HfS Network
Pareekh Jain
 
Senior Vice President, Research and India Operations 
Learn more about Pareekh Jain
IoT is only transformational to a point: we need to evolve to the Banking of Things to mine its true potential
February 23, 2017 | Pareekh Jain

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
January 28, 2017 | Phil FershtPareekh Jain

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...

Click to enlarge

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

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Making Industry 4.0 Real For Manufacturers
January 12, 2017 | Pareekh Jain

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]

PLM Services Blueprint 2016: Attractive Again
November 29, 2016 | Pareekh Jain

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.

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Has Samsung blown up the IoT market with its HARMAN acquisition?
November 15, 2016 | Pareekh Jain

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.

Bottom Line

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.

 

Why should software engineering service providers utilize metrics-based software code reuse?
October 05, 2016 | Pareekh Jain

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.

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From Russia With Love: Infosys Provides Engineering Services to You!
September 20, 2016 | Pareekh Jain

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!....”

Three Charts That Show Why Automotive Is in the Driving Seat of Engineering Services
September 18, 2016 | Pareekh Jain

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.

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What Drives Engineering Service Providers Revenue: Customers Quantity or Customer Quality?
September 01, 2016 | Pareekh Jain

We often ask this question. Customer quantity is a no brainer because more customers can bring more revenue. Similarly, customer quality is also important because the better the customer quality or size, the better the revenue potential for service providers. But what is more important—customer quantity or customer quality? 

We all have the anecdotal answer to this question based on our experiences but what does the data say?

In one of our engineering service studies, we tested this on data and found interesting results. In our software product engineering services study, we correlated service providers’ software product engineering services revenue with the quantity and quality of their customers (see the Exhibit). For customer quantity, we took the count of service providers’ ISV customers. For customer quality we took the count of service providers’ ISV customers that are among the top 100 ISV customers by revenue because the larger the size, the better the potential of account mining.

We found that the correlation between service providers’ revenue and quality of customers is very strong (Correlation = 0.92 and R2=0.85) in comparison to the correlation between service providers’ revenue and quantity of customers (Correlation = 0.56 and R2=0.31): As a student of mathematics, I will be the first one to point out that correlation doesn't mean causation. But it nevertheless gives us the opportunity to step back and ask ourselves the following: What if the quality of customer drives revenue more than the quantity of customers? What are the implications for engineering service providers and how can they position themselves to grow in a more future-oriented way? 

Service providers should focus on the quality of customers and persistently target large customer accounts: This is a no-brainer as a strategy but sometimes difficult to execute. Getting a foot in the door of a large account and displacing incumbents can be difficult and requires persistence. Sometimes, with quarterly pressures mounting, service providers give up on these large accounts and target easier options. In my earlier gig, I came to know that it took seven years to penetrate a large customer account (Yes, seven!). In quarterly reviews, leaders sometimes lose focus on long-term targets, but in this example, leaders kept asking for an update on this particular account in every quarterly review I attended. What is happening in that account? Who has the account manager met with in the last quarter? Are there any RFIs or RFPs they’ve heard about? Any chances of proposing free PoC? Any firm they can partner with? And the list goes on. It requires the persistence of leaders to pursue this long-term strategy and luckily the business leaders in that firm were for the long haul (they are still working there when I last checked =) ). 

Once the service provider has got a foot in the door, grow the account by making it real and not over-selling: In engineering services, especially at this time, service providers are competing more with the non-outsourced spend than with other service providers to grow the accounts. Service providers have told me that even after signing the contract and setting up the ODCs, the accounts just don't grow. One piece of feedback I heard from the buy-side is that many product leaders are skeptical of outsourcing and somehow service providers need to convince them. Service providers typically approach this by hiring good sales and account managers. But the problem is most of the product owners or decisions-makers are technical guys and they don't like sales guys or account managers showing their face every month. But they do like to know industry trends, what their competitors are doing, where the industry is moving. So, in my opinion, service providers will do better if they invest in “making it real” (something Phil Fersht has also written about in the larger IT services context). In other words: share prototypes, case studies, and demos. But don't sell!

Mid-tier and emerging service providers should focus on smaller customers and develop their solution value proposition: The mid-tier service providers might not have the luxury of time and manpower to focus on the big customers. They will do better to focus on smaller customers that are not natural targets of the larger service providers. They should grind it enough to make themselves ready for the bigger customer later. The disruption often starts at the bottom and slowly moves to the top. Amazon has done the same with the cloud. Its initial value proposition was aimed at startups and SMBs. Now it is ready to compete in the bigger customer segment. One Fortune 100 buy-side customer told us that they gave a few projects to a mid-tier engineering service provider because it was more cost-competitive than many leading engineering service providers. Although the customer is satisfied with the service provider’s delivery quality and timelines, the customer feels that the service provider has limitations in domain knowledge, solutions, organizational maturity and the customer is unlikely to give that service provider any major additional work. In a way, this mid-tier service provider wasted the opportunity by entering the account early without sufficient capability. The mid-tier service provider should have defined its value proposition beyond cost reduction when they bid to enter large accounts.

The Bottom Line: Both large engineering service providers and mid-tier engineering service providers can use this correlation research to review their client acquisition and account growth strategies based on quality and quantity of customers. 

Recalling a Bill Gates Joke Amidst Vehicle Recalls
August 18, 2016 | Pareekh Jain

When I was in college, I heard an incident involving Bill Gates and his comments about innovation in the automotive industry in the late 90s. Later, I found that Bill Gates comments were extrapolated and converted into a then very popular joke among automotive engineers. The irony is that joke is coming true now for car makers, but it is a good opportunity for engineering service providers.

It goes like this--

Bill Gates: If the automotive industry had kept up with technology like the computer industry has, we would all be driving 27 dollar cars.

Automotive Industry: Yes, but would you want your car to crash twice a day?

(Sources here & here)

And guess what? Two decades later, cars have become more like software and vehicle recalls have skyrocketed.

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