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Depending on who you talk to the IoT market potential can be measured in billion, if not, trillions of dollars. However, the story from many enterprise buyers is different - whilst many enterprises we talk to are interested in IoT, many of the specific projects fail to move beyond Proof of Concept (PoC). Additionally, the major service providers which engage with us about IoT, have solution offerings and few marquee logos for IoT Proof of Concepts (PoCs) – they lack many organization-wide implementations.
It is tempting to say that this is not alarming for a new service offering – with many having to start small and gradually scale-up, whilst the market accepts them. But the latest wave of IoT hype has been going for a couple of years. And we are starting to see one fundamental challenge in the adoption of IoT from the PoCs we have seen. Let’s start with a couple of examples.
Example 1: Bottom-up
Service Provider Perspective: A service provider developed an IoT PoC for its client. The client knows and trusts the service provider enough to give it the PoC without competitive bidding. The service provider delivered it successfully and ran it for a couple of months. The results were encouraging, but service provider is not able to scale beyond that.
Buyer Perspective: The enterprise received an IoT proposal from the service provider. The enterprise found it interesting and agreed to try a PoC. The results were good, but for the large-scale implementation, the enterprise needs buy-in and budget from different stakeholders which it is finding difficult.
Example 2: Top-down
Service Provider Perspective: The client came to the service provider with IoT requirements. The client had an idea of potential IoT benefits but didn’t know how to achieve it. The service provider brainstormed and developed solutions to achieve these benefits. After client’s approval, the service provider implemented a PoC and delivered results for the one site. After that, the client gave go ahead to implement it in multiple sites in one geography. Currently, engagement in that phase. After that, the service provider will implement in additional geographies.
Buyer Perspective: The enterprise heard about IoT potential in its industry. Its senior management engaged a management consulting firm for advice on IOT. The consulting firm identified areas where IoT can help and developed a high-level business case. Management accepted their recommendations and gave directions to different business and geographical units to explore IoT solutions. One business unit started on the IoT journey with high-level targets. It engaged a service provider to suggest IoT solutions. It found challenges in implementing in some of the recommendations of the consulting firm, but interestingly, it found other areas with the help of service providers where it could achieve more. The business unit started with PoC and results were encouraging. It showed the results to its management, and it got approval to move ahead for scaling up and multi-site implementation.
HfS Research Perspective – There are differences between the bottom- up and the top-down approach. In IoT, a top-down approach is working better than a bottom-up approach for long term results/adoption. In the bottom-up approach, service providers reach out to their large $100 M+ clients and propose PoCs for $200K- $300K which buyers have no problem in approving from their operating budget. Service providers get marquee customer logo and their sales and delivery people get good appraisals. But after the PoC, service providers often hit the IoT chasm as large scale implementation requires a bigger budget and approval from different stakeholders. This is shown in the Exhibit below. Crossing this chasm will require serious consulting and senior stakeholder engagement which sometimes is above few service providers pay grade. In the top-down approach, service providers start with consulting and after senior management and stakeholder’s buy in, start PoCs. Once PoCs start delivering the results, scaling up is not difficult as shown in the Exhibit below.
Bottom Line: Buyers should not go down the route of low cost or free IoT POCs by service providers without proper IoT planning and buy-in from senior stakeholders. Remember that without a well-understood endgame with management buy in most IoT projects struggle to get beyond the PoC.
What ever way to look at it, business consulting or planning is essential for IoT PoCs to scale up. Service providers will do themselves a favor if they start investing aggressively in business consulting capabilities upfront unless they want their client to be stuck in the self-induced IoT chasm.
We have recently published our Blueprint Report on Industry 4.0 Services. This is our fourth engineering services Blueprint in which we analyzed and positioned twelve Industry 4.0 Service providers according to their execution and innovation capabilities. In the first one, we focused on the mechanical engineering services. In the ”second” engineering Blueprint, we looked at Software Product Engineering (SPE) services in detail. The third Blueprint was about Product Lifecycle Management (PLM) services.
What does Industry 4.0 Services Blueprint cover?
This Blueprint includes the Industry 4.0 offerings of different service providers across verticals for shop floor manufacturing. This includes their capabilities across the HfS Industry 4.0 Services Value Chain of R&D, Plan, Implement, and Operate for thirteen technologies that are relevant to Industry 4.0. These technologies are Manufacturing Data Analytics, Robots, Manufacturing Automation, Digital Clone or Simulation, 3D Printing, Manufacturing IoT, Plant Cybersecurity, Manufacturing on Cloud, Augmented Reality in Manufacturing, Virtual Reality in Manufacturing, Artificial Intelligence in Manufacturing, Visual Analytics in Manufacturing, and Small Batch Manufacturing. This report also provides insights into the internal R&D, capability, vision, investment, and partnership priorities of the service providers. We also outlined the strengths and challenges to take into consideration for these service providers. The report also mentions market analysis of the Industry 4.0 Services industry, the current focus area, and the future growth areas over the next few years. The service providers included in this report are Accenture, Altran, Atos, Cognizant, Genpact, HCL, IBM, Infosys, L&T Technology Services, TCS, Tech Mahindra, and Wipro.
What is unique in this Blueprint?
Our focus is not solely on size, revenue and global scale of the Industry 4.0 service providers but our emphasis is also on the Industry 4.0 use cases, customer case studies, service provider strategy, way service delivery is organized, the availability of industry domain expertise, investments in industry talent, academic partnerships, industry body associations, acquisitions of companies to augment industry 4.0 capabilities, etc. Also, the Blueprint includes recommendation sections for buyer enterprises as well as the service providers. Another point of emphasis in our research is the effect of digital and emerging technologies in Industry 4.0 and how service providers are enabling new ways of working with these new technologies to address industry-specific challenges and the level of innovation brought to clients. For example, we covered how service providers are leveraging existing digital capabilities (analytics, cloud, automation, IoT, AI, cybersecurity etc.), and emerging areas (robotics, augmented reality, virtual reality, 3D printing etc.) in Industry 4.0.
This Blueprint also includes Industry 4.0 market analysis. This is first of its kind of Industry 4.0 Services study where we tried to collect details of Industry 4.0 engagements and arrived at the overall current adoption level of Industry 4.0 across verticals, technologies, service lines, and geographies. This should help each Industry 4.0 service provider, Industry 4.0 software provider (technology providers related to the mentioned thirteen technologies), and enterprise to benchmark their Industry 4.0 footprints and identify their strengths as well as areas or levels of improvement. The intent of this report is to provide valuable intelligence and a reality check on what is going on in the Industry 4.0 services world.
As part of this work, we are launching Digital OneManufacturing framework (refer Exhibit 1) that provides our view of the Industry 4.0 operating model. The framework represents an integrated manufacturing operation center that has digital prowess for a manufacturer to meet future manufacturing complexities.
In brief, Digital OneManufacturing is the platform on which digital technologies meet manufacturing engineering technologies and controls a manufacturing landscape in real time to serve clients. It’s where all the process elements are combined: Connectivity, the processes, and the intelligence come together as one integrated unit, with one set of unified business outcomes tied to manufacturing organizations.
Exhibit 1: Digital OneManufacturing Framework- Click to Enlarge
Digital OneManufacturing is the ability to do mass customization at scale so that manufacturing enterprises manufacture for one customer economically and efficiently. Please refer our PoV on Digital OneManufacturing to get more details about the framework.
What is the current state of Industry 4.0 Services market?
Since Industry 4.0 is a relatively new concept, manufacturing organizations are conservative to implement Industry 4.0 across the enterprise. Big enterprises are committing modest investment, and resources in digital manufacturing for specific manufacturing functionalities and once they realize the benefits enterprises will go for digital factory and then connected factories. Geography wise, North American manufacturing organizations are at the forefront of Industry 4.0 adoption followed by European and APAC enterprises. The automotive, aerospace and industrial equipment verticals are the leading verticals for Industry 4.0 services. Service providers are also developing industry-specific Industry 4.0 platforms, and plug-and-play solutions in partnering with Industry 4.0 related technology providers (Siemens, GE, Dassault etc.) to address specific client challenges. The biggest challenge manufacturing organizations are facing in Industry 4.0 implementation is the lack of digital maturity and enterprise readiness. Once the Industry 4.0 technologies mature, and the adoption increases, the expectation about Industry 4.0 benefit realization will be realistic.
What are we expecting in the coming years?
As discussed, Industry 4.0 is gaining traction in the manufacturing industry, and in the next few years, we will see more Industry 4.0 adoption, and increasing integration of Industry 4.0 with ERP, PLM, and other enterprise applications. It will take decades for manufacturers to implement Digital OneManufacturing at scale but surely manufacturers will make progress with the help of progressive service providers in this area in the next couple of years
Consulting is often starting point for the large Industry 4.0 programs, so service providers are augmenting their consulting capabilities. We expect to see an acceleration of this trend in the near future. Also, the market will see M&As as the global and Indian service providers will look for specific capability augmentation in Industry 4.0 space. Industry 4.0 will generate a huge amount of data in real time from every connected digital asset, so actionable intelligence from the data is of paramount importance. Thus data analytics is a differentiating factor for successful Industry 4.0 implementation. Security is also one of the most important features of Industry 4.0 as critical manufacturing, and customer data is generated and stored as a part of Industry 4.0 services.
We think there’s a high chance the grid could be very different again next time round! Stick with HfS to monitor the important changes in this rapidly evolving market!
HfS subscribers click here to access the new HfS Blueprint Report, “HfS Blueprint Guide: Industry 4.0 Services 2017“
IoT is only transformational to a point: we need to evolve to the Banking of Things to mine its true potential
There are already more mobile connections (over eight billion in 2016, according to GSMA) than people on this earth and some forecasters are already predicting we’ll have 20 billion devices or things connected in a couple more years. Yes indeed, people, the internet of things (IoT) has truly come to life in recent months, and this is only going to escalate on a massive scale.
However, is simply having this obscene level of connectivity really going to have a transformational impact on us? Won’t we reach a point of connectivity saturation where the net benefits almost become negatives in our lives, or will IoT be extended to true commerce and the banking of things?
Up until very recently, these discussions have been more science fiction than reality, however, a news item this week raises our hope that IoT will evolve in this direction and we can start talking about a world beyond mere prolific device connectivity.
IBM is partnering with Visa to offering Visa’s tokenization services to its IoT clients. Every IoT device or thing can be made a point of sales (PoS) terminal and be able to enable transactions itself, such as a car ordering spare parts and a refrigerator ordering groceries. (Read here.)
Aside from the operational complexities, analysts have liberty to think about future scenarios. We can visualize this evolution of things in two dimensions. In the horizontal dimension it is human, and different categories of things (industrial things and consumer things). In the vertical dimension, it is digital activities. It starts with connectivity and then extends to payment, commerce, and banking.
The mobile revolution has been providing connectivity to humans from late 90s. Now the era of connectivity of things has started. On the digital activity dimension, humans are using digital payments, digital commerce, and digital banking.
Getting connectivity to things is the start. It will become interesting when connectivity of things is extended to the payment of things and ultimately to the commerce and banking of things.
Internet of Things (IoT): Things have a unique identity by SIM, RFID or similar identification technologies and can be connected to each other by different communication technologies. Things produce data with sensors attached to them, which can be used for generating information and insights.
Payment of Things (PoT): Things have the capability of paying themselves. Things can do commercial transactions and pay automatically, without human intervention.
Banking of Things (BoT): Things have a legal and a commercial identity of their own and can bank on their own. They have their own existence and bank accounts. They can take a loan, generate revenue, make deposits and can do all commercial activities which humans do with banks.
The use case of banking of things could be a machine or a car, which is not owned by anyone, and it can have its own identity. Banks can give a loan to a machine and the machine can use it to pay its initial cost to the manufacturer. The user can use this machine and pay usage charges for the machine in its bank account. A single machine can be used by multiple users. The machine can pay interest back to the bank, pay for its own maintenance, pay for insurance, upgrades and can decide what to do with its profit.
Similarly, an autonomous car can benefit from the banking of things. A car can have its own identity. It can operate like a taxi and available on demand like Uber. But unlike an Uber cab of today, it will not have any owner or driver. Users can use them and pay charges to car’s bank account. The car can pay interest to the bank, pay for insurance, taxes, gas (or electric charge), maintenance, upgrades and can decide what to do with its profit. Combine this with artificial intelligence, the car can decide how to optimize its activities for maximizing profits. Combine this with robo advisors, the car can invest its profit for maximum returns. Combine this with blockchain, the car can enable smart contracts between passengers and cars.
Why is this important?
As noted in our earlier IoT research, IoT is real but not yet transformational. For transformational impact, IoT needs to be combined with other technologies and commercial activities. The IoT combined with PoT and BoT can have transformational impact as discussed in earlier use cases. Earlier waves of mobile connectivity and its evolution have produced Uber, AirBnB, WhatsApp which decimated the business models of many industries. Even internet businesses of Google, Amazon, Facebook leveraged this evolution to consolidate and expanded their positions by dis-intermediating so many traditional business models. Now IoT and its evolution to PoT and BoT will have potential to disrupt many more business models and industries.
Bottom Line: IoT provides the initial building blocks and it will evolve to Payment of Things and Banking of Things to disrupt many more business models.
The service provider ecosystem can play an active role enabling enterprises in their journey towards IoT and beyond. Enterprises now need to embrace the Digital OneOffice more than ever to thrive in this era. There is a lot of advice enterprises can still use to prepare themselves for the future. So this leaves us with the next trillion dollar question: Can enterprises really bank on service providers to take them to the world of Banking of Things?
Harman, Accenture and Atos are bossing emerging IoT Services, but we need real IoT algorithms and security standards
I plugged my iPhone into my new (fuel-emission friendly) VW this week and - for the first time - my car was connected to by digital life. Siri (finally) came alive and started sending my contacts voice to text messages, my favorite Spotify soundtrack was arranging itself in all its glory on my vehicle dashboard, and I didn't have to worry about tuning radio stations, pairing devices that barely talked to each other, or getting stuck using some horrible proprietary technology my previous car had forced me to use, or those awful attempts at being "appy" from the cable TV providers that look nice, but require months of frustration to figure out.
My car was finally seamlessly connected with my personal apps that run my life, and my suicidal urge to text and drive has been cured by Siri finally doing it for me! While it's been pretty cool to program the air-con using a mobile app or have automated replenishment of new coffee capsules... being able to take your digital life into your moving vehicle is what IoT is all about. It's high-time to get past the buzz about IoT being bigger than IT itself - it's really about sensors, data and most importantly what we can do with this data, and how we can create digital experiences outside of our traditional mobile and laptop screens.
So, without further ado, let's take a look at the 2017 landscape for IoT service providers and have a chat with report co-author and manufacturing-engineering analyst guru himself, Pareekh Jain, about the emerging landscape for IoT services...
Phil Fersht, Chief Analyst and CEO, HfS: Pareekh, how do you see the IoT market evolving and what are the key IoT trends you have been observing?
Pareekh Jain, Research Vice President, HfS: Phil, the current state of IoT revolves around sensors and data collection and its use in sub-process or process optimization, but there is not enough visible thought or action by IoT service providers in exploiting the potential of data for the business reimagination of the Digital OneOfficeTM. Take the example of Amazon Go – the concept store where there will be no checkout queues (seriously). Shoppers can pick... and just go. The combination of IoT with artificial intelligence and machine vision is what makes Amazon GO possible. This is just one of the business reimagination possibilities of IoT, where these true digital experiences come alive, and we're finding this kind of conversation depressingly absent in our discussions with some of the service providers.
Having said that, we do see real progress with the foundations of IoT over the last couple of years and are observing five key trends in our IoT research.
1) IoT is for real, but is limited in scale and scope at present. We found many examples of PoCs and actual customer engagements. The customer engagements are small and limited in scope to a couple of business or geographical units. The organization-wide IoT strategy and implementations examples are rare.
2) IoT update is pervasive and use cases are cropping up across all industry sectors. The highest number of IoT examples we have seen are in manufacturing or Industrial IoT, smart cities, and connected cars.
3) Efficiency or cost optimization are the major drivers in IoT projects at present. This is
Industry 4.0 has become a buzzword in the manufacturing industry today. There is a reason for it. There has not been a full-scale change in the way we manufacture goods since the days of Henry Ford. The PLC (programmable logic controller), MES (manufacturing execution system), first generation robots have all made incremental improvements to efficiency but not to the same extent. Now with Industry 4.0 the change is beginning to happen.
But what is Industry 4.0? The danger of the buzzwords is that many service providers are trying to label their legacy services and solutions as Industry 4.0 and confusing clients. We at HfS Research believe that Industry 4.0—or the fourth industrial revolution—is the confluence of many technologies coming together in manufacturing for the creation of smart factories with significantly high efficiency, productivity, quality and flexibility than the current state. It will enable mass customization in manufacturing. While it will take few decades to enable promises of mass customization at scale, the journey has started.
While most engineering, consulting, technology, and business process services in manufacturing industry offered today (even legacy services!) can help enterprises in their Industry 4.0 journey in some way, we have identified 13 enabling technologies that we believe are critical for any enterprise to accelerate its Industry 4.0 journey.
To make Industry 4.0 real for our enterprise clients, we are launching our Industry 4.0 study, which will focus exclusively on R&D, plan, implement and operate services around the 13 enabling technologies shown in the chart. Most of these technologies are in the early stages of adoption, as we will discuss in the forthcoming Blueprint Guide.
Bottom Line: HfS Research Blueprint Guide: Industry 4.0 Service 2017 will cut the chase and make Industry 4.0 real for our enterprise clients.
This study will help enterprise clients understand the real case applications of different Industry 4.0 offerings along with capabilities and offerings of the service providers in the market today. We will work to understand the different ways that this functionality is delivered and how it may evolve. We will evaluate about 15 service providers on their innovation and execution capabilities in this emerging and exciting space. If you have any interesting Industry 4.0 services story to share, please contact [email protected]
We have recently published Blueprint Report on Product Lifecycle Management (PLM) Services. This is our third engineering services Blueprint in which we analyzed and positioned thirteen PLM Service providers according to their execution and innovation capabilities. In the first one, we focused on the mechanical engineering services. In the second engineering Blueprint, we looked at Software Product Engineering (SPE) services in detail.
What does PLM Services Blueprint cover?
This blueprint includes the PLM offerings of different service providers across verticals. This includes their capabilities across the HfS PLM Services Value Chain of: Plan, Implement, Manage, and Optimize for leading PLM applications such as Dassault, Siemens, PTC, Autodesk, SAP, and Oracle. This report also provides insights into the capability, vision and investment priorities of the service providers included in the Blueprint report. We also outline the strengths and challenges to take into consideration for these service providers. The report also mentions market analysis of the PLM Services industry, the current focus area and the future growth areas over the next few years. The service providers included in this report are Accenture, Atos, Cognizant, Capgemini, HCL, Infosys, KPIT, L&T Technology Services, Syntel, TCS, Tech Mahindra, Tata Technologies and Wipro.
After blowing $17 billion in the Note 7 fiasco, what could Samsung have done next? Well, it could blow more money – and this time on IoT.
On November 14, 2016, Samsung announced the acquisition of HARMAN for $8 billion, taking the Korean giant into the HfS Winner’s Circle of IoT service providers, where HARMAN has performed for the last couple of years.
This acquisition follows the Samsung’s investment of $450 Million in Chinese Electric Car Company BYD, which it announced in July 2016. These acquisitions sparked the idea that Samsung is finally entering the automotive industry to diversify its portfolio from its stagnating consumer electronics division.
However, in our opinion, acquiring HARMAN is not all about a foray in the automotive industry for Samsung – the rationale goes beyond automotive and extends to the IoT market, which is an opportunity worth hundreds of billions of dollars. The acquisition gives Samsung complete end-to-end capability in the IoT value chain, as we show here:
HARMAN has four business divisions that cater to different part of the IoT value chain:
- Connected Car: Navigation, Multimedia, Connectivity, Telematics, Safety and Security Solutions
- Lifestyle Audio: Premium Branded Audio products for use at home, in the car and on the go
- Professional Solutions: Audio, Lighting, Video Switching and Enterprise Automation for Entertainment and Enterprises
- Connected Services: Cloud, Mobility and Analytics Software Solutions along with OTA update technologies for Automotive, Mobile, and Enterprises
Samsung Electronics has three business divisions that cater to different part of the IoT value chain:
- Consumer Electronics: Digital TVs, monitors, printers, air conditioners and refrigerators
- IT & Mobile Communications: Mobile phones, communication system, and computers
- Device Solution: Memory and system LSI in the semiconductor business and LCD and OLED panels in the display business
The combination of Samsung and HARMAN will be a formidable force in IoT. We rated HARMAN in our “Winner's Circle” in our IoT Blueprint.
In IoT, HARMAN and Samsung will have a very strong position in the connected car or automotive IoT segment. In our IoT study, we found out that connected car is the third largest segment after industrial IoT and smart cities. The HARMAN’s hardware capability also gives Samsung chance to play in the hardware IoT space.
Samsung has been investing in IoT from some time. In 2014, it acquired SmartThings, provider of the smart home platform. In June 2016, Samsung acquired Joyent, a leading cloud provider that can help Samsung connect the users of its devices to the cloud and IoT platform. Samsung has developed ARTIK IoT platform solutions. The HARMAN acquisition augments its IoT capabilities further with the connected car expertise and full IoT services portfolio. The combined HARMAN and Samsung offerings will get a strong foothold in both consumer electronics and connected car IoT market, developing an end-to-end solution for design, data, and devices.
IoT expertise has one additional benefit. It can help Samsung to differentiate its core consumer electronics products. HARMAN has already differentiated itself in the commoditized infotainment business with innovative connected car solutions.
HARMAN brings real differentiation to Samsung and open the firm up to a huge future opportunity of it gets this right.
HARMAN is a strategic fit for Samsung for IoT and the combined HARMAN and Samsung will have strong IoT capabilities and credentials. Will Samsung blow this again or will HARMAN be the man for Samsung. Keep watching our IoT coverage.
The manufacturing industry has reused components for a long time. A high level of reuse not only reduces waste but also lowers the cost of production and reduces time-to-market. Now this concept is being adopted by engineering service providers for part of the software product development process. Software code reuse helps clients save resources, which provides cost advantages and also enables engineering service providers to reduce redundancy and time. In many cases, engineering service providers claim to be using software code reuse components for client engagements, but often software product engineering buyers don’t have visibility into software code reuse by service providers and are not sure whether they are getting the benefit of it.
In our Software Product Engineering Blueprint, we asked software product engineering customers to rate service providers on different major capabilities. The capabilities were broadly divided into six categories and the response is depicted as below.
As the Exhibit shows, the code reuse capability of engineering service providers is rated as the lowest capability. Software product engineering buyers don’t know whether service providers are performing any software code reuse and also have no visibility in case the software code reuse is implemented.
The stills from the James Bond movie, “From Russia With Love” flashed in my mind when Infosys SVP and Global Head of Engineering Services, Sudip Singh described the latest multi-million and a multi-year engineering services outsourcing deal with Ansaldo Energia. As part of the deal, Infosys will open engineering service delivery centers in Moscow (Russia) and Karlovac (Croatia) leveraging a rich pool of engineering talent in both these countries.
The Context of the Deal
GE acquired Alstom’s Energy business for €12.4 billion in 2015. The EU Commission and the US Department of Justice approved this acquisition conditional upon the divestiture of parts of Alstom’s R&D gas turbine projects. In 2016, Ansaldo Energia acquired these R&D gas turbine projects from Alstom.
Infosys has been a strategic partner of Alstom’s Energy business and has delivering engineering services to Alstom for the last few years. This merger and de-merger of GE-Alstom Energy business provided an opportunity to Infosys to upscale its engineering services engagements with both GE-Alstom and Ansaldo Energia.
Why Is this Deal Important for Infosys?
Strengthens engineering services footprint in Europe and Russia: Infosys is one of our As-a-Service Winner’s Circle service providers in our Engineering Services Outsourcing Blueprint. We advised Infosys to improve its business and footprint in Europe. We are glad that Infosys has acted on it.
Augments expertise in turbomachinery: Infosys has strong engineering services capabilities in turbomachinery with Alstom as its anchor customer. This acquisition augments Infosys’ turbomachinery capabilities with specific skills in heavy duty gas turbines, industrial gas turbines, steam turbines, etc. These are hard-to-find skill sets in the highly specialized industry and Infosys can leverage them to provide engineering services to other customers as well.
Additional skill sets in other engineering verticals: Turbomachinery Engineering is one of the most complex engineering skill sets. This deal allows Infosys to access high-end turbomachinery engineering skill sets, that augment Infosys’ engineering design and analysis capabilities in the automotive and the aerospace verticals (aero structures and aero engines).
Position Infosys to leverage Russia and Croatia: Infosys had no engineering delivery presence in Russia and Croatia. In fact, the broader Infosys operation had no major delivery presence in both these countries. Infosys only had a few support and business development professionals in Russia. This deal will change that and provide an opportunity for Infosys to leverage a delivery presence in Russia as well as Croatia to win more deals for both engineering services and larger IT services in the region.
Why Is this Deal Important for Ansaldo Energia and GE-Alstom?
Provides continuity and future proof engineering support: This deal ensures that Ansaldo Energia will have the engineering support of Infosys in providing continuity to the customers of GE-Alstom. Otherwise, it would have been a challenge for Ansaldo Energia to bring the dedicated focus to turbomachinery design and analysis, invest in future skill development, and manage spikes and trough in demand. There was always a danger of rationalization and right sizing but now under Infosys umbrella, engineering team can look for a long-term career option. Infosys will leverage this engineering team to provide engineering support to other customers too and overall grow Russia and Croatia operations.
Why Is this Deal Important for the Engineering Services Industry?
Leveraging manufacturing and technology mergers and de-mergers: The manufacturing and technology industries are going through global turmoil. A lot of the big mergers happening in the industry are subject to regulatory approval, such as Nokia-Alcatel, GE-Alstom, Dupont-Dow, Holcim-Lafarge, Electrolux-GE, Dell-EMC, Inbev- SABMiller, Halliburton-Baker Hughes, Shell-BG, Avago-Broadcom, etc. One of the rationales of the big mergers is synergies or consolidation in R&D and procurement spending where engineering service providers could be at the disadvantage. The corollaries of these big mergers are de-mergers or selloffs either for regulatory approval or for generating cash. These mergers and de-mergers can also provide an opportunity for engineering service providers to leverage discontinuity and build their strengths and move up in the value-chain as Infosys Ansaldo Energia deal shows.
Russia as engineering talent base for the engineering services industry: Russia has the incredible engineering talent and despite a good history of Indo-Russian relationships, Indian IT and engineering services has failed to tap it. This could be the start of one of many deals where Indian engineering service providers will augment their delivery capability in Russia.
The Bottom Line: This interesting deal gives Infosys an opportunity to drive its strong turbomachinery strength in engineering services and leverage its engineering delivery presence in Russia and Croatia to grow both engineering services and overall IT services business.
To close, I’d like to twist the opening line of one of my favorite songs – “From Russia and Croatia with love, Infosys provides engineering services to you!....”
If you had dropped by our new Bangalore office last month, you would have found fellow HfS Research analyst Tanmoy and me poring through loads of engineering services data for the Q2. The end result was that we prepared a comprehensive 29-page report (which even our Editor-in-Chief Mark Reed-Edwards had a hard time editing!) highlighting Q2 Engineering Services Trends with a large number of data points and charts.
I have picked three charts from this report to convince you that automotive is in the driving seat of engineering services growth.
The first chart is the percentage breakup of the engineering services outsourcing deals announcements by verticals in Q2 2016 (see below). This chart shows that automotive vertical bagged the highest number of deals in the last quarter at ~30% of the total.