Realizing the dream of AI-embedded business processes must start with people and data management
Every enterprise looks to use emerging technologies to cut costs, grow revenue or create new business models. The combination of changes in how people work and what new technologies can best be applied creates massive opportunities for services vendors. This new market — broadly defined as “digital transformation” (DT) — will evolve through the current hype peak into a long, steady stream of fundamentally traditional services engagements involving a mixture of process knowledge and technical expertise. Though no longer “emerging” technologies, data management and analytics software remain at the core of DT initiatives and adoption of truly emerging technologies such as artificial intelligence (AI). As the analytics and insights (A&I) professional services market matures, competencies around AI, human-centric user experience design and DT-related change management will be key to vendors’ future growth.
To sustain A&I professional services opportunities over the long term, vendors must stay on top of AI technology developments while maintaining a broader perspective on the impact of AI on clients’ business processes and human resource (HR) strategies. As AI adoption grows, so does the technology’s complexity, particularly at the intersection points between humans and machines and between regulatory policy and technological innovation. We expect rising concerns around security and governance, regulatory compliance, and HR implications of AI systems will continue to drive consulting and solution design engagements tied to broader DT initiatives. To capture these expected opportunities, A&I services vendors invest in service and technology offerings to assist clients with AI adoption — from upfront advisory to data integration, application development and managed services. However, despite vendors’ massive investments in AI capabilities and a growing number of high-profile use cases for the technology, TBR’s research around enterprise DT initiatives indicates clients have not fully bought into the value services vendors can provide in creating AI solutions, suggesting vendors have a marketing challenge to overcome.
The model for a successful vendor is indeed a tall order. Our research indicates enterprises undergoing DT want vendors to understand their business problems in both industry and functional contexts, create solutions that mesh with their existing IT environments and maintain security, and cultivate robust ecosystems of best-of-breed technology partners. While building out strategies around each of these pillars, vendors should message how they can address technical challenges such as data preparation and training to help clients start and continue experimenting with AI, as well as provide process transformation and change management advice to enable clients to bring those experiments to scale. Vendors must walk a fine line between establishing a long-term vision for the future of business and directing clients where to take the first step toward achieving their goals. Framing AI adoption in the context of methodical modernization of individual business functions, rather than as an excuse to play with cool new technology, will keep vendors on the right side of that line.
TBR will continue to monitor the impact of AI on vendors’ go-to-market strategies and enterprise customers’ IT and professional services buying behavior through its Analytics & Insights Professional Services Vendor Benchmark, Digital Transformation Services Market Landscape and Digital Transformation Customer Research. For deeper insight on this topic, see our event perspective on the 2018 O’Reilly Artificial Intelligence Conference, held this past April in NYC.
Colfax is an industrial conglomerate with two operating companies under it, ESAB and Howden. ESAB produces equipment and filler metals for most welding and cutting applications, and Howden delivers precision air and gas handling equipment for numerous industrial applications. Both are worldwide industrial suppliers with multiple manufacturing plants and globally distributed support apparatus.
I learned about the conglomerate during a PTC customer panel at PTC’s LiveWorx 2018, where Colfax was represented by Ryan Cahalane, the company’s vice president of digital growth. I found his story, among others, to be an intriguing view into the development and deployment of Internet of Things (IoT) applications by an actual customer of vendor IoT solutions. Often, the real stories get lost in the marketing morass of the larger IT and operational technology (OT) companies pushing solutions. Cahalane and I connected over our thoughts on the importance of solving “the business problem” (and our intriguingly similar last names), and I took the opportunity to learn about Colfax as a customer (one could argue it could increasingly be placed as an ISV) and its experience implementing IoT.
Colfax began its journey like many of its peers: IoT was the buzz, and the company tried to react as fast as it could. Like many manufacturers or those in heavy industry, Colfax’s leadership kicked around the idea of harnessing IoT to drive new growth and differentiate from peers in a competitive marketplace, primarily via new IoT-enhanced products or digitally enabled service offerings. However, Colfax ran into challenges.
Internally, Colfax experienced the same roadblocks that plague most companies investigating IoT, especially federated ones like itself:
- Colfax had a sizeable number of people working on IoT, but the company lacked communication and alignment across the various business units and initiatives.
- Plenty of good ideas were being developed via shadow IT, but the company lacked cohesion and developments were technology-focused — not guided by business problems. This failed to differentiate the company, and Colfax’s messaging got lost in a crowded market.
- Colfax initially tried to go it alone with a do-all solution, but that led to generic offerings that were not best-in-class, and handling all of the components, including design and management, was difficult for a diverse, distributed organization.
Externally, the company faced the usual challenges of the market. Its customers were interested in IoT, but Colfax found itself in proof-of-concept limbo as customers continually kicked the tires on IoT but never walked away with a key in hand. Cahalane explained that Colfax had trouble navigating customer cultures, such as garnering agreement from line-of-business, OT and IT managers from a technology viewpoint, and ultimately proving ROI for its digital solutions, from a business viewpoint, to C-level executives.
Many companies have shared the same struggles, and are now washing out, including behemoths such as General Electric, indicating no company is safe from the volatile and hypercompetitive IoT market. Colfax has persevered, however, because the company was quick to perceive the changing market dynamics. Here are my takeaways from my conversation with Cahalane around the company’s pivot:
- I’ll begin with something that Cahalane, being humble, didn’t share with me but that I believe was an important step for Colfax: The company established Cahalane’s position of digital growth VP to coordinate IoT initiatives across the company and foster knowledge sharing, ultimately helping Colfax organize for IoT. Instead of offering a number of distributed, unfocused and perhaps competing IoT initiatives, Colfax, with Cahalane’s help, is focusing and acting on key opportunities.
- What are those key opportunities? Colfax’s competitors would certainly like to know! Cahalane did share, however, the company’s new thought process for developing them: focus on the business challenges of its customers and narrow them down to what Colfax can best service with its technology and expertise. It’s no longer about developing fancy new technology and telling customers why they need it. It’s about listening to customers and solving their problems.
- Colfax is going to market with the technology discussion on the back burner. Instead, the company is approaching customers with a business-problem-solving outlook, fishing for the all-important CEO buy-in and leaving the technology details to be sorted out later. As Cahalane stated, “We are staying very focused on the business message, the real value that you get from the solution. The tech is just a vehicle. A business message allows us to really spend time on bringing our knowledge to more customers. The customers finally see how it all fits together. It’s in their language.”
- Cahalane noted that companies, such as Colfax in its early days, are often afraid of working with vendors or partners. Cooperation and coopetition among partners or working with a new vendor can be intimidating when a company knows it’s on the verge of a vertical breakthrough or solving the next use case, causing companies to keep their cards close to their vest. Laying the cards on the table and sharing technology, techniques, and customer relationships or entry points is a daunting step. Cahalane emphasized how Colfax had to shift its thinking from “How do we compete?” or “How do we keep this in-house to avoid paying for technology?” to “How could [a partner or new vendor] help?” or “How can they accelerate our goals?” Using the technology, expertise and capacity of Microsoft, OSIsoft and PTC now allows Colfax to focus on the solution components it knows best and to layer them on best-in-class platforms and tool kits provided by its vendors. This approach not only provides customer validation — for example, attaching to a well-known brand such as Microsoft for IaaS makes customers more comfortable — but also spreads out development and management. Instead of trying to support the entire load, which would be a challenge for an organization of Colfax’s size and structure, the company relies on its partners and vendors to take responsibility for their own components.
- Finally, Cahalane emphasized the need for companies such as Colfax to remain agile in the quickly moving and erratic IoT-enhanced products market. The company constantly looks for acquisition candidates that can not only increase its expertise in its core digital initiatives and target verticals but also deliver new business models.
What is next for Colfax? Cahalane noted that there is still a lot of work for Colfax and its partners to do to develop, and educate customers about the power of data. This means not only tying data together inside one organization but also sharing data across organizations. For example, Colfax’s welding solutions could be used by customers to apply predictive and prescriptive analytics to real-time operational data to have alerts sent to supplies manufacturers for automatic resupply. Cahalane also hinted that Colfax sees the importance of shifting toward prepackaged solutions, which reduce customization costs and complexity and are built around proven ROI, to induce more customers to buy Colfax IoT solutions.
That’s the Colfax story. Why is it important? Not only does it validate concepts we have been sharing since we began our IoT coverage, but more importantly, it serves as an example to companies similar to Colfax across all verticals that may still be spinning their wheels with IoT. As Cahalane explained, true IoT success stories can be few and far between, with numerous IoT projects stuck in the mud due to vagueness, overambition, immature IoT, or lack of organization or maturity among vendors and customers to apply IoT.
However, TBR’s survey work and the insight gained from my discussion with Cahalane, among others, suggest that many projects that start with a specific business challenge, are smaller in scale or divided into digestible parts, and are led and received by companies mature in IoT, are working and delivering actual IoT revenue. TBR believes vendors and customers should take lessons from companies such as Colfax: focus on the business message, organize your business’s digital and IoT efforts around key opportunities, and use vendor partners to fill gaps while focusing initiatives around core strengths. While Colfax, as Cahalane noted, isn’t gaining explosive IoT revenue, TBR believes it’s certainly on the right path.
Samsung introduced its new Galaxy Note 9 smartphone and two other products at a big event, Samsung Unpacked 2018, at the Barclays Center in Brooklyn on Aug. 9. The Galaxy Note 9 is a beautiful thing. It is better than last year’s model in many ways, and it has new features, including a remote control built into its integral S-Pen. As with most new models of highly evolved technology products, the enhancements are only exciting if you care about well-conceived and well-executed, though incremental, product improvements. This isn’t Samsung’s fault; it is very hard to pack new and exciting functionality into a highly evolved but constrained form factor.
The newly introduced Galaxy Home Speaker is also impressive; just 160 units of the smart speaker filled a basketball arena with impressive sound, complete with thumping bass. It also has a promising integration of the Spotify music service. Additionally, the new Galaxy Watch looks like a high-end watch, not like Apple Watch’s cough lozenge look, and the rotating bezel is a much more satisfying user interface (UI) than the Apple stem-winder. Bixby, Samsung’s smart assistant, included in the smartphone, watch, and speaker, is much improved over past versions, and it will put you through to Google Assistant on the phone.
Taken individually, these products are superb examples of the best of modern consumer electronics products. Plus, there are synergies among them. The best example shown was continuous music playing from smartphone to speaker and from one speaker to another in different rooms. This cohesiveness, Samsung believes, is the future of consumer electronics — open integration to provide seamless intelligent experiences. We agree. Samsung has identified the direction in which these devices must evolve and makes that direction clear both to the outside world and to the company’s thousands of designers and engineers.
Samsung’s proclamation of this direction was unusually loud, but the company is not alone in pursuing this quest. The company’s vision is not very different from one that Apple first expressed when it introduced the iPod to accompany its line of Macintosh PCs, and that which Apple continues to pursue. Google is moving in this direction with both its hardware products and software platforms. Microsoft retreated from its efforts in this direction with its withdrawal from the smartphone market, but TBR believes the company will, at some point, re-enter that space. Finally, Amazon is a major contender, with its smart speakers, tablets and streaming devices.
There remains much to be done to deliver this effortless, seamless experience. Currently, bringing together different products to provide a seamless experience requires effort on the part of the customer. This is essentially systems integration at home, and in many cases the benefit does not outweigh the cost. To be successful, these systems must interoperate, but at the same time vendors want to demonstrate that they work “better together.” Services and devices from vendors other than Samsung, Apple, Microsoft, Google and Amazon must be easily integrated and provide a seamless experience.
The spoken UI is critical to the success of these integrated consumer platforms. Controlling the home environment with a smartphone provides great power and flexibility, but is not worth the hassle; wall switches are a better UI than an app. A smart speaker, however, one that knows your history and preferences, is both powerful and easy to access and use. The problem with spoken UIs is that there are too many of them, and each keeps a separate store of information about the user. Until this problem is solved, Samsung’s goal of a seamless intelligent experience will not be achieved, and while the market for intelligent home devices will continue to grow, it will not grow explosively until all of the integration problems are solved.
Cloud repatriation is real, but not real enough to change the prevailing cloud trajectory. Think of it as the exception, and not the rule.
It’s a question I’ve heard multiple times: “We heard that [insert giant company name] is taking their apps/data off [insert giant public cloud vendor name] and moving it back into their own data center. Is this the beginning of a big shift?” If your job is in any way related to selling products or services for enterprise data centers, “cloud repatriation” sounds like a promising concept. Amazon Web Services (AWS) and Microsoft have been eating the lunch of a whole bunch of IT companies, and those IT companies would like that lunch back, thank you very much. But is the exodus of customers from public cloud really happening? Well, I have some good news and some bad news.
Bad news first: Cloud repatriation is not a market-changer
Cloud repatriation is not real in the sense of being a major, market-shifting trend worthy of its own buzzword. I will not deny the existence of one-off customers making a monumental shift away from public cloud. TBR sees anecdotal evidence of companies leaving public cloud environments, but we don’t see a wholesale move to strictly on-premises environments. The numbers tell it all: TBR estimates the PaaS and IaaS market grew 16% overall in the second quarter, with the big three juggernauts (AWS, Microsoft, Google) growing 58% on average within the segment, accounting for about $10 billion of the quarterly segment revenue. If anything, the public cloud market is moving toward an oligopoly as it consolidates. But it’s not shrinking. The market growth is far outpacing the loss of any customers that may be defecting.
The good news: Companies continue to use on-premises data centers, negating the need for repatriation
Very few companies see a future without owning some kind of data center. Apps that never leave the data center do not need to be repatriated in the first place (although they will likely need to evolve to a more agile and scalable delivery method). As you can see in Figure 1, the bulk of companies expect to maintain a roughly even mix of on-premises apps and those in hosted cloud environments. Smaller companies are most aggressive in their desire to reduce their on-premises footprint while the largest companies make it clear they don’t see a future in hosting everything. These projections make sense to me, especially based on my conversations with IT execs in small and large enterprises. Smaller companies tend to be concerned about the proficiency of their own data center while larger companies are full of complexities that make moving to a new environment a challenge.
The reality: Most companies seek a balance
By and large, companies are evaluating the best fit for workloads, acknowledging that there is no one-size-fits-all solution. Regardless of the type of cloud(s) being used, more than 80% of users will either maintain or expand their environments over the next three years. The proportion of buyers planning for public cloud expansion exceeds that of those engaging in on-premises private cloud expansion. But the fact remains that there is not a mass exodus from any specific environment. Regardless of environment, changes and evolutions will occur, even within self-built private clouds.
Given that business-to-business buyers are all over the map when it comes to cloud adoption, where can IT vendors succeed? There’s no easy answer, however, when discussing this topic with my colleague Senior Analyst Cassandra Mooshian, she had this to say:
“Recognizing there will be both exceptions and changes for most customers over the next three years is important for vendors, regardless of their cloud point of view. Yes, there will be workloads that have migrated to cloud that will move back to a traditional or on-premises delivery method. However, there will also be services deployed on premises that could eventually be moved to a cloud environment as customer needs and costs change. Something simple, yet critical, for vendors is to understand that no two IT environments are the same, especially across market tiers. Vendors may want their customers to go all-in on cloud, but that just is not feasible for larger organizations or even smaller companies in regulated industries or regions.
“The key to vendor success is to understand that there will be workloads best suited for cloud, while others may work just fine in legacy environments. The kicker will be in helping customers embrace hybrid, understand what works best where, and ultimately integrate and orchestrate it across each customer’s unique blend of legacy and cloud workloads. Once trust is established and there’s a mutual understanding around the idea that all options can and should be considered, that’s when long-term relationships start, and each company has a ‘favorite’ vendor or two.”
“Focusing on business outcomes” has become a very shopworn phrase for industry pundits. However, nothing crystalizes the power and importance of the concept more than detailed discussions with IT departments of flagship enterprises followed by tours of the business units they support. Seeing both affords insight into how these IT and line-of-business (LOB) entities view their interactions.
Draper shared its transformation story with a coterie of industry analysts at Dell Technologies’ (NYSE: DVMT) request on July 31 at Draper’s main facility in Cambridge, Mass. The company proved refreshing in its candor as well as in its use of business language to talk about IT rather than using IT language to feign knowledge of business outcomes. Staying focused on business objectives is the way forward for IT vendors and enterprise IT employees alike, and Dell Technologies and Draper are speaking the right language.
Digital transformation starts with executive sponsorship, as cultural change must precede technological change
A recent TBR special report examines the fundamental shift in IT consumption in the public sector “from wallet to will.” In general, this discussion contends that the increased consumerization of IT and the move to virtualization, standardization and automation enable more customer-focused interactions between IT and the LOBs they support. Presently, this concept is slowly working its way into the public sector, and it is no shock to TBR that Draper now has to embark on this transformation, given how much of its activity focuses on government-sponsored projects.
Draper CIO Michael Crones provided an overview of Draper’s history and the recent organizational changes. With Moore’s Law economics driving lower entry price points for adjacent use cases, Draper is currently reviewing its archives of curated IP to determine how, with this newer, lower-cost compute infrastructure, the IP can be repurposed for broader commercial use cases.
Capitalizing on this IP inventory initiative, however, requires a major cultural shift in how IT is viewed, managed and deployed. Many firms fail to have executive management signal the importance of change by stressing the need for, and adherence to, shifting operating practices.
Recognizing the value in data nerated by professional cyclists, captured but not monetized, EY worked with a startup consortium and upended the business model for cycling teams, creating a new revenue stream and changing the riders from captive to tour organizers to data and experience providers. This client study echoed throughout EY’s Technology Summit as the firm repeatedly showcased its ability to lead clients through digital transformations. Critical to the company’s approach has been balancing separation and connectivity ? separation to create change, such as cyclists building a consortium to own their data, and connectivity to ensure technology changes meet security and compliance needs — enabling transformation that is both seamless and disruptive. The firm convincingly brought forward the message they can be hustlers (in a good, hard-working, get-it-done sense), hackers (making emerging tech work for them) and heroes (driving lasting business change).
At its Toronto wavespace, EY hosted TBR and around 30 analysts for two days of executive-level discussions, client briefings, and product and solution demonstrations by EY technology consulting professionals. The clients came from various industries, from banking to biking to consumer goods to energy, and participated in both the executive sessions and informal discussions, allowing TBR opportunities to gain deeper insights into the client-EY relationships. The company also included technology partners, such as Microsoft (Nasdaq: MSFT) and SAS, demonstrating the close cooperation EY believes it brings to its clients.
Behind EY’s digital transformation offerings, the firm has both assets and accelerators. In some engagements, the firm collects licensing fees on the former while deploying the latter to enhance efficiency and time to value. Looking at the company with a long-view lens, TBR sees a firm that has developed technology capabilities across core and emerging technologies to a point at which EY can alter its business model, taking advantage of legacy consulting skill and carefully honed managed services offerings, layered with the full scope of digital transformation. On top of this, EY consistently puts forward a practical, get-it-done message, reinforcing that the firm knows its clients’ business, knows technology, and can deliver immediate value beyond strategy and even beyond consulting.
Yes, we all do it. Every analyst, vendor and customer has referred to Internet of Things (IoT) as a technology. I have done it countless times, and so have my extremely talented and informed peers. However, it’s a misnomer, a shortcut, and a cop out, and if we actually think of IoT as a technology, it’s ultimately harmful to the adoption of IoT. IoT is actually a technique for solving business problems using a combination of technology components and services, rather than a technology in and of itself.
No one vendor does IoT alone ― it’s not a deliverable, self-contained technology solution. Rather, it often involves a “leader” company, generally a consulting company or an ISV, assembling a solution sourced from software, services and hardware components from partner companies. My colleague Ezra Gottheil likes to use a construction analogy. A general contractor will shop at Home Depot (the wide and increasingly saturated IoT marketplace) for all the components he or she needs to build a structure. The general contractor will also hire subcontractors (partners and specialized vertical ISVs) who have certain expertise. Even as we move closer to prepackaged IoT or shrink-wrapped solutions, multiple vendors will continue to be involved in delivery.
Some of these components can be grouped into the “new technology” bucket. As TBR closely monitors use cases and fills our use-case database, which currently has more than 360 entries, IoT projects are increasingly linked with augmented reality/virtual reality, blockchain and analytics. All of these new components, including IoT, are enhanced when used in cohesion.
But many of the components, such as servers, routers, mobile devices, sensors, connectivity, IT services and business consulting, have existed for decades. IoT is a new shiny label slapped on a technique IT companies have been using for decades: pulling together IT components to build solutions and help customers achieve their goals.
TBR believes when a vendor tells a customer “you should adopt this new transformational technology,” it is usually met with eye-rolling. IoT is no different. As soon as the “new technology” discussion comes to the table, customers instinctively rock back on their heels. It sounds like a large and long-lasting commitment, which leads to rip-and-replace cost fears, technology lock-in consternation due to a rapidly evolving market, and a general lack of understanding about the benefits.
TBR believes vendors should change the message. Begin with discovering what a customer’s business problems are, then suggest using the technique of IoT to begin strategically solving them in a stepwise manner. It’s not a rip-and-replace approach; it’s seeing where improvements can be gradually made to increase connectivity throughout an organization and ultimately deliver improved insight. It might mean adding sensors to legacy equipment, using IoT components and new analytic tools to tie together legacy data and create new insight, or implementing tangential technologies such as blockchain to better inform customers on their supply chain. Eventually, it could mean all of these combined.
At a recent vendor event, the CEO of a Boston-based IoT solution vendor asserted that IoT is now passe. True customer evolution, including problem solving comes from the bigger picture ― using the technique of IoT, tangential technologies, and internal and external data sources to supercharge efficiency and gain insight.
IoT as a technology is a lazy oversimplification. Let’s start messaging how the technique of IoT ―a new way of thinking about and applying technology ― can help solve current business challenges in an agile and cost-effective manner.
After SAPPHIRE NOW in June, a burning question remained: How does SAP’s professional services organization fit into the company’s new intelligent enterprise vision? SAP’s Digital Business Services (DBS) Analyst Day provided the answer: DBS is the enabler to the intelligent enterprise, which is a system of SAP and non-SAP applications, underpinned by a digital platform and made intelligent by the SAP Leonardo technologies.
As the enabler, DBS will have several responsibilities including helping to create business cases, and road map, architect and implement the customers’ version of the intelligent enterprise. SAP certainly has the technical expertise in-house to architect and implement the intelligent enterprise and has reskilled and hired over the last few years to bolster its advisory capabilities, particularly as it relates to emerging technologies such as artificial intelligence. Critically, SAP’s partners have ample opportunity around the necessary change management responsibilities that are undoubtedly needed to ensure successful business process transformations.
Repeatedly during the two-day event SAP leaders emphasized that DBS helps the company accelerate clients’ time to value and reduces risk for all involved — the client, SAP, and any consultancy or SI partners. By being close to software-related services, not necessarily project-related, such as change management, SAP DBS plays to its core strengths and competencies and brings the value clients expect. More broadly, DBS assures clients that a large partner-led engagement meets SAP standards, often through a separate SAP Value Assurance contract between SAP and the client apart from the partner or project arrangements. This clear vision of what DBS does well, why, and how built on last year’s DBS Analyst Day, particularly when reinforced consistently by the DBS leadership team.