Monthly Archives: Jul 2018

The Cambridge University FORA Summit recap...

July 31, 2018 | Phil Fersht

Posted in: Outsourcing EventsRobotic Process Automation

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It's time to give these poor Millennials a break

July 28, 2018 | Phil Fersht

What is wrong with us old timers these days?  We go to conferences where we make sure no one under age of 40 comes near the place, and we spend half our time bemoaning the lack of a "digital mindset" from our colleagues because we all have these world-class digital mindsets ourselves. And can someone please explain what the f*** a digital mindset actually is?  And can someone explain why everyone blathers on about their company's inability to change with the times, but never admit they don't really want to change anything either...

But let's be honest, we treat our beloved Millennials like some sort of obscure species whose members only communicate digitally with each other, like to wear these really big expensive headphones, drink far less than we did at their age, and no longer go to bad discos to find romance. Not to mention an unhealthy love of avocado toast that helps their quest for a purpose in life because of failed parenting strategies leaving them permanently depressed because of low self-esteem.  

In addition, we're now accusing them of lacking ambition and only caring about their next vacation. But how can we blame these poor folks from feeling like we stitched up the world before they came along... as most cannot come close to affording the cheapest shoebox in any half respectable neighborhood, the poor folks in the UK are going to get cut off from working in Europe soon, and the lost Millennial souls in the USA had to choose between two septuagenarians as their president, who hardly represent the emerging mindset of the digital youth (even though you do have to be impressed with the President's twitter skills...).

So imagine the refreshing impact when HfS analyst Ollie O'Donoghue, a proud representative of the Millennial race when he's not trying to annoy Amazon, piped up on LinkedIn with the following staunch defense of his species:

Click here to Enlarge

Click here to join Ollie's LinkedIn discussion

The Bottom-Line:  Love them or loathe them, Millennials are the Future

So to quote Ollie directly: "Entitlement goes both ways. It's just previous generations got what they were entitled to. They worked hard, bought a house, paid a mortgage, got relative financial and social security. The reason so many Millennials are checking out of the economy is because they work hard and get, well, nothing. Home ownership is the stuff of legend, even job security is a thing from a bygone era - and something a lot of 'future of work' commentators are making worse."  So let's use this opportunity to bring Millennials into our inane conversations about a future of work with less need for people, about our businesses being persistently disrupted by imaginary digital competitors, about blockchain's emergence to destroy whatever we have left... because if we don't, we'll have a big hole left in our corporate legacies that we'll struggle to fill, as all the talent will be checked out on the beach dreaming of their next avocado latte.

Posted in: HR Strategy

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Clear communication to leadership has never been more critical in today's business environment

July 24, 2018 | Phil Fersht

Posted in: None

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Is Syntel worth $3.4bn? And does this bring Atos to the adult’s table?

July 23, 2018 | Phil FershtJamie SnowdonOllie O’Donoghue

Syntel brings to Atos a larger platform into the North American market, stronger IT automation capabilities to augment its data management and analytics heritage and, above all, access to quality long-term engagements. And not to mention a mighty Indian offshore IT depth that fills a lot of delivery holes for the firm.  And don't forget, this firm tends to know what it's doing when it comes to acquisitions and making them work:

However, even with all this combined, $3.4bn seems like a hefty price to pay, albeit a price that will likely set both industry valuations, and other acquirable mid-tier service provider hearts’ racing. Not only that, competitors with banking pedigree, such as Capgemini, Cognizant, DXC and IBM will not welcome a stronger Atos being welcomed to the dance at a time when competition is already reaching a cut-throat breaking point.

We haven’t seen any meaty M&A in IT Services for over two years... So why now?

We’ve been predicting an increase in merger and acquisition activity across the business process and IT outsourcing space for some time, but these IT services monster marriages are like London buses – you wait ages for yours to arrive, and suddenly several appear right behind it.  

To this end, the only real action of late has come in the call center realm with the feasting of Teleperformance on Intelenet and Concentrix on Convergys.  Not since the dinosaur mating noises of HPE and CSC in 2016, or Capgemini’s nuptials with IGATE in 2015, have we had anything much to chew on in IT services bar lots of digital agencies being round up for slaughter.

Let’s be realistic, there really aren’t too many “heritage” mid-sized offshore-centric IT services providers left in existence which can get you an immediate seat at the adults’ services table, which explains Syntel’s fantastically lucrative exit, and the disappointment of several other suitors which had been eying picking the firm up on the cheap for several years.  Moreover, providers like Atos are feeling the pressure like never before to force their way forward in terms of growth and breadth of offerings and believe the pressure point has been reached and it’s time to act.

A drought in traditional client wins for some firms is literally pushing them to acquire as a way to drive market share.   The IT services industry is no stranger to firms buying out rivals to gain short-term respite from the market in the face of poor market performance – buying time to regroup/transformation, an injection of new clients and scale.

Atos’ recent announcement of its intentions to acquire Syntel has already set tongues wagging in the industry, but before we get caught up in the inescapable hype, let's dig into the facts!

At $3.4bn this could be the start of the M&A silly season where “Everyone’s up for Sale”

It’s hard not to get lost in the number of zeroes in this deal and, frankly, the price tag has left us all scratching our heads a little. At a recent press conference, an investment analyst asked whether Syntel was happy with the deal…why wouldn’t they be? And it’s this sort of seller's market that’s getting a lot of the mid-tier firm’s excited about a potential takeover from a major firm in the space.  “Everyone’s up for sale” proclaimed the CEO of the of the leading service providers recently in a private conversation.  

With some of the world’s biggest IT services firms looking to shore up revenues, capabilities, and access to clients, a lot of firm’s are adjusting pricing expectations, setting the bar far higher than they would have a few years.

And the market is undeniably tough right now, and many firms are struggling to find their way. Recently, brighter horizons have been on the cards for some firms as the HFS Digital tipping point theory started to yield results, with enterprises investing in technology to drive their transformation ambitions. But the same theory argued that many firms would struggle to pivot their business models and offerings to meet the changing demands of the market. In this winner takes all market, it stands to reason that firms will shore up their capabilities through acquisition, at the same time that smaller firms that struggle to gain market traction become more attracted to the idea of a buyout.

Is chasing a “$250m a year synergy target” realistic, or just merger charm?

But, according to Atos, the hefty price tag is supported by some strong arithmetic. The firm stands to gain access to a lot in the deal, including strong long-term banking and financial services engagements and a decent launchpad into North America – a geography the firm has struggled to position itself in from its European stronghold – in spite of its 2014 acquisition from Xerox. But let’s start with what the firm has championed as the main selling point to investors, a $250m boost to annual revenues by 2021 from the synergy of the two firms.

On the face of it, this seems a challenging target to hit. Revenues in Europe have been hit just as hard as everywhere else in the IT Services space, more so in Atos’ strongest line – infrastructure and enterprise cloud. And Syntel’s revenue growth has disappointed financial analysts for years – even if its operating margin is aspirational to many. If the firm can export Syntel’s processes and embed them across Atos, it may stand to drive greater operating margins. Moreover, if it can leverage Atos’ Syntbots RPA technology in new and existing engagements, it could drive out some serious costs. But an increase of $250m a year is perhaps a little more ambitious than the numbers can accommodate. Even with Atos assuring investors that if its current bookings stay put, it should be more than capable of reaching its objectives.

The real motivation behind the price tag is likely to be tapping into Syntel’s existing client base and cross-selling between the two firms. In the current market, where new deals are few and far between, the adage of ‘if you can’t beat them, join them’ has never been truer. For the princely sum of a few billion dollars, Atos has gained access to some major financial institutions and enterprises that Syntel has managed to keep on its books for years (over 30 years in some cases). And many of these are big spenders, Syntel is always pleased to mentions that it has grown a handful of its clients to build out up to half of its overall revenues.

However, the challenge for Atos is to keep these clients happy. We’ve chewed over the pitfalls of some of the major M&A activities in recent research. And in many cases, these clients may be even tougher to please. Syntel’s ‘customer for life’ no questions asked approach has built a fervent loyalty among its client base – while its too early to say now, the sentiment from this client base may prove to be less than enamored with the recent announcement than either Syntel or Atos are willing to admit. 

It is also worth pointing out that the oft-stated criticism of Syntel has been its overexposure to a small handful of large clients, should one get acquired or kick them out.  However, with a massive new owner in Atos, surely there is now some air cover from this long-discussed risk.

A nice deal for Syntel's shareholders, but what’s in it for the clients?

As usual, the bit that’s often missed from the narrative when a big deal like this rears its head is ‘what’s in it for clients of both firms?’ At an early stage like this, we can only be speculative, but there are a few things that enterprise clients of both firms should be cautious and excited about. First of all, for Atos clients, there is the opportunity to get your hands on some real RPA capabilities. Atos has struggled over the past few years to find its place in the market, but Syntel has positioned itself nicely with Syntbots – an intelligent automation platform that while lacking some of the bells and whistles of the others has proven itself time and time again to be a solid cost-reducer. Existing financial services clients can also look forward to more verticalized expertise, and a stronger proof-point around delivery as Syntel brings in its considerable experience to engagements. Finally, Atos’ multinational clients can consider leveraging some of Syntel’s North American and Indian delivery capabilities to expand engagements or move work closer to home or further offshore dependent on the circumstances.

For Syntel clients, it’s a different kettle of fish. Foremost on their mind must be the protection of the partnership culture they have become accustomed to. That’s not to say Atos is miles from the culture of Syntel, but long-term partnerships have been the building block of the mid-tier firm since its inception and may be a tough hurdle to overcome after the firm’s combine. But they can expect some of the benefits that the firm will bring, such as strong credentials in the enterprise cloud space, and the scalable heft that a larger provider can offer over mid-tier players.

Bottom Line: Market conditions and appetite for acquisition mean we’re sure to see more activity like this in the future

Ultimately, there’s a lot of areas where the two firms can create synergy, and cross-sell offerings into each others client bases. But there’s also a huge amount of risk that this engagement is akin to the appetite of the day, which is to stop trying to outbid rivals for engagements and simply buy up rivals. In some of these engagements, clients may come out on top, with access to more experienced and capable delivery partners – but equally, they could lose out on the cultural alignment, and agility that they looked for in a smaller partner.

However, Atos management has a historically strong track record for acquiring and integrating business in both the long and medium term. The firms have a long history of large acquisitions across borders and huge integration challenges, starting with Origin in 2000. Plus we see relatively successful integrations of Siemens Business Services back in 2010, Bull and Xerox IT Services in 2014. Indeed you can trace it’s acquiring prowess back to decent purchases of SchlumbergerSema in 2004 and UK and Dutch KPMG Consulting business in 2002. 

The issue as ever for successful acquisition is making the most of synergy – so that the whole organization is greater than the sum of its parts. This is always a hard trick to bring off measured financially, by the value it can deliver clients and increasingly important, culturally. If the financial boost is only $250m on a $3.4B investment let’s hope gains in the last two are worth it.

What does this say about future mid-tier IT services acquisitions?

The fact remains that in spite of the turbulent market we’re now in, Syntel has attracted a big price tag. This can only mean many of the larger firms are on the acquisition trail. Which means this is unlikely to be the only major M&A activity we’ll be seeing in the coming months. Possible mid-tier targets we can expect to come under the spotlight of some of the big players (if they’re not already) include:

Hexaware – possible price tag $1.50 / $1.25bn: Hexaware is gaining ground quickly and building a narrative that seems to resonate well with clients – however the firm remains small enough for some of the bigger players to see it as a valuable route to inorganic growth.   Has good hybrid BPO and IT capabilities, a strong specialization in HR Tech and promising potential in RPA services. 

Mindtree - possible price tag $1.75 / $2.25bn:  Mindtree has had a scratchy few quarters at the start of 2017, but since then have posted rapidly improving revenue growth – over 20% in Q2 2018. The firm’s strong digital offerings make the firm a good prospect for bigger firms looking to shore up capabilities as well as build out market share.  Has managed to make a strong shift from BI and analytics to adding digital prowess and has a capable suite of offerings and loyal clients to boot.

Mphasis - possible price tag $2.25 / $2.75bn: Has made a strong market impact since freeing itself from a decade-long HP hell... plus CEO Nitin Rakesh is credited a lot for his fine work at Syntel, getting the place in better shape financially.  Strong financial services presences could make this firm the next IGATE/Syntel-esque pick up.  

Virtusa Corporation - possible price tag $2.00 / $2.50bn: Virtusa’s strong consulting background – gained from the acquisition of Polaris – puts this firm as a valid target for large providers looking to build up talent and onshore delivery capabilities in North America.  Very strong offshore business built from the ground up by the irrepressible Kris Canakeratne, with deep presence in insurance IT.

Posted in: IT Outsourcing / IT Services

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Who needs a digital strategy to reinvent themselves...

July 23, 2018 | Phil Fersht

Posted in: None

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HfS slam dunks with Stevie!

July 16, 2018 | Phil Fersht

We've run twenty leadership summits at HfS over the last few years and am sure most of you who've been to some of them love the candid conversation, the zero-selling ethos and absence of plastic booths and cardboard PowerPoint presentations.  However, what most people haven't realised is we've never dedicated staff to running these fulltime, and all we really had to do was invite our network, put together great people to speak and provoke some terrific debates.

However, we really want to start having a series of intimate regular roundtables across New York City and London, where we can drill into the hot topics du jour that we all love so much, such as Intelligent Automation, Blockchain, the Digital OneOffice etc.  But to do that, there are precious few characters in the world who have the tenacity, network and charm to make these happen... and we managed to snag one of the very best, Steve Dunkerley (see bio), to run these for us.  

I have known Steve for 15 years and have always enjoyed some of his terrific CXO roundtables, where he has this uncanny knack to bring some serious hitters together in one room.  So when we had the opportunity to bring in the best guy in the biz to lead our summits and roundtables, we had to convince him join the HfS family and not rekindle his karate career...

Steve - it's just terrific to be working with you at HfS after all these years!  Can you share a little about your background and why you have chosen C-Level events, research and strategy as your career path?

Hi Phil, it is a pleasure to join the HfS family. 

In terms of my background, my life really began in 1999.  This was the year I met my wife to be, got married and started my B2B media career having earned a degree in communication studies a while before that. 

From 1999 until the end of May this year, my employer was the company that is now known as Compelo.  I was initially responsible for industry specific publications in the textile, water, food

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Posted in: Digital OneOffice

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Why AA's investment windfall locks up the RPA market for the Big Three

July 02, 2018 | Phil Fersht

 

We've now seen three pretty small software firms demonstrate 20x valuations... Blue Prism went public on the London Stock Excheng, UiPath received $150m in series B funding and Automation Anywhere has now announced $250 in series A funding.  So it's pretty clear there are three established leaders at the front of the RPA market and investors are convinced that RPA is the start of something much bigger for enterprises. Not only that, it's becoming pretty clear that the barriers to entry are high, and we're unlikely to see new players bulldoze their way into this space in the foreseeable future. So why is this?

RPA is kick-starting the true digital journey for many enterprises by helping create a digital process baseline

People love to espouse that RPA has quickly become commodotized and we'll barely be talking about it in another year, when we all suddenly become experts so good at building algorithms, we can actually train systems to build their own algorithms on the fly. Suddenly, RPA will be some pervasive capability that is so devoid of value, it will disappear somewhere into insignificance. Utter garbage: anyone who's got deep into RPA and tried to incorporate it into processes knows immediately that this type of thinking is naive, and likely coming from someone with no experience of the real world outside of their ivory tower. Firstly, RPA and RDA are not apps you sell to IT people to "rollout", they are low-code solutions, designed for business operators to replicate, fix and digitize their manual processes, or scrape "static" data from screens to integrate into a dynamic workflows. And secondly, "low-code" does not mean "no code".  Talk to anyone with RPA battle-scars and they will tell you about the amount of code customization that was needed in certain areas. 

Digital today is all about an enterprise being able to respond to the needs of its clients as an when those needs happen. Today's RPA and RDA provides integral building blocks that digitizes processes to enable businesses to process the data they need to have business operations support customer needs in real-time. Sure, they may simply be performing dumb tasks, such as running process workflows in recording loops, or scraping data from screens into automated scripts.

The commodization of RPA breeds familiarity - and familiarity breeds innovation.  The market is already established

Commoditization is good for bots, but remember that most enterprise folks have had to train to use the products and we already have very loyal followings for AA, Blue Prism and UiPath.  The tech needs to be simple, low-code and easy to install, scalable and manageable.  Noone wants highly customized solutions these days, so please do not confuse the devaluation of commoditization with the value of familiarization.  You think Workday and Salesforce are not "commodity" apps?  They are successful because they have crushed their markets through effective channel relationships, the creation of cult-like followings and years of building familiarity with their customers.  I've even heard of HR people threatening to quit their jobs if their firms refused to invest in Workday - it's an important part of their entire career path.  You think you can't find quality alternatives to Saleforce, such as ZoHo and Hubspot that are lower cost and even better in some areas, or likewise for Workday with SAP Successfactors and Ultimate? I predict we are already settling on AA, Blue Prism and UiPath as the RPA platforms of choice, as so many business users have already been through the pain barrier of training to understand the whole RPA paradigm.  We'll actually see more "micro-solution" firms, such as Thoughtonomy, which is building a service layer over Blue Prim and reselling that solution with positive results.  Another example is Antworks, which is impressing a lot of people with its data ingestion capabilities and integration with automation needs.

AA, Blue Prism and UiPath already have 700-1000 customers each (depending on what you believe) and have energized many new careers for many people - it can take a couple of years for non-IT people to really learn these products (and many experiment with at least two of them).  This market is only going to get stronger and more robust over the next three years - and beyond that, it's really all science fiction as we observe the speed of development and macro changes to our business environments. Like with all other technology-driven markets where the key stakeholder is the business executive, once they are familiar with a platform, getting them to retrain on something else is a massive effort.  Remember WorkFusion's attempts to offer "free RPA"?  People don't want something just because it's cheap - or even free, they want some skin in the game. 

The Bottom-line: Today's "Dumb RPA" provides a baseline for the development of intelligent bots in the future

You have to start somewhere, and for enterprises fixing their manual process messes, these three tools have provided the answer, with 70% of Global 2000 clients now expressing satisfaction, according to our new 2018 State of Operations study results.  However, if these firms rest on their laurels, this market dominance will be short lived.  Once the digital baseline is created, enterprises need to create more intelligent bots to perform more sophisticated tasks than repetitive data and process loops. Basic digital is about responding to clients as those needs occur, while true OneOffice is where enterprises need to anticipate customer needs before they happen (see below).  This means having unattended and attended interactions with data sources both inside and outside of the enterprise, such as macroeconomic data, compliance issues, competitive intel, geopolitcal issues, supply chain issues etc.  

Click to Enlarge

So we have some clarity for now with three dominant solutions, and enterprises can invest more in learning these tools with more certainty and peace of mind. Some stability, after so much change in the world of business operations, is more than welcome.  Now let's hope these firms will wisely invest in taking their products into the world of intelligent bots, and not splurge all the newfound capital on yet more sales and marketing. 

Posted in: Robotic Process AutomationIntelligent Automation

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