Jamie Snowdon
 
Chief Data Officer 
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Forget Brexit, RPA could wipe $820m a year of costs from the NHS with a common model across its 207 trusts
December 15, 2018 | Phil FershtJamie SnowdonOllie O’Donoghue

What I love about RPA is it most often has the highest impact where there is a serious amount of IT failure, disorganization and overworked staff. Yes, that's a lot of organizations to consider, and it's one of the reasons why its hard to find this technology sexy - it's built to fix the murky, dysfunctional stuff that has been squirreled away for decades, buried deep beneath failing ERP projects and conveniently ignored by senior executives who have few political points to score by acknowledging they should actually focus on fixing their broken underbellies.

This has been the failure of operations leaders for decades - simply focusing on layering more garbage over the top, when the real way to fix their inherent problems of dysfunction is to dig deep beneath their navels and address their broken process chains, and - heaven forbid - actually start to do something differently.

And there is no ground more fertile than the hallowed turf of the British National Health Service (NHS), the world's sixth-largest employer with 1.7m staff, where decades of hollow political rhetoric, obscene wastage on 'big-bang IT transformations" and big-ticket consultants on the gravy train, bravely held together by a woefully understaffed administration that end up spending on contract agencies just to keep the wheels turning. Let's face facts: the UK National Health Service makes the basket-case that is Obama Care resemble a slick, well-oiled machine.

Enter RPA: a tool that is reducing GP referral processing time by 75%

But there is renewed hope - and this hope can quite easily become reality if you entertain the idea of using RPA to unify document submissions, scrape data from legacy desktops to speed up GP referral times.  And the real value to be gained here is if the NHS can adopt a common enterprise-wide strategy to deploy a common RPA as-a-service toolset and methodology across its 207 individual trusts.  It's so simple, I describe in on the back of an envelope:

Even in these tough times for the institution, many of its leaders are looking optimistically at the opportunities new technologies that can be customized provide, which can solve business inefficiencies and don't involve the massive complexities of entire system upheavals. One particular example provides insights into how one NHS trust is actively addressing some of these issues, both in terms of saving the NHS money directly, easing pressure on administrative staff and providing a better more consistent service for patients being referred to hospitals. All of these endeavors are in line with the broader objective of ensuring that the NHS meets some overriding objectives to digitize services.

The starting point for this work began at the East Suffolk and North Essex Foundation Trust (ESNEFT). The organization faced many of the same pressures discussed above and like all healthcare services within the UK, they were directed to enable all GP referrals to be processed via the Electronic Referral Service (eRS) by October 2018. However, the existing system for processing electronic referrals was based on manual processes and was slowa common challenge.

Essentially, once the GP had made a referral to the Trust, the support staff have to find information such as scans, blood tests, and other results which need to be manually downloaded and appended to the file. In a process which may seem bizarre to many enterprises, this often meant admin staff were required to print off material and then scan it back into the same computer (using the same printer and scanner) to create a PDF file to navigate bottlenecks between unintegrated systems. The PDF document is then uploaded to the administration system. Approximately, this process took around 20 minutes for each referral and created, what the trust described as an avalanche of admin, distracting medical secretaries from their primary task of supporting patients and consultants.

ESNEFT had already started a pilot scheme looking to automate some accounts payable processes with the RPA provider Thoughtonomy, which was showing a great deal of promise. So, the Trust decided to use the system to automate the referral process across five clinical specialties, using “Virtual Workers” (BluePrism bots), which actively monitor incoming referrals from GP patient appointments in real-time, 24 hours a day. Once triggered, the Virtual Worker extracts the reason for referral, referral data, and supporting clinical information and merges the information into a single PDF document. This combined document is then uploaded into the Trust’s administrative systems. The RPA system uses virtual smart card technology for authentication providing the same level of data security assurance as the old manual process. Overall, the complete task now takes less than five minutes. The Virtual Workforce is able to update all systems, instantaneously and extract critical information, which it passes on to the lead consultant for review and grading.

One of the most important aspects of this technology is its ability to work within the current system, regardless of how chaotic and unstructured that may be. It is technology that adapts to the real world and the way people actually behave and work rather than expecting people to miraculously change current tropes and behaviours. This is perhaps the single most important reason RPA works: it provides whatever shaped peg is required, no matter the hole.

RPA negates the need to spend vast amounts on many complex technology integration projects

This first stage has significant cost savingsestimated to be $275,000 in the first yearwithout removing staff. Crucially, the $275K saving achieved is made up of agency staff and sundry costs such as printing. ESNEFT believe that 500 hours of time was saved thanks to the solution. Plus it increased the job satisfaction of the admin staff, who could concentrate on more important aspects of their role.

For us, although the top line cost saving number is important, it’s the fact that a technology solution proof of concept has been deployed successfully (and relatively painlessly) within the NHS. To deliver the outcome required, there was no need to drive an enormous transformation project to align and integrate systems. Which, given the lack of appetite for big bang projects in the NHS is an achievement in itself. Simply put, the way the technology is used can be fitted into the existing chaos—it’s technology for the real world. It can provide a bottom-up solution to productivity improvements,  which is a project that replaces part of existing work flows and automates manual and repetitive tasks. It accomplishes these things with the double whammy of removing tasks which is disliked, genuinely improving outcomes to patients, whilst helping to drive efficiency.

Bottom line: The NHS is not alone in facing an unforgivingly complex estate, but with technologies that fit into the chaos of the modern organization, this is only the start 

If we look more broadly at the impact RPA technology could have on the NHS, we can use a simple calculation to estimate the ramifications this technology can have. We know that savings of $275K have been made on 2,000 GP referrals per week. But the figure for NHS England as a whole, puts GP referrals at 3.5m from April 2018 to June 2018. So, if this were scaled up, we could see savings across NHS England purely for GP referrals at a staggering $38m, this included all hospital referrals the figure rises to almost $63m, or around $1.3m per week. To put this in context, this would equate to almost 850 nurses for the GP referrals or almost 1,400 for all referrals in England (using the average cost of $45,000 per annum for a mid-tier nurse, source: Nuffield trust).

This is the tip of the iceberg, considering that more than 520M working hours are currently spent on admin and approximately $3.3 billion is spent on agency staff across the NHS as a whole during 2016. There is a great deal of savings to be had. Even if only a quarter of the agency spend is non-medical, that could be $820M per year that could be freed up with only positive impacts on patient outcomes. 

RPA will reach $2.3bn next year and $4.3bn by 2022... as we revise our forecast upwards
November 30, 2018 | Phil FershtJamie Snowdon

Well... it’s been quite a 2018 in the fantasy world of RPA (RPA plus RDA), where some of the fantasy dollars have magically become real, as the market hit $1.7bn – an increase of $250m from our forecast last year.  So when the more conservative of forecasters (HFS) undershoots the market by 17%, you know RPA has been sneaking down the growth hormones of late.

So why is RPA growing above initial analyst estimates?

  • RPA vendors, in particularly UiPath and Automation Anywhere (AA), have been able to recognize more revenues than expected. Bots licenses are being sold and deployed faster than we envisaged, due to effective training programs and aggressive support from third-party services firms;
  • The slowdown in new business process outsourcing engagements is driving more focus from enterprises in discrete strategies to drive efficiencies and digitize processes (and encourage more bots plus humans engagements);
  • The shift in the focus of RPA from job elimination to augmenting talent, digitizing processes and extending the life of legacy IT systems has increased the appetite of operations executives to fast-track RPA training programs and invest in broader intelligent automation strategies – even though most enterprises are still in the “tinkering phase”;
  • The initial adoption of "attended RPA", which makes up the majority of RPA and RDA engagements currently in play will eventually drive more "unattended RPA" where the increased value will be created and genuine alignment between RPA models proving to be a gateway to broader AI engagements;
  • The ramp up from service providers and consultants to support enterprise adoption has continued unabated, especially with the flattening of outsourcing investments and the waning interest in Global Business Services models. This reliance on third parties has proven to be a key dynamic behind the growth in RPA as solution providers prefer to sell through the services channel for larger enterprise deals and accelerate client training and development. The strong focus from the likes of Accenture, Capgemini, Deloitte, EY and KPMG has given the RPA market immense credibility;
  • Rapid funding of RPA vendors (in addition to rapid revenue growth) has encouraged these longer-term investments of many enterprises previously skeptical of investing in very small software boutiques. Largest examples have been AA and UiPath, attaining capital investment rounds as high as $250/$300m, but also some lesser-known niche RPA tools firms, such as Softomotive, which recently had a $25m investment round announced;
  • Increased focus from major ERP / orchestration software vendors with Pega’s acquisition of Openspan and SAP’s first foray into RPA adding Contextor.

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RPA Definition: 

Example use-case: automating invoice processing across multiple business applications handling rule-based exceptions. RPA is different from traditional automation software as it is inherently capable of recognizing and adapting to deviations in data or exceptions when confronted by large volumes of data. In effect, it can be intelligently trained to analyze large amounts of data from software processes and translate them to triggers for new actions, responses, and communication with other systems. RPA describes a software development toolkit that allows non-engineers to quickly create software robots (known commonly as "bots") to automate rules-driven business processes. At the core, an RPA system imitates human interventions that interact with internal IT systems. It is a non-invasive application that requires minimum integration with the existing IT setup; delivering productivity by replacing human effort to complete the task. Any company which has labor-intensive processes, where people are performing high-volume, highly transactional process functions, will boost their capabilities and save money and time with robotic process automation.  Much for RPA is self-triggered (bots pass tasks to humans), but requires human intervention for judgment-intensive tasks and robust human governance and to make changes / improvements.

Similarly, RPA offers enough advantage to companies which operate with very few people or shortage of labor. Both situations offer a welcome opportunity to save on cost as well as streamline the resource allocation by deploying automation. The direct services market includes implementation and consulting services focused on building RPA capabilities within an organization. It does not include wider operational services like BPO, which may include RPA becoming increasingly embedded in its delivery.

RDA Definition:

In addition to RPA, the other software toolset which comprises the emergence of enterprise robotics software is termed RDA (Robotic Desktop Automation).  Together with RPA, RDA will help drive the market for enterprise robotic software towards $2.3bn in software and services expenditure in 2019 (with close to three-quarters tied to the services element of strategy, design, transformation and implementation of enterprise robotics).  HfS' new estimates are for the total enterprise robotics software and services market to surpass $4.3 billion by 2022 as a compound growth rate of 40%.

Example use-case: automating transfer of data from one system to another. RDA is essentially surface automation, where desktop screens (whether desktop-based, web-based, cloud-based) are "scraped", scripted and re-programmed to create the automation of data across systems.  A well-designed RDA solution can automate workflows on several levels, specifically: application layer; storage layer; OS layer and network layer. Workflow automation on these layers requires equally specific technologies but provides advantages of efficiency, reliability, performance and responsiveness. Much of this automation needs to be attended by humans as the automation is triggered by humans(humans pass tasks to bots), as data inputs are not always predictable or uniform, but adaptation of smart Machine Learning techniques can reduce the amount of human attendance over time and improve the intelligence of these automated processes.    Similarly to RPA, RDA requires human intervention for judgment-intensive tasks and robust human governance and to make changes / improvements.

The Bottom-Line: Automation and AI have a significant part to play in engineering a touchless and intelligent OneOffice

However which way we spin "digital", the name of the game is about enterprises responding to customer needs as and when they occur, and these customers are increasingly wanting to interact with companies without physical interaction.  Moreover, the onus is moving to the most successful digital enterprises being able to anticipate the needs of their customers even before they occur, by accessing data outside of the enterprise across the supply chain, or economic and market data that can help predict changes in the market, or emerging offering that customers will want to purchase.

This means manual interventions must be eliminated, data sets converged and process chains broadened and digitized to cater for the customer.  Hence, entire supply chains need to be designed to meet these outcomes and engage with all the stakeholders to service customers seamlessly and effectively.  There is no silver bullet to achieve this, but there is emerging technology available to design processes faster, cheaper and smarter with desired outcomes in mind.  The concept was pretty much the same with business process reengineering two+ decades ago, but the difference today is we have emerging tech available to do the real data engineering that is necessary: 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.  

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In short, every siloed dataset restricts the analytical insight that makes process owners strategic contributors to the business. You can’t create value - or transform a business operation - without converged, real-time data. Digitally-driven organizations must create a Digital Underbelly to support the front office by automating manual processes, digitizing manual documents to create converged datasets, and embracing the cloud in a way that enables genuine scalability and security for a digital organization. Organizations simply cannot be effective with a digital strategy without automating processes intelligently - forget all the hype around robotics and jobs going away, this is about making processes run digitally so smart organizations can grow their digital businesses and create new work and opportunities. This is where RPA and RDA adds most value today... however, as more processes become digitized, the more value we can glean from cognitive applications that feed off data patterns to help orchestrate more intelligent, broader process chains that link the front to the back office.  In our view, as these solutions mature, we'll see a real convergence of analytics, RPA and cognitive solutions as intelligent data orchestration becomes the true lifeblood - and currency - for organizations. 

Do take some time to read the HfS Trifecta to understand the real enmeshing of automation, analytics and AI.

Brexit will rip out the underbelly from the British economy - and we'll likely never recover
November 07, 2018 | Phil FershtJamie SnowdonOllie O’Donoghue

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However which way you analyze all the economic indicators, and whatever your opinion may be regarding Britain's relationship with the European Union (EU), removing the movement of EU labour into the UK will create a perilous shortage of labour, particularly for low-to-mid skilled professions.  If anything, removing worker base at the lower end of the skills spectrum is worse than at the high-end, for the simple reason it's much harder to entice people into jobs that may be low-paid, unattractive and - in many cases - require hard graft for low wages.  How are our hotels and restaurants going to find 120,000 staff willing to work for the minimum wage; our food factories to renew a third of their workforces to prepare our food; our cleaning firms going to backfill 132,000 people willing to mop and scrub for a living? The answer is sadly obvious - many of our industries will be under real threat of implosion because they simply cannot access the people they need to keep them functioning.

And without a thriving working class, the economy will suffer due to less money being spent, our businesses will suffer because of rising hotel costs, our entire society will suffer because of rising food costs, our commercial and domestic real estate markets will struggle to complete projects.  While professions like education and hi-tech can source talent from elsewhere (and are less reliant on EU people imports) it's those industries that form the underbelly of the economy which will really suffer.  Forget "trickle down economics" Brexit will cause a "trickle up" effect that will be hazardous for the British economy and its mid-long term sustainability.  In the short-term, many EU workers in the UK should be able to stay on, but the reliable conveyor belt of workers prepared to roll their sleeves up and support our entire economic underbelly will be permanently halted, and the availability of workers will get progressively worse - and much more expensive with this shrinking supply of people.

So, without further ado, let's dive into the fuller implications of this seemingly masochistic self-flagellation known as "Brexit"... 

Nice try Theresa, but even your dancing can’t make us forget about the increasingly no-win Brexit scenario 

For our fellow Britons, these past few weeks have been a refreshing break from the normal Brexit debates as we became distracted instead by our premier literally dancing for trade agreements. Trade agreements that, even for the most dismally poor mathematicians, don’t stack up when compared to the one we’ll soon be leaving.

 

Brexit has been a topic of heated debate for years now - and I'm sure we all have that friend or relative you daren't mention Brexit in front of or risk a lecture based on unfounded inferences and sketchy sources. In many ways, it's these long-winded and often inebriated debates that are the problem - we're close to the day we sever ties with Europe and reclaim some sort of democratic freedom that only a nation with several unelected heads of state can find any ironic sense in. And yet we're no closer to understanding what Brexit means - even if we had a clear picture of how awful it will be at least that's something we can prepare for. Instead of this mind-numbingly irritating narrative from British politicians of 'Don't worry, it'll all work out in the end.' Well, unfortunately, we're not an eight-year-old child looking for reassurance from our

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IBM / RedHat: A grand play at out-sharing Microsoft’s open source economy
October 29, 2018 | Phil FershtJamie SnowdonOllie O’Donoghue

It’s really not about the cloud – not at this massive $34bn price tag.  IBM's ingestion of RedHat, the third largest IT purchase in history, is all about Open Source.

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

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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

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.

Automation to impact 750,000 low skilled Indian jobs, but create 300,000 mid-high skilled jobs by 2022
February 03, 2018 | Phil FershtJamie Snowdon

A lot has changed in the last year... especially when it comes to automation: it has now become the broadly-accepted efficiency tool for cost leverage with operations.

Every customer has RPA project managers and automation leads hungry for data, advice, and ideas. Every service provider has RPA embedded into their service delivery models, and every credible advisor has a practice that is working with multiple clients to make this happen. The Armageddon days of talking about robots taking our jobs are over - these are now the reality days where we can see exactly what's going on with automation and AI, and accurately estimate how it's going to impact the services industry in the next few years.

There will be impact, but it's manageable provided we focus on new skills and value.  

In short, the global IT and BPO services industry employs 16 million workers today.  By 2022, our industry will employ 14.8 million - a likely decrease of 7.5%* in total workers (see our research methodology below).  This isn't devastating news - we'll lose this many people through natural attrition, but what this data signifies is this industry is now delivering more for less because of advantages in automation and artificial intelligence.  The new data also shows how job roles are evolving from low skilled workers conducting simple entry level, process driven tasks that require little abstract thinking or autonomy, to medium and high skilled workers undertaking more complicated tasks that require experience, expertise, abstract thinking, ability to manage machine-learning tools and autonomy.

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The low skill routine jobs are getting increasingly impacted, and our new demand data shows an acceleration in RPA tools (a 60% increase over the next year) where service providers are the largest adopters into their own service delivery organizations.  We expect to see a more rapid impact on routine job roles which is most notable in 2022 as companies take time to build the impact of RPA into service contracts and figure out how to turn work elimination into hard savings than merely soft efficiency savings.  With barely a 50% satisfaction level, this will take 4-5 years to see the real cost benefits in terms of job elimination.  Most of the short-medium term benefits are being seen in increased efficiencies and more digital process workflows.  All major service delivery locations are expected to be impacted at the low-end, but the higher the wage costs, the higher the expected role elimination (750,000 roles in India and a similar number in the US):

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Medium skilled roles are picking up across the board, especially in roles that are customer/employee facing with the need for more customized support, the ability to handle

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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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HfS Data Products are here!
September 07, 2017 | Phil FershtJamie Snowdon

We just love data at HfS - we built this company by surveying our terrific community over the last 10 years to keep on top of all the curious things enterprises do to stay competitive and profitable.  And this year, we are literally surveying 3,000 billion dollar plus enterprises on their intentions and dynamics across the 5 critical change agents of our industry: automation, AI, analytics, blockchain, emerging digital business models, and global sourcing strategies.  

While everything we do is based on data, we've not really packaged it all up in a way for our clients to digest it and use it most effectively for themselves.  Until today.

We’ve set out our research agenda to bring reality to the research analyst world, dynamic engagement with our clients and our vision for the industry: our Analyst 2.0 model. Over the next 6 months, we will be adding more data products and enriching the existing ones, based on the wealth of information we have collected over the years:


1: Contracts Database

Launching in September 2017. As part of its ongoing research HfS has always collected and collated contract data across the different service lines it tracked. HfS Contracts Database gives subscribers access to this data, which provides up-to-date analysis of IT Services and Business Process Outsourcing contracts. This interactive tool allows users to search for specific contracts, view contract progression annually and by quarter, and view heat maps of specific deal categories by region.

2: HfS PriceIndicator™

HfS PriceIndicator™ has been part of HfS Research data tools for over 4 years now. The next 6 months we will start to include RPA and automation pricing.

HfS PriceIndicator™ is a real-time, research based price benchmarking service that provides clients an insight into current ITO and BPO pricing. Currently, PriceIndicator™ provides a biannual set of hourly FTE rate cards for ADM, F&A BPO, Insurance BPO and Healthcare Payor BPO.

3: Buyers’ Guides

HfS buyers' guides provide an independent view of individual service providers across different service capabilities. Giving a summary of the organization's strengths and weaknesses in addition to details in specific service categories.

The long-term plan will be to integrate these guides into the HfS Data website updating them whenever new financial data is available and when we publish new blueprints/vendor analysis – so they always deliver the most up-to-date content on each provider.

4: Quarterly Market Indices

HfS provides market size and forecast for the IT and business services market updated on a quarterly basis. This view of the industry provides a top-level view of service provider performance and uses this to predict market growth and performance within the main IT and business services markets.

5: Supplier Revenue Data

For the past 5 years, HfS has been tracking the IT and Business service supplier landscape collecting key financial data from the industry – creating models which are used to create our Top 25 IT services and our Top 50 BPO provider list. HfS is expanding these models to create revenue maps across key service lines, industry, and geography.

6: Direct Buyer Viewpoints

HfS regularly interviews buyers throughout the Global 2000 organizations, conducting 3,500 interviews over the course of the year. The Buyer Viewpoints opens up this data for additional analysis by industry, and across regions. So our subscribers can create their own views of the information for presentations and infographics, in addition to HfS own drive to make our data more accessible.

The bottom-line

The Analyst 2.0 model means making data more accessible, easier to digest and self-service – the analyst should not be a barrier to insight. HfS wants to enable our community with the right data to drive their own insights and their decision making – revolutionizing the way market data is used and consumed. At the same time letting our analysts do what they do best - drive thought leadership within the operations and IT services community.

 

Learn More

Unveiling the HfS 1-2-3-4 Research Agenda
August 26, 2017 | Phil FershtJamie SnowdonBram WeertsSaurabh Gupta

 

Last week, we launched the Analyst 2.0 Model along with the HfS ThinkTank to revolutionize our industry. And today we unveil the new HfS 1-2-3-4 Research Agenda. The updated agenda serves the real needs of our clients. The tired legacy analyst model continues to only look at the past and lacks out-of-the-box, stimulating, and forward-looking thinking. We aim to turn this legacy Analyst 1.0 Model on its head, by delivering impactful knowledge and insights that will help our clients survive and succeed in the VUCA (Volatile, Uncertain, Complex, and Ambiguous) world that we all live in.

1: Research coverage across each element of the OneOffice

HfS launched the OneOffice Framework in January 2017. Our industry is evolving to an era where there is only "OneOffice" that matters anymore, one that is focused on creating an impactful customer experience and intelligent operations to enable and support it. At HfS, we like to practice what we preach. We have aligned our research practices with the OneOffice with designated research leaders.

  • The Digital Front Office research explores customer engagement, design thinking, contact center, marketing and sales, as well as social, mobile, and interactive solutions.
  • The Digital Underbelly research focuses on desktop automation, robotic automation, and security.
  • Our coverage for Intelligent Digital Support Functions spans across IT services, Finance, Procurement, Supply Chain, Payroll, and Engineering services.
  • The Intelligent Digital Processes research explores advancements in artificial intelligence, smart analytics, blockchain, and IoT.

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2: Voice of the Customer embedded in the Analyst 2.0 Model

In-sync with the Analyst 2.0 Model, we designed the new research agenda to help us become the leading Voice of the Customer. Our team of global analysts speaks to over 3000 stakeholders across the Global 2000, our industry summits provide us with an unmatched platform to interact with senior stakeholders, and our analysts publish real client stories. We’ve always mandated customer reference calls for every Blueprint report that we publish and with the new research agenda, we are taking this customer focus a notch higher. Some key initiatives:

  • Our recently published and upcoming IT-services research, based on a Global 2000 client-only survey that helps us get beyond the supplier marketing and sales spiel.
  • Similar survey(s) for mature horizontal business process areas as well as industry-specific offerings.
  • Our major Blueprint reports will now be accompanied by a summary of client conversations in the space to present aggregated patterns of how clients view market execution and innovation.
  • A unique buyer experience guide for the top RPA products, based solely on interviews with RPA clients. 

3: Forward-looking research across three-time horizons

A key reason for clients to engage with us is the provocative nature of our research.  We’re future looking, and unafraid to call a spade a spade. The new research agenda aims to arm our clients with the knowledge and insights across three-time horizons they need to navigate the future of operations:

  • Horizon 1 - Act-now: Mainstream topics in the market, such as Robotic Process Automation (RPA). Horizon 1 research is aimed to deliver practical insights into current market trends, supplier capabilities, as well as current client experience that will help institutionalize the concepts.
  • Horizon 2 - Watch-out: Emerging themes and topics that are likely to become mainstream in the next 1-2 years, such as Artificial Intelligence (AI). The objective is to help clients test value propositions and understand potential benefits and challenges in their industry.
  • Horizon 3 - Investigate: Areas that show tremendous potential but are still too nascent to predict adoption, such as blockchain. The purpose of covering such topics is to ensure a healthy dialog with key industry stakeholders to define these spaces, articulate challenges and support awareness.

4: Four-dimensional view of business operations

The future of business operations is not one-dimensional. To provide our clients with a completely holistic view of the market, we have a team of four-dimensional analysts who understand the market across four lenses in their area of specialty:

  • Dimension 1 - Change agents: Major change agents driving the industry including automation, artificial intelligence, blockchain, digital business models and smart analytics.
  • Dimension 2 - Business functions: Detailed coverage across Business Process Services (both back office and front office), IT Services, and engineering services.
  • Dimension 3 - Industry orientation: Business operations impact across 10+ industries including Banking & Insurance, Healthcare, Energy, Utilities, Manufacturing, Telecom, Retail, Travel & Hospitality, and Public Sector.
  • Dimension 4 - ThinkTank: Bringing together our collective knowledge and insights across change agents, business functions, and industries to think out-of-the-box and collaboratively solve real business issues.

 

Bottom-line: We are raising the bar, and we are revolutionizing the industry with our new HfS 1-2-3-4 Research Agenda.

Check out the details of the Analyst 2.0 Model, ThinkTank, and our 1-2-3-4 Research Agenda.