IT consulting biz feeling heat of lower spend now

Clients are not ready for the next cycle of consulting. We see consulting revenues of Accenture was down (for the last quarter). Consulting business of engineering service providers is also down. Companies which have more consulting focus are witnessing a decline. As clients are in a cost saving mode, new discretionary spends are on hold - Pareekh Jain, founder, Pareekh Consulting, tells Bizz Buzz

Consolidation Mode

♦ Majority clients in consolidation phase

♦ Accenture saw decline in its consulting business in Sept qtr

♦ Discretionary spend and consulting revenue go hand in hand

♦ Flow of digital deals likely to remain low in coming quarters amid difficult macroeconomic environment

Bengaluru: Consulting segment of IT services companies has been hit hard in recent quarters owing to demand slowdown seen in the discretionary spend.

Most global and domestic IT services companies have been facing the heat in past quarters with little change in sentiment across major economies. Experts are of the opinion that consulting part of the business of both global and Indian IT services providers are not likely to improve in the near future unless digital deals pick up pace.

“Clients are in the consolidation mode. That is the reason that they are not ready for the next cycle of consulting. We see consulting revenues of Accenture was down (for the last quarter). Consulting business of engineering service providers is also down. Companies which have more consulting focus are witnessing a decline. Discretionary spending and consulting go hand in hand. As clients are in a cost saving mode, new discretionary spends are on hold,” Pareekh Jain, an IT outsourcing advisor & founder of Pareekh Consulting told Bizz Buzz.

In the recently concluded quarter, Accenture reported a consulting revenue of $8.2 billion, a decline of two per cent in US dollar terms. While consulting services declined, managed services grew 10 per cent in US dollar terms to $7.8 billion during the last quarter.

“What’s not happening is discretionary spend globally as we saw throughout the year, starting in North America, people are not doing smaller systems integration. They’re not doing smaller strategy and consulting, they’re prioritizing and focusing on larger deals. And even there, there’s prioritizing, especially depending on the industry where you’ve got more challenges. That’s kind of the overall, sort of, more cautious spending,” Julie Sweet, CEO of Accenture, had said during the post results conference call.

Indian service providers have also witnessed the wave towards more cost optimisation deals with slow flow of digital deals. Tata Consultancy Services, Infosys, HCL Tech and some other firms have bagged several large cost takeout deals in the July-September period of current financial year.

Experts are of the view that discretionary spend is likely to remain subdued, putting pressure on digital deal flows.

“From a macro, we’re not assuming that there’s an improvement in the discretionary spend environment or the macro as we look at the year. We see consulting for the full-year being at low-single-digit,” KC McClure, chief financial officer of Accenture, said.

Sources in the know said many mid-tier companies are going through a difficult patch due to lesser number of digital deals coming their ways. Similarly, consulting business of Wipro, Infosys, HCL Tech and TCS are also facing slowdown pangs as clients hold back spend on new technology areas.