Monthly Archives: Oct 2018

IBM / RedHat: A grand play at out-sharing Microsoft’s open source economy

October 29, 2018 | Phil FershtJamie SnowdonOllie O’Donoghue

IBM's ingestion of RedHat, the third largest IT purchase in history, is all about Open Source and dominating cloud transformations.

Commentators are already pitching this deal as long-awaited reinforcements to the trench-warfare of the cloud wars. But in reality, we need to look much deeper to understand what persuaded IBM to part with such an exorbitant sum of money for Open Source giant RedHat.

Did we read that right? $34bn? – And what will happen to renegade RedHat?

Even for budding venture capitalists, the princely sum of $34bn is more than enough to make your eyes water – especially when it’s hurled at a firm with annual revenues of just $2.9bn and headcount that will be just a drop in the Big Blue Ocean. So there must be more to IBM’s thinking than a quick financial return – it’s either a play to kick the other hyperscale players out of play, or a push to get the upper hand in the increasingly valuable Open Source sharing economy.

If we dig into the financials, it’s clear that RedHat is a profitable firm with a strong track-record in the space – describing itself as the leader of Open Source capability. In many ways RedHat has been a champion firm in the growing enterprise adoption of Open Source – a service line that has moved a long way since its one-man-band and hobbyist background. Open Source is now big money, and all of the major providers want a piece of the action. In exhibit 1, we can see, alongside the financial information, a look at the number of partnerships both IBM and RedHat have among the major IT Services providers.

It should come as no major surprise that RedHat has a larger pool of big providers in its partnership ecosystem – IBM, while having a relationship with many has always struggled to balance its role as a major competitor and a partner. This challenge is likely to impact RedHat now, which has been able to play neutrality to build a strong partner network – some of which are likely to be sheepish now they’re an arm of rival IBM. However, this risk has been addressed by a clause in the agreement which pushes for RedHat to continue enjoying relative independence.

James M. Whitehurst, CEO of RedHat advised after the announcement that "Importantly, Red Hat is still Red Hat. When the transaction closes…we will be a distinct unit within IBM, and I will report directly to IBM CEO Ginni Rometty. Our unwavering commitment to open source innovation remains unchanged," and went on to argue that “the independence IBM has committed to will allow Red Hat to continue building the broad ecosystem that enables customer choice and has been integral to open source’s success in the enterprise." However, partners and clients may question how much of this lies in a carefully orchestrated marketing narrative, and how long IBM will hold true to its word given experiences with previous acquisitions. And the open source community can be quite unforgiving of commercial entities moving from benefactor to owner of IP – unless they tread carefully, IBM and RedHat may find themselves alone on the playground while all of the other open source kids play football, all because they held on to the ball for too long while they were in goal.

Even so, the formal press announcement from IBM and RedHat should settle some nerves – it advises that “upon closing of the acquisition, Red Hat will join IBM's Hybrid Cloud team as a distinct unit, preserving the independence and neutrality of Red Hat's open source development heritage and commitment, current product portfolio and go-to-market strategy, and unique development culture.”

So that’s all we know at this stage about how IBM plans to slot in $34bn worth of company in its leviathan and, frankly, unforgivingly complex structure. Let’s just hope RedHat’s reputation in the open source community isn’t tarnished by selling out to a major player. Which brings us to our next point…

Forget about the cloud, this is all about open source

One thing should be made clear, the narrative a lot of pundits are pushing is that this is all about forging fresh weapons to take on the big cloud players – AWS, Azure, and Google. If it is, that’s a woefully misguided objective. All of the major hyperscale firms have consistently built up assets and developed innovative cloud layers to meet the insatiable demands of the modern enterprise. RedHat – despite its credentials in Linux and Virtualization – isn’t going to give any of the big three much pause for thought. If IBM was genuinely eyeing up targets to give them a leg-up in the cloud wars, RedHat wouldn’t be at the top of the list. And although the marketing collateral from both firms is already championing the value of the tie-up to put a fresh spin on multi-cloud – this is far from fresh thinking in a market already packed with services and solutions.

So what it’s really about, is cornering the growing appetite for Open Source in the enterprise IT services market. As Paul Cormier, President of Product and Technologies at RedHat recently announced “Today is a banner day for open source. The largest software transaction in history and it’s an open source company. Let that sink in for a minute. We just made history.”

IBM and many of its rivals have been scrambling around to win plaudits for the most engaged or best contributor to a raft of open source projects, and with them the attraction of key talent in a competitive labor pool. IBM is no stranger to open source, it’s one of the original Linux Foundation contributors – but many of its rivals are also heavily engaged – Google, for example, is rated as one of the most generous contributors to GitHub. What this acquisition is really about is cornering off a large pool of talent, capability, and IP in the Open Source space – and with it core cloud capabilities across containerization, viurtualisation and a raft of other capabilities that are soon to be the essential building blocks of the new enterprise IT.

Bottom Line: $34bn is a steep price tag, but as enterprises look to replatform to make sense of digital, this could be a stroke of genius from IBM

One thing we’ve been tracking a lot here at HFS is the enterprise push to replatform to build the utopian ideal of a touchless IT environment. In many respects, RedHat brings with it many of the core components to achieve this business goal – the firm has innovated for countless years in the space to be at the forefront of changes in technology that standardizes operating environments across enterprises. The firm, along with traditional IT providers like IBM have worked to help enterprises bridge the gap between their on premise assets, old IT capabilities, and the newer technologies coming to the market. Increasingly we are moving away from a world which dictates businesses need to overhaul their environments overnight, and instead into the more realistic thinking that the modern platform will be a hybrid of the old and the new. The providers that can help enterprises link these systems and technologies together, and build a layer over the top to support the stresses and strains of the modern business will capture mindshare, and marketshare in equal measure.

So in many ways, although RedHat comes with a steep price that will leave most financial analysts puzzled – to analysts in the Digital and IT Services space, once you get passed the price tag and the old cloud wars narrative, this deal starts to make a lot of sense. There’s also the interesting inference to make that IBM has taken a decided pivot away from poster-boy IA giant Watson, to go back to its enterprise IT core and solve real challenges for real people – and in the modern world, that will always involve cloud.

Posted in: Cloud Computing

2

1 Comments

RPA is a gateway drug - and magically these guys agree too! Don't you just love coincidences..

October 28, 2018 | Phil Fersht

And here we go again... Our now-infamous headline "RPA is the gateway drug. AI is the drug..." has now magically appeared on the Forbes website in an article entitled "Robotic Process Automation: A Gateway Drug to AI and Digital Transformation" authored by Babson Professor Tom Davenport and Carla O'Dell, Chairman at AQPC:

Posted in: Robotic Process AutomationIntelligent Automation

4

1 Comments

SYKES acquires Symphony becoming the first call center provider with significant automation capability

October 22, 2018 | Phil FershtMelissa O'Brien

Disruption is more ripe in the call center space than any other corner of the services industry, and $1.6bn provider SYKES just upped the ante to feverish levels by becoming only the second-ever service provider to acquire deep RPA and intelligent automation expertise, since Accenture picked up Genfour 18 months ago. And $70m cash is a not insignificant sum to invest in consultative talent in this fast-emerging space in desperate need of experience and scale.

More significantly, Accenture is not a call center provider, SYKES actually is one - and now has the unique capability of attacking the market with automation-led customer experience engagements. While the market recently cogitated on the impacts of Concentrix/Convergys and Teleperformance/Intelenet,  neither of these mergers had a genuine focus on intelligent automation (IA).  And our new global study on AI covering 590 Global 2000 firms worldwide (conducted with KPMG), clearly shows  intelligent automation is in unique demand across IT and customer service areas more than any organizational function:

Click to Enlarge

So why is SYKES acquiring Symphony meaningful? 

None of the "traditional" call center providers have upped the ante with automation. Until now.  We have found this bizarre, as there are so many opportunities to improve broken processes, speed up customer response capabilities with both Robotic Process Automation (RPA) and Robotic Desktop Automation (RDA).  There's no surprise many of the Indian-heritage providers are jumping back into call center, sensing an easy opportunity to take business from vulnerable traditional call center providers with a disruptive automation-centric approach.

SYKES is not beset by legacy enterprise deals choking the life out of it.  Call center providers that got too beholden to legacy clients with dinosaur FTE pricing models are really struggling.  This was one of the prime reasons Convergys (despite being one of the industry's finest purveyors of customer care) struggled to maintain market growth and ended up being acquired for an extremely attractive price by Concentrix earlier this year. SYKES is currently the 7th largest player in the contact center space (3% market share) with revenues of $1.7bn - enough to compete at the high-end, but still nimble enough to build a base of automation-led clients, chase strategic deals and be a disruptive nuisance in a market with razor-thin profit margins.

The OneOffice is here and Symphony can link the front to back office with its approach to digital operations.  Digital organizations must have an operating framework that maps out how they have to operate in the future. Traditional operating models, while creating some incremental productivity value, if managed effectively, struggle to drive the unification of digital business models with emerging technologies across a business's operations. The only true way to create a OneOffice experience is to be able to integrate the front office processes and interactive technologies (most of which are embedded in the call center) with the operations of the organization:

Click to Enlarge

The Digital OneOffice is where teams function autonomously across front, middle and back office functions to promote broader processes with real-time data flows that support rapid decision making. It’s where front, middle and back offices will cease to exist, as they will be, simply, OneOffice.  SYKES has a unique opportunity to consult to enterprises to make these front to back connections and weaves these capabilities into their managed services offerings.  The merged entity can offer real expertise to provide automated processes as-a-service and help their clients through the journey. The only missing pieces, in the short-medium term, may be to diversify further into the middle office areas and analytics to add some real end-to-end process value, but much of this can also be accomplished through some smart partnerships.

SYKES has already been making serious investments in digital capability. The Clearlink acquisition gave SYKES capabilities in the digital marketing space, which is complementary to its core business and also a differentiator from its peers in the contact center world.  SYKES’ strategy here is to connect across the customer lifecycle for an “omnichannel” solution— really digital CX. Qelp is another acquisition that expanded SYKES’ value proposition outside of core contact center services — a call center software firm specializing in self service on mobile phones, a real boon for its telecom clients.

SYKES has a sizeable WAHA delivery workforce (acquired through Alpine Access in 2012) which is a particular strength for its retail clients. The scalability and virtual training of this program is particularly effective. OneSYKES, its cloud delivery and WFM platform enable this capability. The platform also enables customer interaction analytics.

SYKES' strength in the retail and telecom businesses.  These are two of the most prime industries for automation-centric offerings, and where demand is very high (see earlier post on vertical focus in RPA).  Added focus in the financial services sector would also be beneficial post-merger.

What does a SYKES/Symphony really bring to the table?

One of the last remaining automation services independents with credible global scale.  With Genfour long out of the picture (and submerged somewhere inside Accenture) there are very few independent automation consultancies left worth evaluating that can impact a business the size of SYKES.  Sure, there are some boutiques, such as Virtual Operations, Mindfields and Roboyo, that add some domain expertise, but nothing close to the scale of Symphony, which has 200 FTEs across Europe, North America, India and Mexico.  It will be hard for any of SYKES' competitors to respond in kind, and we are quite amazed that only one of them had made a serious move to acquire Symphony prior to SYKES' interest.

Skill+Scale. Enterprise clients want the skill of the small guys (but not the risk), the scale of the big guys (but not the baggage).  This sends out a shot across the bow to the likes of Accenture, Capgemini, Cognizant, Deloitte, EY, Genpact, KPMG etc., all competing in the quasi-consultative / managed service market... that is automation-led capability.

Appeals to the RPA software firms. The likes of Automation Anywhere, Blue Prism and UiPath will welcome any deal like that that takes them more into the front office of enterprises.  This will also attract the attention of Nice, which has a strong call center automation focus.  Other aspirational RPA firms, such as Pega, WorkFusion and Kofax, will also take notice and want to engage with this new entity.  

Streetwise expertise. The four founders all bring a "hands-on" credibility to the table, which most organizations like to deal with:  David Poole, Ian Barkin, David Brain and Pascal Baker.  Many enterprises are already frustrated dealing with some of the usual suspects and may be tempted to switch to this new entity to take its OneOffice play to a new level. Obviously, much depends on SYKES leadership's ability to retain the Symphony talent and engage them with a compelling global story.

Hands the Symphony team significant enterprise access.  This will catalyze growth and disruption by giving Symphony access to a unique portfolio of 200+ enterprise clients including more than 50% of the world’s top 100 brands.  While the Big 4 RPA experts struggle to convince their global partner colleagues to let them near their deep-pocketed clients, SYKES should have no problem opening the kimono to its finest differentiator that none of its competitors can (currently) boast.

Can start to heal the 'scale disease' threatening to derail the RPA and Intelligent Automation industry. As our (soon-to-be-unveiled) global study of 590 leaders of Intelligent Automation initiatives reveals, barely more than one-in-ten enterprises has reached a place of industrialized scale with RPA - and the word from so many clients is loud and clear that they need help:

Click to Enlarge

This struggle to get to a point beyond pilot exercises and project-based experimentation could prove to be a serious point of failure for the whole industry drivthese solutions.  There needs to be a much stronger melding of enterprises with implementation and consulting capability to fix these issues.  This has to be an area where a SYKES/Symphony can profit.

The Bottom-line: Kudos to SYKES for making a bold bet, which has real potential.  But it needs to move fast and aggressively post-acquisition to make this bear fruit

If I had to count the number of truly successful services / consulting mergers over the past decade, it wouldn't take me very long, or require too many fingers. In so many cases, the acquiring firm is checking a box before moving onto the next shiny new object. What excites me about this move is the size of SYKES to make this really significant for the firm, the fact Symphony gives it a capability truly differentiating and hard for its competitors to replicate, and the fact it becomes the first customer-centric service provider to tackle the unquenched thirst for automation across customer processes to drive genuine OneOffice endstates.

But this is a market that simply refuses to stand still... this has to be a merger that both parties fully embrace with the verve and energy that took Symphony from a great idea in 2013 to one of the most disruptive and exciting consulting businesses in the business operations industry. That means SYKES needs to do a much better job of articulating to the world what it brings to the table, especially in the cut-throat world of customer experience BPO. SYKES leadership needs to make Symphony front and center and refuse to blunt its edge in driving narrative - staying ahead of the curve and forging great industry relationships.

In addition, SYKES needs to add to the OneOffice capability, search the globe for expertise in regions such as China, Philippines, Japan,South America and Canada. This can be with further tuck-in acquisitions and smart organic talent acquisition. It will also need to work extremely hard defining its brand and articulating the new generation of OneOffice solutions to industry.  This is an exciting merger, but the hard work really starts now...

Posted in: Digital OneOfficeRobotic Process Automation

6

1 Comments

Ensure your investments aren't conspiring to bring you pain...

October 19, 2018 | Phil Fersht

Posted in: Absolutely Meaningless ComedyContracts, Negotiation and Pricing

0

0 Comments

Mihir Shukla and Alastair Bathgate in the Battle for the Robotic Billions... only at HFS FORA

October 12, 2018 | Phil Fersht

Click to Apply for your Seat

After all the fun and games we sparked with our recent blog "Seven deadly misnomers why these billion dollar RPA valuations are insane" we thought we'd give the CEOs of the leading two RPA firms (see the new HFS TOP 10 RPA report), Automation Anywhere (Mihir Shukla) and Blue Prism (Alastair Bathgate) a chance to face/off on stage to thrash out why their firms' valuations are on such an exciting trajectory - and engage with the HFS FORA crowd to debate where the hell this space is really going and how we need to prepare for an intelligently automated future.

Yes, people, this year's HFS FORA Summit in New York from December 11-12 is shaping up to be at our boldest, most brazen and brash best.  Ever!

If you're looking to up your RPA game and see who comes out on top, sign up to reserve your seat now, or forever hold your peace.

I look forward to seeing you in New York,

Cheers!

Phil

Posted in: Digital OneOfficeRobotic Process AutomationIntelligent Automation

0

0 Comments

RPA is the gateway drug. AI is the drug...

October 10, 2018 | Phil Fersht

Anyone failing to escape the swirl of intense hype threatening to destroy everything great about RPA is probably thinking that these cute products are going to solve all their artificial intelligence needs and deliver them with a "digital workforce" that will go way beyond scraping screens, producing scripts and running unattended recorded process loops.

Now, don't get me wrong - I LOVE RPA... jeez, I bloody helped create the space when I first wrote about it in 2012.  I don't want to toot my own horn, but this space probably never have would have got off the ground if we hadn't been curious enough to get deep into it and articulate its value to the world.  And no one's paid me a billion dollars (well not yet, anyway).

Click to Enlarge

RPA creates a genuine experience, where the underlying fabric of decades-old processes can finally be altered

When we released the first "Intelligent Automation Continuum" in 2015,  we made it very clear that RPA was clearly the first step in a much broader roadmap to achieve beautifully-automated intelligence across your enterprise.  And today, this gateway philosophy has never been closer to reality.  RPA, when executed well, delivers a digitally-transformative experience to business operations executives, where they can - for the first time - fundamentally change how a process is designed to process data much, much faster.  Suddenly, firms have the chance to make fundamental changes to how they design workflows, instead of persisting with doing things the same old way, but with lower cost people and more efficient delivery models. Isn't that enough for now?  Why does the hype take it to a place where it's only going to disappoint?  If IBM's leadership already thinks these firms are massively overpriced, are there really others out there which will take the plunge?

When I see executives who previously stared at excel sheets all day (while beating up BPO providers for overcharging for insurance clerks in Delhi) actually getting trained to redesign workflows using scripts and GUIs, it warms the soul.  We are actually trying to do thing better... not just cheaper!  So why can't we be content with making this actually work before we get too carried away?

Time for a reality check:  RPA is firmly on the radar, but let's see it become properly industrialized and scaled before we get too carried away

The vast majority of these initiatives are project-based, not scaled - only 13% of RPA adopters are currently scaled up and industrialized, according to new data from 590 enterprises worldwide.  Most RPA adopters are still tinkering with projects and not rushing towards enterprise scale adoption:

Click to Enlarge

Suddenly, the whole RPA value proposition, which has carefully matured from the "Oh my God, a robot's going to take my job" to "OK, I get it now, RPA actually frees up time and fixes process breakages and staves off costly investments" has been injected with some serious hype-steroids, where suddenly these firms are worth billions of dollars, some are actually declaring they are going to deliver their own consulting services (really) and quickly move up the continuum to offer real cognitive and AI capabilities.  I'm sorry, but when were the RPA firms going to compete with Google and Microsoft? Am I missing something here? 

The Bottom-Line: Enjoy that RPA high a bit longer before you graduate onto the harder stuff...

The real data shows just how not-ready we are to declare some kind of robo-victory - executives must evaluate how all intelligent automation technologies can work together to take us to the promised land. RPA provides a terrific first stop for executives to make real underlying changes to their processes.  Once processes are digitized, there is so much more we can do with the data being produced, which is where other automation and AI tech comes into play, such as Machine Learning and predictive analytics and sophisticated cognitive computing.

Now it's always critical to focus on the "what next", and in the case of RPA the possibilities are limitless, but only when you have mastered how to digitize your underlying mess that has plagued your organization since before the days COBOL was the next big thing.  Then it's about how you reel in the analytics and AI possibilities that truly take your business to a new level of data heaven.  But let's get past the gateway first... let's not get ahead of reality and mess this one up, folks.

Posted in: Robotic Process AutomationIntelligent Automation

17

1 Comments

Tiger burns even brighter as Genpact makes its instinctive move

October 06, 2018 | Phil Fersht

One firm that's kept driving consistent growth above the industry average, despite the cries of "commodotization" and "cannibalization" in the business process management arena, is Genpact.  This firm blitzed the offshore-centric BPO industry in the mid 2000's, with its focus on the "virtual captive", its obsession with process excellence (emanating from its GE roots) and the willingness of enterprise operations leaders to invest in its energetic culture. 

As times evolved and other aggressive outsourcers rolled up their sleeves, Genpact has increased investments in higher-end process and operations management expertise to maintain its early tranche of enterprise customers, while focusing on the next wave. Making a concerted focus on building a Design Thinking competency out of its LEAN roots, while adding skills in AI-enabling and digitizing processes, Genpact has not been afraid to stay ahead of industry disruption. In fact, its process roots have often bolstered the firm's credibility when driving industry narrative, as it understands the real changes enterprise need to make at the process and cultural level, if they are genuinely serious about a OneOffice Framework.  

The one major constant behind these phases of change has been CEO Tiger Tyaragarajan, who've I've personally known for more than 15 years, when he was the North American market-maker for the firm, before becoming CEO in 2011.  Today, Tiger talks a lot about the Instinctive Enterprise, which is very similar to our view of the OneOffice Framework, so I thought it time to reconnect before he joins us at our December FORA Summit in New York...

Phil Fersht, CEO and Chief Analyst, HFS Research: It’s great catching up again, Tiger. We’re looking at a lot of serious tinkering and experimentation with new technologies in the business process management (BPM) space. How has a company like Genpact evolved over the last 18 months, and where do you think things are going in the next couple of years? 

Tiger Tyagarajan, President and CEO, Genpact: Phil, thank you for the opportunity to spend some time talking with you.

I like the word you used—evolution—and the period that you applied it to—18 months. In the world we are in, evolution is the way to think about things. I distinguish that from revolution, which is to drop everything that you’re doing and go after something new.

In our business, we think about many of our journeys as evolutions. We’ve always had depth and process; we understand how to bring the science of process to problems and how to generate value. We’ve always looked at process outcomes as important metrics to improve, and we’ve used methodologies like Lean and Six Sigma enough that we’re effective with them.

We’ve added new capabilities that didn’t exist six years, four years, and 18 months ago. Six years ago, we had nothing on digital; four years ago, we started building out our capabilities; 18 months ago we started scaling those capabilities and continue to scale them.

In the last three years,  we’ve made nine acquisitions. Of the nine acquisitions, seven were in consulting and digital, and two were in deep domain areas, such as supply chain and insurance. We continue to add domain, but the ratio includes much more digital, analytics,

Read More »

Posted in: Digital OneOffice

5

1 Comments