August 22nd was a traumatic day for HP for two reasons:
1) It just had a quarter that makes the Boston Red Sox* look good, taking an $8.9bn loss, fuelled by a massive write-down from its 2008 EDS acquisition and a couple of billion in severance costs from its recent layoff.
2) It cancelled its September global analyst summit. We haven’t seen this type of thing happen since the days of the dotcom bust. A major tech services provider wimping out from facing the analysts at the last-minute?
OK – so the financials were immensely horrible. Having to admit to its shareholders that it paid an obscenely high price for EDS, combined with managing the integration so poorly it’s barely worth a quarter of what it paid for it in today’s market is a bitter pill to swallow. But hey – we’re a forgiving world, right? We love a comeback story, right? Can’t HP become the Bill Clinton of the services business? Didn’t John Travolta resurrect his acting career quite well after Two of a Kind?
Instead, someone in HP has made the decision to run and hide – to cancel their September analyst event, where we had already planned our pub crawls with our friends flying over from Europe, where we were prepared to open our hearts to Meg to find some semblance of hope for the future of the firm.
We know HP is in trouble, now we want to know the recovery plan
As someone told me yesterday, “Meg has to focus on nothing but cost-cutting over the next couple of years”. Well, we know that is the case, but surely there is a growth plan in there somewhere too? Surely HP can share where it sees its future and how it plans to lead the market once again? There was a $2bn profit in those results once you took away all the write-downs….
Sadly, refusing the face the world and communicate the growth plan only fills us with even more dread for the future of the firm. It sends the wrong message. We made the point, with the recent layoffs, that Meg Whitman is doing what she was hired to do – straighten the ship, re-energize the management talent and getting HP on a roadmap to competitiveness. We know HP needs to gets its financial ship in order, so there’s not a lot else to hide, is there? Is confidence with the leadership now so low, that it can no longer take a few pots shots from the analyst peanut-gallery?
What concerns me now is the speed of the needed change HP has to go through here. When IBM hit trouble in the early ’90s, it laid off a (then unprecedented) 60,000 employees, which started its recovery process (around 100,000 employees were let go in total that year – about a quarter of its workforce). HP’s recent restructuring surgery has likely used too blunt a knife to make the sweeping changes it needs, to gets its act together – barely 8% let go at $1.8bn in costs? Doesn’t sound like the sweeping changes it needed to right the ship…
The Bottom-line: Hiding from the analyst community only sends a negative message to the world
Clearly, Meg is realizing she has to perform a lot more aggressive surgery than this to right the ship. However, shying away from the global analyst community sends the wrong message. HP has a lot of positives to sell us – I sat through an interaction discussion this week with one of its BPO leaders and there is still a great customer-centric culture, a solid market footprint and some glimmers of hope for future client wins. We talk to HP customers all the time and their main concern is the direction the firm is taking – not the current performance managing their day-to-day IT and business services needs.
Meg – you need to face the world and share your ambitions. Hiding under the covers only fills us with fear for the firm and all it stands for…
The picture above is taken from a famous British advertising campaign for “HP Sauce” which is actually a very popular “brown” sauce in Britain (tastes a bit like Worcestershire sauce). The campaign that depicts how how awful life would “without HP”
*Readers from the United Kingdom can substitute said analogy with “Liverpool FC”.
Now if someone had told me a couple of years’ ago that Big 4 consultants would start acquiring firms with names such as “Ant’s Eye View” I may have remarked that you may still be suffering from those over-indulgences of the ’60s and ’70s.
However, we are now living in an age where things like this are actually happening… so without further ado, here is HfS’ social business impressario Jonathan Yarmis on why PwC just went and bought a social business strategy firm with a hallucinogenic name…
So what on earth’s an “Ant’s Eye View” …and why did PwC acquire one?
On August 14, PwC announced its intent to acquire social media strategy firm Ant’s Eye View (AEV). There are all sorts of reasons to dismiss this acquisition – this is neither the first nor the last acquisition we’ll see by big companies attempting to acquire their way into the social business space – but we’re actually guardedly optimistic about this one.
From its inception 3-1/2 years ago, Ant’s Eye View has been more than an opportunistic company. With its focus on real-life practitioners and with a sweeping vision for the impact of social business, AEV is differentiated from the thousands of agencies chasing “the next hula hoop.” Time will tell whether AEV can preserve its distinctive culture under the PwC umbrella but the parties are entering this relationship with their eyes wide open. Despite these concerns, we nonetheless expect PwC to be able to drive at least some incremental traffic and awarenessto AEV, so If you’re a PwC client looking for an agency to help develop a social strategy, I’d get in the AEV queue quickly (after, of course, talking with HfS).
The Social Gold Rush
Seemingly anyone who has more than 50 friends on Facebook or 500 followers on Twitter has set up a social business consultancy. Noted social media observer Peter Shankman penned a blog post a year ago entitled “I will never hire a ‘social media expert’ and neither should you” (http://shankman.com/i-will-never-hire-a-social-media-expert-and-neither-should-you/) where he noted the similarities between the original dot com furor and our new fascination with social media. Back then, numerous agencies popped up with names like Scient, Viant and Agency.com. Many of them got acquired, at astronomical (and in retrospect, insane) valuations; a few exist in quasi-independent status to this day.
We’re now seeing a similar frenzy in the social media space. From big acquisitions like Salesforce.com’s acquisition of social media monitoring powerhouse Radian6 and Microsoft’s acquisition of social platform company Yammer all the way down to acquisitions like this one, there’s a feeding frenzy to acquire social media skills and market presence. Unfortunately, most of these deals are focused on the latter: companies who were slow to react to the explosive growth of social media are now buying their way into the market. Ultimately, those kinds of acquisitions may bring along a few clients but the ability to scale the acquisition, or even retain the existing client base, is questionable at best. These kinds of acquisitions simply don’t scale, the skills of the people acquired are of great variability (and the better ones are often the first to go), the IP acquired is scanty at best and the integration into the acquiring company is often problematic.
Reason for Optimism
Against this largely negative view, we actually believe PwC’s acquisition of Ant’s Eye View stands to be better than most. What differentiates AEV?
The founders are very well-regarded practitioners, with a passionate belief in the transformative nature of social media. This is not just a company chasing the next hula hoop.
From the beginning, the founders had a vision of building a big company that was able to deliver against the transformative vision. CEO Sean O’Driscoll called it a BHAG: “big, hairy audacious goal.”
AEV has built a roster of top-level practitioners. They didn’t want a bunch of self-proclaimed “social gurus.” They focused on people who had practical experience at top brands (and often brought those brands along as clients). We’re familiar with some of their people and have spoken with people familiar with the firm’s efforts and there is universal praise. These guys are good.
AEV approaches this deal with eyes wide open. This isn’t a deal for the AEV founders to cash out while the cashing’s good. Instead, they have a significant understanding of the growth opportunities PwC affords them, opportunities that they just wouldn’t have had given their own organic growth plans.
Concerns and Caveats
Despite all this, there are numerous caveats in any acquisition like this.
This doesn’t dramatically change PwC’s “social chops.” With specialized expertise like this, there’s no easy way to build this out into a broader PwC capability. The acquisition will certainly give AEV greater reach but their ability to scale with the scope of the opportunity just doesn’t exist; they can’t answer every PwC partner’s call. If they push too hard, it could actually hurt their value proposition. That said, our discussions with O’Driscoll indicate not only an awareness of this risk but a strong belief that the business can scale and that PwC will facilitate that growth..
O’Driscoll talks proudly about AEV’s focus on culture from the beginning. In his blog post announcing the acquisition, O’Driscoll writes “We have a lot to be proud of, but perhaps what I’m most proud of isn’t the work we did, but the way we did our work. We created a culture and environment that inspired us. We knew right away that in order to hire the best people, we needed to be the best place to work. Culture wasn’t an accident at Ant’s Eye View, we co-developed it as a team and it’s resulted in bonds that will have a lasting impact on all of us.” What happens when that vision meets PwC’s enormity? Promises of autonomy and representations of understanding of the unique cultural environment last until the first missed quarter or deadline or change in management. Fortunately, both sides are going into this with solid understandings and insights. For instance, O’Driscoll talked candidly about talking to many potential suitors, most of whom he walked away from because of poor cultural fit, particularly in the advertising/agency space. And in our conversation, PwC Advisory Partner Tom Puthiyamadam voiced all the right things about PwC’s support for the AEV approach and culture.
Key Takeaways
In summary, while we look askance at many acquisitions in the social media space, PwC’s acquisition of Ant’s Eye View is better than most. AEV is a well-regarded firm with more experience and intellectual rigor than we typically see. If PwC was going to acquire anyone, they really couldn’t have done much better than this, and AEV seems to have done its diligence in selecting an acquirer. Time will tell how effective PWC is in opening doors for AEV to its clients’ CMOs and whether AEV’s distinctive culture, to so critical to its success, can survive in a big consultancy known for its risk-averse culture and accounting legacy. If you’re a PwC client looking for an agency to help develop a social strategy, I’d get in the AEV queue quickly (after, of course, talking with HfS).
We are obviously fervent believers in the impact social will have on wide swaths of how we’ll do business in the future. It is beyond the scope of this document to convince you of that imperative. If you’re not a believer, well, you’re probably not reading at this point anyhow.
HfS Recommendations for Buyers of Social Media Solutions
It will take some time for AEV to scale up with PwC’s reach, resources and capabilities. In the interim, if you can’t get onto AEV’s list of current engagements, you should look at their approach to this business when you evaluate other potential provider partners.
Focus on practitioners with real-world experience as opposed to self-appointed social gurus
Deep industry/vertical knowledge. Regulatory considerations among many other factors make it such that one-size-fits-all approaches do not work.
Focus on process and frameworks. While we’re still in the very early stage of the evolution of thinking around social business, it’s not so early that you can’t look for emerging structure. Providers with real IP and processes are likely to provide more durable value than those who merely exist for “Imagineering.”
HfS Recommendations for Service Providers
Jonathan Yarmis is Research Vice President at HfS (Click for Bio)
In our conversations with service providers, we’re struck by how serious they are about the opportunity afforded by social technologies…and the depths of their uncertainty about how to approach the business. Even while you build out your own organic capabilities, you’re likely to pursue acquisitions to supplement your capabilities. The Ant’s Eye View acquisition could serve as a template for what to look for. You want companies that have:
Real, referenceable clients;
Deep, compelling vision;
Intellectual property and replicable processes; and
Strong culture.
You will have to balance the inherent tension among:
Letting the business continue to grow on its own trajectory,
Injecting your own capabilities and functions (and overhead) into the company, and
Mining their approach and processes for incorporation back into your own business (at the cost of their single-minded focus on growing their own business).
There are clearly trade-offs involved but if you don’t balance appropriately, you won’t realize the full benefit of your expenditure and may in fact destroy the value proposition.
The most exciting change in the world of outsourcing has been the increased focus on services that are based on expertise augmentation and a genuine return on investment (which is why so many people want to use a different terminology).
And when we get into areas right at the cutting edge of revenue generation for clients, such as marketing and media, where clients need access to capabilities they may not currently have to gain a competitive edge, we can see where the future lies for the business services industry. One of our most talented analysts, Reetika Joshi, has been investigating the world of digital media and its major potential for third party services…
At HfS Research, we have expressed our views time and again about the strong potential of outsourcing marketing services in today’s complex marketplace. Last year, our research has revealed growing interest by buyers and an expanding gamut of services offered by service providers as they test out their value propositions. One of the hottest marketing services sub-segment has to be digital marketing. Digital media marketing is in a state of constant change, and most organizations have yet to fully explore the growing potential. Naturally, this is where our work took us next, to decipher the different components of digital media marketing, the companies in the marketing and advertising value chain that need help, and the companies that are stepping up to provide it.
Advertisers traditionally engage with ad agencies to manage the companies’ creative processes when the advertisers choose not to manage the processes directly. With the growth in online advertising, the responsibility naturally fell to the agencies to pick up the pace and rapidly develop digital capabilities. Granted, the end objectives of running traditional and digital campaigns are similar, and the work is synergistic as the same key messages are put out across channels. However, on the ground, there are fundamental differences in the type of capabilities needed for these two service areas. Exploiting analytics, emerging technologies and growing social media channels sound obvious to an outsider, but advertisers and their ad agencies are not geared to tackle digital in the same way as traditional media. The lack of specialized talent, strategic alignment and scale are the key challenges inhibiting many advertisers and agencies from running optimized digital campaigns.
We have seen a sharp increase in interest by organizations in leveraging external partnerships for improving marketing operations, especially in digital media. Bringing expertise and improved outcomes to their clients – not just less expensive solutions – is a driving factor. Together with Centro (a media logistics company), HfS Research is undertaking new research on how marketers and their agencies are re-thinking their operations strategies to accommodate the growing importance of digital media. Our latest report highlights a winning strategic partnership in digital media logistics and the challenges it entails. By working with Centro, a mid-size ad agency was able to master digital media operations and offer comprehensive solutions to their clients, gaining >50 percent productivity and significant cost savings ($300-400,000) along the way. Centro introduced accountability and thought leadership in digital media for the client, provided dedicated specialized digital teams, drove efficiency and effectiveness, and enabled the agency to focus on overall media strategy. For the last three years, Centro has essentially acted as their client’s strategic and tactical digital team, helping them transform from a creative boutique into a full-service marketing communications agency.
Reetika Joshi is Principal Analyst, BPO and Analytics Strategies (click for bio)
HfS Research believes that there is undeniable merit in working with external digital media specialists. Given the rapid change in the technology landscape and the growing reliance on digital advertising, marketers and ad agencies need to rethink their operations strategies to address these issues. With growing opportunity, a range of digital media operations specialists have emerged in the last ten years. Advertisers and agencies that are keen to get expert help must do their due diligence. HfS recommends the following key differentiators when evaluating digital operations specialists:
The use of enabling technologies to effect automation and workflow optimization. Technology-enabled platforms are especially valuable when they work across the digital advertising value stream, streamlining your operations and saving time and money;
Deep digital advertising expertise that doesn’t just take your process level tasks off your hands but also advises you on how to realize your/your client’s goals through digital strategy;
Strong industry relationships (e.g., local and industry-specific publishers) to give you better quality buys for you/your clients.
You can access the HfS Research case study covering the challenges of tackling digital media operations by clicking here.
The recent issue regarding Infosys landing in hot water over alleged misuse of B-1 visas is being completely overblown.
Many of you may have read this week’s article in the Wall Street Journal’s CIO Journal which outlines the issue of overseas tech staffs’ employers using various temporary work visas to work on global ITO engagements. Let’s discuss the major contentious issues in play here:
1) CIOs and CFOs have a right to know about the legality of their onsite personnel. When you have staff from overseas locations working intimately – and in close physical proximity – with your local staff, you need to be sure they are present on the appropriate immigrant visa. If you are using a purely remote outsourcing service – such as a payroll processor, then you are simply acquiring a service and this shouldn’t be a concern, however, if you are having services staff performing tasks that are directly visible to your employees in a work setting, you should ensure these immigration issues do not create negative exposure for your firm.
2) All service providers use all the various immigration visas. H-1s, L-1s, B-1s, O-1s, Green Cards – they all form part of the global sourcing equation when staff are required onsite. The bone of contention with the recent issue has been the use of the B-1 business visa, which includes “negotiation of contracts, consultation with business associates” as part of its usage, provided the purpose is not “gainful employment”. Forgive me if I am wrong, but if an India-based expert visits a US client temporarily to support a contract process or consult on getting an onsite-offshore project working, then there really ain’t too much wrong with using said visa for said purpose.
3) Unemployment in IT is running at half the US average – we need these skills. According to a recent Mashable article :
“The unemployment rate among information technology (IT) professionals remains at about half of the national average at 4.4% in the first quarter of 2012 — and that’s no surprise given the strong demand. Hiring managers are even facing stiff competition in securing some key types of IT skills”
The reason many of the service providers are keen to bring talent into the country to work on engagements is because they bring the experience of managing offshore personnel, and helping with the provision of scarce skills for the client. This isn’t always about saving a few dollars from someone’s rate card, it is about making these global sourcing engagements work effectively. Moreover, many of the “landed” account/project managers working onsite in locations such as the US are training the local staff to manage international staff effectively.
4) Having global project experience is critical for US IT professionals. The signs are good that US enterprises will increasingly be looking locally for IT staff (which our new study findings will reveal next week), and will be seeking a strong balance across their Indo-US IT staffing models. Hence, they need to up their skills with having US staff schooled in managing global projects. The only way to do that is to have experienced account/project managers spend time with local staff to help develop their management experience. You can’t run this all in a remote model – you need mixed teams of provider and client staff to make these engagements work effectively.
The Bottom-line: It’s time to embrace and compete, not resist and fall further behind
Having petty stories like this being blown up in the media is only causing negative emotions and xenophobia to be stirred up needlessly in this year’s political melting-pot. We operate in a global business climate these days, in case anyone hasn’t noticed… it’s time to embrace and compete, not resist and fall further behind.
The debate’s been raging for years, since we first broached this topic over four years ago, where the common consensus was pretty much “we’re stuck with it, so might as well live with it”.
However, while the outsourcing industry has (largely) matured, with many new clients focused on achieving value that isn’t merely derived via cost-savings from lower cost labor, the political rhetoric has stood still, with the vast populous still associating the “O” word with shipping jobs abroad.
So… it’s time for YOU to have your say, whether you buy, sell, advise, analyze or influence IT or business services.
Please spend five minutes of your time adding your own viewpoint on whether or not the industry known as “outsourcing” should reinvent itself:
Whoever said we weren't stimulating new growth in the professional services industry?
Every few years there comes along a piece of regulation, or enforced change, from which hoards of management consultants, service providers and tech companies can prosper.
The Y2K bug created an unlimited ATM for the whole software and services industry, and the infamous SarbanesOxley which created more audit partners than eHarmony. And just as you thought that well was running dry, we now have Dodd-Frank Act, designed to:
“Promote the financial stability of the United States by improving accountability and transparency in the financial system, to end ‘‘too big to fail’’, to protect the American taxpayer by ending bailouts, to protect consumers from abusive financial services practices, and for other purposes.”
With Michael Koontz, our new lead analyst for banking and financial services, now fully bedded-in, he’s found half his time is already being spent talking to clients about how to get ahead of these new regulations. Let’s hear his initial thoughts…
Dodd-Frank turns Two
Please join me in wishing Dodd-Frank “Happy Birthday.” This is the largest financial reform act in U.S. history, amassing 884 pages when it was finally signed in 2010, designed to enforce the most significant changes to financial regulation in the United States since the regulatory reform that followed the Great Depression.
Dodd-Frank was implemented to address the financial services meltdown, that began back in 2007. In the political aftermath, Regulators were quick pass this legislation which has now morphed into the 2,000 pages and 400 separate rules that we see today. Dodd-Frank was designed to strengthen oversight of banks as well as insurance companies, mortgage companies, and brokerage firms.
Now, at the end of its second year, federal agencies have passed 221 rules. Financial institutions and insurance companies are scrambling to meet all these new requirements, while trying to anticipate the implications of rules that have yet to be finalized.
Securing the necessary resources to meet these demands is proving to be a significant challenge for both the regulatory agencies and the companies affected, and the subsequent need for strong risk management and compliance personnel is growing across the United States. Not since the scramble to meet Y2K, have financial institutions been forced to rely as heavily on management consultants and third party providers to meet compliance deadlines. That is right, Y2K, did that bring back some memories?
Adding qualified staff is already proving to be a challenge for financial institutions. For the average tier one bank, risk and compliance personnel represent about 3 percent of the total workforce. This number is expected to double as a result of the staff increases required by Dodd-Frank, but the demand for qualified staff outweighs the supply. There are 1,000’s of “risk jobs” posted on job sites all over the Internet. There is a run on talent in the U.S. if you have risk management or compliance experience on your resume.
Financial institutions will remain skeptical on outsourcing this work until they figure it out themselves but with the amount of work that is going to be required, and soon, it won’t be long before they are having these discussions with their business partners.
Both consultants and outsourcing providers will be receiving calls for help, but what most companies will find is that there is only a select few that are going to be able to step-up and support this level of work. There is work that can be outsourced, including much of the analytics and reporting functions for compliance reporting, however, the tricky part is going to be finding the provider who is capable to support the levels of both complexity and rigor to meet the banking and regulatory standards. For providers, this is going to make a SAS70 type II audit look like a walk in the park!
Michael Koontz is SVP, Banking and Financial Services, HfS Research (click for bio)
The full impact of Dodd-Frank is still a great unknown, but likely to be significant, and HfS is watching it closely to observe which consulting companies and outsourcing providers are able to step up and support their clients.
You can read more about Michael Koontz’s initial observations by accessing our new research site here. You can also request a copy by emailing us here.
August 22nd was a traumatic day for HP for two reasons:
