Phil Fersht
 
CEO and Chief Analyst 
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Accenture, IBM, EY, KPMG and Cognizant lead the digital change imperative
February 11, 2019 | Phil FershtSaurabh GuptaMadhuparna Banerjee

Let's get to the point: most of the past five years have borne witness to our industry postulate on the why and what of digital (and many still do).  It's time to focus on the how.

Unlike the wild grandiose claims from most services and tech providers that everything they do, these days, is "Digital"... it is far, far more than simply investing in new technologies.  Digital is about embracing interactive technologies, mobile, social and analytics to drive new revenue and customer experiences, as well as harmonizing business silos to support these digital outcomes.

However, success in digital initiatives is much less about technology adoption... and much more about people and culture, and the ability to manage that change. Code errors can always be fixed, workflows stitched together, apps integrated... but taking enterprise teams through the whole volatile experience, helping their staff learn new techniques, creating an environment where an enterprise can keep evolving on its own accord, and not rely on armies of consultants until perpetuity, is how we evaluate the performance of today's ambitious service providers. 

With this evaluation objective in mind, HFS shortlisted and assessed 10 leading providers: Accenture, Capgemini, Cognizant, EY, Genpact, IBM, Infosys, KPMG, TCS, and Wipro across the following five dimensions of digital-change prowess:

1. Embracing emerging change agents;

2. Creating true partnerships;

3. Promoting the principles of OneOffice;

4. Enabling change management for digital labor;

5. Driving real business outcomes.

Click the table to view more detail

For a limited time, we are making our new report: "The Top 10 Digital Change Management Service Providers" completely free to HFS subscribers. (Click to download)

Holding the automation cards... Meet Francis
February 04, 2019 | Phil Fersht

There aren't too many people who can boast to be one of the true pioneers of the emerging robotic process industry, or whatever we end up calling it, but one man who didn't need to recreate his resume in 2017 is Francis Carden, one of the original brains behind recreating desktop automation to become Robotic Desktop Automation (RDA) which is such a key component of the broader RPA offerings attracting so much noise and attention today.  And he now leads the whole robotics strategy for customer engagement and data orchestration giant Pega. 

Francis - a British Floridian these days - is never one to hold back, and when one cynic mercilessly described some of today's RPA rollouts as "lipstick on a pig" at our recent New York FORA event, he just had to take it one stage further to declare them as "lipstick on a pig's arse".  So without further ado, let's hear from the granddaddy of RDA himself...

Phil Fersht (CEO, HFS Research):  Francis - firstly, tell us about the OpenSpan business you co-founded and how this evolved to the acquisition by Pega?

Francis Carden (VP, Digital Automation and Robotics at Pegasystems): In 2004, a group of “tech head” advanced windows operating system engineers approached me about forming a company using an automation technology vastly different from anything proceeding it. It let companies rapidly automate, through the Graphical User Interfaces (GUI) of windows applications, any task or process that a normally would be done by a human on their desktop.

On first hearing of it, I had to laugh and said to myself, “It sounds like screen scraping.” I didn’t believe what they were proposing was even possible.  But I did a deeper investigation into the background of these engineers and the technology and found it both unique and incredible. So I bought in – and even invested a significant amount myself. Today, we label our RPA technology “Deep Robotics” given it is so different. 

In 2005 we started OpenSpan and over the next three years, as CEO, we convinced a consortium of Atlanta technology angels and then attracted four Tier 1 VC firms that what we had was something different. The customer base grew rapidly. Our patented technology started life as being called “Surface Integration” because it was so different from screen scrapers of the past (and current RPA). But we quickly settled on “Desktop Automation” (known today as RDA), and “Automation Broker” (known singularly today as RPA). We ended up implementing most of the world’s largest RPA projects over the next 10 years.

Then Pega acquired OpenSpan in 2016. Pega recognized our RPA approach was markedly different from any other RPA vendor. After we got talking, I realized our unique technology would be even stronger if it were part of something “bigger.”

What I mean by that is organizations on the digital transformation journey shouldn’t aspire to RPA as the end game. You really need to look at RPA as a short-term plug to fill the gaps on the road to get there. When you deploy RPA, you’re just masking the poor processes behind it. And when application UI changes, the bots are prone to break. It might be weird to hear me – an RPA vendor - say that. But it’s the truth.

And that’s where Pega’s digital process automation (DPA) software comes into play. Pega enables you to digitally architect those processes the right way, from the ground up. No more organizational silos, no more inefficiencies, no more needlessly manual processes … and really, no need for RPA to always be the first option. RPA gives you a digital automation jump start, and when it’s time to deploy DPA, those bots can be put out to pasture.

And the good news, at least for us, is that everyone is on a digital transformation (One office as HFS call it Phil) journey, and it really never ends. RPA and DPA are the perfect one-two punch. So the tie up and combined value prop with Pega was, and has been, an ideal match.

You've been the undeclared granddaddy of RDA, so what is the key "difference" between RDA and RPA... unattended and attended... etc?

Imagine if every compiled windows application ever built allowed itself to be automated from within its own code, robustly and in real-time. You wouldn’t need any RPA, right? However, very few apps running on windows are easily automatable at the UI layer – at least, without resorting to screen scraping techniques like MSAA, UI automation and OCR. 

In 2005, we patented a more sophisticated approach to UI automations – a “plug-in” like architecture that enabled any compiled windows application and all its objects to be non-invasively automatable in a single architecture. This “deep robotics” automation occurs inside the windows layer, inside the memory of the machine, and runs as if the original developer of that application had natively built it.  This plug-in like approach automates at the application’s original speed (10x to 100x faster than scraping), highly robustly, and far less susceptible to application UI changes. More importantly, and hence the dual name “attended RPA,” it even allows the desktop worker to use their machine, keyboard, and mouse while the automations are running. This is something unheard for old school scrapers and other RPA products. It is this pure form of RPA that also enables it to be used as RDA, giving every worker their own personal robot or “co-bot” to automate from one percent to 90 percent of their work. Agile RPA. And only then, after you’ve rolled out RDA, should you look at those same processes ready for full automation with RPA (unattended as opposed to attended) operations.

Before the Pega acquisition and continuing since, we have 100s of 1000s of bots deployed across some of the world’s largest enterprises in all industries. By the way Phil, being a Grand-daddy makes me feel old, but I did calculate that I’ve been doing automation of the UI for 20 million minutes of my life!

So what happens next as RPA (assume RPA includes RDA here) moves from "tinkering" to broader enterprise adoption - where do you see clients finding the most value, and how can they scale their people and tech platforms to accommodate?

Good question, Phil, and the key word to the question is “tinkering’ – which is how most RPA vendors excuse themselves, after 10 years of trying, for not getting many customers to really scale or still stuck in pilot stages.  

It is hard to believe, looking at the crazy RPA vendor valuations today, but yes, most RPA projects are tiny compared to scope of the company’s using them. RPA is not new, so the real question enterprises need to ask is, “What’s stopping this large-scale adoption across the globe, and why do RPA vendors keep insisting it’s because it’s new” 

Attended RPA (RDA) scales -- that’s a fact. It automates all the easy stuff in an agile way. But RPA unattended constantly struggles with trying to automate everything, both the easy and the hard stuff. Putting RPA band-aids on top of old and tired processes is just wrong for the long term. As Gartner says, “RPA is a tax on legacy,” but businesses are often so enamored by the hype.

But the thing is, RPA will indeed scale if it’s part of something bigger. RPA is tactical to the extreme. Digital transformation is strategic. What happens though if you combine the two? This is where software robotics shines. Using RPA and RDA to plug gaps that currently prevent digital transformation allows business and IT to align to solve the real problems. This gets you real and rapid ROI from RPA out of the gate, but equally, it encourages planning to then “fire” the robots as fast as you deploy them. Not something you’ll hear other RPA vendors promote Phil. With robotic automation capabilities embedded and fully integrated into the heart of Pega’s DPA, we are seeing enterprises really changing the way they compete in a race to become them most digital company in their market(s). Analog companies, using tactical RPA only as the glue, or those not buying into your one-office analogy, will simply not survive.

Francis, we're seeing some tentative moves from "big iron" ERP vendors such as SAP into the process automation space, but do they really want to delve into this world, or are they merely ticking the "we have an RPA module" box?

Like I said, if all new applications were built to be truly digital and open, then there is no need for RPA at all. But we’re living in the real world here. While we wait for that to happen, the real “transformation” vendors selling the digital dream need to be able to use tactical technologies like RPA to help their customers plug the (hopefully) short term gaps. This gives customers quick relief where they are strangled by their legacy systems with no other integration capability. If a vendor doesn’t have this kind of automation, this sets the customers up for failure – they need to automate now to compete, not six or 12 months from now when your big overhaul project is finally done.

There are now 30+ RPA vendors, but I think the bubble will burst on these companies riding the hype wave. Most of them use many of the same old scraping technologies, and none of them have a unified DPA play to help companies for the long term. I’m not sure how long these RPA companies will be able stand on their own. Consider that Pega now includes bots as a standard capability of our DPA platform. We’ll give you all the bundled bots you need as part of your DPA strategy. So yes, we’ll likely see more consolidation in this market.

And how do you see the "blending" if classical RPA with some of these newer AI products on the market?  It feels to me that RPA has really evolved from the process/operations side of the business, while AI is some magical vision being pushed hard by IT, but lacks in real business applications?  What is real versus fantasy in your view?

This is the biggest myth of RPA. The idea that AI will help accelerate getting RPA to scale. It’s a red-herring perpetuated only by those in the RPA industry. No bias there then!! I concur with you Phil that AI is central to becoming a truly digital company. However, the idea of using AI with RPAdoesn’t fly – at least not right now. AI must live central to anything an enterprise does, everywhere. AI needs data, and LOTS of it. But very little of that will come because of RPA.

In order for AI to be really valuable, it needs data from as many systems as possible as well as data feeds from interactions with as many customers as possible, in real-time or extremely fast. Only then can you use AI start to predict what customers are going to do and/or create models that make the best decision for each individual customer. RPA would likely touch less than 1 percent of 1 percent of that data, so if anything, the RPA world is embarrassing themselves by trying to join these two tactical vs. highly strategic dots.

Don’t get me wrong, AI can create work for RPA bots, and maybe some RPA feeds some data into AI, but that doesn’t make RPA Intelligent. At the heart of AI is a digital company with data feeds from every source feeding into it. The DPA (one-office) movement is joining real transformation technologies together, acting as one, with AI at the center. The vendors that have DPA are the ones delivering IT and business on the promises of the past – a real digital company – and envy of their peers!

Thanks for the insights, Francis... we'll be watching Pega closely in this space this year as the market finds its sea-legs... and some more attractive lipstick!

(Weekend rant) Levin: a fading symbol of the legacy analyst industry? Or a hero helping edge those dots up the MQ for misunderstood vendors?
February 02, 2019 | Phil FershtOllie O’Donoghue

There’s nothing more jarring than an ex-Gartner analyst desperate to continue dining off a legacy analyst industry that is actually trying to change. And lo and behold, Just before the Christmas break, a blog emerged on LinkedIn with an enviably click-baity title ‘Is Gartner research quality under threat?’.  

Simon Levin, a Gartner Alum and owner of a boutique business “The Skills Connection” that helps tech vendors lobby their way through the Gartner and Forrester MQ and Wave processes, plies his trade on the fact he “knows” how to work his friends at Gartner, to help his vendor clients get their dots edged in a more positive direction for the firm.  And why not?  If I was a CMO, and lobbing Simon some moolah can help get some sort of leg-up in the process, I’d probably give him a shot.  And however you performed, there is no doubt Simon will claim it would have been worse without him.  It’s like that hair product “Rogain” that claims to slow down hair-loss… you’d never really know if it actually helped unless you went completely bald…

 Simon makes the case that now most his former Gartner buddies he worked with in the 90’s are being quietly “retired” and replaced with a new breed of youthful analysts, and their

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Time to tune in to Tapati!
January 25, 2019 | Phil Fersht

It's not everyday you can find a prolific industry expert, living and breathing AI and IT services, who wants to return to the analyst industry to make her mark.  So when a former Gartner legend - and one of the brains behind the market development of Wipro Holmes - was eyeing a return to the analyst fold, we didn't need too much encouragement when Tapati Bandopadhyay came calling...

Phil Fersht (CEO, HFS Research): Welcome Tapati! Can you share a little about your background and why you have chosen research and strategy as your career path?

Tapati Bandopadhyay (VP Research, HFS Research): First of all, thanks for giving me this opportunity Phil, to get back to my favorite world of analysts and research, in a firm that can make any enthusiastic 40+ feel like a 20 something again!

I have been a nerd all my life, and very proudly so. I wrote my first year PhD exams when my girls were 2 and 1-year old and I used to study for the exams from 12 to 4 at night and loved every moment of it. Even now, I cannot get sleep if I don’t read at least 20 pages of something completely new, something to anticipate and to be excited about when I wake up the next morning!

In last ten years I have probably taken the Strength-Finder 2.0 test at least three times, and each time my top two strengths remained exactly the same: Futuristic and Analytical. I think I am destined to be a research analyst and strategist! The upside of it has two key aspects: 1- analysts are future-makers, if we don’t push the real to the imaginary and back, the art of the possible is not likely to transform into the science of the real anytime soon; and 2- in addition to being future-proof and creatively bot-proof, analysts’ jobs are also recession-proof, as we can apply our analytical skills to find cheaper ways to do things with same or even better quality.

What are the areas and topics that you’re focusing on in your analyst role with us?

AI is my area of strength and there’s so much going on currently that I think we in the research and analyst world have a great responsibility right now, to clear up the clutter and let people focus on what’s real vs. what’s plain hype. Never losing sight of the Big Picture is becoming increasingly difficult in this technology-blurred world of “AI-defined everything”. While I love all the math models and algorithms and routinely devour new research papers in areas like deep belief nets, XAI, NLG, or imagination augmented AI, ultimately we have to keep it simple and human-centric. Only then all this technology hullabaloo will start making real business sense.

AI and IoT are highly connected, especially with 5G becoming mainstream in 2020 and even 6G at the works to come in by 2025-2028. Therefore I will be quite actively tracking the IoT space, chasing Nicola Tesla’s 1926 dream of creating a world-wide human-machine combined brain, which will become real when we achieve the next level of HFS OneOffice- the hyperconnected intelligent enterprise.

Talking about Things, I will cover the manufacturing and industry 4.0 research agenda too. I have always loved machines- be it those mammoth hydraulic presses at the Tata Motors truck factory, or the precision drilling machines at GEC Marine Glasgow. Manufacturing is truly the parent industry where tangible economic value gets generated with the land-labour-capital inputs. Only, the labour is now the ‘phygital’ workforce- with smart machines augmenting our quality of work and productivity, while freeing us up from loads of hazardous or boring tasks. That’s where AI, IoT and industry 4.0 connect beautifully in my mind-map, creating a simulated digital twin of the physical machine-world.

What trends and developments are capturing your attention today in technology and business operations?

I take what Andrew Ng said about data being the new oil, to data becoming the new glue, the invisible ‘ether’, the collective grey matter of the world. In sync with what you envision about the next OneOffice becoming ubiquitous in a hyperconnected world, the data oligopolies that we all know to exist today will come crashing down. We have already seen this happening just as the entry barriers to AI algorithms went down with the cloud-based pay-as-you-go models, and the entry barriers to top talent got broken in an open world of millennials comfortable in crowdsourcing. Now, with machine learning itself becoming partially autonomous, with unsupervised learning in a limited way and then with AutoML, human learning will also have to undergo transformation, where enterprises will learn from each other’s data, intelligence, experiments, experience, and thrive in a fairly co-opetitive world of frenemies where ultimately mankind and the unsuspecting individual, wins.

Is the analyst industry much different now than when you were at Gartner a few years ago? What is changing in your opinion, Tapati?

I think the analysts in this agile, new-age, ‘open research’ side of the world, are far more than mere subject matter experts. We are bolder, actionable and direct, hands-on folks, been-there-done-that type, and I love it. We are also listening better, to build our perspectives from a 360 standpoint. Not just technology, not just business, but the ability to cover all aspects, keeping the end-customers at the centre. Because, whatever be the industry or technology, if the end-customer is not impacted, nothing else matters.

So I see three key changes: 1- the idea of open research and collective intelligence, given that even IBM and Microsoft have now become proponents of open models; 2- the cognitive agility- to think fast and slow as the situation demands, and 3- to be direct, actionable and relevant with a holistic perspective – keeping the end-customers at the centre of any value universe.

So, Tapati, what are you working on first for our clients?

I am planning to cover the practical aspects of applied enterprise AI, as I have experienced this freshly and first-hand and have learned a lot. I have some very strong views and counter-views, on how these AI algorithms and their applications will pan out in the immediate and intermediate future, and the subsequent to-do’s. We will have to stay ahead of the curve. Hence I plan to share these as predictions and actions kind of PoV’s. I will also be covering the IoT and industry 4.0 with our India team along with the global team.

And given I have the locational advantage of being based out of India- the services factory of the world, and especially in Bangalore- world’s no. 2 silicon valley, I will work with a lot of tech start-up’s and service providers on their AI and automation initiatives, and IoT and manufacturing vertical practices.

And, what do you do with your spare time (if you have any...)?

Oh, I have to try very hard to play the cognitive catch-up game with my three children - my teenage girls and our 3-year old German Shepherd – named after our most fav physicist Dr. Feynman, we most humbly accept the fact that he is the smartest in the family.

I love to read physics books and fictions by the likes of Archer and Grisham, but I get constantly rebuked by my girls on not reading enough. Therefore I always try the easier way of asking them questions and then listening to every word of wisdom that they have internalized, post reading the tough non-fictions.

I also love to paint and play Indian music on the piano. And I love to cook for our friends and family. So next time any of you are in Bangalore, you have to come prepared. It’s a statutory warning- there’s no getting away from my unique cuisine while you’re here!

Welcome to HfS, Tapati. Delighted you have chosen us as your analytical home and can't wait to see those first pieces of insight to hit the press =)

Tapati Bandopadhyay (pictured above) joins HFS research to lead our India research operations and expand coverage of AI and IT services.  You can read her bio here.

No-Deal Brexit isn't just a British problem: This could wipe $15 trillion off global markets
January 19, 2019 | Phil FershtJamie SnowdonOllie O’Donoghue

In 2008 Lehman Brothers nearly took down the global banking system... in 2017 Greece's debts were poised to destroy the European economy... today, we are staring at a stock market that gyrates up and down double-digit percentages in a single day, based on one awkward tariff tweet-up between Xi and Donald...

We're talking about the world's 5th largest economy going into immediate meltdown.  This is more than a UK-only debacle

So... who cares about the world's 5th largest economy potentially plummeting into a complete meltdown? Let's just have a good giggle at those idiotic British politicians hell-bent on destroying the country over a referendum staged 2.5 years ago on a topic no-one actually understands.  Yeah, let's not worry as they'll be screwed, and we can all make Brit-jokes at parties as those idiots run out of medical supplies and are forced to import frozen butterball turkeys pumped full of Ractopramine and several other GMOs... yum.

Here's the bad news - Lehman and Greece are small-time when you consider the potential damage a complete Brexit failure will cause, if - as it possible - the UK government paralyzes itself and lets its economy degenerate into a warzone of regulation chaos, complete data disaster, supply chain meltdown and political purgatory.  While we have boldly - and positively - predicted (see earlier post) that Brexit won't actually happen, there is also the distinct possibility that Brexit and no-Brexit blindly meander into the nothingness of a "No-Deal" scenario.

We have predicted that - at the end of the day - politicians are surely not that selfish, and voters really aren't that stupid to allow their country to descend into complete economic and social chaos... and madness.  But that's because we, at HFS, have assumed a modicum of intelligence does exist in the world. But, we could be sadly naïve.  However, there is some hope - and that hope is the simple fact that if we Brits commit the ultimate harakiri of a No-Deal Brexit, we take the rest of the global economy down with us.  You thought Lehman Bros was bad?  You've seen nothing yet folks.

Why this could be a $15 trillion global decimation

If we look at similar shocks to the stock market over the last century, it takes relatively little to create a major downturn in global asset values. We don’t need to look too far back this decade to see how even a moderate dip on global stock markets cans seriously impact the health of the economy.

If we look at the Asian financial crisis in 1997, for example, we can see just how quickly the collapse of even a relatively small economy can wipe off a huge percentage of global stock values. If we look at the potential consequences of not only one of the world’s largest economies, but one tightly integrated with the global economy, it’s not hard to see how much of an impact this could have on the major stock exchanges. That’s not to mention the major role the UK currently plays in global finance – with some estimates advising that the City of London manages over $9 trillion in assets, three times the size of UK GDP.

In a no-deal scenario, almost overnight the UK will no longer be compliant with EU rules and regulations – of which the previously discussed GDPR is just one of. There are countless other regulations that have formed part of the business environment of the United Kingdom, Europe, and by extension, the rest of the global economy, that are likely to emerge during the real-time stress testing that a no-deal crash out will lead to.

We can simulate (with the same degree of absolutely no certainty characteristic of the Brexit process) a major tumble in global stock prices by examining how previous shocks to the market have impacted in the past. And it’s worth noting, that our estimates are generally very conservative compared to other financial crises over the past century.

In the following illustration, we can see how some significant impacts to the value of stock markets can play out – particularly in areas most likely to be impacted by Brexit. In this simulation, we can expect the value of the twenty largest stock markets to drop by $14.9 trillion as a result of the major market shock of no-deal Brexit.

 

Click to Enlarge 

Bottom Line: A no-deal Brexit has far-reaching consequences, and could knock chunks of value from global stock markets to send us crashing into a serious economic depression

The warnings about the implications of no longer being compliant with GDPR are chicken-feed compared to the true global impact of allowing Britain to hive itself off from the EU with no insulation from the multiple disastrous consequences. In the past, major financial crises have been caused simply from a much smaller and less integrated economy defaulting on debts, now we’re facing the very real prospect that one of the world’s largest economies will wake up one morning with a completely different rule book, and much more red-tape and bureaucracy between it and the rest of the world. It’s not hyperbolic to say, the consequences to the global economy could be huge.

In a sick way, maybe this No-Deal scenario is what we all deserve to open the eyes of the politicians and gullible voters of the world for losing their grip on reality.  Maybe a period of poverty and hardship will knock us into shape to prepare for the next chapter of economic and political life.  

Ugh - we seriously hope it doesn't take a crisis of these immense proportions for everyone to wake up to the world we are shaping, where facts are merely tools to shape opinions and this sense of entitlement that so many people possess is threatening to destroy everything we've worked so hard to create.

There never was a "Brexit deal".  Brexit was all about pissed off working class people (mainly older folks) sticking it to the rich and to "foreign" people they saw 'stealing' jobs (they were never going to do themselves in any case).  So the only "Brexit" these people wanted was to ruin the economy for the wealthy British middle class and to stop immigrants coming into the country (and kicking out the existing ones too).  This is why the situation is such as mess.  The real motives behind Brexit are not the ones being discussed in Parliament or in Brussels.  It's a mess and needs to be somehow reset so the real debate can take place.  Otherwise this never ends.  

We all agree at HFS that change can be good, and we must embrace change... but changing to what?  That is the issue right now - what is wrong with the current system and what is the ideal system we need to move to...  and its not only the UK grappling with this problem...

Accenture, IBM, Capgemini and Wipro lead the first application services Top 10
January 14, 2019 | Phil FershtJamie SnowdonOllie O’Donoghue

So it's now 2019, and HFS' Ollie O'Donoghue and Jamie Snowdon waste no time in the world of the new feisty Top 10 methodology, where they take no prisoners in ranking how the leading application development and management service providers performed...

The market continues to test and experiment with new frameworks and methodologies. The most notable are DevOps and agile, which are now widely adopted by many of the major IT service providers. Providers are implementing sweeping training and culture redevelopment programs to adopt best practices to support innovation and delivery in the application services space.

Now more than ever, enterprises are looking for providers to help them rationalize and optimize their technology stack, of which business applications is a significant component. In their drive toward the Digital OneOffice, forward-thinking enterprises are engaging with providers that can build innovative solutions that can integrate and unite business applications and in the process break down business siloes.

Given the importance of technology and business applications, enterprises are looking for collaborative partners that are invested in their success. As a result, we’re seeing an increasing reliance on existing relationships to deliver on fresh engagements.

Service providers are also working tirelessly to ensure they are making the most of their talent—driving training and retraining programs to help keep employees’ skillsets up to speed in a changing market.

So let's see how the leading ten service provider shake out, based on interviews with 300 enterprise clients of IT services from the Global 2000 in which we asked specific questions pertaining to innovation and execution performance of service providers assessed. The research is augmented with information collected in Q1 and Q2 2018 through provider RFIs, structured briefings, client reference interviews, and from publicly available information sources:

Click to view full 22 service provider assessment

 

Key Research Highlights 

Developing talent. Providers are working hard to develop talent internally through retraining programs and bring in the right people by building out innovative talent attraction processes.

Building out partnerships. Providers are developing broader and deeper partnerships to support the increased demand from enterprises for a diverse and complex ecosystem.

Blurring service lines. Traditional service lines, particularly infrastructure and applications, are coming under more pressure as enterprises show less willingness to differentiate between siloes when designing an engagement.

Investment in capability.  Many providers are building out their capability through acquisition of innovative start-ups and boutiques, as well as some major investments in the acquisition or merging of major providers and ISVs already operating in the space.

Q&A with Report Author, Ollie O'Donoghue

"Are the partners who got us here the ones to take us to the next place?"

This is always a tough question to answer, particularly in the application services space where the scope of projects is getting larger and encompassing far more technologies. To thrive in this market there is no perfect route – we see firms like IBM bolster capabilities through acquisition (RedHat being the largest), while firms such as DXC and Accenture pull in capability through partnerships, and the major IT outsourcers try to build up skills and talent organically. At its core, this is to meet the needs of an evolving buyer community that expects the best solutions from a complex array of technologies and practices.

So, what we’re seeing is a large section of the provider community fight to stay relevant in a rapidly changing market. Honestly, we can expect to see some casualties, there’s just too much to specialise in for some providers to keep pace with, and many are spread too thin to become real specialists. The future in this space belongs to those who can keep layering valuable interfaces between a growing technology stack that includes advanced automation capabilities. For some, this will be through becoming a jack-of-all-trades, and for others, it will be through unique specialisms – all who are in between are vulnerable.

Which of this bunch are going to break out of the pack, based on your recent conversations?

As we’ve mentioned, there's a lot of movement across the leading service providers – but there are four or five that have a lot more going on than many of the others. Let’s start with IBM, which already has scale and differentiation in the space, but has jumped ahead of the pack in open source through the mammoth acquisition of RedHat. We also have Accenture which continues to be synonymous with innovation and bringing high-quality solutions to clients. The firm has also plugged in more digital design and apps agencies into its service lines in recent years, adding more brains and brawn to the rapidly growing market.

It’s also worth highlighting Wipro, which has a strengthening reputation in the application services market – strengthened by the firm’s big bets in digital. This part of the IT services market has always been the core of Wipro’s business, so the firm is able to pull in experience and skills that other firms still need time to develop. We also have Infosys which, with fresh leadership, has started to take the services game seriously again. The firm has done a lot of work to retrain talent and redevelop its strategy. Jumping on the developing push for onshore and nearshore, Infosys is also building out delivery centres, particularly in the US with plans for more work in Europe. Finally, Capgemini and TCS are gaining ground. The former through capturing more mindshare in Europe for its IT Services heft and expertise – a potential gold mine as businesses grapple with geopolitical pressures and look to local technology experts to help them. And the Latter for pushing a fresh narrative on the need for technology in the modern enterprise through its Business 4.0 thought leadership.

As a last note, HCL presents somewhat of a quandary to us since its purchase of IBM assets. It’s difficult to see the acquisition of somewhat legacy assets as a route to breaking out of the pack, but the reality is this could be a platform on to a broader customer base for HCL. All in all, though, we’re holding judgement until the firm has a clearer strategy for the assets.

Are there any niche firms popping up who can disrupt this space?

It’s a tough market for smaller firms to play in, but for specialists who can corner the market or disrupt business models, there’s plenty of room for manoeuvre. This is the first major IT Services analysis where we’ve included some of the mid-tier players where a lot of the innovation is taking place – simply because these firms have to try much harder to fend off the majors whether that’s the flexibility and agility of Mphasis or the vertical specialism of LTI.

There are even smaller players starting to challenge in the space – nClouds, an HFS Hot Vendor is an excellent example of a small firm with a compelling track-record in the market, particularly when helping enterprises shift applications and services to the cloud. There’s a vast amount of space opening up for players in the ‘small and cool’ category – the acquisition of RedHat leaves behind a massive gap in independent open source and there is a large portion of the community disillusioned by the acquisition that could be a huge boon to the right company. And with several mid-tier players hoovered up by the majors – notably Syntel and Luxoft - there are gaps in the market waiting to be filled by agile firms.

So, Ollie, which emerging apps services firms are worth keeping an eye out for?

nClouds – In many ways, nClouds is the definition of a company thriving from the increasing blend of application and infrastructure. The firm leverages practices and technologies such as DevOps, Containerization, and public cloud to help clients evolve their technology stack. We were so impressed by client feedback from this firm that they made their way into the first HFS Hot Vendors at the start of 2018.

Trianz – While not necessarily a niche player, Trianz has proven itself more than capable of taking on much larger firms to win deals. The firm has a broad range of services, but its edge seems to be the agility and flexibility it can bring to engagements. The firm has won multiple awards and seems to be benefiting from increased enterprise appetite to diversify engagements amongst many small players, rather than one giant one.

Linium – (acquired by Ness Digital Engineering) – For specialisation, we need to look no further than Linium which has worked tirelessly to carve out chunks of the enterprise service management space. The firm has dedicated practices for core business platforms such as ServiceNow, as well as capabilities in custom application development. The firm was acquired by Ness Digital Engineering in 2018 – bringing with it broader capabilities and access to talent, as well as access to a broader pool of clients.

GAVS Tech– When we covered Gavs Tech in our Q3 Hot Vendors, we concentrated on their zero-incident framework, an approach to reduce the impact of IT issues on end-users. But the firm has used the mantra across other service lines in the space, including a pay as you go DevOps models that focus on deploying reliable application code and resources. The DevOps platform provides an integrated solution for application development, testing, deployment, scaling and monitoring – not only offering improved speed and quality, but also a degree of simplicity in a complex technology environment.

Bottom-Line: Increasingly scarce talent, combined with a never-ending demand, places real pressure on service providers to keep innovating their delivery models

Simply put, the modern application services market is now so complex it’s not possible to be an expert in everything. Providers are beginning to recognize this and continue to bring in partners to support their delivery capabilities while retraining staff to move them into higher value work.

At the center of this changing market lies a huge question mark around talent. Enterprises are telling us that there are major talent crunches in key areas of the market and for some applications, which is forcing them to push more work over to providers. The challenge is that many of these providers are facing similar challenges. All of the IT services providers assessed in this research have extensive retaining and retraining programs in place to ensure they get the most out of their teams. They’re also partnering up with major sources of talent, particularly higher education institutions.

Nevertheless, the market is showing no signs of slowing down to allow providers any breathing space. Enterprise applications are now a major focus area for CIOs and technology leaders to get right. They need help writing off legacy, making sense of extensive technology estates, and finding areas of opportunity for new services and solutions.

Premium HFS subscribers can click here to download their copy of HFS Top 10 Application Development and Management Services 2018

Phil's 2018 Disruptor Awards!
December 31, 2018 | Phil Fersht

What better than to hand out some awards to people who have absolutely no clue they are going to win one... and for actually doing something in 2018 to impact the world of IT and business services that actually shook up the rules of the game?  And what better to offer up zero prizes beyond a fleeting recognition that they actually did something impactful?

No, they did not pay me $10K to sponsor a table at a penguin-suited gala dinner, and no, they did not coerce a bunch of analysts to sift through hours of painful "innovation submissions".   These are purely based on my personal experiences of 2018 and my judgment on ten folks who deserve some recognition for shaking things up in 2018!

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The "They just didn't see us coming Award",  Daniel Dines, CEO UiPath

When HFS introduced Robotic Automation to the world in 2012, the industry was transfixed around Blue Prism - the firm which pioneered unattended back office RPA - and Automation Anywhere, which shot on the scene in 2014 with the industry's first RPA Maturity Model.  RDA (robotic desktop automation) suppliers such as OpenSpan (acquired by Pega in 2016) were also present in the automation narrative as the worlds of traditional outsourcing, shared services and operations executives got shaken to their very core by the fact that people conducting repetitive work could be replaced/augmented by macros and bots. However, while these firms stole the headlines, one dude in Romania quietly went about building an RPA product that would leap from $10m-$150m in just the last couple of years, while its competitors could only watch on in awe. This founding CEO, Daniel Dines, engendered trust with executives and demonstrated an uncanny skill of being a technologist who quickly grasped how to communicate effectively with business line leaders. He also hired some excellent sales people, including the much-liked Guy Kirkwood, who's social media skills should not be understated as a key reason for growing a firm so quickly. 2018 was definitely Daniel's disruptor year.  Now the firm is heavily backed and poised to battle it out for supremacy in 2019.

The "Resurrection award", Nitin Rakesh, CEO Mphasis

It's not often you see a company that had almost disappeared from the world, make such a credible and impactful return to the corporate spotlight.  But this is exactly what happened in 2018 as Nitin Rakesh drove his new firm past $1bn in revenues and is likely to post double-digit growth.  How can a company that was acquired by EDS in 2006 (at the time being touted as "EDS' Bangalore Call center"), then being merged into the HP entity in 2008, before selling off its BPO assets to HGS in 2015, manage to retain its core IT talent and identity to find itself back in play as a standalone IT services business - in its own right - in 2018, as Blackstone bought out the HP shares?  Not only that, the firm has positioned itself excellently as a core transformational IT services firm, with deep expertise in financial services, with many loyal clients always willing to share their experiences. While great Indian-heritage IT services firms, such as Patni and Syntel, have been subsumed into larger Western entities, Mphasis is back swinging punches and poised to give some of the leading IT services firms a run for their money in 2019.  

The "Making Cyber actually cool Award", Nicole Eagen, CEO Darktrace

While the whole industry seemingly got lost in a stupor of automation and AI, the one core area that will increasingly dominate the narrative in 2019 - and beyond - is cyber security.  And not too many cyber firms have effectively brought together genuine ML and AI algorithms to create an "enterprise immune system for cyber defense".  Draktrace's focal point is that enterprises should not require a previous experience ("pre-defined") of a threat or pattern of activity, in order to understand what it is potentially threatening. It works automatically, without prior knowledge or signatures, "detecting and fighting back against subtle, stealthy attacks inside the network — in real time".  It sounds great, but this solution actually works, the firm is now valued at close to $2bn with $400m in revenue.  My favorite line from Nicole: “Cyber security was all about keeping the bad guys out. But a lot of time the threat is from an insider, such as an employee, or someone who had managed to get inside the system.” Hiring founding partners from GCHQ and MI5 certainly helps bring the cyber conversation to the boardroom.

The "Approaching Digital the way it was supposed to be, and not confusing everyone Award", Brian Whipple, CEO Accenture Interactive

The lovely term "Digital" has been distorted by so many people, 2019 will render the term practically meaningless.  The firm which originally oriented the term for the IT and business services industry was Accenture, launching Accenture Digital back in December 2013, where the focus was firmly on helping enterprises "create new sources of value from marketing, mobility and analytics".  Since that time, the firm has amassed 36 digital agency acquisitions across the world to essentially become the market leader for digital advertising.  While every other IT and BPO services firm under the sun boasts "digital" prowess, only Cognizant has reached double figures with 10 acquisitions and the rest are barely at a handful.  So everyone is really helping companies enable the digital strategies they have already designed. When you look at the evolution of Digital, the core area has been leveraging interactive and social tech to drive new revenue channels and customer experiences, which has been the sole focus of Brian Whipple and his Accenture Interactive group, which has tucked in these numerous digital agency acquisitions over the years, pushed hard to retain their identities and cultures (something Accenture learned the hard way where most of its competitors are still failing).  Brian's declaration that Accenture is not "looking for Don Drapers" and, rather, is focusing on acquiring talent that focuses much more deeply on the entire customer sphere (than merely crafting ad campaigns) just edges himself into a well-deserved mention for banging the digital drum the loudest for 5 years, while his IT services competitors have failed to get even close.

The "Doing RPA differently Award", Asheesh Mehra, CEO AntWorks

While we've been deluged with (pretty much) the same "bots are everything" monolog from the RPA industry for several years now, it's been refreshing to see a firm get fully-focused on driving the data ingestion piece that RPA and intelligent automation can support.  And today's emerging auto/AI firms are becoming styled very much on their founder personalities... so you just can't avoid the effervescent and colorful AntWorks honcho Asheesh Mehra, who has managed to pop up in every corner of the operations/services/AI space in 2018.  With some funding in the bag, and some really excellent hires joining, expect AntWorks to make one helluva lot of noise in 2019 as they round out their platform and become an increasingly important part of the industry's intelligent automation conversation. We need more AntWorks to keep shaking it up...

The 'Doing services with a product mindset Award' - CVK, CEO, HCL

While most of the IT services industry has resorted to following each others' strategies of being technology agnostic, having poorly-defined digital strategies and a bunch of platform-things that noone really understands, HCL has quietly forged its own path and focused heavily on embracing its engineering and product development DNA.  Several interesting engineering acquisitions, such as Geometric, Butler Aerospace and H&A set the firm's stall out as a company which really likes to make and develop things.  It's eye-opening $1.8bn pick-up of all the IBM workplace software products, including, IBM (Lotus) Notes, Domino and Appscan, while not appealing to the media as relatively "sexy", will end up creating a masterstoke $10bn new business for the firm, provided it can develop the customer base and improve on products that need a bit of work. The man with the plan is the humble, softly spoken and incredibly smart "CVK" (C Vijayakumar) who has persistently resisted the marketing glitz and the drum-beating to focus his firm on where he sees its differentiation. I anticipate more to come from HCL in 2019 as it rounds out its ability to build products that enterprises are actually using.

The 'Hail Mary Award', Ginni Rometty, CEO, IBM

While poor old Ginni has had to hold the fort as IBM went through 23 consecutive quarters of revenue decline, tried persistently to keep the dialog flowing around cognitive and Watson, you have to give her some serious credit for betting the entire bank on the RedHat acquisition this year, setting the firm back a cool $34bn, despite revenues of barely $3bn.  The stark reality is that IBM really wants to out-opensource Microsoft, add some cloud mojo - and also add some serious RedHat management talent to its ranks.  If you forced me to give you my opinion, I'd say that IBM has taken a decided pivot away from poster-boy IA giant Watson, to go back to its enterprise IT core and solve real challenges for real people.  And you can't beat a $34bn Hail Mary... so Ginni makes the 2018 cut..

The "Superhero CEO who can close a humungous deal Award", Abid Neemuchwala, CEO, Wipro

Abid took on Wipro at a difficult time, when the company needed to raise its value proposition with enterprise clients, had not been performing particularly well in the market and - to cap it off - have one of its biggest clients, Carillion, go belly-up.  It had many of us wondering why Abid would leave his BPO leadership role at TCS, where he had pretty much created a billion-dollar business, to take up a Wipro hotseat that could drive him even more crazy.  But anyone who knows Abid, knows he's a workaholic who loves a challenge, and - to cap it off - is one of the most gentle, sincere and nice guys you will ever meet.  Which may explain how he convinced Alight Solutions to drop $1.6bn on a 10 year mammoth IT/BPO engagement that is one of the largest ever known to mankind.  And right at a time when his company needed it.  A terrific win to steer a company in a new direction.  2019 will not be without its challenges for Wipro and its close competitors, but having someone like Abid at the helm is a much-needed advantage.

The "Multi-billion dollar startup Award", Chris Caldwell, President, Concentrix

Before its merger with IBM's call center business in 2013, Concentrix was a little-known contact center tech business, which its parent firm, Synnex, put under Chris Caldwell's charge to grow.  Hence Chris had to take his experience managing a much, much smaller firm and figure out how to play in a fast-commoditizing and consolidating market.  And grow it he has achieved, adding the likes of Minacs and Tiger Spike before surprising the whole industry with the bargain uptake of the Rolls Royce call center business itself, Convergys, pitting the firm just behind Teleperformance at the head of the market.  While his competitors have been scrambling, looking at curious pickups like Intelenet for a billion,  snapping up a heritage global call center firm with flagship enterprise clients, some great technology and people delivery culture for just $2.8 billion, places the firm in a very aggressive position to kick on in 2019 and push hard for overall market leadership.  Chris will need to figure out how to adopt automation at scale, really embrace emerging cognitive solutions, but with the last few years' track record to bet on, who will bet against Concentrix now?

The "Veni, Vidi, Vici Award", David Poole, CEO/Co-Founder, Symphony

It's not often you get to tip your hat to someone you've known for a long time and witness them achieve, literally, exactly what they set out to... but David Poole did exactly that. Not many people can boast to launch a consulting firm exactly four years ago and achieve a $69m acquisition to a global provider such as SYKES.  When you compare this with the $74m ISG paid for Alsbridge and the (rumored) $85m KPMG paid for Equaterra, you have to hand it to David and his founding friends David Brain, Ian Barkin and Pascal Baker for catching a wave and finding their desired exit in less than half the time - and a lot more value placed on future potential earnings than merely existing revenues. When David came to visit me to tell me he was "going full on into RPA" in the summer of 2014, I have to confess I was skeptical as I knew the area needed a massive personal commitment, and people prepared to work unpaid for a very long time to get it off the ground. But that is exactly what he and his founders achieved. You may enjoy this blog with David in 2015... where everything he said pretty much came true.  Now am sure Chuck Sykes is hoping for David's vision to stay as consistent in 2019!

Who needs a #digital strategy when just being bloody funny will do...
December 28, 2018 | Phil Fersht

19 Predictions for 2019: Integrated Automation replaces Digital as the industry's focal point
December 26, 2018 | Phil Fersht

Each year we promise no more predictions but it's a habit we just can't kick.  So have 19 of them from the HFS research team...

“OneOffice” becomes reality. Organizational silos around front, middle and back-office will continue to erode in 2019 to create a boundary-less organization where there is only one office that matters – and that is the office that caters to the customer. The triple-A trifecta of automation, artificial intelligence, and smart analytics is helping ambitious organizations reach their OneOffice goals at a much faster pace. 

The Hyperconnected enterprise beyond OneOffice will emerge. As organizational silos converge, ecosystems will start to develop and a “Hyper-Connected Enterprise” will emerge. These B2B networks will be driven by collaboration across multiple organizations with common objectives around driving completely new source(s) of value. The emergence of blockchain and Internet of Things (IoT) is starting to make this vision of a shared economy with distributed and trustworthy information a reality.

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The term “Digital” becomes so diluted, it is rendered meaningless as "Integrated Automation" drives the narrative. In the race to call everything “digital”, digital will start to mean nothing. Integrated automation across the HFS Triple-A Trifecta of Automation, AI, and Smart Analytics will drive the industry conversation in 2019.

The misplaced faith in “retraining” will fade. We will continue to see uncertainty and confusion on changing job roles due to the impact of automation and AI. This is clearly a much longer conversation than just 2019. But as more enterprises get their hands dirty with various technologies, reality will set in and we will at least retire the misplaced faith in "retraining" as the panacea to all talent management challenges. We will also see an increased focus from ambitious talent putting themselves through nanodegrees (such as Udacity) and other discrete training opportunities as the pressure builds to stay relevant in the face of emerging tech.

2019 will be the year of ‘how’. The why (customer experience, revenue impact, internal alignment) and what (emerging technologies) for transformation are now fairly clear after intense debate for the last couple of years. But “how” to go about executing on the aspirations

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'twas fun while it lasted, but 2019 is the Year of Cold Turkey (Xmas hangover rant warning)
December 26, 2018 | Phil Fersht

Remember when Amazon, Apple and Microsoft were racing to become the first $1 trillion valued firms?  In just a few weeks they all languish in the $600m-$700 range.  That’s a market decompression from a high never quite seen before, and it seems that the floodgates are now fully open, as political uncertainty (driven by colossal political egos and selfish self-interest in both US and UK), combined with a sentiment of “surely it’s time for a long overdue recession”.  In short, the markets are having a correction and our economic outlook is being clouded by political uncertainty.  Noone is better than talking themselves into a recession than the human race.

We should have just let the robots take over and go with the flow

In the past, when we arrived at a market correction, we’ve quickly shrugged off the over-exuberance that engulfed our lives and focused ourselves quickly on the realities of keeping our jobs and conserving our cash.  This time I am not so confident society is ready for a cold turkey experience of, heaven help up, reality

This time, all those lovely pictures of robots and repetitive marketing messages that all seemed to have emanated from one festering camembert-infused Shutterstock site, have combined to send too many of us in a fantasy maze of artificial nonsense, from where many of us will fail to find a way out. 

 So why couldn’t we have all just stayed there, inhaling this pungent odor of future fantasy, until our tech stocks exploded in that sea of $millions, where we could just retire and let that next generation worry about fixing the stagnant world we left behind?  Why have we become the ones who have to learn from our own mistakes and try and fix them? 

Why does anyone have to be held accountable for anything anymore?  Isn’t that the new mantra of the workplace?  I thought the future of work was “no work”?

Don’t worry – you can (somehow) bring yourself back from your digitally-transformed, robotically-automated and ML-infused unreality – all made possible by that blockchain fantasy, where, if all else fails, magic will, ultimately, provide the answer.  You can do it, it’s hard, but you can lock yourself in a padded cell and let the digital delirium slowly subside into a silly dream.  “Remember that time we all thought robots were taking over” will be a good old topic down at the bingo hall as you reflectively look back at the AI careers that never quite materialized with your old cohorts who also dragged themselves back from digi-blivion.

The Bottom-line: Accept it was fun while it lasted, but it’s time to peel back the layers of bullshit and find those core attributes that used to make you successful.  

It’s time to be honest with yourself – you never even bothered to actually define what digital transformation really was, beyond positioning yourself as someone with disruptive DNA.  And you never really knew more about RPA beyond the endless posts and blogs about those stages of “maturity” you need to go through (even though you’ve never actually met anyone who knows much about RPA than those really smart software salesmen).  Did you even bother to put yourself through the basic training of writing a script – or was that all a bit beneath someone of your undoubted prowess? 

And you’ve probably started to bleat on about Machine Learning and AI as if this was somehow your true calling in life, ever since daddy bought you your first train-set and you demanded he return it to fund your python course instead. 

Yes, folks, those heady days where you had already made it without barely even bothering to fake it are over.

So dig deep and remember what made you great in the first place… and sure you can identify with at least one of these five attributes:

  1. You may have been an amazing communicator… so learn how to articulate your firm’s true differentiation in plain English. What is it you bring to the table that your competitors cannot?  How can you siphon through the buzz-talk to articulate real value, not fake value, because in the new reality, the focus will be on the real, not the fantasy.
  2. You may have been awesome at numbers… then learn to create metrics that matter to your business to prove the value of doing things. Demonstrate how man-hours saved equates to impact on top/bottom line.  Quantify the impact on customers when you fix a process chain that includes fulfilling a customer need.  Quantify the impact on growing a business by speeding up the cash flow cycle, such as people and tech investments to get ahead of customers.
  3. You may have been awesome at selling… the get back to selling solutions people will actually buy, as opposed to solutions you want your next prospective employer thinks you can sell. Being great at sales will be even more in demand as the need to actually close business quickly supplants the need to promise future deals that most people realize are unlikely ever to happen.
  4. You may have been terrific at relationships… so get back to getting to know your clients better, as opposed to trying to impress them with fancy stuff they don’t really understand (and neither do you, but you know some bigger words to use). However smart and amazing we all may have become, it’s the trusting, deep relationships with your peers, colleagues, and customers which will make you successful.
  5. You may have been a terrific bullshitter… so find those remaining viable AI and blockchain firms still functioning and blowing their seed capital, and get a sales or marketing job fast!