Point of View

Pinpointing major areas of growth will be the key to provider’s survival in the pandemic economy.

November 2, 2020

These are truly uncertain times; the pandemic has completely transformed the world as we know it and demand trends continue to shift daily in an unpredictable fashion. This means pressure is really mounting on enterprises to constantly adapt if they want to survive. While every enterprise is facing uncertainty, every industry has been impacted differently by the outbreak of COVID-19 – while some are adapting and thriving others have been completely ground to a halt; think travel and hospitality. This makes it more important than ever for service providers to identify pockets of growth and double down on their investments in these areas. To help with this, HFS has leveraged two different types of analysis; on one side we interviewed 400 executives from the Global 2000 about the impact of Covid-19 on their business, and on the other we studied the financial performance of leading service providers – and the comparison is quite interesting.

Executives predict a divide; some enterprises will be left fighting for survival while others will be actively seeking opportunities to thrive.

By now we’ve all seen the devastating impact this pandemic has had on the travel and hospitality sectors; in many countries the entire hospitality industry remains closed and travel restrictions remain; plunging even the biggest travel companies into a battle for survival. However, when we surveyed 400 executives across many of the G2000 enterprises, we confirmed that many other industries are facing similar challenges, fighting for survival, and it’s likely that some are suffering even more than travel and hospitality. Exhibit 1 demonstrates this, and rather unsurprisingly manufacturing is suffering more than most. It’s easy to see why – as the coronavirus broke out earlier this year we were plunged into an almost global lockdown, shattering global supply chains and putting immense pressure on the manufacturing sector.

But as you can see from exhibit 1, it’s not all bad news, as industries like public sector, banking and insurance, amongst others, are on the other end of the spectrum; looking to thrive in the pandemic economy.

Exhibit 1: Industries like Public Sector, Banking and Insurance are thriving while Travel & Hospitality and Manufacturing are fighting for survival.

Source: HFS Research, 2020
Sample: 400+ executives across global 2000 enterprises

What does the revenue performance of leading service providers have to say? Well, it’s a very similar story…

So, enterprise leaders themselves have told us that they expect a significant divide to emerge. For the industries on the wrong side of the divide, it’s very likely that they look to slash spending where possible and stockpile capital to help them weather this storm. And stockpiling capital will likely include a reduction in IT spend, meaning less spend with service providers, and this will reflect in their revenue performance.

In exhibit 2, we analysed a number of leading service provider’s industry breakdowns to compare the average year-over-year growth rates by industry, looking at Q2 2020 and Q2 2019. It’s important to note, however, that every provider structures their industry breakdowns differently (for example Accenture publishes Health & Public Services together), so these are not a like-for-like comparison, but they can be used to develop an understanding of the state of the market. You can see for yourself, the predictions made in exhibit 1 hold true in most cases; , both Manufacturing and Energy & Utilities reported significant declines, as opposed to the growth in 2019, while Hi-Tech, Public Services and Healthcare all continue to post growth, despite the outbreak of Covid-19. Interestingly, Banking and Financial Services (BFS) is, on average, posting a small decline of -0.3% YoY, however given the size of the BFS market, this isn’t surprising, but it could be a proxy for industry spending as a whole.

Exhibit 2: The average year-over-year growth rate by industry, Q2 2020 compared to Q2 2019

Source: HFS Research and the earnings reports of leading service providers, 2020

Understanding why differences emerge between industries will allow service providers to identify areas they can lend a hand to their clients and drive their own revenue.

We’ve said it countless times; every industry has been impacted differently by the pandemic. This makes it crucial for service providers to invest the time to understand exactly what challenges their clients are facing and how they can best develop a strategy to support them. To help with this, we asked the same 400 executives which area of their business had been affected the most by Covid-19, and their top technology investments, and they said the following:

  • Manufacturing: Supply chain was most significantly impacted, and executives are investing in cybersecurity, cloud and SaaS.
  • Travel and Hospitality: Customer service was most significantly impacted, and executives are investing in cybersecurity and core IT.
  • Telecom: Supply chain was significantly impacted, and executives are investing in cybersecurity and core IT.
  • Energy and Utilities: Budgets/Costs and supply chains were most significantly impacted, and executives are investing in core IT, cybersecurity and data management.
  • Retail and CPG: Customer service was most significantly impacted, and executives are investing in core IT, IT modernization and cloud.
  • HiTech: Employee availability was most significantly impacted, and executives are investing in cybersecurity and cloud.
  • Healthcare and Life Sciences: Supply chain was most significantly impacted, and executives are investing in cloud and cybersecurity.
  • Insurance: Customer service was most significantly impacted, and executives are investing in cybersecurity, core IT and cloud.
  • Banking: Customer service was most significantly impacted, and executives are investing in cloud and 5g.
  • Public Sector: Budgets/Costs was the most significantly impacted, and executives are investing in core IT, cybersecurity and cloud.

Bottom Line: Differentiating your approach towards industries fighting for survival and those looking to thrive in the pandemic economy will be the key for service provider success.

As every industry is impacted differently by the pandemic, the onus is going to be on service providers to ensure that they identify and target key industries – in particular where enterprises need continued support to pivot their business models to survive the crisis themselves. They must leverage their own revenue performance alongside the voice of their own customers to pinpoint major growth areas – and both sides of our analysis offered the same outcome, providing a clear message of which industries providers should double-down their investments in if they hope to thrive in this pandemic economy.

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