipro, HCL Tech and Tech Mahindra, have predominantly moved Indian engineers onsite to debug technology issues or to co-innovate.

Fresh contracts with IT clients will have more work-from-home clauses going forward, analysts said.

This will prompt technology services providers to cut onsite talent, they said.

In the wake of the Covid-19 pandemic however, more work-from-home clauses are likely to disrupt the current service delivery model.

“It is highly likely that we will have work-from-home clauses in the MSA (Master Service Agreement). The work from home model during the Covid-19 crisis has been a revelation for both clients as well as service providers, with both parties looking to adopt it to some measure going forward,” said Peter Bendor-Samuel, chief executive of IT consultancy Everest Group.

The crisis and resultant surge in people working from home could also free up key talent onsite, especially in the large IT markets, the United States and Europe.

“It seems likely that Covid-19 (outbreak) will both decrease the demand for this talent as well as free up some additional talent in these markets. If this proves to be the case, we can expect more work to move back onshore and away from the IT service providers,” Bendor-Samuel said.
TCS has already indicated that nearly three-fourths of its employees will work remotely in five years

Other companies, however, say it is too early to arrive at a conclusion since many new models are being discussed.

“It is too early to say it is going to be mandatory for all contracts. It is a decision taken by more than two parties — service provider and the client. We need regulatory changes in India and the partner countries,” C P Gurnani, CEO and MD of Tech Mahindra, told ET.

Many ideas are evolving, said Saurabh Govil, chief human resources officer of Wipro, when asked whether work from home provisions in contracts will weigh on the pricing of services.
“If it is remote, it can be (from) anywhere. The idea of having employees onsite was (to be) next to the customers. A number of debates are emerging; do we need some employees permanently working from (home), do we need the whole workforce to come to office and how comfortable our customers are.”

Phil Fersht, chief executive of HfS Research, believes work-from-home clauses in contracts will be disruptive.

“I see 10-25% of future contracts in IT services using work at home components, especially for onshore work at home needs. So, it will be disruptive to the global model,” he said, adding that it would also provide “additional access to skills”.
Tech services vendors have also started to capitalise on the new remote working model to win fresh contracts.

“We see some vendors providing this option as an upsell and others using this as an option to win deals,” said Ray Wang, chief analyst at Constellation Research.

In the short-term, given the uncertain business environment and the pressure to provide discounts, all IT companies are expected to take a sizeable hit on margins.
In the long run, however, they will benefit from the new delivery model, analysts said.

“In the short term, IT providers’ margins will take a hit. However, WFH in particular may act as a cost advantage as they may invest less on large premises and logistics, travel… as an increasing number of employees work from home,” said Mrinal Rai, principal analyst at ISG.

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