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OneEcosystem organizations must blow-up the archaic leadership mindset to stay relevant
January 18, 2022 | Phil FershtSaurabh Gupta

The needs of enterprises are not rocket science these days – they are based on what they need right now, and the direction of travel for everyone is pretty much the same across the OneEcosystem:

  1. Get your sh*t into the cloud as fast as you can so you can operate and compete
  2. Make sure you know exactly what your customers what and have the tools and know-how to engage with them and impact them
  3. Make sure you have a handle on your security challenges
  4. Make sure you have collaborative partners who can support you (and you them)
  5. Make sure your key people aren’t going to leave
  6. Have a handle on the data you need to be effective, and organize your business functions to get rid of the silos
  7. Create a leadership function to pull this all together for you

We would argue that you’ll mess up 1 through 6 if you haven’t figured out 7. 

These are the roles – and leadership traits – that will make companies much more in tune with their strategic needs and align them to their business operations:


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The Chief Executive Officer:  The CEO should be the leader who drives the infinite mindset across the organization. He/she must continuously define the purpose for the organization and relentlessly drive a fearless collaborative culture that values stakeholder value beyond shareholder value.  As a leader, it’s so easy to obsess with operational functions of the business during times of disruption or distress - in this case, a global pandemic – that it can create knee-jerk, often short-term decisions that could inherently damage your long-term vision, your business’ culture and your raison d'être.  With no defined time horizon, no clearly-defined rules, and with players that may enter and exit at any time, the primary objective of an infinite game is quite simply to keep playing. The goal for businesses is to have the will and resources to stay in the game, through thick and thin.

Having lived and worked through four recessions, I personally understand the rapid change in leadership mindset that can occur when a firm goes from peacetime and growth to one of survival and all-out war.  According to author Simon Sinek, people look to leadership to serve and protect, to “set up their organizations to succeed beyond their lifetimes.” But in the modern landscape, most organizations place an unbalanced focus on near-term results that may ultimately prove to be self-defeating, like casting aside your umbrella in a storm because you haven’t been getting wet. In short, business is no finite endeavor. This pandemic lays plain for all to see the game we are really playing. 

The CEO is the ultimate collaborator, forcing the change that is needed and balancing the desires of the various stakeholders (the board, key clients, key partners, the employees).  His/her team to make this happen must be responsible for the full gamut of their customers, employees, and partners, working with a transformational wizard to bring together the process and technology with the real innovation ingredient:  the people. 

Chief Transformation Officer:  This leader must link front to back office and ensure processes run smoothly across functions to deliver the data/outcomes the organization needs.  This should ideally be someone who understands the challenges of enterprise operations, and how to align them with the market facing/client impact areas of the firm.  Forget the old GBS head / shared services head role, as this just has repeatedly failed to get out of the transactional back-office world and the “finance factory”. This person must oversee both technology and operations, understand the value of automation and AI, be able to design and implement change programs and work closely with the employee experience leader to eliminate the back office mindset from antiquated business functions into one that is aligned with the direction of the business.

Chief Customer Experience Officer:  This is the leader who lives and breathes the world of the customers and obsesses with how to engage them as effectively as possible – right across the entire customer life-cycle.  This ideally is someone who understands how to design customer interfaces, how to service customer needs leveraging both digital tools and physical support and ensuring the entire employee base is unified around (and incentivized on) driving customer impact.  In addition, the CCXO must ensure the marketing mindset is to communicate with the customer, educate the customer, and to develop specific programs that have a real impact on driving customer engagement and business growth.

Chief Employee Experience Officer:  Forget transactional HR, the employee experience leader is the person responsible for making the company a great, energizing place to work, where staff of all backgrounds, ages, experience levels cultures are energized by the values and desired outcomes of the firm.  This individual must be the person who can manage the expectations of the board, the CEO, the shareholders to create a company culture and values that everyone believes in.  Moreover, the CEXO must be intimately involved in the creation and execution of training programs across the firm to attract talent who want to work for a company that will develop them, as well as establishing a culture and values they can identify with.  This should ideally be a strong leader with broad experience of the business and staff development, who knows what it takes to be successful, and who understands how to motivate people beyond pure compensation.  The best leaders today are also great people managers – and the CEXO role must be at the core of the business leadership, not some ancillary executive painting lip service and not having any real impact.

Chief Partner Experience Officer:  As the OneEcosystem environment evolves, the need to collaborate with entities with common objectives, across the entire customer value chain, has never been so prominent.  Partners are no longer just your suppliers. Suppliers are essential partners to deliver your goods/services. Still, the OneEcosystem looks at partners more holistically – partners in the ecosystem involved in providing the customer experience across the entire customer lifecycle.

As such, we believe these five partner ecosystems will evolve:

  1. Supply chain partners, such as suppliers, distributors, or financers;
  2. Industry partners, such as multiple banks collaborating to improve trading, or mobile phone brands collaborating to share components, logistics and manufacturing processes to improve time-to-market;
  3. Cross-industry partners across industries with regulators. For example, regulatory approval in the airline industry between the airline, original equipment manufacturer [OEM], and authorities. Or stakeholders across the healthcare / pharma / retail / regulatory ecosystems to improve the efficacy of vaccines in the Pandemic.
  4. Technology and business services partners. These must fall under the CPXO to plug critical skills and technology gaps that are increasingly needed (with immediacy) in today’s talent-constrained environment.  This is where we envisage a huge cross-over with the transformation leader’s role, where services partners are increasingly critical to driving change at speed.  The CPXO must ensure his/her services partners truly understand (and are embedded) in their core business and understand what their clients – and other key partners – need to collaborate effectively. 
  5. Hyperscaler partners. The increasing influence of Microsoft, Amazon, Google – and others – is becoming significant across all partner ecosystems.  For example, if you are in the consumer goods or retail businesses, you cannot survive without strong engagement with the Amazon channel.  The same is happening where all these hyperscalers control your scalability with the cloud, your security, your data and so on.  They have become huge influencers and enablers of the virtual business, and there is nowhere to hide from them.

The Bottom-line:  The old way of running businesses is fast eroding as we rethink what constitutes success and ambition

Did you ever think your enterprise could move to a 100% work-from-home environment with less than three weeks’ notice? This crisis era of constant change has forced businesses to flex – vastly accelerating the OneEcosystem environment, dramatically cutting redundancies and improving processes at scale. There is a massive amount of change happening, and out of change comes real transformation. After years and years of complacency due to the relentless growth (and papering over the cracks of 2008), all of today’s organizations now finally have a burning platform to change how they operate globally.  In fact, the platform is positively on fire!

You must adapt for the future of work, folks
January 14, 2022 | Phil Fersht

Accenture, Infosys, TCS, Wipro, and LTI electrify the HFS Energy Top 10
January 10, 2022 | Josh MatthewsPhil Fersht

The energy industry is experiencing multiple competing fundamental transitions and market forces that threaten to cannibalize many energy providers out of existence:

The political mandates (or attempted mandates) to move more aggressively from fossil fuels to renewable energy, to have broader sustainability across value chains; 

The adoption of digital capabilities to connect organizations and pubic sector bodies across energy ecosystems to stay relevant;

The economic double-shock effects of the pandemic and the oil price crash forcing a dual CAPEX/OPEX crisis;

M&A and divestment activity, questions over what to do with existing assets, and a continuing need to drive efficiencies throughout operations.

Technology service providers catering to the requirements of the energy industry need to balance multiple competing and interlinked priorities. One, they must have a pulse on the industry shifts. Two, they must strategically align their roadmaps to align to these shifts and solve the business challenges that stem from the global context. Three, they should focus on solutions, services, and innovations throughout the value chain—working with the wider partnership ecosystems of providers.

To this end, it's been exciting for us to publish the 2021 HFS Energy Top 10 to provide a comprehensive assessment of the energy industry and its leading business and technology service providers across execution, innovation, and client feedback.

I sat down with Josh Matthews, our Practice Leader for sustainability and energy strategies - and recently returned from COP26 - to learn about the experiences and insights he gained working on the new research.

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To download a copy of the report, please click here.

Phil Fersht, CEO and Chief Analyst, HFS Research: The 2021 HFS Energy Top 10 provides a comprehensive look at the energy industry services value chain. What changes or shifts did the pandemic put in motion?

Josh Matthews, Practice Leader, HFS Research: Demand is increasing across the energy industry value chain, as are the headcounts, revenues, and sustainability services capabilities of the providers in this report.

The fastest growth in demand is for upstream (exploration and production), refining, and retail and marketing services. There is standout growth for upstream asset and data management, refining emissions management, refining process control tech, and market repositioning strategy from oil and gas to energy. This mirrors the overwhelming dominance of the energy transition throughout this study; however, the competing industry demands are borne out in an increase in demand across the value chain for technology and business process services.

Phil: What were your biggest learnings from this research, Josh?

Josh: Both energy firms and their service providers need to balance the energy transition and the multiple, competing, interlinked transitions. They must meticulously align their roadmaps to outcomes, solving business challenges that stem from the global context. Underpinning these outcomes must be focused services and technology throughout the value chain—working with providers’ partnership ecosystems.

Some providers have inherent advantages by being part of enormous conglomerates with deep history and operating expertise in the energy (and utilities) industry; however, independent providers are countering this with their own vast ecosystems. Access to capability is less of a barrier; rather, it’s how clearly you position your unique capability in a market that at times can sound very monotone.

Phil: So, Josh, which service providers are at the top of the list, and why are they there?

Josh: Accenture, Infosys, TCS, Wipro, and LTI top the overall list. The ability to execute and capability with emerging technologies are now just licenses to play. These providers have a vision for balancing all the competing industry demands I highlighted, with sustainability services in particular, and they have standout ambition and scale. A few other notable mentions are Atos and HCL’s innovation initiatives and client engagement, Hitachi Vantara’s ecosystem and voice of the customer, and Capgemini’s growth and alignment with the HFS OneOffice™ vision.

  • #1 Accenture is unmatched in terms of the resources it has for execution and innovation. It backs up its resources with an exceptional voice of the customer and OneOffice alignment—overcoming some of its past challenges to be a frontrunner across all categories. It is leading in the sustainability services ecosystem, which, combined with a meticulous industry focus, means Accenture is well-placed to set the pace as the energy industry transitions away from oil and gas.
  • #2 Infosys’ customers blew us away (frequently). Its historical brand image of delivery is complemented by consulting, innovation, and sustainability capability, as proven in its case studies and reference clients. Every corner of the market may not know it yet—but Infosys will be one of the frontrunners in the sustainability services charge over the coming years, both in the energy industry where it has a deep history and further afield.
  • #3 TCS plays with the best in terms of scale, innovation, and R&D investments. Its combination of engineering and proprietary solutions with a vast range of emerging technologies fits well with impressive internal talent initiatives and all-around industry expertise. Like many “delivery powerhouse” providers, TCS is proving that it has integrated consulting and sustainability capability across the company.
  • #4 Wipro’s narrative and clarity of focus give new life to its strengths in IT services and industry-specific capability—in some part built on a new operating model that gives it fresh alignment across the company and with the HFS OneOffice vision. Sustainability outcomes are embedded in many of its engagements, and Wipro knows exactly what its role is in the energy transition, but at the same time, it has a broad range of capabilities across the whole value chain.
  • #5 LTI talks in a level of depth about the energy industry like no other provider (I’ve worked there myself—LTI will have no trouble engaging with management or plant operators). LTI simultaneously has an impressive partnership portfolio and a clear view of how its parent company, L&T, has expertise LTI can leverage. A focus in part on carbon capture and storage solutions puts LTI apart from most participants in this study.

Phil: Josh, was there anything that surprised you in this study?

Josh: The extent to which sustainability is becoming embedded in energy industry engagements across the value chain—but to say there’s more to do is an understatement, Phil!

There are still frightening amounts of money being thrown into coal, oil, and gas; there needs to be urgency in everything that touches climate change, and the transition can’t happen without energy firms on board. Trust needs to be re-established by the material action of oil and gas firms. They need to be clear on the good and the bad if they’ll ever re-earn the trust of the public and politicians.

Bad actions don’t cancel out the good of renewables investments, but there’s work to do when those investments are still a small fraction of fossil fuel investments. There are global disparities in attitudes to the energy transition, and regardless of what happens at COP26 this November or whether the general optimism about the Biden administration proves valid, there will be a disparity for some time.

Phil: Are there any interesting trends you spotted in your conversations with customers?

Josh: Global differences in oil and gas firms’ narratives to the energy transition (investments aren’t always exactly matched) present a fundamental split. 

One group presents a narrative that fossil fuels’ time is more limited (with regulation and customer perceptions shifting), and those firms are transitioning more quickly toward renewable energy. The second group pitches an acceptance of the role of fossil fuels in the global economy for decades to come and is transitioning more heavily to natural gas, banking on carbon capture, storage, and utilization (CCSU) with some level of renewables investments now and planned in the future.

But I suppose, at the very least, to have every firm talking about the transition as if it’s a given is a small step compared to where we have been very recently. But also, I’m nowhere near giving any of these energy firms a gold star.

Phil: How do you think the energy market will evolve over the next 12 to 18 months?

Josh: The pressure on energy firms to disclose their transition plans away from fossil fuels will only increase—as will scrutiny of their actions that do not align with what we all know needs to happen. It remains to be seen how much COP26 will drive this. I did leave Glasgow with both optimism and the bitter aftertaste that we’re already way too late in transitioning and dealing with climate change for so many.

Phil: How did the recent gas crisis in the UK occur, Josh, and can we expect similar crises to impact global markets in the coming months as we deal with this fractured business environment?

Josh: A classic case of it being a number of factors, Phil: Demand for energy is booming as economies restart “post”-pandemic; less-than-ideal weather conditions for renewable energies like low winds and droughts (hampering wind and hydropower) is highlighting the lack of sufficient investment in renewable energy (especially to meet net-zero targets); low levels of European gas storage and supply crunch from Russia add to the problem. Wholesale prices have skyrocketed - at times roughly doubling - which has seen many firms (mainly smaller firms) go out of business in the UK due in part to a government price cap meaning they cannot account by raising the cost to the end consumer - despite that price cap rising. This is not going away anytime soon and is affecting every industry. Put this alongside supply chain chaos (and prices, for example, the cost of shipping container space) that doesn't have an end in sight (although some out there with a microscope apparently see signs of improvement), and high (relatively to times over the past few years) oil prices at around $80 for a barrel of Brent. Governments and firms across sectors need to secure themselves against such shocks, diversify supply chains and build stores, and ensure their roadmaps layout the journey from here to net-zero and beyond. One sentence makes it seem rather simplistic, doesn't it... 

Phil: What are you looking forward to in terms of developments in the energy industry for 2022?

Josh: I really hope to maintain my optimism that the industry can change and be a part of the global effort against climate change. The more current behavior persists, the harder that will be—even with the investments currently going into the transition.

Part of my optimism lies with the service providers in this Top 10 report. I look forward to working with them in both energy and sustainability contexts to help them help their energy clients make some desperately needed strides forward.

 Phil:  Well let's pray your optimism for the sector stays true during these unpredictable and uncertain times, Josh!  Thanks for your time

HFS  premium subscribers can click here to download our new Top 10 Report: The 2021 HFS Energy Top 10 

One must-have New Year's Resolution...
January 03, 2022 | Phil Fersht

Five personal changes that will make 2022 more energizing and successful than 2021
December 27, 2021 | Phil Fersht

Well, there went year two of pandemic living and we’re still figuring out how to stay focused, motivated and successful during times where we’re one turgid video call away from screaming uncontrollably just to see what reaction we get.  So what can we do to change it up in 2022, which surely will be better than 2021, which was much better than 2020?

1. Accept the fact that today’s predicament will be over soon.  As much as we have been drilled with the knowledge that the world will never go back to pre-pandemic levels of travel and physicality, our careers and our businesses will stagnate and likely lose effectiveness if we just give in to a world of soul-crushing video calls and allow ourselves to drift away on our islands of remoteness.  This is a time to make more efforts than ever to stay in touch with friends, colleagues, clients, peers, etc.  As much as you can, please make plans to meet with people physically when we get past the next (and hopefully final) weeks of this.

2. Keep relationships personal and less bloody awkward.  Remember how great it was when you could have a candid conversation with someone?  Seriously, not everything needs to be some turgid video conference call where we all stare at each other awkwardly, wondering if we should actually look into each others’ eyes or that light on our webcams.  I still struggle with that one… moreover, what happened to the 1-1 conversation where we could just listen to each other and talk without others glomming on? 

3. Park the ego – for good.  Seriously, everyone’s fed up with egos.  We all have them, but being able to keep them buried somewhere is more important than ever.  Everyone’s so sick of people constantly trying to tell you how amazing they are because they clearly don’t hear it enough from others.  Sorry to be blunt, but if you need to keep reassuring yourself openly about your own brilliance you may not be that brilliant…. That may have worked in pre-pandemic world where it was all about showboating at conferences, but those days are long gone.  Now, this may be hard for some, but try praising others and they might even praise you back…

4. Be humble and get sh*t done.  It’s incredible how many folks who were quiet as mice in the old world are now front and center of business activity.  Why? Because the watchwords today are all about being solid collaborators, rolling your sleeves up, and actually doing stuff.  I think we are all exhausted with the blowhards who talk a big game but never follow through on anything.  So after a good conversation, follow up with the things that were promised, make sure you have an agenda for your next discussion, and show that you actually want to get things done. The days of lip service are well and truly done.

5. Stop working when you lose energy and focus – it’s imperative to work smarter now.  This is happening to all of us – we’re so engrossed and glued into the multiple electronic discussion threads going on, we’re actually becoming really unproductive.  I am as guilty of this as anyone!  Nothing beats the uninterrupted time when you can execute on work that needs to be done, so when you find yourself flagging, needing a mental break, then take a f*cking break.  Go work out, play with your dog or child, have a drink, go for a run or cycle ride… Trust me, burnout comes from an inability to switch off.  Remember in the old days when you took a week or two off work and were able to clear your inbox in the morning when you returned to work?  It’s even worse today when you can spend excruciating hours discussing things that could be decided in minutes if we all took a step back and worked smarter.  At the end of the day, you will be judged on what you achieved for your firm, not how many hours you spent trying to achieve it.

Ready for a 2022 vision? Watch this space...
December 26, 2021 | Phil Fersht

On the first day of Xmas, my PE sent to me... a Process Intelligence firm that Microsoft didn't want
December 23, 2021 | Reetika FlemingElena ChristopherPhil Fersht

Automation Anywhere buying FortressIQ is a less-than-exciting combination. It seems like too little too late for AA to jump into the process mining/intelligence world, and a quick cash-out for FortressIQ Founder, Pankaj Chowdhry, who just wanted out and was running out of time and money - and losing all hope of an eventual acquisition by Microsoft.  RPA and process mining are different beasts and not one where the process intelligence market leader Celonis has successfully (or intentionally) combined, and where UiPath, the RPA market leader, has struggled, with its acquisition of ProcessGold.  So what makes AA and FortressIQ think they can succeed where many others have failed?  Is this what the market demands?  Do these firms really understand who their customer is? 

So let's weigh up how these offerings fit together and whether this merger has any real potential.

The acquisition seems like a Hail Mary for both firms 

Automation Anywhere just announced its acquisition of process intelligence vendor, FortressIQ. In their statement, the software firms pledge to “build the automated company, together”. But in that declaration lies our first impressions of the limiting potential of this combination. The acquisition feels like a knee-jerk reaction to the current market trend of using user activity data to find, measure, and monitor RPA opportunities. In HFS’ view, the use of enterprise process data can be far more impactful and address larger change programs as businesses push towards digital and cloud modernity.   

Automation Anywhere was very late to the market trying to develop its own process intelligence capability, Discovery Bot. When the vendor eventually launched the solution earlier in 2020, its key differentiator against other existing tools was simply that it was built within the AA platform and integrated with IQBot and other AA components. Discovery Bot was eventually offered as a complimentary solution for existing AA clients and signals the vendor's lackluster efforts to catch up with the fast-growing process intelligence market. Acquiring FortressIQ now feels late in the game to bridge the same gap from 3 years ago which Discovery Bot struggled to fill. 

FortressIQ on its part seemed poised for a possible Microsoft tuck-in acquisition. The software giant invested in FortressIQ’s 2020 Series B round through its venture fund, M2, and the companies deepened their relationship earlier this year. The companies saw a natural synergy around the Power Platform and were focusing their efforts on process discovery to support Power Automate use cases. The timing of the Automation Anywhere acquisition seems to suggest FortressIQ ran out of time waiting for Microsoft to pull the trigger, and secure its future with a competing partner. All while the vendor fought for market share alongside process intelligence pure plays, such as Celonis, that have grown to dominate the market.  

Submerging process intelligence into the automation bucket is selling short the technology’s potential 

FortressIQ’s original messaging was around “Data-driven insights powering transformation across your extended enterprise” – automation was one lever, but the technology has far wider applicability. If this acquisition is just about enabling automation, we’re going to call it, it will fail. AAI needs to think bigger. It can make FortressIQ part if its stack for the process discovery hookup, but using the power of process intelligence just to find automation opportunities is a massive undersell. UiPath already learned this with ProcessGold in the last two years. UiPath struggled with selling a process mining product and naturally fell back on the obvious sell of positioning as an add-on to RPA. ProcessGold is a proper mining tool so that link was never clear, as opposed to analyzing user activity data with discovery tools and finding RPA opportunities. Which helped Celonis drive over them. Now UiPath more actively decouples them.  

As for our friends at AA, they need to be clear about what they want to do with FortressIQ. Is it just a conduit to automation? If that's it, then what a waste. Even Kryon, which pioneered the combination, has realized that it has to decouple process discovery from automation. Automation MAY result from process intelligence insights, but it's only one potential option. Structuring and orchestrating your business processes using data, real time process monitoring, and anticipating changes, transactions, and interactions to deliver superior customer experience are all more holistic approaches where process intelligence can and should be used. Automation is the discipline through which enterprises can achieve these goals, but it cannot be your entire strategy as a company, and what you preach as a technology vendor.  

The value propositions on process intelligence and RPA are not aligned and aren’t hitting the same set of stakeholders. Technology firms must become comfortable getting out of their comfortable ‘categories’ and create solutions that their clients actually need. 

Process mining is a CFO-level sale with a transformation focus – hence the likes of Celonis preaching working capital optimization and supply chain agility. The level of visibility into the state of operations that process intelligence tools offer, immediately make them appealing to business executives. RPA typically is addressed at two to three rungs down from the CFO to do quick fixes to legacy systems. The value propositions don't mesh – unless you use the tools purely for automation projects.  

By contrast, the Celonis and Servicenow partnership is a bold attempt to create products that bring the CIO+CFO worlds together.  It’s not a surefire win, but it's in the right direction to create something differentiating, blending operationalizing data science with the ability to design workflows in the cloud. Another example is startup Soroco that is exploring how technologies like automation, process mining, and discovery can impact multiple change programs, help remote teams be more effective, and drive more visibility into how work gets gone in an organization through its ‘work graph’ proposition.  

FortressIQ lines up with Automation Anywhere’s push on cloud enablement, but won’t be a panacea 

We acknowledge joining hands with cloud-native FortressIQ supports AA’s continued focus on cloud. But that won’t make it successful. The automation vendor forged a Google Cloud partnership earlier this year, where its Automation 360 platform became available on Google Cloud, with AA becoming Google Cloud’s preferred RPA partner. However, since the announcement, we have seen little sign of upside for something differentiating in the cloud from AA and - quite frankly - with the flagging update of GoogleCloud enterprise offerings, it's hard to see where RPA fits into the conversation, especially when the Microsoft's Power Automate focus has been so much more widespread and effective.

Will enterprises care? If you’re in the market for an emerging technology solution, use this as an opportunity to revisit your process strategy 

As always, the sign of a good acquisition is that it ultimately needs to add up to more value for clients. What does the AA-FortressIQ combination mean for enterprises? Not a heck of a lot:  

  • Existing AAI clients who want process intelligence are already likely using something else rather than trying to manage with the bundled Discovery Bot.  
  • And FortressIQ clients are definitely already using RPA - and sure, some of it is AAI, but they were RPA agnostic.  

The big win for enterprises will be to consider this an opportunity to think bigger than automation. Automation, ultimately, is the solution to bad or overly manual processes. Process intelligence allows enterprises to reclaim visibility and understanding of their processes and enables them to optimize them - which may or may not involve automation. However, given AAI's core focus on automation, we're skeptical this will happen.

Accenture, TCS, IBM, EY and Capgemini lead the way in the HFS Top 10 Rankings for IoT Service Providers
December 06, 2021 | Tanmoy MondalMayank MadhurPhil Fersht

The pandemic has shown the importance of connectivity and visibility for enterprise resilience and operations management. As IoT is a key building block of connected systems, IoT initiatives have become a strategic lever for enterprises and received significant investment commitment. With clear business benefits, IoT adoption has gained significant traction with scaled IoT engagements.” says Tanmoy Mondal, Practice Leader, HFS

Mayank Madhur, Associate Practice Leader, HFS adds “IoT usage has been propelled up by its convergence with different emerging techs such as AI, Blockchain, and Cloud, driving the next wave of digital transformation helping to create new business models. COVID-19 has shown that we have been using IoT use cases piecemeal, making fragmentation across the IoT industry. The real benefit of IoT will be when it can connect seamlessly with other devices to benefit the user using the interoperability feature.”

The HFS Top 10 Rankings for the IoT Service Providers 2021 is out! HFS defines IoT (internet of things) services as any service provider engagement aimed at enabling a physical asset to generate or communicate data to a centralized platform with the goal of driving insight into ways the recipient enterprise might raise operational efficiency or increase revenue through the creation of new products or services.

The HFS Top10 Internet of Things (IoT) Service Providers 2021 report examines service providers’ role in the evolving IoT landscape. We assessed and rated the IoT service capabilities of 15 service providers across a defined series of innovation, execution, voice of the customer, and HFS OneOfficeTM alignment criteria. We spoke with Mayank and Tanmoy, the analysts behind this comprehensive study to learn about their perspectives and insights from working on the report.

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To download a copy of the report, please click here.

Phil Fersht, CEO and Chief Analyst, HFS Research: So, Mayank – My first question to you is around understanding the IoT market. Please can you share key highlights as we step into 2022?

Mayank Madhur, Associate Practice Leader, HFS Research: The global pandemic has

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Who’s going to buy cut-price Kyndryl?
December 02, 2021 | Phil FershtTom Reuner

Kyndryl:  A $19bn business smack-dab in the critical legacy cloud market, with a remarkably puny market cap of $3.5bn

The financial markets have fired warning shots across the bows of Kyndryl’s management. To be more precise, it's more a barrage of artillery fire, as investors obsess with bashing tech firms that sustain the old, as opposed to their hugely inflating the valuations of the shiny new tech stuff. What they tend to forget is that much of the old can't be ripped and replaced overnight as the majority of the Global 2000 is in a desperate rush to hurl their legacy into the cloud:

Our Pulse study of 800 Global 2000 enterprises clearly illustrates two factors that dominate the focus of leaders:  moving operations into the cloud at speed and training staff to understand how to balance digital business needs in a virtual environment.  Surely there is still some value left in the likes of a Kyndryl as firms demand immediacy of cloudification and a desperate need to plug talent gaps fast?

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In short, Kyndryl has started life as a separate entity with still-colossal revenues of $19 billion. After a lackluster first earnings report the market cap was a mere $4 billion, which has now slipped even lower. However, these warning shots are not just a worrying sign for Kyndryl’s new management, but also for service providers weighed down by legacy infrastructure services such as Atos, DXC, and the like.  With tech infrastructure commoditizing faster than knock-off AirPods on Amazon , the need to support rapid complex enterprise change is where the focus is firmly shifting, and where these traditional infrastructure providers can help.

Kyndryl is guiding the markets on the larger addressable market and operational efficiencies

Executives at Kyndryl were suggesting that the separation from IBM would more than double their addressable market from $240 billion pre-spin to $510 billion by 2024. Intelligent Automation, data services, cloud services, security and resiliency are said to be the segments that would drive an expansion of 7% CAGR growth in those segments. The key levers for this expansion are meant to be upskilling of talent around cloud capabilities, a more energy-efficient operation of data centers, and a strong increase in the application of Intelligent Automation. However, in its first earnings statement, perhaps not surprisingly, the big picture is still that of decline, with revenues in Q3 decreasing YoY to $4.6 billion.

While the launch of Kyndryl was underwhelming both in terms of communication as well as conveying a compelling investment thesis, executives were pointing to the new partnership with Microsoft as a reference point for new strategic options after the separation. Furthermore, the company announced a tuck-in acquisition of Samlink, a Finnish service provider focused on financial services (very familiar to Cognizant). Yet, despite this progress, the (ridiculously) low market capitalization is hanging like a millstone around Kyndryl’s neck as there are several IT services firms that can easily digest an acquisition with this price tag, confident of quickly upping that $3.5b valuation to at least $10b. First off, opportunistic M&A moves.

Possible Scenarios. Which firm has the cojones to aggregate legacy infrastructure?

The purists will argue that Kyndryl is a dead asset unless someone revives its mojo, is prepared to cannibalize it’s own assets, and move legacy workloads to the cloud.  But surely there are some juicy clients to be won over and profitability to be eeked out if Kyndryl is handled with surgical gloves.  Moreover, let's not forget about the awesome talent that came across from the IBM divestment including the leadership of the respected Martin Schroeter who knows this business inside and out, and will now have the chance to make some incisive changes outside of the IBM shackles..  

So let’s examine the suitors which would have little problem raising $3-5bn to seal the deal:

  • HCL: Hindustan Computers Limited has a long history of gobbling up commodity IBM service and product lines with the purchases of the Lotus and Domino and previously the Tivoli support business from IBM. Furthermore, it is infrastructure-centric and has long ruled the roost for low cost efficient offshore-centric infrastructure support. With Lotus, for example, it has demonstrated it can extract value from even outdated technologies that have a long shelf life and could take more than a decade to sunset. Yet, the level of integration of an acquisition like Kyndryl is on a vastly different level from anything HCL has experienced, but the firm is gaining confidence with leading complexity at a global scale with massive engagements with the likes of Xerox, Chevon and Exxon.

HFS verdict: We consider them the favorites to make this acquisition with its IBM history and strong heritage and appetite for infrastructure services. It's hard to see them not fancying their chances to make this a super-lucrative venture for themselves and become one of the largest service providers around.

  • Atos: Atos already got its fingers burned with the DXC takeover proposal, which was three times the price, but the same revenue base as Kyndryl. But probably more importantly, it has a power vacuum as the new CEO will only take the helm in January and this purchase is seismic in all dimensions. But there are lessons for Atos to be learned as it is seeking strategic partners for its infrastructure business. However, the most significant appeal for Atos would be the immediate US shop window Kyndryl gives the firm, and an excellent array of client-facing talent to nurture the business. It is indeed a less risky bet that DXC was earlier this year. 

HFS verdict: The new CEO transition will likely derail this for Atos.  However, they could move fast seeing Kyndryl as a bargain replacement for the DXC-sized hole in its aspirations.  A definite possibility.

  • Capgemini: Kyndryl pushes a lot of the right buttons for Cap.  Firstly it would give its infra business a much-needed injection of scale.  And secondly, it finally puts to bed its difficulties getting a strong IT services brand in the US, which has plagued the firm for almost two decades.  A third reason is that Capgemini has grown through many acquisitions and has gotten good at them in recent years, with IGATE and Altran standing out. 

HFS verdict: Cap has made its OT+IT bed and this deal seems a bit too left-field for their new direction. A distinct possibility, but it's likely Cap will shy away from a major infra play in this market.

  • Infosys: Infy has a war chest that could easy cover the price tag, and a pandemic-induced thirst for cloud deals that could easily take the firm down this path.  What’s more, the firm has developed a strong US presence in recent times and can realistically look at absorbing the culture of a Kydryl as it explores where it next directs its focus after three very successful growth years.  On the flip side, Infosys has perennially struggled with acquisitions in the past. Still, Nandan, Salil and Ravi could find themselves needing to roll the dice here while the opportunity is there.

HFS verdict: Makes a lot of strategic sense, but previous acquisition horrors will likely hold Infy back here.  However, a bold move is on the cards after such a strong growth surge, and recent successes with its Cobalt cloud launch and mega Daimler cloud engagement might just tip the balance in their decision-making.

  • Cognizant: The Hudson Yards-led firm may fancy adding some serious infra to its armory as it continues its impressive 2021 rebound and absorbs several smaller acquisitions from the last couple of years.  Brian Humphries is a strong M&A guy and will surely be feverishly running the numbers over this Kyndryl beast, but you have to question whether it has the appetite for dishing out several billion just as the firm is back on a healthy growth trajectory. However, IT infrastructure is an area where  Cognizant could make serious inroads with a power-play like this.  Don’t rule them out.

HFS Verdict:  A definite dark horse in the race, but you have to doubt whether Humphries wants to take such a huge gamble just as the firm has found a strong growth-groove and new leaders settling in to the firm.

  • Google Cloud Platform:  GCP needs access to enterprise clients - plus could support its expanding Google docs/collaboration platform.  It's well-known in industry circles that GCP came close to acquiring DXC a couple of years ago for this very reason.  With the gap between AWS and Microsoft Azure still widening in the enterprise space, you could certainly see Goog making a renewed play.

HFS Verdict:  GCP is an outlier possibility, but you have to question why it hasn't made any moves into infra cloud services since its dabble with DXC.  The price tag is certainly digestible for Google, but you have to think it has shifted focus away from making a major services acquisition - and Thomas Kurian taking the helm definitely shifts the onus to software and not services.

  • NTT or any of the Japanese juggernauts: While any of the large Japanese conglomerates like NTT or Hitachi are pushing strongly on innovation, the attraction could lie in getting access to clients in North America and Europe whilst tapping into an international talent pool. This would be more akin to Lenovo buying the PC business of IBM.
  • Other tier 1 Indian heritage service providers:  Wipro could be tempted, especially with the bold moves taken by Thierry Delaporte.  However, this is likely too much to swallow after Capco, and memories of Infocrossing probably still give Azim Premji heartburn.  TCS doesn't buy anything, but probably should one of these days.  LTI could be a wild card with its recent cloud success and ambitions to break into the top tier.
  • Private Equity: Scenarios could be manifold from asset stripping to creating synergies for a set of portfolio assets. Fundamentally, it would be opportunistic but not strategic.
  • Other Hyperscalers: Probably more of a wild card. The logic could be getting access to clients, transforming them, and consequently upselling to them. If anything, Chinese hyperscalers like Alibaba or Baidu. But even that needs a lot of fantasy.  There were some Google rumors, but we just don't see it

Kyndryl must strike back with clearer communication and more strategic moves

The more likely scenario is that Kyndryl will seek to calm investors' nerves with a much more compelling investment thesis. That would require a more imaginative strategy, beyond an expanded addressable market and improved operational efficiencies to improve its flagging profit margins (see below). For instance, outlining bold investments in innovation or strategic partnerships with Chinese hyperscalers are the messages and actions investors want to see being made. Thus far, communication has focused on infrastructure being the core for innovation. Yet, this is ignoring the elephant in the room: it is a margin-sucking core. The following chart provides the context of the operating margin of IBM’s two services business lines, with Global Technology Services being the core of the spun out entity:

 The Bottom-line:  It's likely we'll see some acquisitive moves on Kyndryl in a market short on talent and great at adding sugar frosting to commodity work

Infrastructure services provide us with a classic example of the Innovators Dilemma - should firms prioritize meeting clients' immediate needs versus focusing on future innovations that could create opportunities in the future?  IBM has made the difficult and (probably) correct decision to spin out its legacy infrastructure assets. Yet, the communication behind the launch of the new company Kyndryl has been underwhelming, lacking a fresh vision for its assets. Therefore, unsurprisingly the financial markets have not been remotely excited by the new company, with a revenue to market cap disparity that is even worse than Conduent and Unisys. Atos and other providers, held back by legacy, can glean valuable lessons from those experiences. It's been many years since we've seen a firm the sheer size of Kyndryl is finding itself in such a position where so many suitors will think they can find some gold in it.

Accenture, Cognizant and Virtusa peg the top spots in the HFS Pega Service Providers Top 10
November 28, 2021 | Phil FershtTom ReunerKhalda De SouzaKrupa Ks

The convergence of SaaS and services has re-focused the ROI of software towards achieving defined business outcomes. With so many sophisticated SaaS platforms on the market - many of which offer far greater functionality than most enterprise customers need - the onus is shifting rapidly towards the business value these solutions bring to customers and how they support alignment with a OneOffice mindset. This is a major pivot away from customers simply purchasing what they are led to believe are the best features and functions and expecting miracles. Our new SaaS XXV research initiative is geared towards defining these business outcomes and measuring the leading - and upcoming - SaaS platforms against their customers achieving these outcomes.

So where better to start than looking at the leading services being built around low-code leader Pega....

“The power to simplify: What you need to crush complexity” – This was Alan Trefler’s ( Pega Founder and CEO ) key-note at the PegaWorld iNspire 2021. What stood out for me in Alan’s ~13-minute key-note was how to crush complexity. Simply put, it is about getting the business architecture right! This means an architecture that is organized around the heart of the business, customer and outcomes across the customer journey.

Putting the customer at the center is critical to the success of a transformation to drive meaningful and measurable outcomes. This was also a key insight from our latest HFS Pega Service Providers Top 10 2021:

To learn more about how the Pega market is evolving, what service provides are leading the way and how clients are leveraging Pega, I sat down with analysts Krupa K S and Khalda De Souza to learn about their experiences and insights from working on this report.

Phil Fersht, CEO and Chief Analyst, HFS Research: So, Khalda – My first question to you is around understanding the Pega services market. Please can you share the highlights and significant developments?

Khalda De Souza, Research Fellow, HFS Research: Pega offers integrated back-office and front-office solutions along with automation offerings and a low-code application development

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