Ollie O’Donoghue
 
Research Director, IT Services 
Learn more about Ollie O’Donoghue
IBM, Accenture, Cognizant, Atos and HCL leading the Top 10 infrastructure and
September 20, 2018 | Phil FershtJamie SnowdonOllie O’Donoghue

it's easy to overlook our digital underbelly during these times of AI hype and "let's make a few billion based purely on investor hype" fantasies.  But who's providing the tools and grunt to make all this possible?  HFS analyst Ollie O'Donoghue has pooled our study data from the Global 2000, conducted countless enterprise interviews and driven the providers potty to deliver the perfect poignant viewpoint of this industry:

Click for a detailed view of the leading 18 providers

Ollie, what are the major trends in the infrastructure market?

Over the last few years, the infrastructure market has taken a bit of a battering with the kings of hyperscale eroding market share, and enterprises looking for more exciting things to spend their money on than traditional “lift and shift” engagements. However, that’s all changing, and the market is evolving. The big providers are partnering up with the hyperscale cloud players and making them a valuable tool in their toolbox. Moreover, “digital” has fueled enterprises’ appetite for technology. Which means getting their infrastructure and digital foundations in order. After all, these overhyped technologies like AI and blockchain have to run off something!

The challenge for us as analysts covering the space is rethinking how we assess and evaluate providers. In essence, partnerships have become a much more critical part of this market – if a firm isn’t befriending the big cloud leviathans, then they’re likely to struggle to build offerings that resonate with evolving enterprise appetite. The challenge is that as all providers follow this path, there’s a degree of equilibrium, so the assessment needs to evolve further and evaluate how these providers are leveraging partnerships, and building value-add offerings. We also need to scrutinize how providers are developing automation capabilities to design and build more resilient, scalable and cost-effective infrastructure solutions for clients. So while this is a mature market, it’s one that’s changing all the time – and one that certainly keeps us, analysts, busy.

So who’s winning this infrastructure and cloud war?

IBM’s still the undisputed champion of the infrastructure and cloud market – Big Blue brings with it unrivalled enterprise trust, and is the only IT Services major that truly has the cloud capability and resources to fight alongside the hyperscale leviathans AWS, Google, and Microsoft. It also has true scale and ability to manage the largest most complex engagements in this space. That being said, Accenture has an uncompromised reputation for delivering quality and bringing best in class capabilities to engagements. From an enterprise perspective, the fact that this comes at a premium count against the firm to some extent. And while Accenture executives assure us they’re building commercial models to make pricing more attractive, the reputation for being expensive is relatively well set in, and any changes might be like trying to get toothpaste back into the tube. Although let’s be honest, there are worse problems to have than being known for delivering quality at a price.

And the main movers and shakers in the Top 5?

A couple of firms are worth mentioning – Atos performed well because of a concerted effort from the firm to broaden and deepen partnerships with major cloud players. It’s now shaken hands with all of the big hyperscale players and is doing some exciting work around analytics with Google. Atos has also pulled some fresh thinking out of the bag and built a compelling vision for hybrid cloud. HCL has excelled at large scale transformation, is also doing interesting work in the space and comes with strong client references – the consensus is, HCL will keep working to get the job done, bringing in automation capabilities to get the most out of assets. And then we have Cognizant, another firm that is striving to deliver innovation through all its infrastructure services is producing offerings that focus on specific client’s needs. Ensuring business value is delivered, whilst pushing hard down the hybrid cloud path – in recognition that the future of cloud will be leveraging multiple providers to deliver the best results.

So what about the Top 10 overall, any surprises there, Ollie?

The big heavy lifters hold a competitive position, TCS brings a lot to the party and has an enviable track-record of delivery in some industries and loyal clients that leverage the firms considerable global delivery network. Similarly, Infosys is positioned competitively, reflecting the investment the firm is making in building out nearshore delivery centers and redeveloping talent into higher value areas of work. However, the firm does struggle to get its message out there which is holding it back a tad. And then we have DXC – the leviathan firm can bring considerable brains and brawn to engagements, but its path is still unclear to some clients and all eyes are on its financial reports looking for stability at a time when providers sinking can drag clients down with it. Unisys relies on its strong legacy in the Infrastructure space – and innate trust from some industries, particularly financial services. Supplemented by respectable security credentials and offerings. Finally, Wipro is driving a competitive approach to writing off legacy through a cloud-only approach, a strategy which could see the firm drive further up the top 10 list in the future.

So what does the future look like for the market?

We’ve been charting the major trends impacting the infrastructure space for some time now and it’s a quickly moving market. Partnerships are no longer a nice-to-have, they are mandatory if providers are going to have a chance of survival. Finally, the big providers are warming to the potential value they can leverage from the cloud giants, rather than shaking hands through gritted teeth as their revenues eroded. This is an important step as the market matures. But the biggest shift is the rosier tint the market now has after years of revenue freefall. Shifts to cloud and as-a-service hammered traditional revenues – which often made up a sizeable chunk of vendor revenues. But with some compute-heavy applications and technologies on the cards, spending on infrastructure is very much back in vogue. The smart enterprises are investing in their digital underbelly now, in preparation for their future digital needs.  

Bottom line: Our partners who got us here may not be the ones to take us where we're going - the future’s all about smart partnering as the need for savvy IT talent reaches critical levels

If we take a look at revenue projections for the market, it’s not the good news providers are looking for. With As-a-Service and cloud continuing to batter traditional revenues, the market is unlikely to grow from a revenue perspective. But it’s not going to shrink either - we see this market is bouncing back in other ways as enterprises urgently seek help digitizing their operations and scaling their digital businesses: technology is at the heard of C-Suite strategy these days, and partnerships which provide scarce talent to keep these increasingly data-driven environments agile, scalable and secure are critical for enterprises.

Reputationally, IT infrastructure has always had a hard time – security breaches, server crashes, and integration challenges. But all of that’s changing now as automation drives service quality up, and costs down. And partnerships are supporting providers in offering clients best-in-class cloud capabilities at a time when the contents of their digital shopping list needs to be running on the best. 

There is a massive opportunity to lead in the world of IT services, provided you can plug these skills gaps. The challenge is breaking out of the traditional sourcing model to access niche talent across the globe in areas such as crypto-technology, Python development, Lisp, Prolog, Go and C++. While most traditional firms still rely heavily on bread and butter IT services delivered at scale from regions such as India, the emergence of talent in Central and Eastern Europe, China and parts of South America also need to be brought into play. The IT services world will be a very different place in a couple of years as boutique firms offering niche skills come into the fore. Not to mention the emergence of crowdsourcing for IT talent. Having really savvy IT leaders who can cobble together crack teams on-tap to solve their IT headaches is already becoming a huge differentiator for many firms. The will also be a role for the super services integrator, who can pull together teams for clients to work with them on complex projects.

To this end, we recently presented the Digital OneOffice Concept to 100 C-Suite executives to understand what is holding back both business and IT leaders from reaching the promised land of perfect real-time symmetry of their business operations staying ahead of their customers’ needs.  While the business leaders grapple with changing their mindsets, the IT leaders were quick to call out their skills deficiencies to enable their businesses to achieve a digital OneOffice.  

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Hence, those providers which can pull together the resources and talent can still profit from this disruptive market - the digital engine can only purr when it's aligned with all the core components of the business, right from the front to back office.  Today's market is all about taking bigger bets on bigger risks... and only the smartest and boldest will make it.

Premium HFS subscribers can click here to download: The HFS TOP TEN Report:  Infrastructure and enterprise cloud services 2018

Rant Warning: Nodding dogs and vendor marketing – this is all our industry deserves
August 06, 2018 | Phil FershtOllie O’Donoghue

As an analyst, you spend your time with a lot of other analysts - for better or for worse. And, recently, worse is taking up more than its fair share. It just seems like, as an industry, we've lost our collective teeth, our ability to question, challenge and find out the truth.  We'd even go as far as questioning whether we've lost out soul.  

When HFS launched ourselves  onto the market over eight years ago, the cornerstone of the firm was a blog that was revered as one place you could get the real truth about the industry, where people were safe to make a (gasp) controversial comment where we could all call a “spade a spade”.  One industry leader (from IBM of all places) even went as far as describing this blog as the “Wall St Journal editorial section of the industry”.  More recently, we've been called “Blue Collar” research, which I guess we’ll take as a compliment.  Anything is better than being seen as fully paid and played by the dirty vendor dollar... which is sadly how so many recent pieces of "research" have been described.

Today, most analysts and advisors use hype as their comfort blanket – even if they don’t understand it, they just circulate it because it makes them feel relevant

Sadly, at HFS, we doubt we’d have succeeded with our honesty and bluntness if we launched today.  The industry is too controlled by vendor marketeers who shower their lovely budgets at analysts and advisors alike to keep them all in line… where most just regurgitate the same hype as each other because they just don’t care anymore.  Most barely understand the hype, but

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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.

No time to get TWITCHy... but which providers are ready to bounce back?
January 27, 2018 | Phil FershtJamie SnowdonOllie O’Donoghue

Knowing full and well that predictions can bite you on the arse isn’t going to stop us making them! Particularly when the financial reports pour in from some of the biggest movers and shakers in the services industry confirm what we are thinking.

What do we know now?

Unlike the Trump-esque games of ‘I told you so’, we’re not going to pass off something everyone knows already as a prediction (and then immediately congratulate ourselves on doing such a good job at getting a prediction bang on the money).

First up, we need to talk about what we already know; most of the big providers have already posted their results and they make for interesting - and upbeat - reading.

Let’s start by taking the TWITCH providers (Tech Mahindra, Wipro, Infosys, TCS, Cognizant, and HCL). By now, all of these providers, barring Cognizant and Tech Mahindra, have submitted their financial reports for Q4 2017. This gives us a decent picture of the state of the market in general—a topic tackled in greater detail in our latest 2018 market primer—but, suffice it to say, we are starting to look at the IT services market more optimistically - for the first time in years. Our expectations that all of the major providers would report reasonable growth figures have largely been met, a sure sign of the market finally reaching the tipping point. In short, we’re leaving behind much of the turmoil-ridden restructuring of the market from traditional and legacy services to the as-a-service and digital models enterprises now consume with increasingly insatiable appetites.

TWITCH is the winner?

Even so, there are winners and losers, and the pick up in market growth is not shared equally. Wipro, for example, is bucking the trend somewhat by reporting weaker growth than its contemporaries. Similarly, TCS is pushing a more consistent growth line, but the increase of a few percentage points doesn’t quite match the considerable spike other providers are seeing.

HCL’s continued growth has come as somewhat of a surprise to us. While the firm has a strong track-record as an IT services major, there were expectations that the emergence of increased digital uptake would leave the firm struggling to mirror its rivals. Central to this thinking is the fact that the firm has acquired digital capabilities less voraciously than some of its peers, and many of the larger acquisitions, such as Volvo IT, are now mature enough that we would not expect to see them contribute enormously to revenue growth. However, HCL’s continued growth

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Infosys gives up its American Dream
August 18, 2017 | Phil FershtTom ReunerOllie O’Donoghue

Once dubbed the “Indian Accenture”, being the Indian heritage outsourcer with the high-end reputation, the firm now finds itself enduring, perhaps, the most difficult period of its history – and it could be poised to get a hell of a lot worse. 

Vishal Sikka brought energy, fresh ideas, hope… and a Silicon Valley mindset to its leadership when he came aboard amidst his Design Thinking and jeans-to-work attitude just three years ago.  However, all Sikka’s energetic ideas and innovations have been largely forgotten over the past year, as the public spat with Founder Narayana Murthy gathered irritating momentum and completely slammed the brakes on the momentum Sikka had sparked.  Sikka had woken Infosys up to its potential and the Founders were more obsessed with his use of the corporate jet than making the acquisitions the firm needs to be competitive.

From the poster boys for innovative offshoring, epitomized in Thomas Friedman’s seminal “The World is Flat” through to the constant public interventions in corporate affairs by Murthy, Infosys has had a bumpy ride over the last decade of its short history. And to magnify its issues, all of Murthy’s interventions have been played out in public, with the Indian press the grateful recipient of endless reams of news fodder being provided by this corporate soap opera.  

Vishal Sikka’s resignation grinds to a halt this public transition from the Founders' generation to becoming a “normal” corporate company. Without a doubt, this episode will find its way into economics textbooks for future students to learn the lessons in strategy, corporate governance and beyond. However, at least decisive action has been taken, and Murthy and his founders can try and restore a stability that ends this public drama. This is just a bad time to go through such a strategic leadership nightmare, when competition is at its most severe, with too many suppliers chasing too few contracts and margins under extreme pressure. This is especially troubling when you consider Sikka has kept the revenue and profitability ship progressing well, maintaining profit margins close to 25% and revenue growth over 5%, even at a time when the industry growth is flat and political stances towards offshoring are heated, with several US deals being awarded to "Western" suppliers:

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So what are the lessons that can be learned from all this?

Murthy is the dominant father figure of Infosys and he has made that very clear with his actions. As founding CEO, he is synonymous with the early success, the culture, but more crucially, with the decision-making at Infosys. When SD Shibulal, another of the founders, took over it was difficult for him to step out of Murthy’s shadow. Shibulal’s “Infosys 3.0” strategy was designed to address the over-dependence on the US market (see interview) and rebalance the

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Break With Tradition Drives Infrastructure Services Toward Better Outcomes
August 02, 2017 | Jamie SnowdonOllie O’Donoghue

The HfS’ Blueprint reports are our temperature check of an industry. A guide to some of the trends that are already in play, and those starting to bubble under the surface. We have just launched the first in our series of IT Services reports focused on Infrastructure Services, and it’s some the trends around this research we’d want to shine a light on today. Of course, if you’re interested in all of the market information and dynamics covered in the research, you can get your hands on a copy here.

The industry breaks with tradition

When we talk about infrastructure services, the mind immediately jumps to build and manage or “lift and shift” engagements. Indeed, for a long time, it was this type of work that was the most in demand and lucrative of providers operating in the space. However, this is no longer the case as businesses seek to secure more holistic IT Services to support their digital ambitions. As we researched the mechanics of the infrastructure and enterprise cloud industry, it became apparent that providers are breaking with the traditional services and models they used to thrive on, and are seeking to focus on higher-value transformational activities instead. For some providers, this is more of a pivot, as they grapple with providing traditional services as well as new ones. While for others it is a more decided and strategic shift, in which “lift and shift” engagements are avoided entirely in favour of juicier transformative projects.

Our expectation is that this will transform the way some vendors pitch their infrastructure services completely. Polarising some to either end of the spectrum – those focused on high-value transformation, and those solidifying their position in at the traditional end. Somewhere in the middle, we’ll see some of the larger firms, capable of spreading themselves across the spectrum to handle a broad range of engagements.

Service Brokerage enables firms to become a one-stop-shop

Another dynamic, undoubtedly linked to the commotion caused by an industry pivoting and refocusing engagement models, is the decidedly increased role service brokerage plays. Many firms are moving toward semi-impartial and fully-agnostic service brokerage models to enable clients to secure best-in-class services through them. Many firms are moving toward semi-impartial and fully-agnostic service brokerage models to enable clients to secure best-in-class services through them, allowing them to offer a one-stop-shop for sourcing services across the IT spectrum.

However, some firms will find this easier than others, particularly those who have invested considerable sums in building proprietary technologies. For these firms, balancing the incentive to protect investments and assets against the industry shift to brokerage will be tough. But potentially necessary if client expectations set the pace at the agnostic provision of best-in-class services.

As this trend develops, we can expect to see larger and more tightly woven partner ecosystems in the space. Alongside increased activity from vendors trying to prove their credentials to partners in a bid to take relationships to the next level, while articulating their brokerage credibility to clients.

Consultancy-led engagements focus on business outcomes

The two preceding trends have the potential to completely alter the dynamics of the infrastructure and enterprise cloud industry and, indeed, IT Services as a whole. In part client expectations and demand are leading these challenges as business scream out for services and solutions that meet their digital and operational ambitions. Of course, businesses vary considerably, and the suitability of one IT Service offering varies accordingly. Leading to another shift away from tradition, as providers seek to deploy higher value solutions that tackle the core of a businesses problems.

We can see this trend play out in various ways - such as evolving pricing models that focus on business outcomes - but there’s another way that paints an encouraging picture. A picture of an industry refocusing its engagement model away from core, unadaptable services and towards the design and implementation of those which tackle a particular challenge. At the forefront of this shift is the increased focus on consultancy-led engagements that seek to understand a business and its challenges and objectives.

Approaches like this will be necessary if firms are to thrive in the changing marketplace. For example, it’s only through understanding a client's needs that a provider will be able to select and recommend the right services through its brokerage model or if the firm is to assess whether the engagement fits in with their model and approach.

As this trend develops, we can expect to see firms shoring up their consultancy brains and brawn to support engagements across IT Services from initiation to completion.

Bottom Line: Trends impacting the infrastructure and enterprise cloud industry signal a potentially turbulent future albeit one packed with opportunity for dynamic and agile providers.

Technology: Terminator or Salvation?
July 14, 2017 | Ollie O’Donoghue

Recently I attended the GSA Symposium to get to grips with what’s going on in the global sourcing industry. In a debate, the topic of robotics and automation and its economic impact was tackled head-on by a panel that included union leaders and automation luminaries including HfS’ founder Phil Fersht.

The core focus of the debate was the impact of these technologies on employment, and what could be done to mitigate them. The discussion was broad and covered a full spectrum of topics including universal basic wage and the plight of low-skilled labor. It is the latter that caught my attention.

The bulk of the argument was how organizations should protect low-skilled positions to avoid such sweeping economic change. One union leader argued that if low-skilled jobs were to leave his region, it could never possibly recover as the range of employment options simply weren’t available.

The trouble is, I disagree and do so with relatively little knowledge of the region in question. Simply put, I think the future looks bright for all workers, regardless of skill, for two key reasons. Paradoxically, technology is at the center of both – except where others believe they’ll make people redundant, I think they’ll empower them to do greater things.

Technology up-skills and empowers

In previous blogs, I’ve argued that technologies like automation free people to do amazing things by doing the tedious and low-value work that nobody wants to do anyway. This time, however, I want to look at things from the other side of the coin.

I believe technology empowers people to do high-skilled work, regardless of their experience and education. Historically, individuals found themselves pigeon-holed to specific forms of work because of their academic background or employment history. It may be that they didn’t study the course they needed to get the dream job, or hadn’t ticked all the experience boxes needed to get where they wanted to be. Now, technology can balance the field.

Take a car mechanic as an example. An enormous amount of training and experience is required to be successful in the role. Fixing a Ford Mondeo with a dodgy head gasket isn’t something you can just walk into after all. However, with new analytics technologies and the increased computerization of vehicles, it may be something that can be diagnosed by a relative novice. With the right integrated knowledge management system, it might be something they can fix while reading a walkthrough or watching a video.

What’s key here is that the technology available to us now provides us with opportunities that were historically never available. So, the fear of low-skilled labor taking the brunt of the automation fallout is unlikely to be as simple as people make it sound. The parameters of what is considered low-skill and high-skill are blurring significantly.

Technology makes us more mobile

Access to these opportunities makes the average employee more mobile, as long as they have the right tools and access to knowledge most doors can be flung open. But technology makes us more mobile in another way. I’m writing this piece from home, approximately 50 miles from my nearest colleague, Jamie. Nevertheless, I’m happy talking to Jamie right now using technology that’s available to pretty much anyone. I’m accessing documents and collaborating on a report with colleagues in three continents. Of course, some jobs and professions require a physical presence (even I’m struggling with the concept of a surgeon operating from home) but more and more will utilize new mobility and communication technologies to allow employees to work from anywhere in the world.

The future of work is a complex beast, but if one thing’s clear it’s that technology will play an enormous part.

So, will technology be a terminator or our salvation?

Both. Technology will make some jobs redundant, improve some and create others – as it has always done. When I discussed this blog with our Head of Research, Saurabh, he mentioned the example of candlemaking’s decline at the advent of electricity and the light bulb. Sure this was undoubtedly upsetting for those who had dedicated their lives to candle making and had little other skills to transfer into another role. But these days, when we’re surrounded by knowledge, tools and technologies, we have a much broader range of transferable skills.

Crucially, as Phil Fersht has pointed out in his popular blog, the digital worker has a broader range of considerations rather than a particular strength in a craft – the key considerations are captured neatly in the image below which I’ve ruthlessly plagiarized from Phil’s original blog.

 

When did we start missing the point?

What I want to know is when did we start being so miserable? Everywhere I turn people are sharpening pitchforks for the imminent robot invasion. I answered a survey recently that asked if I was preparing for a world domination bid from an AI overlord. Amongst the hype and hysteria, we’ve lost sight of what’s really going on. By and large, technologies have been invented to improve on what we currently have. Sure, dependent on your perspective you can reel off a list of offenders that have been damaging, but for the most part, they improve how we live, work and play. And increasingly seek to secure the future of our planet.

Frankly, and if the hype is to be believed I may be in the minority, I’m looking forward to the future and what new and innovative technologies will bring.

Bottom Line: The truth is that technology may have a negative impact in some areas of the economy, but it will also have a positive impact on many more.

IBM partners with Automation Anywhere: Great for AA, but IBM’s cognitive automation strategy just got more confusing
July 14, 2017 | Phil FershtTom ReunerOllie O’DonoghueSaurabh Gupta

If you’ve been covering the legacy world of Business Process Management (BPM) software and the emergence of Robotic Process Automation (RPA) software for the past two decades, it’s fascinating to see the two solutions to mesh together, as customers need the full gamut of automation help:  the digitization of manual work, the scripting, and integration of static data that provide the foundation for the automation of the digital processes.

Then you can get to the really exciting stuff of recognizing data patterns, taking advantage of machine learning to make systems self-remediating, and, ultimately, the injection of intelligence to make them absorb everything around them to become predictive and human-like in the way they operate. This is why we’re seeing the likes of Pega peering into the RPA space, Blue Prism partnering with Appian and AutomationAnywhere now partnering with IBM’s BPM software solution.  We’re also seeing some novel approaches, such as intelligent automation provider WorkFusion donate free RPA software to the world to bridge the divide between the manual and the digital quandary.

Yes, people, there appears to be a fair bit of life left in the HfS Intelligent Automation Continuum. Despite some critics who believe RPA is a very separate solution than digital autonomics, machine learning, cognitive and AI, the fundamental thought-process behind the HfS Continuum model still rings true: all the approaches illustrated are both overlapping and interdependent:

Notwithstanding all the feverish excitement on RPA and Cognitive, we still need to include all the less exciting - but critical – activities, like runbooks and scripting, and how these approaches must be integrated into broader digital process workflows. True Digital OneOffice only works when all breakpoints and silos are effectively automated.  If you truly want all touchpoints and processes across your organization focused on executing your vision of customer experiences and building foundational capabilities that support this entire philosophy, you have to address the entire Intelligent Automation Continuum if you want a data backbone that operates in synch across your customers, partners, and employees.

This is the context in which the announcement of IBM’s partnership with AutomationAnywhere comes in.

As part of the agreement, the two companies plan to integrate Automation Anywhere’s RPA platform with IBM’s portfolio of digital process automation software. The main focus will be on integrating Automation Anywhere with IBM’s Business Process Manager and Operational Decision Manager. Crucially, integration is meant to be on code level and therefore goes beyond more loosely integrated partnerships between BPM and RPA players. These enhanced

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Dodge Digital Disaster: Get Your Back Office Ducks in a Row
May 29, 2017 | Ollie O’Donoghue

Over the last few years, it’s been almost impossible to attend an IT Operations conference without Enterprise Service Management (ESM) taking up more than its fair share of the agenda. Before joining HfS, I’d spent about four years covering the trend in its various forms as both a practitioner and an analyst. So it came as a bit of a surprise to see such a huge gap between the businesses I’m covering now to those I had in my previous role.

For the clients and companies I follow now, trends like ESM and Shared Services are old hat – they’ve moved on to other more advanced forms of aligning business services. Whereas for those I worked with in my former role, the trend is only really starting to take shape now.

To best exemplify this difference between organisations, I’ll tell a quick story about the last presentation I gave before joining HfS.

At an ITSM conference at the start of the year, I took to the stage to deliver a presentation using the huge amount of data I’d collected over the years to paint a picture of trends in the industry, one of which happened to be ESM. I argued that by the end of the year up to 85% of organisations will be exhibiting some form of it – from simply sharing best practice right through to the formation of single shared service centres. The audience responded to the prediction with a few reassuring nods. Crucially, no-one chased me off the stage, although a few did come up after the presentation to utter “that was brave” before patting me on the back and walking off.

Ultimately, though, I stand by the prediction, and I continue to do so in the safe harbors of HfS, the home of the Digital OneOffice™ concept. According to HfS experts, ESM is just one fundamental of the framework. A stop on a much larger journey to truly embrace digital transformation. In support of this, they have plenty of data and analysis which, by happy coincidence supports my “brave” prediction. We can pool the dynamics into two camps -  which for anyone with a passing interest in economics will recognise: Supply and Demand.

Demand: Business leaders see greater back-office alignment as critical to their success

First of all, we have demand, and this demand is coming right from business leaders at the top. HfS research shows that there is a considerable appetite amongst leaders for improved alignment of business services so much so that it’s considered to be mission critical by 31% of executives, while 48% believe it to be of increasing importance. While the evidence suggests lower ends of the senior leadership team are embracing it with the same vigor, it’s more than reasonable to suggest the demand at the C-Level will have a considerable impact on the shaping of the modern business environment.

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Supply: Providers are shoring up their brains and brawn to build services that deliver greater alignment

Encouragingly, we’re also starting to see evolution in the business services supplier ecosystem. Take Atos’ recent acquisition of Engage ESM – a specialist provider in the field of enterprise service management technology and consultancy – that will add the brains and brawn of 150 ESM specialists to their offering.

Similarly, take the ambitions of ServiceNow to carve up a much larger chunk of business services. Launching from its stable footing in the ITSM space and no doubt leveraging it’s almost ubiquitous partnering of all large IT Service Providers to build a value proposition that takes what it does best in IT and apply it to the rest of the back office.

I have no doubt we’ll soon see even more providers aiming to match their services with the increased business demand.

Bigger Picture: We’ve got to get this right!

Outside of the evolution of supply and demand dynamics, there’s a much greater force at play – the drive towards a digital economy. The source of pressure on modern businesses that will see some succeed and others fail. Crucially, intelligent and aligned business services are the backbone of successful digital transformation.

For some of the organisations I have met over the years, truly aligning back-office services sounds like a pipe dream. However, for HfS, the thought leaders who designed the Digital OneOffice framework, the roadmap is clear, and if businesses want to survive in the modern digital economy, they must get their back office ducks in a row. Without back office alignment, it won’t be a robust enough platform to provide the agility needed in the digital world. By using technologies and providers of analytics, automation and the digitisation of resources and processes, businesses can break down siloed legacy operations to build efficient end-to-end business processes – the perfect platform for business agility and innovation.

 

So hopefully, the bold prediction I made a few months ago isn’t way off the mark. At least that is assuming businesses don’t swiftly change their minds and yearn for a siloed back office, supporting traditional communication channels and processes because “we’ve always done it this way”. Nevertheless, in a year were political pollsters and researchers have been just as surprised by the results as the winners, I may hold back on celebrating for a little while yet.

Bottom Line: Aligned Business Services are the backbone of the Digital OneOffice – companies need to get this right to survive in the digital economy.

Stop sawing that plank with a fish: An RPA 101
May 16, 2017 | Ollie O’Donoghue

These days, we talk about Robotic Process Automation as if it’s the remedy to all modern business woes. But, as with all technologies, the capacity for RPA to deliver value has its limits.

Last week I had the privilege of attending an RPA user group event hosted by the Global Sourcing Association packed with service providers, buyers, and experts - where this solutions capacity to deliver was laid bare. After two refreshingly honest presentations by automation gurus from  Symphony Ventures and Thoughtonomy, the roundtable discussions kicked off. Several buyers joined me, alongside two of Symphony Ventures finest consultants, Katharine and Nick, who were both more than willing to impart honest and impartial advice. While the parameters of the conversation were broad, there are four key takeaways that I’d be happy to share with you. I have built all of the following out of the challenges brought to the table by practitioners and buyers. With the answers that came from the knowledge and expertise of the experts or those having weathered some implementations.

 

1. RPA isn’t the salve for all wounds

There’s no doubt about it, the technology is powerful, but it’s important to recognise that there are limits. Environments with chaotic data sets or irrational processes are not suitable without a huge amount of refining. Nor are you likely to find much success if processes rely too heavily on external data sources – unless the owner of the source is particularly liberal with access.

RPA works best on processes that are formulaic and rules-based. If your process has a set input required to achieve the desired outcome, with a series of consistent steps in between it’s in scope. Even if there are a huge number of steps or the rules to follow are relatively complex, a solution can be built, albeit with the hard work and knowledge of providers and experts.

2. Don’t be tempted to go rogue

Some of you may be tempted to leave other areas of the organisation, especially IT, out of an RPA project. However, all the experts in the room warned against doing so. Inviting IT to the party is essential to help navigate through some of the trickier aspects of the implementation with solid business and technical knowledge.

Some of the providers I spoke to at the event provided plenty of examples of when their implementation was made just that little bit harder when relations between the buyer and IT were…less than harmonious. The key is to build relationships with all stakeholders before embarking on the project to ensure your RPA project delivers the most business value and has the greatest chance of success.

3. The process may have RPA written all over it, that doesn’t make it suitable

Let’s say you have a process that ticks all the boxes – boring, formulaic, rules-based stuff that nobody wants to do. Although it seems perfect, it may not be suitable for a simple reason: the ROI isn’t there. Examples abounded of processes pushed forward for consideration that was already relatively inexpensive to handle, making the cost of automation fail to add up. Such as a long-winded rules-based process that, in practice, was only handled by a single person in the first place.

After all the calculations are laid out on the table, the economics of automation may not add up, at least from a cost saving perspective. However, be careful of ruling it out completely as it’s possible that freeing up someone’s time or improving the process may add economic value in another way, by improving customer and employee experience, for example.

4. In some cases, RPA is the last solution on the list

For some processes implementing RPA is the equivalent of hitting a nail with a sledgehammer (I ruined a perfectly good shed attempting that). For others, it’s like sawing a plank of wood with a fish, just plain unnecessary. For example, a process highlighted for consideration due to its resource demands may, in fact, also be managed elsewhere in the organisation. The simple fix would be to merge all parallel processes to not only ensure consistent outcomes but also to reduce the resource overheads significantly.

Halting unnecessary processes or merging duplicate ones may be the solution businesses are looking for instead of automation. Katharine and Nick, the consultants we spoke with advised that they often start an engagement first by taking a holistic view of all processes before jumping in with an RPA implementation to make sure it’s the best solution for the problem.

Summary

RPA simply isn’t the right solution for every problem, and these are just a few of those discussed at the user group. Perhaps it’s the right time for the industry to take a step back and understand what value the technology can add in different situations. Instead of pushing it as the miracle cure for all business woes – a perception facilitated by buyers looking for a shiny new tool and providers seeking to make the most of the RPA Gold Rush.

Bottom Line: Without a doubt, RPA is a powerful technology, but for some business challenges there are far more effective solutions to consider.