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Jamie Snowdon
 
Chief Data Officer 
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Deconstructing Q4 2016 – Growth in the Traditional Services Model close to Flatlining
March 10, 2017 | Phil FershtJamie Snowdon

The traumatic Q4 results season has finally ended and our Chief Data Officer, Jamie Snowdon, is able to report on the final Q4 standings...

We’ve visualised the latest set of results for Q4 in the diagram, the top chart shows our usual margin v growth view (excluding AWS). With a chart showing the quarterly growth for Q4, an estimation of the annual (calendar) growth and the Q4 operating margin.

Click to enlarge

For each of the providers the results look like this:

 

Growth Q4 (%)

Growth 2016 Calendar Year (%)

Margin Q4 (%)

Comments

Accenture

6.3%

7.1%

15.6%

Good quarter for Accenture with plenty of success stories around digital, cloud and security. Constant currency growth around a percentage point above the actual growth for the quarter. Annual services growth is 7.1%.

Atos

6.8%

9.7%

9.6%

Coming down from the highs of its recent acquisition-fuelled growth of the last couple years - Atos remains solid with organic growth at 1.8% for the year and 1.9% for the quarter. Benefiting from strong execution and its investments in analytics, security and automation.

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Location, location, location
February 24, 2017 | Jamie Snowdon

HfS is about to publish our quarterly analysis of the service provider and shared service center location announcements by Hema Santosh. As a taster, we would like to post the highlights and the infographic from this work.

Highlights for the quarter:

  • We see expansion of jobs in both the US and India – of the estimated 9,000 jobs that these new locations will house, 4,350 will be in the US and 4,300 will be in India.
  • Industry specific BPO drives expansion with 3 new BPO sites in the US in Q4 2016.
  • Downsizing – we saw some down sizing of in-house centers with eBay, Standard Chartered and Verizon all shrinking some centers.

Bottom Line:

Check out the full document here in the growing market analysis section of the HfS Research site.

 

Click to enlarge

The offshore shift left part 3 - Q4 wasn’t that good…
February 13, 2017 | Jamie Snowdon

Back in August 2016, we wrote about the shift left with offshore providers – we were recently updated in January. Below is the new chart that updates to include Q4 revenues – we always include a full year of data it is the trailing twelve months - now it represents the full calendar year view for all of the years.

 

Click here to enlarge the image

Hopefully, the new charts show the shift even more clearly. With the top chart zooming out to show the whole of the y-axis – giving the full margin picture and demonstrates quite how close together the firms really are and highlights the convergence even more. As you can see Q4 hasn’t halted the shift and we see these companies cluster around the high single digit growth mark.

The Bottom Line – we’ll have the full roundup at the end of the month

This is just a taster of the results, once all of the quarterly results have been published we will collate them and produce our full quarterly roundup. We can then see the offshore shift left in the context of the other providers.

BPO Market Primer – Watch This Space For the Update in April
February 03, 2017 | Jamie Snowdon

As we mentioned in our recent blog on the IT Services Market we are looking to make our content more visually appealing. So we have below the companion primer cover the BPO market for 2015 to 2021. We will be doing a full update of the forecast at the end of Q1. When we have a chance to analyze all the vendor results for 2016.

Click Here to Enlarge

This chart gives our top level view of the BPO market in numbers – this provides a top level look at the market as a whole. We will be looking at producing a number of cuts of this data over the next few months, especially as we roll out our BPO Top 50 report and our updates to our market forecast.

The Bottom Line - Watch this Space

We are publishing a point of view on market conditions over the next few days, which presents these charts again with some additional commentary. Please find the piece at www.hfsresearch.com.

The year of the HfS Infographic begins... in earnest
January 23, 2017 | Jamie Snowdon

In our bid to make our research more visually appealing we would like to post the first version of our IT Services market primer. This shows the first round of the 2017 HfS market size and forecast for IT Services for 2015 to 2021. We will be doing a full update of the forecast at the end of Q1. When we have a chance to analyze all the vendor results for 2016.

This chart gives our top level view of the IT Services market in numbers - the market we focus on here is our high-value market - by this we mean the outsourcing/managed services and professional services markets - we exclude standalone support and training from these numbers.

 Click to enlarge

 

The Bottom Line - Watch this Space

We will be producing more graphics such as this, the next will be a top line view of the BPO market. We'll also be writing up our thoughts on both markets in a PoV by the end of the month. 

 

Offshore has become Walmart…as Outsourcing becomes more like Amazon
January 21, 2017 | Phil FershtJamie Snowdon

In the post-digital world, no one cares much about “offshore” as a strategy - it has become part of the fabric of managing a global operating model, where operations leaders just tap into whatever global resource they need to achieve their desired outcomes. This doesn’t mean that traditional “offshore” global delivery locations, such as India and the Philippines, are going bust overnight. But it does mean the playing field is leveling out as the need for emerging skills trumps the desire simply to reduce labor costs.

Our new State of Industry Study, conducted with KPMG (see above) of more that 450 major global enterprises – shows an increasing majority of customers of traditional shared services and outsourcing feel they have wrung most of the juice offshore has to offer from their existing operations, and aren’t looking to increase offshore investments.  When we compare enterprise aspirations for offshore use between the 2014 and 2017 State of the Industry studies, we see a significant drop, right across the board, with plans to offshore services. Organizations are now either looking to make their existing offshore operations more effective, or even reduce them where they can (especially in F&A and HR), using new technologies and smarter process management.

It’s all about future scalability without the linear resource investments

The difference between new style of automation-rich intelligent operations and offshore-centric traditional operations is growing. It’s a bit like comparing the growth of Walmart to that of Amazon – (although it has started to change with its belated online strategy and acquisition of Jet.com), for many decades, the success and growth of Walmart has largely been tied to

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Meaningless data makes way for PCV: Pointless Crap Visualization…
January 19, 2017 | Jamie Snowdon

A couple of months ago we wrote about meaningless data – the seemingly endless spew of pointless information that just starts to grate. Recently, we’ve started to see another related category of pointless crap – which is probably going to become more prevalent as organizations seek to increase the ease with which information is conveyed to a public that cannot be bothered to read anything anymore.

The category that is pointless crap visualization (PCV). Where an attempt is made to visualize something, often a relatively complex concept and it fails utterly to get the point across. But looks nice and gets attention because they drop some names of big vendors in there.

We recently noticed a thoroughly confusing diagram from one of our analyst colleagues, NelsonHall, that caused us scratch our heads in utter bewilderment:

PCV From NelsonHall

The diagram is supposed to tell you something about the acquisition strategy of the companies in the triangle. We wrote down a couple of questions about what the chart meant, having not read the associated blog post.

It looks like Cognizant is more likely to make acquisitions than IBM?  Really? Which seems highly unlikely given the huge difference between the two companies in the past – and the fact that Cognizant has a much smaller war chest for M&As, especially after its massive $2.7bn investment in Trizetto. We suppose you could limit to purely IT services – but a tuck-in acquisition is just as likely to be IP based as it is additional niche skills. Although even then we’d expect IBM to spend a great deal more – its Software group having notorious deep pockets for acquisition. Cognizant have made some significant acquisitions like Trizetto, but like all the offshore firms have been pretty gun shy when it comes to inorganic expansion compared to the big traditional technology firms.

Cognizant/TCS are more likely to acquire than NTT or Fujitsu? Mmmm... Fujitsu has been fairly quiet on the acquisition front for a few years, but you cannot count them out of the acquisition game – they made a few acquisitions in 2016 and made some very large purchases in the past. Given their cloud capabilities in Asia, it seems likely it would want to build on consulting capabilities particularly in Europe and the US. And NTT – certainly we may see a lull in activity as Dell Services gets absorbed, but NTT has been one of the most acquisitive of the services firms over the years, so this again seems slightly at odds. This seems much more likely than TCS, the least acquisitive of the already reluctant offshore providers.

The inclusion of CSC using the CSC logo... er seems a bit unnecessary. In fairness it may just be the choice of CSC as the logo – but CSC is part of HPE and no longer exists - so we do wonder how useful it is to know they won't acquire...

Also, what is the difference between a "tuck-in acquisition" and active acquisitions? To say that IBM is not an active acquirer seems odd – again it may be a narrow view of just the IT services business, but we’re not sure that view really helps anyone considering IBM as a partner given that any software acquisitions bring IP which add to the richness of the services offerings.

Again the distinction between active and tuck-in is not clear for Accenture – which is certainly the most acquisitive and has a very active strategy with an acquisition made seemingly every week, but some of these will be tuck-in, maybe half of them? You can judge for yourself and look at the list of Accenture acquisitions we tracked in the table below. We did some work on which providers are making digital acquisitions – not with the same list of providers, but it illustrates the scale of Accenture’s acquisition activity, compared with some of the providers on the NH diagram. So we’re not sure the visualization really captures the huge difference in acquisition trails between Accenture and the other pure services companies on the list.

HfS - Just The Deals

It is a challenge to come up with good visualizations - that support data and summarize points being made. We have some way to go converting our list of contracts above into a statement about the different players - but I think if we do something around our acquisitions data we'll probably convert into an index and visualize as a quadrant (oh no) or a simple bar chart. So in a way you have to applaud NH for trying something new.

To be fair the associated blog made a lot more sense – but the chart fails to reflect what is said or adds much to the understanding – it just throws names at you without any clear reasoning. What the diagram needs to do is illustrate a point or, ideally, provide a short cut to understanding. This doesn’t seem to do either. Frankly, it just obscured any of the valid points being made.

The Bottom Line – in this era of fake news and poor information, analysts have more responsibility than ever to reflect reality

This year HfS is making a clear commitment to visualizing our information better and trying to make our perspective in as clear and concise a way as possible. Like the above chart we may not always get it right – but hopefully, that is where our community comes into play and you will let us know what we get right and what we get wrong.

The offshore shift left part 2 - Q4 better be good…
January 19, 2017 | Jamie Snowdon

Back in August 2016 we wrote about the shift left with offshore providers – we were recently reminded of this piece and asked to update the chart. Which we have done in the chart below. It’s interesting to see if things have progressed, and as a prelude to the new results season approaching rapidly…

These results add fuel to Phil’s thought in his Bandaid economy blog. With more traditional services markets slowing, largely because they support older business models. At the same time we see a rapid increase in wealth being generated by enterprises that are tapping directly into digital business models – with the digital pure plays like Amazon, Airbnb, NetFlix, etc. and the rapid adopters like Tesco’s, CapitalOne, Staples, The Gap, John Lewis…  Service providers need to find a way to tap into the money that is flowing into the technology and talent to fuel these increasingly ubiquitous digital business models.

We have been looking to quantify the total opportunity for the digital expenditure or the "flow of revenues over digital channels between business and consumers”. We have started by quantifying the digital retails sales, but will expand to include business to business digital sales, travel and financial services expenditure. But below is a taste of this exciting work – with digital retail center stage and some estimates of the other components for North America to the right.

 

The Bottom Line – let’s just say it again…

As we have said before long term success in the services market is dependent on inertia or the lack of it. Providers that are reacting quickly to the changing market conditions are still finding growth, and this growth is shifting from purely low-cost or offshore providers. This is starting to show up in the financial results more and more as services firms customers ambitions drop, revenue growth fades. The “cut until it bleeds” continuous cost-saving model for operations is creaking badly, especially in light of new technology solutions and an increasingly competitive environment for many traditional businesses.

We will be taking note of the full calendar year results that are coming up this month and next. But we expect the current shift left to continue as providers adjust to the market realities.

My personal unfiltered truths about IT Infrastructure Services Providers
December 23, 2016 | Jamie Snowdon

One of my biggest gripes with some analysts is that they clearly develop preconceptions about service providers and struggle to deliver a balanced view in their research – they have their favourites and struggle to recognize when others are improving their capabilities.  And what’s bothersome here, is that they don’t realize they are doing it. 

So I’ve decided to do something different to make sure I don’t fall into that preconception trap and force myself to give everyone a blank sheet of paper before we embark on our groundbreaking 2017 Blueprint, which will be bolstered by 300 references from Global2000 clients… I’m just going to get all my preconceived opinions out there now, so providers know where they need to prove me wrong, or validate where I am right.

You may have already seen that HfS Research is expanding our focus on the IT services market in 2017 (see press release). An initiative lead by Phil Fersht, myself and Tom Reuner. I will be leading the infrastructure and cloud part of the story. As part of the preparation for the infrastructure management services blueprint, I wanted to write down my own personal bias – those traits that immediately jump into my cynical old brain, when I think of the various infra services providers. So I am clear where I stand and what I need to get past to do a good independent assessment.

So for those that are interested this is where I currently stand. My message to those that want to question any negative opinion is confound me. You know where I stand.

Provider

My Starting Point

IBM

The daddy of infrastructure services. Technically very solid, services still seem unevolved – even with the acquisitions of the likes of Softlayer and Gravitant seem not to have a coherent/consistent message around infrastructure services. The whole cloud story within IBM is disjointed – bluemix, cloud brokerage, hybrid – as a firm it has all the pieces but seems to have trouble bringing it all together – or at least explaining to me how it fits together. Great consulting and transformation capabilities particularly suited for the very largest of enterprises.

HPE

Ignoring the limbo state HP (or whatever it ends up being called) are going through thanks to the spin-off and merger with CSC. HPE had a good hybrid cloud story, I particularly liked the ambition for its cloud ecosystem. Like IBM it has a history of being very capable, particularly with the very largest of deals. Probably one of the few providers to be able to manage the very largest multi-billon dollar infrastructure deals with mass transformation. In some ways HP had the business messaging and cloud story that IBM lack, but a lack of cohesion and financial problems hindered progress.

CSC

CSC embodies what is wrong with traditional outsourcing, which is slightly unfair as the last pure outsourcer left standing. I can’t help myself I associate CSC with change orders, lift and shift, and first generation outsourcing. I think largely unevolved, in spite of some progress toward As-a-Service with the acquisition of ServiceMesh – but tired and now in limbo thanks to HPE deal.

Accenture

Apart from the uninspiring name, I like the Accenture Cloud Platform, I like the agreements with AWS, Microsoft and Google. Accenture is playing to its strengths in infrastructure by looking to be the consultant and advisor leveraging best in class infrastructure provision to deliver customers a managed service experience. It has great long term experience with Microsoft through Avanade. But I’m left feeling that infrastructure is a means to an end with Accenture rather than a passion. Although for a provider like Accenture that is probably right.

Fujitsu

Traditionally a strong infrastructure player, perhaps stronger on the desktop, solid investment in cloud, but not much penetration/mindshare outside of Asia. I suspect Fujitsu have something interesting to say, but I’m not sure if it is able to communicate coherently to customers.

Capgemini

I get the impression that infrastructure is not what Capgemini wants to sell. But infrastructure was a large part of its heritage and it ran some very big traditional outsourcing deals in the past – particularly in the UK. Not sure it has managed to find the right balance in hybrid world, some interesting stories around cloud, but I believe their destiny is elsewhere.

T-Systems

T-Systems has a great deal of technical no-how in development of high end hybrid cloud environments, however, it struggles to get the message to market outside of Germany. In some ways I think technically it is the best at genuine hybrid cloud infrastructure, particularly in situations where real performance or complexity is required, even if it is not the best it is at least in the top 2-3 in terms of the quality of the service delivered.

Atos

Atos have some great partnerships in this space around high end infrastructure management. They have a good roadmap for hybrid and software defined datacenters thanks to VMWare and investments in automation. Atos are in a position to take some big deals based on the quality of the infrastructure they are able to deliver. The issue is a lack of momentum, and ability to articulate a game changing proposition to the market.

TCS

I lazily lump TCS and HCL into the same group in terms of infrastructure. Great at taking on horrible legacy infrastructure and managing it more efficiently. TCS seem increasingly conservative in approach so I’m not sure how cutting-edge the infrastructure will be, but there is no doubting the technical strength and it has plenty of resources to throw at any issues. I always this TCS, with Cognizant, are the hungriest of the offshore players.

Microsoft

Second biggest, second best IaaS (certainly in terms of feature/function). Much more enterprise focused and enterprise ready than AWS, big in-house services team, ability to transform and add value in large partner led propositions. It lost much of it’s arrogance in the late nineties.

AWS

OK AWS is the biggest and probably the best public cloud, certainly in terms of scale, and feature/function. Very customer centric, always innovating and adding to the platform. Small internal service team, so reliant on partners. Great customer stories and case studies. Although it seems to be run for nerds by nerds. Seems to have inherited the arrogance of a late nineties Microsoft, but if you grew a >$10Bn revenue company in 10 years, you might be arrogant too.

Cognizant

A bit like Wipro (below), I was never 100% sure that Cognizant’s heart was in infrastructure. A growing part of the business, but not as much success as HCL and TCS at grabbing its share of the first generation outsourcing business from the old school incumbents. Yet to really communicate a strong message around future of infrastructure – which may reveal the firms loftier ambitions. Not an organization I would ever count out given its traditional hunger, but its infrastructure message got lost in translation. At least with me.

Infosys

Impressed by Infosys cloud ecosystem hub, particularly in terms of ambition around infrastructure and roadmap, perhaps the best of the offshore providers. At least from what I have heard and absorbed. Although I question the success of this initiative to date.

Wipro

I tend to think of Wipro as an also ran for Infrastructure services amongst the big offshore providers. Like Cognizant, haven’t been as successful at winning business as HCL and TCS in this space – hasn’t been as big a push to innovate as Infosys.

HCL

Similar to what I said for TCS. Strong at lift and shift. Strong at modernizing. Very capable at untying the Gordian Knot of old deals. Although I suspect they are all tactical strength and little strategic direction in infrastructure.

Unisys

OK – this is where it gets hard. Unisys were traditionally a strong IT Outsourcing shop. But, much like CSC there is a whiff of decay about it as a business. Traditionally strong on the desktop – but who cares?

CGI

I am not as familiar with CGI, at least its global proposition as some of the other providers here. Very much an old school service provider. Strong business until the acquisition of Logica just seems to have had its energy sapped by this painful merger and lost its way.

So prove me wrong, or assure me I'm right… drop me a line when you get a chance at Jamie dot Snowdon at hfsresearch.com

Making sense of Infrastructure Services
December 23, 2016 | Jamie Snowdon

In 2017, HfS is focusing heavily on IT services as a research topic and, thanks to my stint as a cloud and data center services analyst and hands-on experience in infrastructure services over the past 20 years, – I am looking after the cloud and infrastructure part of the market.

Given my recent blog on the infrastructure as a service market. HfS believes that making the right choice of infrastructure services partner is becoming increasingly critical for end-user clients, particularly given the amount of disruptive change the market is going through.

In preparation for this renewed focus, I’ve been looking more in-depth at the market for the main cloud and infrastructure service providers. This has inevitably led me to look through briefing information HfS has collected on the suppliers, talk to end user clients, look at many of the suppliers' websites, and at the various quadrants that are in circulation around this space. One of the most recent ones, which is on Amazon Web Services (AWS) website is Gartner’s Infrastructure as a Service quadrant – which has placed AWS as a leader for six years.

By the way, this is not a critique of this quadrant or an attack on AWS – far from it – the positioning is dictated by the information provided and the customer references, and, given its laser focus on IaaS, I can buy the positioning. It’s hard to argue with AWS’ huge strength in this space, and that it’s a leader…  by some margin. It acknowledges, by Microsoft’s position, that it’s closing the gap. As a slight side, note I do like the euphemistic “niche” player category particularly its use in this quadrant. What niche are these players filling? Do they provide services to organizations that want a crappy cloud? Is that a niche? Not that I want to start a semantic discussion, but I’m not sure IBM is a “niche” infrastructure services player even in IaaS, regardless of your view of the market. Particularly if you buy the IaaS as part of a larger infrastructure engagement, with any perceived shortcoming of the IaaS layer provided by another part of the service delivery.

This is what is missing, for me, the relevance of this research to an enterprise buyer. I see how the quadrant, as it stands, would be useful to a developer looking for the “best” IaaS to use, but for an enterprise looking to plan its cloud infrastructure strategy, I’m not so sure. Although IaaS can  -and is -  bought on its own, it is rarely bought without a context, at least in an enterprise organization. This means the services that wrap around the delivery of the IaaS are probably as important, if not more important than the actual IaaS – particularly in a hybrid environment. Of course, there are some 100% pure public cloud situations, but these are still fairly rare - most enterprise organizations, even in 2017, have a degree of complexity and require a mix of computing types.

My argument is that, in a complex environment, comparing one element is not enough and the excellence of that one component may be lost, as the whole infrastructure is built from interconnecting pieces, and some of the additional services that make the compute component great, are provided by another layer. The fact that there are a lot of additional services on top of the compute layer from AWS, for example, may not be useful to an enterprise looking for commodity compute delivered through a service provider that adds the additional functionality.

The Bottom Line – Who is this Quadrant benefitting?

So is the quadrant suitable only for companies that are looking to buy an IaaS engagement and don’t need to integrate it into any other environment? This would be the one way to make sense of the positioning. There are some uses that are 100% public cloud, and I can see situations where consideration of the overall enterprise architecture is not relevant, but this is quite a limited picture. Again for enterprise organizations.

So is this quadrant for a services firm suitable for an IaaS firm to choose a partner? It does help if the service provider is looking to pick the richest IaaS environment and leverage the brand of the IaaS provider. Which would work if infrastructure were more like a software eco-system, but in many cases, the service provider will want to add value on top of the IaaS. So this doesn’t help select a good basic IaaS service offering.

So what are we going to do about it? Next year we are going to look at the whole infrastructure management space with our own quadrant – an HfS Blueprint. One that takes advantage of our buy side contacts and uses over 200 interviews as the basis for our positioning and a guide to what is critical in the marketplace. The IT Infrastructure Management & Cloud Services Blueprint will take a more holistic view of the market and provide guidance on selecting the best provider for an enterprise organization. Focusing on end to end management of a client’s infrastructure services rather than just one aspect.