Salesforce dot com. Remember that upstart little CRM online platform that created affordable, intelligent customer management capabilities that defied the evil on-premise model?
Well, it’s now a multi-billion dollar service market that commands ERP-level rates, demands expertise that are in very scarce supply… and has driven a whole ecosystem of services upstarts and established providers all seeking to master the art of delivering salesforce-as-a-service. So without further ado, let’s hear from Blueprint report authors Khalda de Souza and Charles Sutherland on this escalating As-a-Service market:
Click to enlarge.
Khalda.. why have we undertaken an HfS Blueprint on the Salesforce Services market at this juncture?
Well, we saw the Salesforce services market as being analogous to a “petri dish” where many of the innovations of the “As-a-Service Economy” are visible. As a result, we wanted to use our Blueprint methodology to assess how service providers were responding to all of these innovations up close and in a structured manner. Every enterprise and service provider is making the commitment to Write Off Legacy in some way by moving to Salesforce to begin with and with that they are looking for Plug and Play Digital Business Services that deliver Actionable & Predictive Data on their operations. Responding to these Ideals alone is leading service providers to innovate and invest in better execution of as-a-service capabilities yet these service providers are also experimenting wit how to bring Design Thinking into solution delivery, creating a regime of Collaborative Engagement and working together with clients to become Brokers of Capability. It’s a fascinating market today that is helping to shape the new way of delivering IT and business processes especially given the enthusiasm of all parties in this market that is on display not just at Dreamforce each year but in the way that all parties talk about what they are doing with Salesforce on an on-going basis. As a result, there was no way HfS wasn’t going to be covering this market with a Blueprint in 2015 and beyond.
How does HfS define the Salesforce Services market?
We believe that there are 5 components to the Salesforce Services Value Chain today as delivered by service providers to create value for enterprises: Plan, Implement, Manage, Operate and Optimize. Plan includes consulting services such as: Salesforce business case development, compliance, security and governance services, as well as CRM strategy and Salesforce specific process and design services. Implement covers all the services and skills required for effective deployment, including but not limited to: project management, testing, training and data migration services. Manage includes: all ongoing integration and support services. Operate includes: business processing outsourcing (BPO) services where they are delivered by the service provider around the enterprise’s Salesforce environment from sales and service to marketing and more. Finally, Optimize services are intended to improve the impact of Salesforce solutions and may include: the assessment of new Salesforce platforms, on-going CRM strategy alignment, best practice content curation.
So, which service providers seem to be thriving best in the “petri dish” of Salesforce Services today?
Using our HfS Blueprint methodology with its crowd-sourced metrics for Execution and Innovation assessment criteria we found 4 Service Providers who belong in our Winner’s Circle for Salesforce Services today. The Winner’s Circle providers were: Accenture, Bluewolf, Capgemini and Deloitte. Some of the reasons these service providers came out on top included the way that account management teams guided clients into the “As-a-Service” world, the breadth of reach in capabilities in Planning, Implementation, Management and Optimization, the vision each provided around maximizing Salesforce effectiveness, the management of solution partners and the investments in tools, accelerators and industry solutions.
We further identified 5 additional service provides that are HfS High Performers including: NTT DATA, Cloud Sherpas, PwC, Cognizant and Wipro.
What are the major trends we see which will impact these service providers over the next several years?
Khalda de Souza, Principal Analyst and report co-author (click for bio)
The biggest trend we see impacting service providers going forward is the ever-increasing reach across processes of the Salesforce offering. Enterprise clients are expecting service providers to be able to support across Sales, Service, Marketing, Analytics and now the world of IoT as well through Salesforce solutions. This means that service providers need to be investing in the recruiting (and retention) of Salesforce certified staff and then their on-going training across the offering set. The leading service providers will continue to invest in differentiating skills and solutions to meet the growing client demand for business focused Salesforce deployment and support services.
The next major trend we see is the increasing opportunities to offer value added services across the Salesforce service value chain, with the most obvious being in the Implement phase. Here service providers have opportunities to create differentiators by developing proprietary tools and technologies that facilitate faster and more effective implementations. Notably these would include automation technologies, and the leading offerings would have industry specific focus to deliver relevant business benefits to clients. The ultimate aim should be to achieve the coveted Salesforce Fullforce industry solution certification, a stamp that is clearly presented on the service provider’s profile on the Salesforce Appexchange web site for potential clients to see.
The third major trend of note is the continued push towards the realization of the 8 Ideals of the As-a-Service Economy in this Salesforce environment. In particular, HfS expects to see service providers invest in Design Thinking skills to maximize the benefits of new Salesforce environments and for investments by Salesforce themselves, third parties and the service providers in capabilities to drive through greater levels of Intelligent Automation in Salesforce solutions as well.
What recommendations do you have for enterprise buyers who want to get the best out of their Salesforce service providers today?
HfS believes that enterprises that want to make the most out of investments in Salesforce services going forward should:
Use the Salesforce Success Community for information and to collaborate with experts.
Use the Salesforce Appexchange web site to browse the latest solutions and consultant partners. There are top level profiles of the latter to facilitate provider selection short lists but beware that the statistics presented are not always up-to-date.
Use the HfS Salesforce services value chain to identify which skills you have in-house and for which you require assistance from an external service provider.
Push the service providers to go beyond the RFI and prove real differentiation, and demand access to other clients before selecting the service provider and during the engagement to compare best practice and experience.
And finally, what recommendations do we have for service providers through 2015 and 2016?
HfS believes that service providers that want to have the greatest impact on enterprise clients and lead the Salesforce services market should:
Invest in functional understanding and adopt a holistic approach to CRM. Leading service providers position CRM and Salesforce in particular at the heart of clients’ digital transformation journeys, rather than view it as discrete, tactical technology implementation projects.
Invest in industry sector solution development. Visionary service providers that continue to invest in industry specific solutions and strive for Fullforce industry certifications have opportunities to establish a leadership position in selected markets.
Identify valuable partnerships. Leading service providers are able to identify valuable partnerships, including equity investments that will enhance and tailor Salesforce solutions.
Be bold and stand out. Service providers should think out of the box, present innovative approaches and ideas to stand out from the crowded partner ecosystem.
Tell the market what you’re doing! Too many of the service providers in this Blueprint are coy about their Salesforce services capabilities. This market is going to get more complex and demanding going forward especially as small service providers with unique skills will continue to be prime acquisition candidates for the major service providers. Therefore, Salesforce service providers need to market their strengths to Salesforce so that it can recommend the relevant providers to enterprises, as well as to potential clients themselves. Moreover service providers need to ensure that their profile on the Appexchange web site is up-to-date and reflects the latest statistics and capabilities.
Who else can put on an event and oversubscribe it before even releasing the bloody agenda? Didn’t people realize the central theme this year is invoice processing transformation in Kazakhstan?
Well, the long wait is over and we’re proud to present a slightly eccentric and highly knowledgeable line up of industry luminaries for our upcoming HfS Working Summit for Service Buyers, in Harvard Square, Cambridge, MA, December 1 – 2:
Here’s a mere sprinkling of the luminaries joining us for the December summit:
Sitting on the panel: Ian Maher, Hanover Insurance Group; Bill Pappas, State Street Global Services; Jason Barkham, Warner Brothers Entertainment.
10:45 am Break
11:00 am Breakout Working Sessions: Applying Design Thinking to Achieving Service Outcomes
Buyers and providers break out into the Aggasiz, Comstock, Compton and Kennedy rooms, hosted by Phil Fersht; Charles Sutherland; John Haworth, Chairman of the HfS Sourcing Executive Council; and Barbra McGann, HfS EVP, Business Operations Research.
Panelists: Gajen Kandiah, Executive Vice-President Business Process Services and Digital Works, Cognizant; Rohit Kapoor, Vice Chairman and CEO, EXL; TK Kurien, CEO & Member of the Board, Wipro; Debbie Polishook, Group Operating Officer, Accenture Operations; Mihir Shukla, CEO and Co-founder, Automation Anywhere; Tiger Tyagarajan, President and CEO, Genpact.
3:00 pm Break
3:15 pm Panel: The Future of Work
Hosted by Gary Cormier, Head of HR Consultancy, Harvard Faculty of Arts and Sciences.
4:15 pm Fireside Chat: Concluding Thoughts on the Summit
Phil Fersht and John Haworth talk with Mark Hodges, Founder and CEO, Acresis, LLC, about his observations and reflections on the HfS Working Summit discussions.
4:45 pm Closing Remarks
5:00 pm Summit Adjourns
6:30 pm Farewell Reception and Dinner Reception at the nearby HfS offices, followed by dinner at the neighboring Gran Gusto Restaurant. Transportation will be provided.
Anyone who knows me well has seen how hard we’ve been pressing the importance of security and trust in a global services delivery environment, since we founded HfS.
In short, we’re moving into a world where reactive fixes to security breaches is a sure-fire recipe for disaster. Savvy enterprises simply have to deploy proactive, holistic management practices of their data flows across systems, people and processes. What’s more, with all these new investments going into digital technology, SaaS platforms, global outsourcing initiatives and automation bots, the risks out there with our data flying all around the place – and the trust in people needed to manage these risks – is second to none.
So who better than an analyst legend of the networking and computing boom era, the founder of analyst firm Current Analysis himself, and now a year-long member of the HfS team, Fred McClimans, to have a serious deep dive into what we are calling… Trust-as-a-Service:
Click to Enlarge
So Fred, why a Blueprint on security, or perhaps the better question, why trust as a Blueprint topic?
The transformation from an analog to a digital economy has been profound, giving rise to a whole new wave of business and economic models that place the consumer first and corporate assets online. This is a huge shift from the legacy models where brands controlled the message, consumers ate what was available, and managing risk meant not much more than a solid business plan, a line of credit, and Master locks on the front and back doors. That game ended a long time ago.
With most, if not all, corporate data now available online, and a massive consumer-driven omnichannel engagement model, we’ve literally given competitors and “evil-doers” a map of where to find corporate treasure, while replacing those locked doors with free keys that we hand out to every customer. While the legacy threat had to get close to inflict damage, the threat today can manifest itself from anywhere.
We’ve also seen a huge shift in the value that brands deliver to their consumers. It used to be all about the product, but now it’s increasingly about the experience – an experience that is inherently digital, less personal, and perhaps a bit more fragile. No matter how you look at it, enterprises today face risk both to their internal assets as well as to their greatest asset, their customers. Hacks and data theft – especially personal consumer data – ruin that customer experience, and decrease the level of trust. If your online or digital brand isn’t trusted by the consumer, they’ll easily go elsewhere. So, as we looked at the market for managed security services, it became clear pretty early on that it wasn’t just security, or cybersecurity, that mattered, but the trust it enabled between a brand and its customers, partners, and even employees. That realization shifted how we approached the security market. Security isn’t about securing assets, it’s about creating trusted assets that can be leveraged in the market, hence Trust-as-a-Service for our Blueprint theme.
That’s quite a shift from the traditional approach of measuring security in terms of firewalls, identity and access management, and malware detection. What was the approach you took to measure the ability to provide trust as a service? And can you share some of the key takeaways from your research?
Fred McClimans is Managing Director for Security Research, HfS (Click for Bio)
Well, first off, this Blueprint definitely takes all the traditional security elements into account – what we refer to as the technology side of security. Security Event and Information Management (SIEM), Data Loss Prevention (DLP), Identity Access Management (IAM), app and device security are just as important today as they were a year ago, perhaps even more important as the sophistication of cyberthreats has increased. But the real area where we are seeing new value in security is in behavior, and not just user behavior, but enterprise behavior.
An increasing number of security breaches can be directly tied to enterprise behavior and processes that haven’t kept up with the growing threat. We see insider threats all the time, even though most security is directed outward. And increasingly, data isn’t just being stolen from within the enterprise, but from enterprise partners and consumers. So there’s real need to start looking at some of the business structures and processes, the deals we make, and the types of information and access we’re willing to share, that often lead to increased risk that even the best technology is unable to protect from the right prying eyes.
T-mobile had a significant (hack recently that came through one of their partners, Experian. And Sony’s infamous hack last year, that was linked to North Korea and the film “The Interview”, revealed that over 100 internal Sony system were simply unmonitored. Both of these hacks can be tied to behavior and process.
So what did we do? We started with the main technical criteria and then layered on top the ability of providers to take their customers to the next level of blended physical/digital and process/behavior maturity, which you’ll see referenced in the Blueprint as the HfS Digital Trust Framework (see Can Today’s Providers Deliver the Elements of Digital Trust?) and the Digital Security Maturity Model (see Transforming the Security Maturity Model).
What separates the winners in security apart from the others? Is there a particular technology or focus that gives them the edge in helping enterprises counter the cybersecurity threat?
Now you’re really getting into it. I think the best way to put it is to start with the technology. Every provider we looked at had solid technical chops. In fact, there’s a pretty good overlap with some of the partnerships that operate behind the scenes. And while each provider has a bit of their own special sauce in the mix, technically they all show very well.
Moving up the maturity stack, what tended to set the providers apart was vision, and execution, for how enterprise security and trust enablement would materialize moving forward. Accenture and Wipro, two examples from our Winner’s Circle (along with HPE and IBM), had existing services and processes that really closely aligned with our models for Trust. Leidos and Unisys, two of our High Performers (along with Cognizant, Dell, AT&T and Atos), similarly showed a good understanding of the need to move beyond security as technology and start thinking of it as a larger enabler of corporate risk management. At the end of the day, vision, innovation, and the ability to help their clients mature digitally were all key elements of success.
You mentioned a shift from security as a way to protect assets towards security as a way to build and leverage trusted assets. Does that have a bearing on the way enterprises approach outcomes? And what recommendations do you have for them on this journey?
Phil, that mindset shift is going to play a huge part in the success, or failure, of enterprises moving forward. Security can’t afford to be an afterthought; it really needs to be thought of as a transformational enabler of a better, more trusted, business. The key recommendations? Let’s start with the basics. If enterprises aren’t aligning themselves with the Digital Trust Framework and the Security Maturity Model, they’re already behind the game. By doing this, they’ll be a bit more prepared for taking the steps needed to elevate their game.
Some specific recommendations would include elevating the responsibility for overall corporate risk and security management as close to the CEO and Board as possible; expanding their security architecture to include coordination, if not oversight, of their ecosystem partners; and a shift from a “prevent all breaches” to a “minimize breaches and control risk” approach. We’re also recommending some actions in the areas of provider relationships, in particular related to contractual flexibility, a greater level of actionable innovation, and a closer review of international privacy policies, something that delves into the role of security with regard to personal privacy and data rights.
And of course technology – automation is going to play an increasingly significant role in identifying and countering security breaches.
How about the providers? What recommendations do you have for them, and how will they need to transform themselves moving forward, or even can they?
I think transformation is going to be a challenge for some of the providers out there today. Those that are leading with tech may find themselves defining their own outcomes, and miss the opportunity to shift from service providers to service, and value, enablers. I can easily see a bifurcation of the market into two groups: one that is focused on delivering value by leveraging security as a way to create trust (as their clients go through their own digital transformation), and one that remains very tech-focused and becomes more of a modular, or on-demand, type of provider. There’s room for both, by the way.
But more directly, providers definitely need to think about security maturity in a fundamentally different fashion, which means they’ve got a lot of education to do with their clients who, based on our research, are still often thinking of security from a tech-only perspective. They also need to target the C-suite aggressively, as many of the security-related improvements and initiatives that need to be discussed go beyond the scope of a CISO.
There’s also an emerging physical/digital approach to security that winning providers will, and are starting to, adopt. Biometrics, access control systems, these are all physical systems that help provide a trusted environment, but today they’re separate from the digital security grid, unless they’ve been included as IoT devices. But the future of security services will require providers to start to leverage these devices to provide both contextual awareness of threats and help seal off threat venues.
We’re also recommending providers take a much more aggressive stance regarding corporate processes and behavior, especially from a larger risk mitigation perspective, that more emphasis be placed on aligning security services with specific business unit objectives, and that user education be significantly strengthened, to the point of bringing users in as collaborate security partners to help build a more trusted digital ecosystem.
And again, on the tech side, we’re pushing for a greater level of modularity and adaptability to keep pace with the rapid evolution of malware, spear-phishing, and embedded code hacks. This is not an easy market to be in, and they’ve got their work cut out for them.
What can we expect out of the industry in the coming year or so – it sounds like the threats show no sign of abating any time soon?
Let’s face it, the security market may never achieve a stable, or inherently safe, status. One of the constants throughout the past decade – really since the inception of digital technology – is that the level of threat always seems to meet or beat the level of protection.
Enterprises are constrained by time, technology, and budget. Hackers, especially those that are organized or sponsored, live by a different set of rules. There’s somewhat of an asymmetrical challenge at play. If you want to keep an asset 100% safe, you have to win every battle 100% of the time. But if you want to steal something, you only have to win once.
This imbalance is likely to become more pronounced as hackers find, and exploit, an increasing number of zero day vulnerabilities, especially in older, legacy systems, or as they start to leverage more of the accumulated personal data, that’s available in the dark corners of the web, to put together sophisticated personalized hacks that continue to blur the lines between the physical and digital worlds.
We’re also expecting an increase in the number of “mass risk” attacks – hacks that have the ability to cause fairly significant damage to a very large number of people, as well as an increase in smart hacks that find value in the accumulation of smaller pieces of less valued, or protected, information.
Gary Nowak (pictured right) is Partner for KPMG’s Shared Services and Outsourcing Practice in China
How many consultants do you know who just give up their life of first class travel, champagne lunches, and arrival by helicopter to luxury golf courses to slum it in the back streets of Shanghai?
Yes folks, KPMG’s Gary Nowak had it all . . . but his love of Yoga, meditation, and people-watching just got the better of him and off he went. So, without further ado, let’s learn more about KPMG’s Gary Nowak and what he’s learned having lived in China the last few years . . .
Phil Fersht, CEO, HfS Research: So good evening, Gary Nowak. Thank you for spending some time today with HfS. I know we’ve met in the past, but I’d like for you to give a little introduction to our audience. Tell us a bit about yourself, your history in the industry, and how you’ve ended up leading a practice for KPMG in China.
Gary Nowak, Partner, KPMG China:
Sure. Thanks, Phil. I appreciate the invitation. I’ve been in China since January 2013. In the summer of 2012, I took a trip to China in connection with a client I had taken globally—to Eastern Europe, India, and eventually China. I was very impressed with China, specifically Dalian China, a city with a high concentration of outsourcing, located in Northern China. After that visit, I requested, through KPMG, to be sent to China, specifically Shanghai, because shared services was—and still is—a very hot topic. During the preceding five years, there had been a lot of government attention and support for outsourcing, where the government specifically identified over 28 cities that could support shared services. So, my client visit in 2012 and the impressive infrastructure in China is what brought me here. Prior to my time in China, I worked in shared services in the United States, Europe, and Singapore with Arthur Andersen and, EquaTerra. And now, KPMG. These companies have filled out my over 17 years of experience in the industry. The move to China has provided me with a perspective of a dynamic, fast paced, and quickly growing country. Overall, China has been a tremendous experience both personally and professionally.
Ironically, back in 2004, I was in Singapore for about 10 months to set up a shared service center for the Asia-Pacific region, something that I just did in Europe. While in Singapore, I remember going to China and recognizing how complex business was in this country. More than 10 years later, business is still complex. In addition to business complexity, language and culture are also significant considerations when working in China. Mandarin is the main language, with only the higher-level executives comfortable doing business in English. A majority, if not all, of my clients prefer to do business in Mandarin. Once a project is sold, the day-to-day delivery is conducted in Mandarin, and I will debrief and receive consistent updates in English from my team.
So, that’s a brief history of my involvement in the shared service industry during the last 17 years—setting up shared services in different regions.
My time with EquaTerra and KPMG have given me valuable experience with outsourcing relationships. I’ve been involved in 13 different deals across the world with Fortune 500 multinational companies, where our clients wanted to outsource specific functions to various service providers. Eight of those deals were successful, and I was involved in every step of the process from identification of the service providers to the RFP creation and finally, the contracting process. Two of those thirteen deals took place since my arrival in China, and I’m in the process of supporting a third deal. There is a trend in China for companies to focus on internal captive centers rather than outsourcing; however, in the upcoming years I see the trending moving toward outsourcing since captives are extremely hard to maintain, and the employment costs continue to go higher and higher.
So globally, outsourcing is much more prevalent. And within China, the discussions are centered around internal shared services and captives. Notably, 90 percent of my client discussions have something to do with setting up China-for-China captive centers. As I talk to multinational clients, I get these kinds of questions: “What are my options for China? How do you handle the Asia-Pacific region? Do I need a center in China and also outside of China?” My perspectives have been shaped through speaking to probably more than 45 different companies that conduct business in China. My overall opinion is that if you have a China presence, you need a China shared service center. A China shared service center can service the rest of Asia-Pacific countries. However, handling China outside of China is extremely difficult. There are very few companies that do it, but it does happen on the rarest of occasions. As an example, I’ve spoken with Indian service providers about delivering work from their centers in India, and basically due to the things that I’ve mentioned—complexity and language—this isn’t possible.
Phil: Interesting! So when we look at China’s role in IT business operations sourcing, it’s clearly very, very different from the role it played in the growth of manufacturing over the years. Where do you think it is today in terms of capability and its role in the global sourcing marketplace?
Gary:
Prior to my arrival in China, KPMG conducted a study on outsourcing in China. The study identified over 22,000 service providers in China; 22,000—that’s a big number. These service providers were predominantly focused on IT outsourcing. I do think there is a need for this in China. I think that business is growing. I don’t see China as a major competitor for other regions like, say India, based solely on the competency of the resources here and the rising salaries in China. India has always been a lower-cost location for outsourcing, and I don’t see that trend changing anytime soon. There are companies I’ve spoken with that deliver IT services for the globe, from China; but, this is rare.
China has 6,000,000 to 7,000,000 graduates per year. My perspective is that the government is looking to support an industry where these graduates can gain employment. Shared services has been one of those industries where the government has provided incentives. Now, whether IT outsourcing can support a significant number of these graduates remains to be seen. Regarding the IT outsourcing industry specifically, I’ve had conversations with many Indian service providers—Infosys, Tech Mahindra, WNS, Wipro, Cognizant—and they all had expected to make a greater impact in the IT outsourcing market. They viewed China not as a competitor, but as a country where they could support the growth of their business. Several years later, the Indian service providers have been disappointed with the lack of China growth. NASSCOM hired KPMG to conduct a study as to why the Indian providers haven’t gained more traction in this market. The fundamental conclusion was the Chinese companies aren’t ready to outsource functions.
Phil: I think we’ve got to hand it to India for really taking hold of their traditional IT maintenance services business: app testing, app development for broad-scale enterprise, bread and butter apps. They’ve done a fantastic job. But we’re now going into a new era of more complex technology needs, such as testing around digital technology, mobile device platforms, BPaaS platforms—more niche applications and things like that. Do you think this is the opportunity for Chinese capabilities to step out and focus on some specialized areas that will involve new apps—new needs and capabilities? Or do you think this is still India’s game to play as they evolve in this disruptive economy we’re looking at?
Gary:
I think that question centers around one thing and it’s the leadership capabilities within shared services in China. If you had strong leaders in China who recognized there is a niche for these specialized areas. The struggle I see with Chinese companies is the lack of shared services leadership—those that have experience in this area and understand the fundamental value. The concept of taking higher value or specialized work is not easy to instill in Chinese executives. For example: I visited a Fortune 100 company at their Guangzhou shared service center. The center leader was a gentleman brought in from Germany; he and I spoke at a recent conference about the China Shared Services. So, I went to visit his center and they had 200 people, and I asked him, “Why aren’t you moving things in from other parts of the world, like Manila or your other locations?” He said, “Two reasons. One, it’s been done very well in the current locations. So all I can do is mess it up. Secondly, the costs are getting higher and higher here in China.”
So, he has 200 people responding to social media information. Rather than trying to take over work from their existing centers, he basically took on a new scope of work. So what he did was—he hired people to do that. And the other interesting thing about the leadership is—I think I met him on a Thursday, and during that week he took 25 members of his team to an off-site location to discuss strategic thinking on how to think more outside the box. To get back to your original question, for China to think outside the box is a bit outside the normal comfort zone of traditional leadership here.
I think that specialized IT outsourcing clearly sits with India to go up the value chain. If anything, India has pushed some of the lower value work into China. However, the problem with that is India in the foreseeable future is likely to be the cheapest delivery location. So moving from India to China isn’t going to create a positive business case. It’s going to be very difficult. Some Indian providers are thinking about using China as a disaster recovery/business continuity planning location. However, that is still a perspective to be fully recognized.
Phil: For multinational Fortune 500 enterprises setting up Pan-Asian headquarters, we’ve traditionally seen Hong Kong and then Singapore becoming popular. Are more companies shifting to Shanghai and some of the Chinese areas to run Pan-Asia operations, or is China becoming its own area?
Gary:
I absolutely think it’s in the conversation these days. Multinationals are setting up in and around Shanghai. If you start talking to centers of excellence (CoEs) and where they should set up, then you start having conversations about Hong Kong. Maybe you start having conversations about Singapore. But the real value and what I see in China that I don’t see in other parts of the world is coupling your corporate headquarters with your shared service center in the same location. This concept seems to make a lot more sense in China. So, basically your CoE and your shared service center coexist in the same location. Why? As I’ve learned through conducting several shared service roundtable events, Chinese employees want to feel integrated with the companies rather than isolated in a smaller Tier 2 or Tier 3 city performing shared services functions. It’s difficult to make those employees feel like they’re part of something while they are in a remote location. I think companies have had a lot more success here with combining their shared services and corporate headquarters.
You can immediately start reading the downside to this model: it’s a higher cost location, and it’s more expensive resources. But the upside is your attrition is more manageable the skill set to work between a CoE and shared services is something that, when combined, is more likely to help the CoE, like a tax and the treasury function with resources who have supported the company through your shared service center.
I run roundtable discussions here in Shanghai with multinational leaders and shared service center management team members. As we start talking about shared services in Shanghai, talent management is always a topic that generates significant attention. I can’t run a roundtable without talking about how to get good talent, how to retain talent, how to develop talent, how to manage attrition, how to keep the good people . . . so, I think a viable option for a lot of companies is to leverage their shared service center to be close to the corporate headquarters. So as you hire people, hire them through your shared service center. Work them for two or three years and then push them out to your organization, whether it’s a position locally, or as a business partner, or in the CoE. The concept is to leverage your shared service center as a training ground for future employees throughout your organization. In fact, KPMG is currently doing this with our shared service center in Foshan, and we believe it creates loyalty.
We have our own captive shared service center in Foshan, which is in the southern part of China about an hour outside of Guangzhou. We established the center about two years ago. For the employees who have been working there for two years now, they have the option to apply for positions within China in our Tax, Advisory, or Audit practices. We feel it’s a great incentive for people who start out in a support function and learn about KPMG and its culture. Essentially, when we want to hire resources, we can tap into this pool. It’s basically a two-year interview session. I feel that is a great way to address issues in China, which are around managing, developing, and retaining good talent.
Phil: So there is a bit of nervousness regarding the potential over?inflation of Chinese stock valuations and whether this could lead to a correction. What’s the mood in China right now in terms of the health of the economy and a potential cyclical downturn?
Gary:
I don’t see it on a day-to-day basis. As you could imagine, in China people don’t talk politics or the stock market all that much. There are discussions with other US partners, but I don’t know that by and large the majority of the people are playing in the stock market. Regarding the cyclical downturn, the younger generation is not afraid of losing their jobs. They’re not afraid to quit their position without having something else lined up. They don’t have a fear in them about the poor economy, high unemployment, or any type of downturn that would cause them to lose their jobs.
At a recent roundtable discussion for the financial services industry the participants agreed that they’ll get a candidate, extend an offer to them, and two days before their proposed start date the candidate will turn down the offer they just accepted. There was an example of a resource coming in, working for a week and then quitting because they got a better offer. So when you look at the economy it becomes apparent that the younger generation has never been affected negatively by the economy. They haven’t known unemployment. They have only known, “I can get a job anytime I want.”
Phil: Yeah. I remember that during hypergrowth times. That’s not necessarily a good thing now, is it? It makes it hard to keep things under control and build long-term business plans. What’s your take?
Gary: Unless there is a crisis in the market, which isn’t good for anyone, this younger generation won’t comprehend the impact of unemployment or a bad economy. They haven’t experienced anything different. What’s happening in the United States with the downturn, people have a different perspective about the value of a job and the idea of working. In China, they’ve just seen very high growth in many areas. You go around Shanghai or any Chinese city and you see buildings go up all over the place. China is sponsoring some 30 different cities for shared services. Where they’ve built buildings, they’ve built infrastructure—very good, solid infrastructure. They’re just really encouraging companies to go set up shared services in these cities. Shared services is very much a top-down-driven strategy, and China is trying to pull companies into their cities. Pulling a company toward shared services is difficult even with incentives. Under the best circumstances, implementing shared services is challenging let alone when leadership was brought into the opportunity for the sole purpose of saving money.
Phil: From my time in Asia, I remember it was “in vogue” for ambitious younger Chinese workers to learn English. Is this still the case, or is that fading a little bit these days?
Gary: I think so. People I work with definitely started learning English at a lower level. My view is that learning English will significantly enhance individual careers. I attend a lot of KPMG events with interns, graduates, and students, and I really enjoy talking to them about their careers. They are speaking more English now than they did when I first arrived in China. Also, as I previously mentioned, they have no fear about finding a job upon graduation. They just try to determine their best option. Some KPMG managers may not be as comfortable in English, but I don’t see any fresh graduates or any of our junior levels not feeling pretty comfortable speaking English. Many of our recent hires have been educated in Europe or the United States. Recently, we hired two great candidates who were born in Shanghai, educated in the United States and who worked in the United States and now want to return home to continue their career. One thing I’ve learned about working in China is that eventually people want to make their way back to their homeland.
Phil: Do you have the same kind of feverish discussion around disruptive technology, automation, and things like that in China—like we are having over in the States?
Gary:
It’s not getting a lot of traction here with clients because China is fundamentally on the low end of the shared service maturity spectrum. My view is that if China waits so long to implement shared services, so that when robotics and technology are more prevalent, companies can “leap frog” over the better, faster, cheaper lean six sigma model straight to leveraging technology to capture savings. In this case lagging has its advantages. The caveat there is companies still need to do the hard work of standardizing their policies and processes and move toward standardization.
Getting everybody on the same page from a process and policy perspective can in itself be a challenging task. Robotics and technology won’t eliminate or magically solve these types of complexities. In trying to formulate my strategic thinking about China, I think that companies should standardize as much of their operations as possible and look to leverage technology either internally or externally through outsourcing. Service providers are already starting to build in technology as part of their solution to be more competitive moving forward. Once service providers offer a strongly competitive price that’s less expensive than what companies are incurring today, outsourcing will begin to take off.
Phil: Thanks. So one final question, Gary. If you were to look out five years—what do you think it’s going to be like in China?
Gary Nowak, Partner, KPMG China (click for bio)
Gary: So I would say, just based on that last topic, I think technology is huge and if service providers can leverage technology to create a more compelling price for Chinese companies, they’re going to jump to outsourcing. Two things are going to happen: One is what I just mentioned—with outsource providers coming through with a technology solution that reduces costs. The second is if overall costs— specifically, salary costs—continue to rise, then alternatives need to be considered. If these two things happen, outsourcing will be very viable here, and of course if there is a crisis with control, compliance, regulatory or general business pressure, the executives need to address these issues and shared services offers a highly viable solution.
Phil: Gary, this has been great. I appreciate you taking the time from across the world to join us here on the blog!
Gary: My pleasure, Phil.
Gary Nowak is Partner, KPMG China. You can view his profile here.
Let’s get together in New York next week to reminisce about that wonderful phenomenon that was BPO, which – of course – is now a thing of the past, with everyone digitizing and automating their business operations, while adding layers of artificial intelligence to help make groundbreaking business decisions. Who needs BPO anymore, right?
In fact, us humans are probably not even needed at this conference, so why don’t we just meet at the bar instead and leave the discourse to our future employees:
Come to NYC next week and get your future BPO employees motivated…
But wait! It’s not over for us humans yet – honest!
The problem with all this much-hyped digital tech and automation is that it’s completely useless without the right talent to operate it. Don’t tell the software firms, but better technology underpinnings actually empower humans to do their jobs better – and spend more time on higher value activities.
“BPO” is now going through its biggest-ever facelift, with the advent of intelligent automation, analytics and digital, and I am personally excited to get some quality time in the Apple next week, at the 2015 BPO Innovations Conference, where we can cut through the hype and get to the real conversation, starting with my opening keynote address: Welcome to the As-a-Service Economy.
Come along and I will be hanging around all day to spend time with you all, with some of the HfS team, including Bram Weerts and Tom Reuner. We would love to spend time locking heads on where our industry is heading.
So!
Don’t miss Keynote sessions from HfS Research, Xerox’s Chief Innovation & Chief Process Officers, and HBO executives
Join leading buyer execs from Astra Zeneca, Bloomberg, HBO, McKesson, Pricewaterhouse Coopers, SunTrust Bank, Thomson Reuters
Hear from industry expert thought leaders at Avasant, Capgemini, Tata Consultancy Services, Xerox, Loeb & Loeb & Neo Group
Register today to build your rolodex during 5 designated networking sessions, including complimentary breakfast, lunch, and evening cocktail reception, where you will have the opportunity to win a test drive with a Tesla.
Registration is complimentary to buyers and practitioners. Influencers and Suppliers can use code HFS15 when registering to receive a 15% discount.
Conference Details October 22, 2015 8:00 am – 6:30 pm
Bohemian National Hall
321 East 73rd Street, NY, NY 10021
“Ten years ago, my CEO asked me to drive efficiencies through offshore outsourcing, now he’s asking me to make them through automation”, declared the CFO of a major corporation at the recent NASSCOM event in India.
This pretty much sums up where we are as a global services industry. We’re embarking on the next phase of productivity, and that means we have to incorporate it into our contracts and prepare to invest in the future model, not merely perpetuate the old one.
Service Providers invested in the old FTE model and it worked, now they need to make new investments in As-a-Service delivery
It’s not completely dissimilar to the old “lift and shift” FTE-centric deals of 5+ years ago, where providers would invest in the short term costs of client transitions, and spread the investments out over a 5-7 year contract to make the deal offer immediate attractive cost-saving gains for clients. Yes, they were making their first steps to becoming insurance firms for their clients, which is even more the case today, where the risks are higher and the savings more challenging to generate. However, if today’s service providers fail to develop scalable As-a-Service delivery platforms they can replicate across clients for the future, they will likely get replaced by other service providers in the future, which have made the investments necessary to provide more automated delivery, better data – and consequently more intelligent operating talent.
OK – the legacy FTE deals were less risky, so long as you could deliver up the lower cost people and shift the work to them without any major blow-ups. The modern deals require providers to find additional margin by automating processes effectively, converting freed-up effort into lower operating costs and also redeploying available talent on higher value collaborative activities. In other words, the old model was all about hard savings from direct labor swapping, the As-a-Service model is about a combination of smarter labor provision and genuine process transformation through better technology (i.e. soft savings).
It’s higher risk to avoid making the necessary investments – extinction could beckon for many
As the following graphic clearly illustrates, from our recent As-a-Service study covering 178 major buyers of services, if the major decision makers (SVPs and above) fail to see real As-a-Service progress made by their existing service providers, six-out-of-ten believe replacing their services providers would have a significant impact smoothing their progress towards their desired As-a-Service end-state.
While their more junior subordinates clearly do not view replacing their service providers as having such a drastic impact (25%), the frustration at the senior levels from providers’ failed promises and lack of progress to invest beyond the legacy model is abundantly clear:
This isn’t about like-for-like body-swapping, this is about removing menial transactional work and redeploying people resources into areas of higher value-add to clients. This is what real “transformation” (sorry, I said it) is about – spreading workloads across talent pools effectively, by leveraging smarter automation, SaaS-based process standards and training talent to work more collaboratively and intelligently.
The Bottom-line: Most service providers are not structured for success…. and the problem lies at the top
There are a lot of client RFIs on the market that are increasingly complex, but aren’t as attractive to providers as the juicy scale deals of the past, requiring a determined effort from the provider to cobble together the right resources and expertise to take them on effectively. Sadly, many of today’s service providers are simply not structured in the right way to take on more integrated / As-a-Service-type deals. At HfS, we are seeing some of the legacy service providers turn up their noses at these deals because they simply cannot break down the barriers internally to bid effectively for them. They are geared up for the dwindling legacy deals, not the new ones that are emerging from the next layer of buyers ready to move into outsourced As-a-Service business models.
In most cases, service providers are too vertically set up, for example, most still have an infrastructure service line, an application service line and a BPO service line – and most have product service lines too (not to mention some legacy vertical industry groups that do not even talk to each other). Each service line still tends to use its own unique contracting, pricing and risk tolerances. In short, client expectations are increasingly becoming much more mature around integrated services, taking the form of As-a-Service models, comprising elements of infrastructure, storage, comms, apps functionality and BPO, optimized around that integration as opposed to discrete components.
The legacy service providers (and those service providers who may not realize they are – actually – legacy) simply don’t know how to price, solution, assess the risk and pull it all together – they can’t, because they simply aren’t set up that way. These problems stem from the leaderships in these providers, where they simply have failed to structure their organizations in a way that can truly deliver As-a-Service. They are slaves to their little fiefdoms of siloed P&Ls, which have dictated strategy over the years.
Without a game-plan to take on integrated deals at lower margins to grow the future platform, many service providers can kiss goodbye to growth. The only route is to invest in smaller deals to build a service delivery platform for future client utility – today’s providers need to develop a 2-3 year plan where they will take on strategic deals at low margin/cost in order to build out the As-a-Service model of the future. Those ignoring this strategy better have a few billion in the bank to make acquisitions down the road, as that will be their only route out of this legacy black-hole into which they currently find themselves sinking.
Yes, we threatened to update our annual look at who’s climbing and falling in the IT services world, after the storm we created last year when Jamie Snowdon put out the 2014 Top 10. So here it is:
Click to Enlarge
While the Indian-heritage providers continue to surge, here cometh Amazon
Last year, we observed the entrance of the first of the large India-heritage service providers into the Top 10 IT Services providers, with TCS entering the fray. Throughout the past decade, the five major India-heritage offshore-centric IT services providers have dominated growth in the marketplace, and had created a new market segment – a tier of fast growing services providers.
Over the last 5 years, we have seen another unique growth phenomenon emerge, representing another tier of the IT services market, a tier of even faster growth the cloud pure play providers. In this year’s 2015 list, we have included the Top 10 providers, the major 5 India-heritage offshore-centric providers and Amazon Web Services (AWS), as the largest as-a-service IT services provider (see above).
AWS has dominated the infrastructure cloud market with revenues as much as ten times larger than its nearest pure play public cloud providers, at over $4.6 billion. In response to this threat, the traditional providers are also staking a major claim to be in the As-a-Service business with IBM, for example, stating it now has achieved cloud revenues of $7 billion in 2014, with $3 billion of which is As-a-Service, with the rest presumably comprising more traditional consulting and integration services.
Accenture poised to overtake HP, Fujitsu wobbles
HfS’ Jamie Snowdon, Author of the HfS Global IT Services Top 10
IBM remains the lead provider thanks to its broad portfolio of technology products and services, plus its genuine global reach. IBM is one of the few providers with significant revenues in professional services, outsourcing/managed infrastructure services, application services and traditional support services. Although HP remains in the number 2 spot, consistently poor growth performances in its Enterprise Services group, over the past 3 years, creates the possibility of being overtaken by Accenture in the near-to-medium term. Fujitsu has slipped down the list, in part due to exchange rate, with ~60% of its services revenues coming from Japan and over-exposure to the recent weakness of the Yen.
Of the traditional onshore-centric service providers, Accenture has created a tier in its own right for the last 2-3 years, with a couple of exceptions, posting consistently strong growth quarter by quarter. A large part of this success has been its dual role as a strategic thought leader for its clients, in addition to its focus on delivering global services across an expanding array of global delivery centers, most notably in India and the Philippines. Accenture’s focus on balancing consulting with managed services has helped support the firm’s differentiation and revenue growth in the industry. In addition, its early wins in the digital space that brought about new investments in technology could lead to significant new business value and wealth being created for the firm.
SAP and Oracle both have large professional services teams, accounting for ~$3.7 billion in revenue, for both providers. However, HfS includes their product support revenues in its IT services definition that pushes both providers’ IT services revenues to the level above.
Capgemini and TCS move on up
The last 12 months have been good for Capgemini, has managing to remain robust with solid organic growth across its regions, particularly in North America, Asia, and the UK. Its continued focus on portfolio management, taking the best ideas from its large teams of local consultants and building global repeatable business seems, to be working and helping it to grow against the tide in the difficult continental European markets. Its acquisition of IGATE adds some much-needed capabilities and scale in Indian IT services delivery, particularly in financial services markets.
TCS stellar growth trajectory has continued at a 15% clip, rising to the number 8 position. Despite being the largest of the India-heritage providers, TCS has continued to grow its IT services business at a pace that belies its massive scale. TCS’ strategy has very effectively broadened its service portfolio, providing customers with a comprehensive set of services in all the markets it plays and has been effective at adapting its services to the idiosyncrasies of local markets, particularly in Europe. In addition, TCS’ focus on organic growth seems to have served the firm well, while most of its India-heritage competitors are more focused on acquisitions.
Traditional IT outsourcing not dead, just limping, the shift to As-a-Services is already underway
The changes in market share over the last year show that even as economic conditions improve, the IT services providers cannot expect an instant return to strong growth without major investments into their delivery organizations. Plus, in spite of solid performances of the India-heritage providers, there already appears to be another stalking horse approaching the market in the shape of the “As-a-Service” providers. While offshore labor arbitrage has been the catalyst for increased revenue growth over the last two decades, the shift to less labor-centric As-a-Service offerings that are more dependent on automated technology platforms and more specialized skill sets, is starting to alter that dynamic.
Despite these secular challenges, we don’t expect the traditional IT outsourcing market to disappear in the short term. One of the criticisms we hear most often about cloud services is the lack of end-to-end support and good quality holistic services. If anything, we expect services to both scale down to meet cloud based services and to add better servicing and scale into traditional style managed services deals. However, the shape of the prime outsourcing contractor agreement is likely to change – with an increasing emphasis on the technology partners and cloud services providers engaged to bring the infrastructure offering together and, increasingly, a more diverse set of application services companies delivering turnkey and custom applications. Moreover, capabilities around robotic automation, analytics, cognitive computing and self-learning are gradually coming to the fore, with many enterprises more willing to make investments in technology-driven As-a-Service outcomes than merely labor savings based on offshore delivery.
However, the end of 2015 and 2016 will mark another critical moment in IT services market, with questions about what will become of the traditional enterprise infrastructure outsourcing market as AWS makes huge disruptions to the legacy model, with its cloud based As-a-Service model. These changes will be particularly important for services providers that have struggled to adapt to the new market conditions – HP and CSC are two of the traditional providers we will watch with particular interest as they continue their annual ballet to survive and continue their growth path.
The Bottom-line: Expect AWS to surge into the top 10, Cognizant to continues its climb and the new breed of As-a-Service providers starting to emerge
Not long after the initial impact of the offshore providers, a new wave of disruption is beginning to have an effect on the IT services leadership. Indeed, we expect the pure-play As-a-Service providers to target positions in this top 10 list, particularly AWS. We see the most exciting developments happening with these providers. If AWS maintains its current growth rate, it could be in contention of a Top 10 space by 2016 and likely to have one in 2017. This is a big if, as it would need to maintain its 50% growth rate, but certainly not impossible in these fast-paced times.
We could see TCS joined in the top 10 by another offshore provider, Cognizant as early as the 2016 Top 10, although looking at its results so far, this seems unlikely. Particularly, given the Atos acquisition of Xerox US IT outsourcing business and the expected $2 billion boost in its revenue (currently they are $10.5 billion at number 11), and it is doubtful whether Cognizant will hit the $12 billion market in IT services to catch them or NTT Data, although this may happen in 2016. We may see this delayed or overtaken by the inclusion of AWS.
Everyone is talking about the two-tier nature of the IT services market at the moment – largely dividing the market between traditional services markets like IT outsourcing and new solution based services around the adoption of digital technologies (social, mobility, analytics and cloud). With flat or declining market growth in the traditional services businesses and double digital growth in the emerging digital space, it is no wonder why most of today’s service providers are pushing some form of Digital in their service portfolios. However, the competitive landscape is increasingly multi-tiered and you could argue it is currently divided in to three groups: traditional technology services companies, India-heritage providers and now the pure play As- a-Service providers. What is also worth noting is the renewed buying up of niche talent by the leading IT services providers in the high-growth SaaS markets such as Salesforce, Workday and SAP Successfactors.
Over time, we expect the first two categories to merge and the distinction between these groups moving away from location or offshore, but to the success of bringing digital to life – and enabling digital for enterprises (not just selling basic IT services to implement apps). By that, we mean demonstrating that they can utilize technology within their client’s business to generate business value. We expect some of the offshore providers to transition more permanently into the slower growing group – we have seen temporary examples of this already with both Wipro and Infosys flirting with lower growth over the past 2 years. We will also see higher growth emerge from some of the traditional providers as they shed more of their legacy business, but retain the higher value work and build on the thought leadership they have created around digital.
The addition of providers like AWS into the mix will further commodify the infrastructure management business, however, as mentioned above this will not mean an end to managed services. It just will change what the outsourcing providers manage – they will not be managing as much of the physical technology directly. The role will be more virtual managed service, orchestrating and managing a big catalog of services delivered, in some cases by themselves, but increasingly by an ecosystem of partners. Many of these partners will be this new tier of provider, the pure play As-a-Service companies.
HfS subscribers can download the HfS Global IT Services Top 10 report here.
The silicon valley giants are not satisfied with embedding themselves into your phones and laptops – now they are looking to connect up our cars, bank accounts, air conditioning systems, washing machines, even our hair dryers (OK, maybe not hairdryers just yet)… They want to manage data tied to your whole life, not just your computing activities. Live with it, it’s happening.
Suddenly, IT services are morphing into “Things services”. So we decided to get ahead of this and conduct exhaustive research into how the leading service providers are shaping up their capabilities and investing in this emerging space. HfS’ Charles Sutherland is a walking, talking, breathing example of the Internet of Things. He’s plugged in 24×7 into a global network of devices and companies operating said devices. Yep, he never stops, and his research into autonomics has naturally pulled him into this market.
Charles and his team have been conducting exhaustive research interviews over the past few months with many enterprises to learn more about their experiences with IoT, in addition to the performances of their service providers to provide the bread and butter service delivery and assess their innovative capabilities, vision and investments.
So Charles, why have we undertaken an HfS Blueprint on the IoT services market today?
Because we wanted to sort through the daily avalanche of IoT related press releases, presentations and conferences to understand how 18 different service providers were really designing and delivering IoT services for enterprises clients. HfS is focused on the emergence of the As-a-Service Economy and the impact that digital services are having on IT and business processes and the IoT is part of how those are coming together for clients today. It is still very early in this market but we wanted to assess how service providers compared to each other as they build their execution and innovation capabilities to deliver IoT today.
How does HfS define the IoT Services market?
IoT Blueprint author Charles Sutherland is HfS Chief Research Officer (Click for bio)
We believe that there are 5 components to the IoT Services value chain today available from service providers. There is IoT Consulting, which includes planning, technology road mapping, governance strategies and custom app development. IoT Enablement that encompasses product engineering, sensor development, software engineering, embedded technologies and security services at the device layer. We also include IoT Connectivity which brings together network engineering, implementation and security. There is also IoT Integration for databases, SI, analytics implementation and application modernization. Finally, IoT Management services, which include device management, cloud hosting, network and data management. It is a complex value chain that typically requires the coordination of many partners to deliver a complete system, which is a theme we return to again and again in assessing the state of the market in this Blueprint.
What is the state of this IoT Services market?
Overall, HfS believes that the IoT Services market is still very much in its infancy. Despite the daily flow of press announcements and articles on IoT, it’s clear that overall proofs of concept (POCs) rather than large-scale system deployments are the most prevalent cases out in the market today. 2015 has seen a figurative explosion in PoCs for IoT and we expect this to begin to transition into a greater deployment of production systems in 2016 and beyond. That said, IoT will still take some time to achieve scale, because both enterprises and service providers are approaching IoT from many different angles and with a great degree of circumspection as to what the long-term goals are of these IoT initiatives. Will IoT enable greater operating efficiency in the business as it exists today or will it facilitate the creation of new markets and disruptive behavior, that is still very much an unanswerable question in the market as it exists today.
So which service providers are shaping the IoT services market?
Our HfS Blueprint methodology, which incorporates crowd-sourced evaluation metrics on criteria related to both Execution and Innovation together with client references, resulted in 8 service providers being captured in our Winner’s Circle. These were Harman (including the recent acquisition of Symphony Teleca), Tech Mahindra, Atos, TCS, IBM, Accenture, Cognizant and Infosys. Each service provider has addressed this market differently but many share some common leading characteristics as well. We cited Atos, Harman and Tech Mahindra for the capabilities of their proprietary delivery models for IoT. Accenture, Atos, TCS and Tech Mahindra were noted for focusing on as-a-service pricing models for many IoT engagements. Cognizant, Infosys and TCS also scored well for their willingness to co-invest with clients in projects to develop IoT related assets, which could be brought to other clients. While Harman, IBM and Tech Mahindra have been aggressive in acquiring the capabilities they need to lead this market through integrating specialist firms and capabilities at scale. Finally, Accenture and IBM showed well in developing a wide variety of industry models and related skills for IoT deployment in the G2000.
We also identified a further cluster of 7 service providers as our HfS High Performers including: NTT DATA, Tieto, Genpact, EPAM, Virtusa, Unisys and Dell Services all of whom are making investments to grow their capabilities and become participants either directly or through partnerships across the entire IoT Services value chain.
What are the major trends we see which will impact these service providers over the next several years?
Well first of all the competition will continue to intensify. IoT is a magnet today for investor funding not just in Silicon Valley but globally and from this both many more potential partners and competitors will emerge to the service providers we see here today. That growing ecosystem will mean that definitions for the market will remain fuzzy for many as capabilities across design, mobility, cloud, analytics, supply chain and more get integrated into what are defined as IoT projects. This complexity also means that both service providers and enterprises need to deploy both Design Thinking and Systems Thinking when looking at IoT so that the projects solve real business needs and then account for all of the inter-relationships with broader processes and technologies both in the enterprise and outside. Improving partnering skills will also be a key trend for IoT service providers as so many different players are required to bring many IoT concepts to scale and traditional ways of working autonomously found in other IT fields will not work with IoT. Finally, creating data lakes and stitching together the myriad of APIs involved in IoT will be important for service providers as will enhancing analytical and process skills to account for these new capabilities.
So given all these developments in the IoT Services market, what recommendations do we have for enterprise buyers through 2015 and 2016?
HfS believes that enterprises that want to make the most out of investments in IoT going forward should:
• Select IoT initiatives with care. It can seem easy to roll out new sensors and devices but integrating the resulting data and changing business processes is often very complicated and expensive and not all PoCs will make economic and strategic sense to pursue.
• Demand service providers co-invest in innovation and are willing to be experimental in their solution designs.
• Keep the attention internally and with partners on security and risk management in IoT as PoC and evolving deployments may be creating new access points into the enterprise often with high sensitivity and a failure to manage this may cause unforeseen problems over time.
• Stay calm. Most of the IoT activity in the market including in competitors to the enterprise remains at the PoC level today. Yes, much of this may be disruptive over time but not everything that happens in this market will be successful and seeing a path through for the enterprise requires both investment and patience.
And what recommendations do we have for service providers through 2015 and 2016?
HfS believes that service providers that want to make the most out of investments in IoT going forward should:
• Build out Design Thinking and Systems Thinking skills to create new more business outcome based IoT projects and deployments.
• Learn to partner better both within the service providers, with enterprise clients and across the IoT ecosystem.
• Integrate internal silos so that IoT skills don’t become buried inside of practice areas that are isolated from broader developments in process, mobility, design, analytics, engineering and cloud capabilities in the service provider.
• Finally, recognize that not every IoT investment will meet its goals in these early days and not every client project or co-investment opportunity will create a repeatable asset for other clients. Right or wrong, the majority of the works in IoT for the next several years will in HfS’s opinion still bespoke solutions for individual enterprises rather new industry platforms for the service provider to exploit. Stay wise, stay calm and stay busy and the potential of IoT will be there.
So what are you doing on Guy Fawkes’ night? Well, rather than blowing up Parliament, why don’t we start with the legacy analyst business?
With the swirl of social media, free information and business model disruption in the technology world, everyone assumed the traditional analyst world would follow suit. We thought there would be a plethora of new generation analyst boutiques cropping up to challenge the old model. Some tried, and most have failed. A few linger on in their death throes, but the revolution we thought would happen – let’s face it – never really did. Except in one corner—right here at HfS.
I’ll be presenting on Research-as-a-Service and how HfS is changing the face of the analyst industry
As we look around the industry, we see the same old legacy analyst houses producing their useless charts and dull, turgid research just as they did a decade ago. Few subscribers actually read the stuff, but technology vendors still fund these firms because they have few other outlets to justify their existence.
Here at HfS, we’ve been fortunately enough not to be beset by legacy contracts and the dirty vendor dollar to give to industry a very different analyst model – one where we are unafraid to make our research widely accessible to the world with our freemium model and call out the real trends that are happening to our industry (as opposed to regurgitating the same old marketing fluff that turns off the smart buyers). In short, we’ve thrived because of our huge global community, our continuous demand data from our readers and a team of great people and analysts who love the freedom of Research-as-a-Service.
This is where the real fireworks will be on the 5th November…
I’m pleased that I’ll be in London on November 5th to share our story as I keynote the Analyst Relations Forum. My keynote, Thriving in a Market that Refuses to Change: Research-as-a-Service, will look at how HfS has fought to transform a conservative industry that has been slow to change.
I’ll also be having a fireside chat with Wipro’s dynamic new CMO, Naveen Rajdev, and we’ll also hear from Accenture’s popular Managing Director for Global Analyst Relations, Allen Valahu, about what it’s been like to work with a multitude of analysts over the last two decades and what they would like to see in the future (see full agenda for the menu of analytical delights).
We are providing 10 free tickets for those who hurry to register! Sorry—all gone!
We have made special arrangements for ten free tickets to the event (with promotional code JoinPhilFersht) – first come, first served! Sorry—all gone! But we also have arranged for a $124 discount (with promotional code ARForumKeynoteHfS) for those who did not manage to register in time.
Just when you thought IBM’s Global Business Services was cratering into an As-a-Sleep state, having sold-off its call center business exactly two years’ ago, Big Blue’s next-gen services star is once again shining, with the acquisition of one of the finest up-and-coming specialist Workday services firms in the market: Meteorix.
Every HR head wants a Workday rollout… and every SI wants a SaaS services acquisition
There is a clear scramble for talent which can implement and support popular SaaS platforms, such as Workday, not completely unlike what happened with specialist consulting firms supporting the ERPs in the ’90s and 2000s, such as SAP, Oracle, Peoplesoft et al. Specialist SaaS services providers supporting SaaS products, such as Workday, Salesforce, SAP SuccessFactors, NetSuite, ServiceNow and Google apps, are now in hot demand as ambitious global service providers seek to avoid the commodity trap of legacy software maintenance, which can still generate revenues, but not at the growth rates of past years.
As HfS, we estimate this has set IBM back something between $80-$100m and adds 180 certified Workday consultants to IBM’s stable. This creates the third biggest Workday services player in the market, with a total of 380 certified Workday consultants and elevates IBM into the coveted Winner’s Circle of Workday service providers (please note this is numbers of certified Workday consultants only):
IBM has acquired one of the leading up-and-coming Workday services specialists, which leads the industry for execution capability for Workday clients:
Click to Enlarge
Positives of the acquisition:
Adds considerable scarce talent in a hot market. Not dissimilar to the recent Accenture acquisition of Cloud Sherpas, these SaaS services takeovers are all about the large providers hoarding scarce As-a-Service talent. This deal effectively doubles IBM’s share of certified billable Workday consultants and gives it greater scale and capability to compete with the likes of Deloitte, Accenture, AON Hewitt and OneSource Virtual on large Workday deals. Meteorix staff brings an excellent client culture, collaborative reputation and great array of new clients – different from the pedigree HR transformation talent KPMG recently acquired from Towers Watson, but nonetheless great practical implementers and practitioners of Workday. Our recent Blueprint report reveals that 60% of Meteorix’s customers are in on-going “post-production support” state, one of the critical ingredients behind this deal: acquiring talent that drives the business transformative needs far beyond the initial implementation and go-live activities.
Empowers IBM’s ambitions to control core enterprise data. Being the service provider which controls the creation and interpretation of critical enterprise data, especially the knowledge of the global workforce, really creates a client stickiness that could be more powerful than ever before. Integrated SaaS suites, like Workday, have this capability to enable truly integrate data repositories – hence the trusted service provider of record will be in a very powerful future position to service its clients and deepen its footprints.
Prevents other disruptive As-a-Service providers entering the market. Unlike Salesforce, which has a much more mature ecosystem of service partners, there is a feasting on the small band of worthy specialists in the Workday arena, and they could all be swallowed up by the large players in a couple of years. There are really only a small number of attractive potential acquisitions left in this space after this acquisition which boast genuine scale in numbers, most notably OneSource Virtual, DayNine and Collaborative Solutions. In many respects, not making an acquisition of this ilk could have been more damaging to IBM’s ambitions in Workday world…
Adds considerable services methodology to the IBM capability library. Meteorix has already build more than 1000 reusable integrations into Workday. If IBM can effectively leverage these into its global practices, there is some serious scope for scaling and expanding its Workday business.
Adds real North American depth and entry into the lucrative higher education market. While Meteorix was not strong with multiple vertical industry depth, it does bring capability in the hugely lucrative US higher education market, upon which IBM can capitalize. It also negates IBM’s need to partner with Sierra-Cedar in this sector and go after the space solo. What’s more, Meteorix’s North American bench is well complimented by IBM’s resources across Europe and Asia, even though most Workday demands tend to be confined to the North American market at present. There is also the opportunity for IBM’s practitioners to share their considerable years of SAP HR knowledge, that tend to span much broader global engagements across Europe and Asia/Pac, to where many Workday clients are hoping to expand their platform next beyond North America.
Mid-market focus and scale potential. Meteorix has tended to play in the upper-middle market space, which can provide a great platform to target enterprise level clients. Not dissimilar to the ADP strategy of building the competency in the mid-market before scaling the solutions to move up, IBM has a great opportunity to do this with its new Meteorix talent and IP. There is a huge amount of intellectual property to leverage – the key is to retain the talent and train it to work with higher end enterprise clients – and charge higher-end billable rates!
Potential negatives of the acquisition:
Retaining the new staff. IBM will really need to work hard to create the right culture for its new found talent. This is its first significant services acquisition for some time and it needs to make this work. Meteorix had a very distinct culture, which needs to be nurtured and not suffocated under Big Blue doctrine.
Lack of a SaaS-centric services practice. Accenture’s acquisition of Cloud Sherpas is being integrated with its Cloud First approach, where consultants are trained to implement – and then provide – ongoing support for cloud clients. IBM needs to create something similar with Meteorix to avoid merely being a glorified systems integrator for Workday. The cardinal sin with SaaS is forgetting that SaaS is about empowering the end customer, not the consultant, and this is something IBM’s GBS group needs to work hard at creating. All the major SIs, like IBM, have made billions over the years selling IT programmers to stitch together legacy ERP platforms, which is not the case with true SaaS platforms like Workday. IBM must ensure it instills and develops the business insights and skills for its clients, well beyond the go-live moment, if it truly wants to create deep analytical tentacles with its key clients. Again, As-a-Service is about empowering the client, not the consultant…
Click to Enlarge
Enterprise-enabling Meteorix’s methodologies. While this should be a major strength, this could also be a major weakness of IBM fails to nurture it’s IP and talent and grow its client base across both the mid-tier and enterprise domains. With its determined focus to develop its Watson offerings and cognitive computing capabilities, there must be considerable focus on investing in the “Born in the Cloud” clients of the future, and not just today’s resource-laden legacy enterprises.
Creating strong Workday capability across both HR and Financial Management domains. The speed at which Workday’s Financial Management modules are being evaluated and implemented is really beginning to pick up, and it’s vital for the multifunctional providers, such as Accenture, Deloitte and KPMG to develop delivery and transformation skills across both HR and finance Workday domains. While encouraging to see IBM being affiliated as a Workday FM partner, it’s important to see the firm develop comprehensive Workday delivery skills across both domains long-term.
The Bottom-line: IBM makes its As-a-Service claim, but the hard work starts now
Just when it really seemed that IBM’s services strategy was simply to tie everything, in some way, to Watson, this acquisition is a refreshing reassurance that Big Blue is still very serious about competing for today’s enterprise services with the leading global characters. Now the real hard work is adapting to the new enterprise services culture of empowering the client and building genuine repeatable, scalable methodologies for the future. It’s also about creating platformized solutions for the F500 of 3-5 years’ time and not simply catering to the needs of monolithic enterprises today. We believe IBM recognizes its challenges and is making measured strategies to get ahead of them. However, recognizing is one thing, addressing, making sacrifices and ultimately succeeding is quite another…
