Phil Fersht
 
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Big is no longer as beautiful as Mid-Tier IT service providers surge with double-digit growth
March 01, 2020 | Phil FershtJamie SnowdonMartin Gabriel

Just a few short years ago, the world of the mid-tier service providers ($500m-$3bn revenues) was a pretty depressing place - many clients were wary of using lesser brands with smaller scale and high attrition and preferred to stay loyal to the Tier 1 brands and beat them up on price.  Growth was pretty stagnant and most of them just wanted a lucrative exit, such as IGATE selling to Capgemini, Syntel to Atos, Luxoft to DXC etc. Fast-forward to the last 2-3 years and suddenly the smaller service providers are in vogue, being seen by many clients as more agile, more capable of client intimacy, more flexible and eager to take on complex projects and avoid the exhausting turgid RFP bake-offs which squeeze the value out of engagements before they have even started:

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EPAM ensures not all roads lead to India. While we have been overly-focused watching the success of the Indian-heritage IT service providers, the biggest standout performer is the predominantly Eastern-European provider EPAM Systems, which has quietly built out its app development capabilities over the years with its powerful access to tech talent in places such as Minsk, Moscow, St Petersburg, Katowice, Budapest etc.  The firm's focus on complex app development, software engineering, IT security and a recent investment in Blockchain is positioning the company well for strong growth in the foreseeable future.  It's also taken advantage of DXC's acquisition of Luxoft's to become Eastern Europe's standout IT service provider.

Hexaware, Mindtree, Mphasis, LTI, and NIIT lead the Indian-heritage Mid-tier growth spurt.  With an IT services market barely growing at 5% annually, for the five Indian-heritage Mid-Tier firms to grow at rates between 13% and 17% is quite remarkable. Clearly, the bias over brands is reducing dramatically as clients seek greater intimacy, focus, and dedication to their needs.  We can dive into all these firms to call out where each iswinning, but the main factor in common is the fact that client needs are changing - they increasingly demand shorter projects as opposed to these clunky frustrating multi-year relationships that take many months to set up.  I cannot tell you how many executives from these firms have said to me that more and more of their clients simply want work done - and fast - and do not want to jump through all the hoops of the legacy outsourcing world. With the need for systems modernization, digital app development, data management, and automation at an all-time high, clients are more willing than ever to trust those IT services partners where they can still get the CEO on the phone, who understand them, and are willing to move mountains to succeed for them.

Let's take a deeper look at what is going on at enterprise intentions when their current primary outsourcing contract expires:

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Only 23% of clients are prepared to settle with their current partnership.  The traditional model is only working for a minority of outsourcing clients today.  If you're a service provider leader and you haven't identified who these clients are (and who are not), then you are in serious trouble.  Smart Mid-Tiers avoid these clients - no point wasting valuable resources on lethargic clients who really only care about keeping the lights on.

Another quarter (26%) wants to move the needle but may opt for a hybrid model. Meanwhile, 27% are getting itchy to kick their service provider up the rear end and get them embedding some real automation and outcome-focus into their delivery if they are to renew with them.  This means they want to see real commitment to reduce the dependence on the staff army and see real investments in process automation to digitize their delivery.  These are relationships where Mid-Tiers are frequently being brought in to snaffle pieces of the pie to create competitive tension.

A third is more decisive and likely to make the switch.  31% have clearly got to know their current outsourcing provider only too well over the years and have zero hope they can get any real co-investment out of them.  As we have discovered over the last couple of years, some providers have made real investments in competencies like automation and AI, while others have merely added a little sugar-frosting and persist with selling the same old model with some cost shaved off the package, and some added incentives for performance (i.e "outcomes").  Moreover, ambitious outsourcers and Mid-Tiers are heavily targeting their competitors' disaffected clients and are willing to offer eye-catching deals to win their custom.  This can include attractive pricing tied to aggressive delivery staff reduction over a 3-5 year amortization plan that is offset by efficiency savings due to automation and digitization.  In other instances, clients are breaking up the provider mix and opting for multi-source relationships with shorter engagements to drive more value and innovation.

In some cases, it may also prove more attractive for the legacy provider to shed the business than fight to keep a client that will quickly become unprofitable (and the industry is littered with those engagements). In several services markets, we are seeing emerging offerings from providers where they are offering fully digital offerings (with vastly cheaper support), such as TaskUs in the customer call center market, or nDivision in managed IT operations, which can undercut traditional outsourcers so aggressively, there is no feasible way the traditional providers can compete.  In addition, we are seeing several India-centric service providers offer $-per-chat support models for some transactional services that are essentially chatbots offering basic-level support services at costs as cheap as 15 cents a chat... we are finally seeing "digital disruption" attack the traditional outsourcing market that has somehow staved it off for years thanks to lethargic clients and lock-in contracts.  

20% have given up and will just look at something very different.  Maybe the cost of changing the model is just so abhorrent it's time for clients to pull the work back and fix it themselves.  Some are so fed up with the lack of innovation in changing anything they've realized they have smarter people on staff who are better deployed to take the work back, staff up to execute it while they explore all their digital and automation options.  Maybe they will invest in an integrated automation platform, and use the funds saved by backsourcing the work to invest in a digital backbone that enables them to perform work in a touchless, smarter manner?  Again, there are ample opportunities here for smart Mid-Tiers to pick up new client work and prove themselves to shrink legacy IT systems, develop new digital backbones and help their clients achieve real business outcomes.

The Bottom-Line:  In this current climate, the time is riper than ever for these Mid-Tier service providers to grab more market share

The IT services industry really needs this healthy competition as it gives clients more choice and forces the Tier 1 juggernauts to change their delivery model and entire approach to engagements.  And during a time when there is worrying economic uncertainty, global panic about some nasty flu virus, clients will need more support than ever to work with smart partners which can support them remotely, jump in to help critical situations are a moment's notice, and show the ability to really listen to their needs.  

RPA died. Get over it. Now focus on designing processes that deliver superlative experiences.
February 21, 2020 | Phil Fersht

Seriously folks… there’s the hype, then the excitement, then even more hype… and then the realization that it wasn’t quite what you thought... and then, finally, coming to terms with the fact you're no longer going to hit that elusive jackpot.  To hear some people still showering us with cryptic unaudited revenue numbers, and from neolithic analysts still parroting their marketing, just spanks of desperation to keep faking a market that simply isn’t there.  Can we just push the off-button on this charade, please?

What, exactly, is "dead" and where are the signs of life... when it comes to process software and enterprise automation?

The RPA that "died" is the poorly-defined "RPA" that got hyped up to create hockey-stick growth excitement for investors. It wasn't defined correctly, was a mash-up of desktop automation with pure-RPA (unattended back office) and all the deals that got signed were "attended" so weren't even "robotic". 

The pieces of RPA that survive are the process orchestration tools (discover, design, automate and mine) that form part of what we see as the evolution towards "Intelligent Digital Workers" which augment human experiences and help with real customer-to-employee intimacy. Let's also not forget these apps also need to be enterprise-grade, compliant with ITIL and security factors etc. Scale only occurs when the business designs and IT enables... The winners in the future are smart enterprises with leverage technologies to anticipate where their customers are going... often before their customers even know themselves.

It's been a year since we declared RPA "Dead"... so what's been happening since?

It’s been nearly a year since we penned our now-infamous blog “RPA is dead.  Long Live Integrated Automation Platforms”. Coming from the analyst firm that first introduced RPA to the world in 2012, this caused quite the stir.  In fact, one of the leading service providers even shutdown its RPA practice as a result and most of the others are left scratching their heads still trying to figure out where the money really is…Since the “dead” post, we’ve seen a swift realization from investors that the RPA “market” was being engineered by a small handful of marketeers attempting a reincarnation of the dot-com bust era where everyone goes nuts over robot butlers and a bunch of naïve enterprise clients who’d been oversold too many RPA licenses that they had any idea how to deploy.

We weren’t helped by a small handful of analysts who really should know better than to pontificate false marketing in exchange for an ego-stroking and glittering robo-stardom they’d never before experienced... and a great big Vegas party that precipitated the most embarrassing collapse we’ve seen in the history of process technology. Many good people had bet their careers on hype, false hope – and blatant lies – and are still on the job market trying to get their lives back on track. In fact, the whole fiasco very nearly destroyed the real market that these tools can help catalyze, if they are allowed time to develop and form part of a broader, integrated solution.  Our recent HFS Top 10 covers this form the view of 300+ current adopters, however, this market is changing very quickly and it won't make sense in the future trying to put a lot of products in the same "market" that is changing into one that encompasses so much more than basic screen scraping, macros, and process loop recorders.

Instead, we need to focus on the development towards an intelligent digital workforce that help us deliver real customer and employee experiences

What isn’t dead is the fact that RPA created the path (and conversation) to a much bigger market that’s evolving, once you get real about business process issues and the true path operations leaders need to take to make them awesome.  But, if you can’t accept we’re in the early stages of a marathon, not midway through a 110 meters hurdles dash, we can define an exciting future for the world of automation.  But a “bot for every desktop”, or “hyper-automation”? Really, folks?  Can we just start talking again in plain English about what is actually realistic, what works and how we need to change ourselves to get there?  Can we start talking about an Intelligent Digital Workforce?  Can we start looking at how to move from dumb admin bots that keep old process loops and apps stitched together, and how enterprises can invest in intelligent workers that help us achieve much more intelligent interactions and experiences?  Can we focus on intelligent digital workers tuned to deliver (and learn) superlative experiences from processes we have designed to bring our customers and employees together?

The emergence of an Intelligent Digital Workforce is a key component of developing a OneOffice Experience.  RPA creates the foundation, but the next phase is to evolve to Intelligent Digital Workers

This shift toward intelligent digital experiences is a foundational element of HFS’ OneOffice Experience for Employee Experience (EX) and Customer Experience (CX). CX will increasingly be considered an umbrella term for the experience interacting with an entire organization, whether it’s the customer, partner, employee or any other entity. An EX culture is one where people work together shifting from transactional interactions to deeper relationships. Organizations need to ensure they get the balance right; which includes optimizing the use of emerging technology with a robust business case to improve CX to the long-term benefit of the business, getting the right information flows in place, eliciting strategic advantage and ensuring exceptional CX:

The HFS OneOffice Experience typifies how customer, partner and employee experience are coming together to drive a unified mindset, goals and business outcomes.  OneOffice conceptualizes how customer-centric experiences can be designed and supported by end-to-end processes across what we used to term front and back offices. Today's RPA bots essentially are embedded in the "Digital Underbelly" where they form part of the foundational processing layer for enterprises, while the emergence of smarter tools that can truly augment humans are where the future of RPA lies. Iftoday's current crop of software providers can develop their bots beyond the current static tools that really just keep old processes chuntering along. Digital Workers are emerging as the enabling technologies that are slowly becoming a critical component of developing CX design and delivering on the experiences smart process operators are designing processes to support.

HFS highlights five important principles of using Intelligent Digital Workers that all companies looking into implementing these solutions need to consider:

The Bottom-Line:  Intelligent Digital Workers are a powerful tool for connecting customer and employee experiences to drive a unified mindset, goals and business outcomes.  The RPA vendors need to get there if they want find their edge in the market

Experiencing a OneOffice enterprise with Intelligent Digital Workers looks different for every organization, but considering the HFS 5 principles will help your company define and execute on a strategy that benefits all of the stakeholders in your ecosystem rather than just having a “tick the box” approach to the technology.  Some companies will focus first on customer-facing, others will start with making internal processes easier and more intelligent.  Implemented well, Intelligent Digital Workers can better connect CX and EX, helping to provide the digital insights and intelligent support that a OneOffice experience requires. This is where the real market for process automation is heading... whether the current cast of RPA characters can make this shift is not inconceivable, but do they have the time and patience of their investors and clients to make the shift?  Time will tell... but not much time!

NASSCOM 2020... no Coronavirus excuses as India comes bowling back
February 16, 2020 | Phil Fersht

Not quite middle-stump, but India's bowling a better line these days, as NASSCOM is graced by cricketing legend Kapil Dev

After last year's effort, our expectations were set at a pretty low bar for the annual NASSCOM extravaganza in Mumbai last week. The IT services industry had surely reached its rock-bottom when it comes to death by PowerPoint and the same old bleh!

But no... we were pleasantly surprised that bottom has - seemingly - been reached and we're actually clawing our way back!

Ten Takeaways from the NASSCOM India Leadership Forum 2020

1. Coronavirus.... what Coronavirus?  Unlike those wimps crashing out of Mobile World Congress, the IT services dignitary did not think for a second of finding a germophobic excuse to bail... In fact, attendance was visibly up from last year. I did suggest to some suppliers that they should dish out face masks brandishing their logos, but no-one seemed to care.  

2. Start-ups and emerging service providers and were out in force.  One of my personal gripes with NASSCOMs past has been the dominance of the old guard services founders and less of the emerging slew of providers and startups.  This was the first time the emerging Indian IT sector drowned out the marketing glitz from the establishment.  Here's a decent survey on the Indian startup sector from the Reserve Bank of India.

3. Big, big focus on changing talent needs.  One key theme that dominated conversations was the recognization that Indian service providers must invest very heavily in training their talent which really understands business processes and applies it to IT.  Only having business process understanding... or only IT... was a fast track to legacy.  "We have enough IT guys" was stated by more than one senior executive.

4. "Experiences" dominating the conversation.  The rapid growth being exhibited from the mid-cap service provider sector (Hewaware, LTI, Mindtree, Mphasis, NIIT, Persistent, Virtusa, Zensar et al) is being driven by enterprise clients' desire for great intimacy and experiences from their services partners.  The days of big, bulky, multi-year contracts are being replaced by rapid, high-impact projects where customers have quicker routes to outcomes and can demand greater value and complex support.  Brand is being superseded by expertise and speed-to-market and the mid-cap sector is clearly benefitting. Five years ago, working in a small-scale provider was depressing, with the sector stagnating from flat growth and an inability to compete with the tier 1s. Now the mid-sector loves taking on the juggernauts in deals where the client has deep intimate requirements warranting immediate attention from the A-team.

5. Some big hitters (and bowlers on stage) energized the whole event.  Hearing from Tata's Chandra was a much-needed boost for NASSCOM... he still cares about his first love of IT services, even now as he lords it with world leaders at Davos these days.  It really was terrific to hear the energy from Rajesh Gopinathan (CEO, TCS), Salil Parekh (CEO, Infosys) and Rishad Premji (Chairman, Wipro) duking it out on stage, and we also were treated to a strong session from Tech Mahindra's CEO, CP Gurnani, on the FutureSkills Prime initiative.  However, none could surpass the awesome appearance of one of cricket's all-time greats from the Hadlee, Botham, Viv Richards era... Kapil Dev (pictured above). 

6. Lack of presence from BPMs (BPOs).  Only WNS, the industry's highest growth services firm, was out in force.  The other emerging BPM firm of note was Datamatics, which is making a determined effort to get noticed.  Very little from EXL, Genpact, Sutherland etc. which is disappointing considering the rapid blending of process and technology in client engagements.

7. Lack of presence from non-Indian centric service providers.  While it was great to have Capgemini's India head, Ashwin Yardi, grace his presence, there were few hitters from the likes of Accenture, IBM and DXC present, despite their seismic armies of Indian IT talent.  NASSCOM needs to be about embracing global business investing very heavily in India (and close to half of the employees of Accenture, the IT services leader, are India-based).  

8. Automation fading fast from the agenda.  Perhaps the biggest surprise was the noticeable lack of presence from the automation firms.  A couple of sales booths for AA and UiPath were seen, but the only leaders from any of the automation firms to grace their presence were Govind Sandhu at AntWorks and Atul Soneja of EdgeVerge.  The days of cheesy robot posters and embarrassing robots on stage seem to be in the past as automation software becomes part of the fabric of services, as opposed to a major differentiation point.  Are the marketing coffers of the automation firms running dry, or do they feel they need to focus on marketing themselves beyond partnering with service providers these days?  Hmmm...

9. The gossip surrounding Wipro's successor dominated the chitchat.  Whether or not this is a good thing, the rotating cast of personalities leading the heritage Indian service providers dominates the headlines in India.  Whether Wipro likes it or not, they have now achieved an Infosys-level feverish status in the gossip columns, regarding Abid's successor.  I think about 30 executives from Wipro's competitors have now been linked with the job...

10. The lack of Cognizant executives also added to the gossip circles where their former one-zeros are heading... from Frank to Raj to Gajen to Prasad... people want to know where all these dudes will end up.  Surely not Wipro =)  Speaking of former Cog-natives, we were also lucky enough to meet MindTree's new CEO, Debashis "DC" Chatterjee (a former Cognizant leader) who's clearly enjoying the challenge of driving one of the mid-caps in Mindtree, and Harish Dwarkenhalli, who recently joined Wipro as President of Cloud Enterprise Platforms. 

The Bottom-line:  The energy is back as growth picks up and clients really need agile IT services partnerships

For the past three years, we've all argued whether India's IT services growth was going to be anything more than a puny 2-3%.  Suddenly, we're back at double-digit levels for the market leaders and most of the mid-caps, while the profit margins seem to be holding true.  There is a broad services industry recognition that quality of execution and the ability to deliver real client experiences trumps a few cents on the rate-card in a bullish global economy. The reality is, with IT, the more the India-heritage IT service providers invest onshore near its core enterprise clients, the better this is for India's growth as the IT services industry's dominant home. Coronavirus?  What Coronavirus...

Wipro must appoint a ruthless CEO with teeth to escape its current predicament
February 09, 2020 | Phil FershtOllie O’DonoghueSaurabh Gupta

When Wipro’s CEO Abid Neemuchwala announced his resignation it was a shock for employees and the industry as a whole.. but it was less of a surprise to those who knew him well. Abid's a humble, really nice guy with an incredible work ethic and intelligence.  He also has a smile that lights up a whole room.  

The poor man was clearly exhausted after four grueling years trying to steer an oil tanker that clearly needs a more aggressive leader with a clear mandate to make painful changes.  Don’t mistake us here – Abid is one of the service industry’s greatest strategists and inspirational figures, but Wipro is not ready for this type of leader.  It needs someone who can drive aggressive change - and fast - to a company that has lost itself in its heritage culture and is slipping behind several the India-heritage services leaders in this cut-throat market.  Being a "safe pair of hands" is table stakes these days for offshore-centric services, and the winners are moving aggressively with onshore investments and outcome-driven delivery models to win the hearts and minds of clients.  While Wipro has its bright spots (read on), it's lost ground to some of its competitors and its next CEO has to make some deep changes to personal, structure, leadership and strategy if it wants to closes these gaps quickly.

With the recent CEO changes at IBM and Cognizant, Wipro needs to look more at Cognizant’s recent changes if it wants to set itself on a new course for growth

Meanwhile, leadership changes elsewhere in the market have seen IBM change CEO’s – a prospect that could see the lumbering firm recover market dominance and growth after several years of confused direction and taking a pounding from the likes of Accenture and TCS.

In addition, Cognizant went through a similar situation with Francisco D’Souza, who’d overseen an incredible rise of the firm, but struggled to make painful changes as the firm’s leadership became complacent and lost their edge in the market.  Their response has been to appoint a dynamic young leader in Brian Humphries, whose goal is to reenergize the firm’s leadership and culture.  He has already made many leadership changes, brought in several outside executives and created a culture of urgency right across the firm.  “It was like Cognizant suddenly woke up after falling asleep” was the feedback we received from several of its clients.

While both IBM and Cognizant seek deep changes within their internal culture with new leadership, they are very different beasts and require very different leadership styles.  IBM requires someone who's lived and breathed the culture and knows how to make the right changes to align with the right strategic direction.  Cognizant needed a leader to shake up a terrific firm that had become a victim of its own success and was suffering from complacency. 

Wipro’s board must seize this opportunity to redefine itself – and fast

However, that change was planned, Wipro’s doesn’t seem to have any real plan behind it – and belies a degree of chaos and anarchy that could become disastrous for the firm. In a complex and unstable global political environment, clients look to providers to bring stability and simplicity – impromptu leadership changes and boardroom dramas, while fodder for analysts and journalists, go straight to the top of the risk register in existing engagements and can see some clients back our before the ink is dry on new deals.

Infosys learned this the hard way, when its leadership troubles became an almost comic roadshow in 2016/2017. Wipro already has enough to contend with in a market gripped with buyer cynicism, hyper-competitive incumbents, and geopolitical uncertainty – at the very least it must find a replacement for Abid who will get the firm back on track and reassure the market that 2020 will be a year of progress, not chaos, for Wipro.  In addition, the next CEO must have the empowerment to make tough decisions without the constant micromanagement of the Wipro board in order to making rapid improvements to its...

  • Current vulnerable market position;
  • Mostly middling performance across market segments;
  • Articulation of "Why Wipro" to clients, partners and prospects.

The market reacts to the shock exit of Wipro’s CEO

Unsurprisingly, the market has reacted somewhat negatively to the impromptu departure of a leading IT services firm’s CEO – stock price dipped on the news after a relatively healthy opening to 2020. Under Abid, the firm pushed hard into the digital services space – and since he took up the mantle in 2016, closed the acquisition of cloud services firm Appirio, as well as design agency DesignIT among others to support the firm’s strategy to move out of highly commoditized IT Services and BPO, and take a bite out of the more lucrative and rapidly growing, albeit ill-defined, digital technology and services market.

The firm push to build out digital and design capabilities has, to date, had mixed success. While the firm has been able to blend technology, strategy, and design successfully for some core clients – it has struggled to expand at the same rate as some of its competitors (see below). Furthermore, its traditional IT services business came under more pressure from the hungrier mid-tier firms, such as LTI, Mindtree and Mphasis, while its closest market competitor, HCL, has been playing a market-cap neck-and-neck race with the firm as it elevates its reputation in the market.

Under Abid, Wipro also struggled to keep its market share – falling further and further behind the rapid growth of TCS and Infosys. A market signal not lost on investors and market commentators when the CEO announced his resignation.

Unlike some of its competitors – such as Infosys – which have managed to keep their heads above the double-digit growth waterline for the majority of recent quarters, Wipro has only just managed to keep itself in positive growth territory. Under Abid, growth accelerated briefly at the start of his tenure, but has been on a bumpy decline since as the firm struggled to make the most of its digital acquisitions and take on rivals in the highly competitive IT services market. Even with relatively high margins, the results just weren’t healthy enough for an industry that thrives on scale – and its subsequent success is marked on revenue growth. With the last few

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If you don't ease your process debt, you'll never benefit fully from automation
February 08, 2020 | Phil FershtSarah Little

How many times do you have to scream at people to make them realize that they will never be successful tinkering with shiny new automation tech tools if that cannot design end-to-end processes that achieve their desired outcomes?  Automation tools can truly help make processes work effectively across disparate systems, once you have got rid of the awful process debt weighing down your organization. 

So what, exactly, is "process debt"?

When you are head to head with competitors, you must have your business processes designed on solid ground to accelerate the delivery of value – using technology and integrated automation to connect the dots.

Tech entrepreneur Ben Horowitz quoting Shaka Senghor, who he considers the CEO of a prison gang, in What You Do Is Who You Are, sums it all up perfectly... "Imagine you’re a developer and someone says, ‘Here’s some land, and here’s a million dollars. Could you build me a house on this land?’ So you build this guy’s dream home. And he moves in and then his family starts getting sick. Because what they didn’t tell you is that the land is toxic and it was a f***ing dump site …Nobody was digging into the dumpsite itself.” 

Net-net, technology isn’t necessarily the heart of making the connections from front to back – it’s making good choices about what you automate and having the business process in place to back it up. 

You can read more about our recent HFS Leadership Roundtable here, where we got deep into the weeds of process debt issues.

Why on earth would IBM buy an RPA firm now?
February 02, 2020 | Phil Fersht

UiPath's "Chief Evangelist" Guy Kirkwood (who once famously proclaimed "AI is bollocks") has predicted that new IBM CEO Arvind Krishna will soon turn to RPA and make an acquisition

Of course! Ginni was driven out because she failed to get the Blue Prism deal over the line, and Arvind is now in the hotseat to make damned sure they don't miss out on UiPath...

Of course!  All this "hypercloud" nonsense and the $34bn of loose change they dropped on Red Hat was just a diversion from their real intention... to make IBM the Big Blue RPA monster!

In all seriousness, we were speculating about IBM and Blue Prism during RPA's infancy in 2016 (see blog)... and while it made sense back then (and at a far cheaper price tag), it sure doesn't make any sense now. SAP, Microsoft, Pega, IPSoft and Appian have all made modeinvestments to have their own RPA capability, and all of them chose either very small scale acquisitions or developed it themselves (in Microsoft's case).  I also fully expect Salesforce and Oracle to tick the RPA box at some stage, but it is highly unlikely to be with one of the big three with a nine-figure price tag.

Now there is a small chance I could be wrong and IBM has suddenly decided to take the plunge several years too late, but it really makes no sense at this point. 

IBM changes leadership just in time to survive in today’s punishing IT services market
January 31, 2020 | Ollie O’DonoghueJamie SnowdonPhil Fersht

Gini Rometty, the queen of Big Blue is stepping down after a turbulent few years at the helm, where her “imminent” retirement has been one of the industry’s most discussed topics since the failure of Watson to reach its early potential.  However, the rapid shift in direction towards hybrid cloud - with the Red Hat acquisition just over a year ago - has rapidly paved a new direction for Big Blue and, perhaps, leaves Gini with a lasting legacy that won’t be all about her supercomputer that found fame on Jeopardy!

The appointment of Arvind Krishna, the architect of IBM / Red Hat, signified its full-throttle scramble to take the Global 2000 into the hybrid cloud

And in here place steps up the head of the firm’s cloud business, with Jim Whitehurst, the CEO of Red Hat, moving in as president, but more significantly, Arvind Krishna, IBM’s architect behind the deal, being voted in as the new CEO.  With Krishna being the brain behind the Red Hat double-down, he knows how to take the calculated risks which IBM must take if it’s going to turn the aircraft carrier around.  Moreover, he can move fast, with the Red Hat play being barely more than a year old and the emerging IBM cloud business quickly becoming the most coherent and unified of all its business units that HFS has encountered.

This speed and clarity of direction speak to Krishna’s ability to pull what was a rapidly evolving team together with a clear mission and vision.  Again, if he can replicate this at scale across IBM, it might be able to solve the firm’s biggest challenge - rationalising a sprawling estate that has been left to grow wild for almost a decade.

Hybrid Cloud is where IBM has made its bed, and the new IBM leadership team is determined to take full advantage

New HFS Research shows this market is expected to ratchet up by more than 20% this year to $72 billion as the market for hybrid private/public cloud becomes the most vital progression corporation need to make to scale and survive in today’s global digital business environment:

 

Source: HFS Research 2020,  Click to Enlarge

While all the cloud talk has been about the rampant growth of the digital juggernauts Microsoft, Amazon, Alibaba and Google, no one has stepped up to support complex hybrid public/private cloud transitions better than IBM in recent times.  It’s one thing providing the capacity, containerization and scalability, but another to layer on all the global support to tackle the complexity of integration with corporate legacy IT systems, along with all the ongoing support and security needed to manage this transition effectively.

The new leadership must unite the warring factions within IBM

IBM’s new leadership team has a wealth of experience and can reverse the fortunes of the firm – but they have their work cut out for them. It may have been the king of the services market a decade ago, but the firm has been too pre-occupied with siloed business units scrabbling around on their own initiatives trying to be the next big thing. Over the years, IBM has moved from a trusted dominating force to a whale gradually bleeding out as IBM Watson became somewhat less relevant in a world where business leaders were struggling to make RPA work, and newer faster rivals in the mid-tier started eroding their market share with competitive pricing and flexible delivery. Above all, IBM needed a clear vision, one that cuts through the digital drivel that pre-occupied buyer mindshare. And sadly, that just didn’t come under Rometty.

Battling the complexity of IBM is something clients of the firm tell us is a major inhibitor to contract growth. Disparate sales and delivery teams make it, at times, impossible for clients to expand engagements into new areas and as analysts, we’re often told ‘seriously? I didn’t even know they did that?’ when we talk about IBM’s broader capabilities. If the new leadership team are going to reverse the fortunes of the leaking oil tanker, they’ll need to address this first. And can do so by implementing the following:

  1. Incentivizing sales teams to cross-sell across the whole of IBM’s services. Clients dont care which business line recognizes the revenue or which sales team gets the commission.
  2. Build a layer of consulting as the window to the rest of IBM. Simplifying a complex and sprawling empire will take time, and while important won’t change quick enough to match buyer expectations. Building genuine service-agnostic consulting capabilities to lead engagements across IBM will go along way to plastering over the cracks while the rest of the business is modernized.
  3. Loosen the purse strings and be prepared for flexibility. The services ecosystem has changed rapidly, and IBM’s now competing with firms willing to take a gamble on client engagements and offer flexible pricing models. IBM can’t rely on its reputation alone to compete anymore, and must be willing to invest in clients and take risks – at least to a greater extent than it has in the past.

IBM has a powerful reputation – but this is no time to be complacent

The phrase ‘nobody got fired for bringing in IBM’ has been a boon for the firm and isn’t far from reality. The firm’s reputation for delivery and innovation proceeds it which means sourcing teams get off the hook, even for disastrous engagements. But over time even this lofty position has become hard to maintain as a new generation of buyers pours into senior positions and competitive pressure force enterprises to look for partners outside of the usual suspects.  

The new IBM leadership team has a unique opportunity under Krishna, to re-position IBM in the market as a dynamic and modern services firm, leveraging its heritage brand and reputation to push a clear message. If you pulled a representative sample of the market and asked them what IBM’s strategy is, its vision for the future is, or even what their big bets are, you’d be met with stony silence. IBM must urgently figure out what its story is, and what it wants to be in the future if it’s to claw back its position as the IT Services firm of choice.Is the new leadership team a warning shot for the hyperscale cloud giants?

In cloud, however, IBM has always had a relatively consistent story, supported by an enviable track record of delivering complex infrastructure services to clients. While the emphasis on public cloud pushed IBM out of the limelight as executives piled into hyperscale, IBM has made a killing pulling together the full-stack enterprise infrastructure. The Red Hat acquisition showed IBM was ready to put its money where its mouth is and commit to targeting the hybrid cloud market – a rapidly growing segment as the lure of ‘cloud only’ and ‘all-in-with-AWS’ became recognized for the fantasy that it is for most enterprises.

The debate will no doubt rage on over whether IBM has a place amongst the hyperscale firms – AWS, Google, Microsoft, and more recently Alibaba Cloud. Whether born-in-the-cloud purists like it or not, IBM’s infrastructure and enterprise cloud business puts it firmly in with the biggest of the bunch on PaaS revenues alone. The Red Hat acquisition in 2018 bolstered this even further and fired a warning shot in an already punishingly competitive cloud war.

The new leadership team can bring a level of focus and commitment to cloud – with senior representation from IBMs Cloud Business in Arvind, and Jim from Red Hat as President. With this combined experience and a commitment to hybrid cloud, there’s every likelihood IBM is in a position to bite a huge chunk out of one of the fastest-growing enterprise services segments. And while it’s unlikely IBM will need to go to war with the major cloud giants to make its mark – the hyperscalers would be wise to watch the new strategy market out by IBM’s new leaders – this may be the most valuable partnership they ever have.

Bottom Line: The change in leadership will provide the jump-start IBM desperately needs to survive this punishing services market

Gini stepping down is a big moment for IBM – She has had her hand on the tiller for close to a decade. But IBM has continued to struggle to return to growth, even with a reputation and trust in the market that it’s peers envy. The new leadership must leverage this reputation, and return some meaning to the brand – by swiftly unifying disparate IBM functions and modernizing the structure of the sprawling business. IBM simply cannot survive another 8 years of tumbling revenues.

Automation Anywhere leads the RPA market as the industry transitions to the Triple A Trifecta
January 29, 2020 | Phil FershtElena ChristopherMiriam DeasyErica Bisognano

We can finally draw a line under the market that was RPA as we transition to the broader value of integrated automation, AI and analysts solutions (the "HFS Triple A Trifecta" - see definition below): 

Our analyst team conducted the most exhaustive research process ever conducted in this space... here's the overview:

RPA Customer Experience Survey.  HFS fielded a detailed RPA satisfaction study with 255 super users of RPA (enterprise clients and product partners) that yielded 311 product ratings across 30+ CX dimensions

Detailed References. HFS conducted reference checks with 75 active clients of RPA product companies, including detailed interviews with ~20% of the sample

RFIs.  Each participating vendor completed a detailed RFI

Vendor briefings.  HFS conducted briefings with executives from each vendor

Download your copy of the 'HFS Top 10 RPA Software Products 2020'

 

So without further ado, let's hear from our lead analyst, Elena Christopher, for this Top 10 exercise:

Phil Fersht, CEO & Chief Analyst HFS Research: Elena... 7 years on, is the RPA bubble bursting or is something else happening?

Elena Christopher, SVP HFS Research: In 2012, HFS launched the concept of robotic process automation (RPA) to the world via a seminal report and blog. In the seven years since, the ugly truth is that we’ve simply succeeded in using RPA to move data around enterprises faster with less manual intervention rather than to rewire our business processes and create new thresholds of value. We are largely missing the opportunity to transform business operations. RPA gets loads of guff for creating technical debt. But the reality is that it has the potential to clear enterprise decks of years of process debt! Process transformation is the still unfulfilled mission. As we said last year, RPA is dead, long live integrated automation platforms. RPA alone is a great tool. But no singular tool can deliver broad transformation. As I’ve been saying of late, RPA needs friends. Sort of my own weird children’s show – RPA bot, cognitive capture, machine learning algorithms, APIs etc all work together to reinvent processes and create value. But honestly this is just another way of reflecting our Triple-A trifecta of automation plus analytics plus AI. Powerful alone, but better together.

With transformation on the brain, we focused our 2019 RPA Software Product Top 10 on how the RPA product companies are supporting and enabling their clients to scale their automation programs and drive real change. We looked at our normal mix of execution, innovation and voice of the customer criteria with special emphasis on factors such as customer scale, richness of ecosystem partners, product roadmap and R&D, embedded intelligence, and ability to drive business outcomes.

We expect that vendors can talk well and compellingly about their capabilities, thus we also conducted deep due diligence with their customers to get a straight story

What stood out during the Top 10 analysis? Who are winners and who needs more development, Elena?

Well before getting specific, the most important point to make is that no single RPA software vendor is truly leading compelling process transformation at scale. Those that are headed in the right direction have clear roadmaps and deliver enhanced product functionality that clients need to grow their automation programs, have strong ecosystems of well-trained implementation partners and technology partners that extend functionality, and they focus on driving success beyond the sale. Technology may be the enabler, but getting companies to change how people work and processes are executed is tough business.

Now for specifics – Overall, the big three (Automation Anywhere, Blue Prism, and UiPath) all had a strong showing. Automation Anywhere prevailed overall buoyed by a decent base of scaled, or perhaps more fairly, scaling customers. Of the big three, they offer the most native capabilities and have actively been working to address unstructured data for a few years. UiPath, who was the media darling of 2019, came in second overall. While they are doing many things right, its lower level of scaled customers and unrealized vision for the future of RPA set them back. Blue Prism took the three spot. While it exceled at execution, it fell behind in innovation criteria after a year of major announcements but limited actual impact on clients.

While we share overall rankings, the goodness is really in our subcategories where we showcase different facets of each provider’s strengths. This is our “choose your own adventure” approach to rankings. Consumers of this report can leverage the overall rankings or review the subcategories that are most important to their business needs. For example WorkFusion and AntWorks were recognized as leaders for their embedded intelligence. Kryon and Softomotive were recognized for their ease of use, NICE and Pega snared the top spots for delivering business outcomes, and EdgeVerve was a leader in security and governance.

So what's your expectation for this market as it matures? Are we settled with the key players, or do you expect this market to turn upside down?  What must these current firms need to do to survive?

RPA really is the gateway drug for AI and cognitive tech. As we move deeper into 2020, we expect to see more examples of Triple-A trifecta integrations emerge. Right now most enterprises are Frankensteining these, piecing together various tools and components to create the solutions they need – either directly or with service partners. We’ll see more integrated platforms come to fruition - some natively developed and some acquired a la Appian’s acquisition of Jidoka earlier this year. We’re also keeping a close eye on enterprise software vendors like Microsoft who announced Power Automate as its entry into RPA and let us not forget SAP bought Contextor in late 2018.

Meanwhile, enterprises can take a gander at our RPA Manifesto for Success for the Next Seven years. Among the recommendations, it reminds us that technology alone cannot drive business transformation.

Great insights Elena... Now have a stiff drink =)

Damn dry(ish) Jan!!!

Appendix

 

The Trifecta elements intersect with each other. While each element of the Trifecta has a distinct value proposition (RPA drives efficiency, Smart Analytics improves decision-making, and AI can solve business problems), there is increasing convergence between the three elements. For instance, smart analytics are increasingly reliant on AI tools such as NLP to conduct search-driven analytics, neural networks to do data exploration, and learning algorithms to build predictive models. In fact, the Holy Grail of service delivery transformation is at the intersection of automation, analytics, and AI

The Trifecta is nonlinear without a definite starting point. Transformation is not a linear progression. Enterprises can start anywhere across the Trifecta. It is not necessary to start with basic automation and then advance to AI-based automation. However, it is critical to understand the business problem that you are trying to solve and then apply the relevant value lever or a combination of value levers.

RPA isn't having a renaissance, it's catalyzing broader White Collar automation and AI to top $16bn
January 23, 2020 | Phil FershtJamie Snowdon

So it's taken seven years since HFS introduced RPA to the world, lots of blown investor cash, many failed careers, so many great parties and declarations of death for the industry that is, in reality, White Collar Automation and AI, to find a rhythm and a real sense of purpose.

While we can argue the oddities and vagaries of what is essentially attended desktop automation (which isn't really robotic as you need someone there to keep it functioning), plus the original concept that was real back office unattended robotic process automation, we can celebrate the fact that "RPA" is a $4bn industry today, that has helped drive a further $9.6bn in incremental internal and external expenditure on what we are terming "Intelligent Process Automation".  IPA caters for the process transformation, discovery, mining, data ingestion, computer vision, NLP etc that truly supports that broader automation and AI strategy across business silos:

Ultimately, what we are talking about here is the whole digitization, automation and self-learning data intelligence that is changing how white collar employees conduct their jobs.  So how is this burgeoning white collar automation and AI market redefining itself?

Robotic Process Automation (RPA): RPA 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. This includes Robotic Desktop Automation (RDA) which 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.

Intelligent Process Automation: is the use of technology to allow a business function or part of the operation of a process workflow work automatically that is not enabled by RPA technology.  It includes the use of process mining and discovery, BPM suites, data ingestion, machine reasoning, cognitive machine reading, automated chatbots, OCR, IVR, document process automation, and related technologies.

IPA comprises of two core elements:

  1. i) External professional services: Relates to all external spending focused on developing business process automation strategies / roadmaps and the use/ implementation of automation with business functions.
  2. ii) Internal operational spend: Includes internal and external spending on automation – change management, IT and operational teams focused on process automation and automation use as part of existing business process management initiatives.

Artificial Intelligence (AI): refers to the simulation of human thought processes across enterprise operations, where the system makes autonomous decisions, using high-level policies, constantly monitoring and optimizing its performance and automatically adapting itself to changing conditions and evolving business rules and dynamics. It involves self-learning systems that use data mining, pattern recognition and natural language processing to mimic the way the human brain works, without continuous manual intervention.  It includes cognitive (digital) assistants, AI Watson-type reasoning apps, Natural Language Processing, Machine Learning and Computer Vision.

The Bottom-line:  RPA has opened the gateway for augmenting White Collar roles, now we're progressing far beyond that

C'mon folks, it's time to quite the 'bot for every desktop' claptrap and focus on the real what next.  With firms like Microsoft, SAP, Appian, and co now offering RPA and much cheaper prices, the value is shifting firmly to the broader automation driven transformation that is enterprise-grade, involves both business and IT leaders, scalable in the cloud, and truly capable of augmenting human workers.  Yes, RPA provided a gateway to many new possibilities... and now the gate is firmly open, the horses are bolting!  Now catch them, tame them and ride them to the AI promised land =)

Big 3 RPA vendors: it’s time to show your strengths in co-opetition because Appian just bought Jidoka for full stack automation
January 09, 2020 | Miriam DeasyElena ChristopherPhil Fersht

The recent HFS predictions for 2020 boldly state that none of the big three RPA vendors will get acquired this year. By logical extension, this means smaller and less expensive RPA vendors have a higher chance of exiting to the comfort of bigger players with broad shoulders and deep pockets, especially where they fit a pressing market need and round out an existing integrated automation proposition. HFS also predicted the continuance of technology convergence as low-code / no-code platforms continue their surge.

Barely days into 2020, Appian, a low-code development platform vendor, announced the acquisition of Novayre Solutions SL, the developer of the Jidoka RPA platform. Appian recognized relatively early the complementary nature of BPM and RPA, establishing partnerships and agnostic no-code integrations with Blue Prism in 2017 and later with Automation Anywhere and UiPath. Now it has its own RPA and it’s talking about a compelling pricing strategy for its enterprise customers to boot. We’re curious to see how the dust will settle here with the “big three” RPA leaders.

Appian probably snagged a bargain here, in comparative RPA vendor purchase terms

Financials were not disclosed, but it’s likely this acquisition is at a very favorable price for Appian as compared to the astronomical valuations of some of its RPA brethren. Despite being on HFS’ radar in recent years, it was becoming increasingly hard to see noticeable progression in terms of Jidoka’s customer base and ecosystem development. So, it comes as little surprise that Jidoka was keen to sell. Appian is one of the low code players that actively embraced RPA as part of the overall conversations they have with customers about process automation. It describes Jidoka as the platform it would have built itself if it were building an RPA platform, citing its proven strength in unattended automation coupled with attended (albeit nascent) capabilities, along with its cloud-native development and java architecture.

Hailing from Seville Spain, with less than 20 employees, Jidoka’s customer are mostly small and midmarket firms spanning financial services, outsourcing, utilities, consumer products and other broad markets in Spain and Latin America (Jidoka robots operate in Spanish and English). A notable big logo client, Pepsico, uses Jidoka’s RPA in its finance department.

Appian RPA will come as an additionally priced feature of the Appian platform

Appian will rebrand Jidoka as Appian RPA once the acquisition dust settles. Much of rebranding effort has in fact been completed before this acquisition announcement in the months since the letter of intent was issued. There are no plans to launch it as a standalone feature or product, so don’t anticipate a pureplay RPA product coming from Appian. Existing Jidoka customers will be supported whether they are using Appian’s other products or not. One of its immediate integration priorities is with its recently launched Robotic Workforce Manager.

Appian RPA will be offered as an add feature for Appian Cloud platform customers for $5,000/month maxing out at $60,000 / year for unlimited use. This should be attractive at the enterprise level, especially to those looking to use RPA extensively. More importantly Appian can’t lose out with this pricing strategy as it is guaranteed the license revenues from the Appian platform itself, which are applied per user, per application.

The Bottom Line: Long live integrated automation. Appian’s acquisition of Jidoka is the latest example of the push towards full stack automation.

Low-code and RPA are a solid tool combination to tackle process automation, with each hitting their own sweet spots. Appian has born this out via partnerships over the past couple of years. We expect to see more examples of it in action as organizations progress their journeys beyond initial RPA-in-isolation piecemeal attempts into organization-wide impactful automation programs. While RPA has been dominating conversations around process automation for the past several years Appian is seizing the opportunity to bring low-code and RPA together. Its inherent process automation capabilities are complemented by RPA for hard to reach systems and as an alternative route instead of API development when speed is needed.

We see this acquisition as evidence of push towards what HFS terms the Triple-A trifecta of automation, AI and analytics into integrated automation. The BPM and low code players were super sane about embracing RPA rather than fighting it. And we see a lot that makes sense in this purchase if everyone can play nice and get along.

This acquisition has similarities with SAP’s acquisition of Contextor in 2018 as a technology tuck in and is closest in direct competitive terms to Pega’s Infinity platform encompassing RPA as a standard capability since Openspan opted to become part of something bigger in 2016. The essence of each is a holistic approach supplementing the rigor of low-code and APIs with the flexibility and speed of automation at the surface level as a tactical tool.

However, Appian will be bumping up against RPA vendors, and how this plays out remains to be seen. Appian says it does not intend to supplant its partners’ (e.g. Blue Prism) technology, but RPA vendor partners will have to make a call on how these relationships work moving forward with an all-important eye on avoiding customer disruption. Coopetition isn’t for everyone. Appian has been through this scenario before with Mulesoft before developing its native integration capability. The integration and shared standards live on but not the formal partnership.