Thoughts from the blockchain intellectual junk drawer

“We always overestimate the change that will occur in the next two years and underestimate the change that will occur in the next 10. Don’t let yourself be lulled into inaction.” Bill Gates

I think about this statement from one of our industry titans often in the course of my work, and I am starting to think it might need updating. This struck me hard listening to EY blockchain lead Paul Brody give a quick flyover of EY’s blockchain activities during the EY Global Analyst Summit held in Boston April 10-11. The event was very much a teaser for the upcoming EY Global Blockchain Summit.

General ledger history and blockchain as record keeping 2.0

Blockchain is a distributed ledger. It is a multienterprise business ledger and an evolution of the general ledger that has underpinned independent business record keeping for centuries. I consider the rate and pace of change and Gates’ quote above in that context when comparing general ledger adoption to blockchain adoption. Here are my log length — or rough cut — guidelines for calibrating the time it took for ubiquitous adoption of general ledger accounting, all sourced one evening for my idle curiosity on Wikipedia and Investopedia.

Luca Pacioli gets credit for creating the concept of double-entry bookkeeping in 1494 in Italy. As one would expect on Wikipedia, there’s debate about the timing, with some saying it was earlier. Log length the date to 1500.

The bigger challenge for me was searching for when general ledger accounting saw ubiquitous, global adoption. There is much written about public policy activities in the early 1900s in Brazil, which was not an economic powerhouse at that time, so one I would consider to be a laggard. In 1914 Brazil’s legislature sought to move its government to double-entry bookkeeping. However, that initial move did not really become codified until 1924. Log length that date to 1900.

In my opinion, based on this casual research, it took roughly 400 years for the general ledger to reach global adoption as a business and regulatory best practice. Throughout those 400 years, we had business cycles. We had disruptions. We had public policy leaders in deliberative bodies reacting to disruptions.

Are we overestimating or underestimating blockchain?

Blockchain has been around a little more than a decade. IBM has made big splashes with food trust, shipping and finance networks and now talks about the network of networks. In 2018 I attended EY’s global blockchain event and listened to what EY was doing with Microsoft around what is now called the Xbox network. I returned from this and other emerging technology events around quantum and been told to “lay off the caffeine,” that these technologies are years away. I regularly temper my timetable, thinking I am overestimating the two-year horizons and not heeding Gates’ prescient advice from the ‘90s.

And then I stand in the back of the EY main event with about 15% of the other attendees and get blown away by Brody as he speaks in a cadence reminiscent of the iconic Federal Express commercial to run though the progress EY and its customers have made in a year. I wonder in the moment if I am underestimating how soon blockchain will be delivering real business value to major enterprises and the small business partners with the technology vision and managerial agility to adjust their business models to these new record-keeping efficiencies.

The only thing I am certain about is uncertainty in an industry I’ve thought intensely about for over 35 years. The digital age is here in its embryonic form. It is more than a business rebirth; it is a societal rebirth in that digital changes business, government and daily human activities. Birth can be a wonderful thing, but labor can be a very painful process. Change management, as we hear time and time again at analyst events can, likewise, be a very painful process.

It took 400 years, multiple business boom and bust cycles, and countless public policy iterations for economic regulatory activity to stabilize, for the most part, after the great depression of 1929. Business models can now change far more rapidly than our deliberative bodies adapt their regulatory oversight practices. I used to think blockchain would spread at 10 times the rate or be ubiquitously adopted in 40 years. But I’m beginning to think that is a gross overestimation given how badly I underestimated what I thought was possible in a year. It makes me wonder if the signature Gates quote is ripe for refinement.

I look forward to learning more from Brody and the rest of the EY Blockchain team on April 16 in New York.

5G will push CSPs to accelerate and broaden their NFV/SDN-related initiatives

According to TBR’s 1Q19 NFV/SDN Telecom Market Landscape, leading operators will accelerate and broaden their network transformations en route to deploying 5G and becoming digital service providers (DSPs). Softwarization, virtualization and cloudification are foundational aspects of a DSP’s network.

5G is greatly enhanced when using virtualization, especially when enabling and maximizing the benefits of network slicing and achieving better radio access network (RAN) economics. Though most operators intend to initially deploy the non-stand-alone (NSA) standard of 5G, which tethers 5G radio with evolved packet core (EPC), an eventual upgrade to the stand-alone (SA) standard, which tethers 5G radio to a 5G core, will become a reality in the early 2020s.

5G core is inherently virtualized, and communication service providers (CSPs) will be keen to prepare their networks to maximize the benefits of utilizing a fully virtualized network architecture, which includes, but is not limited to, increasing agility, flexibility, visibility and cost efficiency.

In 2019 Rakuten will become the first fully virtualized DSP in the world. Should the company’s approach to network architecture work, it will legitimize and embolden other CSPs to double down on their network transformations and hasten their migration to white-box hardware and cloud-native architectures.

CSPs are under pressure to invest in NFV/SDN to reduce total capex and opex spend as well as introduce new services and stay competitive in the data-driven digital economy, which is increasingly dominated by webscale and over-the-top players. This pressure will prompt more CSPs to spend on NFV/SDN during the forecast period. TBR expects 27.5% of total CSP capex and external opex spend will be allocated to NFV/SDN by the end of 2022.

 

Commercial IoT: Maturation solves some problems but also creates challenges

The evolving IoT partner ecosystem

Because IoT solutions integrate the physical and informational aspects of business, almost all IoT solutions include diverse components from multiple vendors. TBR uses the term “component” to include all contributions: hardware, software, and professional and cloud services. When IoT started receiving a lot of attention more than three years ago, vendors attempted to gain first-mover advantage in the IoT market by vying for customer attention with claims of providing end-to-end IoT solutions, even though almost all of those solutions incorporated components from several vendors. Many vendors claimed all of IoT as their turf, leading to market confusion, channel conflict, and vendors’ failure to communicate their differentiating advantages.

The past year has seen many vendors dial back their claims of IoT dominance, while an increasing number of component vendors, including OT vendors, have more clearly communicated their specialized contributions to effective IoT solutions. As vendors have increasingly focused on their strengths, reducing the overlap of claimed expertise, it has become easier for them to partner to create complete solutions. At the same time, as vendors have gained experience and devoted resources to researching and cultivating their individual partner ecosystems, they have become more knowledgeable.

In delivering multiple-vendor solutions, component vendors are challenged to be recognized and compensated for their contributions. This is leading to an increase in “ingredient marketing,” where component vendors communicate to customers the value that their components contribute to solutions. Systems integrators, usually the vendors with the greatest exposure to customers, are facing a conflict between their claims of differentiating IoT intellectual property and the increasing visibility of components. Increasingly, solutions are delivered as bundles, sold by value-added resellers, ISVs and independent hardware vendors (IHVs), posing the same challenge to component vendors.

In 2Q19 TBR’s Commercial IoT Practice will be expanding its research into how the maturation of the IoT market is playing out for customers and vendors and how vendors can refine their go-to-market (GTM) strategies and tactics in light of the evolving market. The diversity of IoT solutions, the involvement of operations technology (OT) in both the purchase and delivery of solutions, and the enormous IoT ecosystems all pose challenges to predominately IT-oriented vendors.

Nuanced Approach Needed to Deal With Huawei 5G Security Concerns

“I don’t think the US is in danger of falling behind in the use and development of 5G if it continues to ban Huawei,” he says. “I think alternative vendors like Ericsson can deliver on 5G.” — Senior Analyst Ezra Gottheil

Commoditization economics and emerging workloads disrupt the data center landscape

Commoditization mitigation strategies require business model shifts and an ever-watchful eye on exascale cloud entrants

Volume or value?

Toward the end of 2018 in the data center market, two distinct vendor strategies emerged: Vendors began either increasing sales volume or selling lower-volume but higher-value solutions. TBR believes that in 1H19, now that vendors have determined their camps, they will begin to craft competitive strategies directly targeting specific peers. For example, Dell EMC has publicly stated its intent to increase its market share in both servers and storage, and we believe the vendor will target key competitors to gain this share. Similarly, Lenovo’s large-scale data center investments imply significant competitive goals.

In February Lenovo unveiled TruScale Infrastructure Services. This directly competes with Hewlett Packard Enterprise’s (HPE) GreenLake and Dell EMC’s Cloud Flex. It also addresses customer demand for private cloud infrastructure that is financed like a public cloud offering. TruScale is available for Lenovo’s entire stack of data center infrastructure solutions. In April Lenovo unveiled a server portfolio refresh, which likely reinforces its TruScale solutions and increases its competitive edge against Dell EMC and HPE.

TBR believes that during the next few months, Dell EMC and HPE will fight back against Lenovo’s marketing tactics to preserve market share. HPE has an advantage in that it is pursuing value-centric data center sales, so it is likely willing to concede less-profitable sales to Lenovo or Dell EMC. Dell EMC’s stated objective to increase market share in servers and storage will increase competition between the company and Lenovo as both aim to scoop up HPE’s lower-margin customers.

ODM participation heats up as commoditization drives provisioning simplicity

Because data center hardware becomes increasingly commoditized as software capabilities become more advanced, we believe data center vendors will increasingly find themselves competing against ODMs, especially for larger deals. Smaller customers will still show a preference for OEMs as they need the additional software and services provided with OEM data center solutions. Lenovo’s manufacturing capabilities give the company an advantage in the hyperscale space, where Lenovo’s past financials illustrated some successes, and enable the vendor to differentiate from its OEM peers.

On the hyperscale front, ODMs are rising to dominance, but OEMs such as Lenovo remain a force to be reckoned with in the space. As cloud becomes an increasingly central piece of IT environments, public cloud providers seek ways to expand their environments as cost-effectively as possible to preserve profits. TBR believes very large enterprises are likely to explore leveraging hyperscale vendors as well for their on-premises environments if it is cost-effective.

Consumption-based pricing models tie to the commoditization march

TBR’s Hyperconverged Platforms Customer Research continues to highlight the correlation between private cloud installments and HCI. Most recent findings indicated that 80% of respondents leveraged their HCI purchase for a private or hybrid cloud environment. Since customers are already turning to HCI for cloud, it is a logical next step for vendors to price HCI like a public cloud solution to deepen the competition.

With their channel partners also engaged, Dell EMC, HPE and Lenovo are the three main players in the consumption-based pricing space. Their solutions are not limited to just HCI, but HCI is one of the solutions that can be purchased in this manner. The key value proposition of consumption-based pricing for data center vendors is the ability to bundle software and services into hardware consumption-based deals. This is likely to boost the margin on the solutions. Further, it guarantees larger deals, as in many cases, these consumption-based pricing deals lock customers in for a predetermined duration that has early termination penalties.

Genpact adapts service delivery model to help customers succeed with digital transformations

Internal shift positions Genpact to capture digital demand

Genpact continually invests in its business and delivery model to align with changing client demand for emerging technologies, such as IoT, digital and cloud, and is initiating a companywide evolution — its fourth in two decades — to embrace digital. Building out AI- and automation-enabled services strengthens Genpact’s core capabilities around business process services. Taking an outcomes-oriented approach provides clients with the tools and technology necessary to streamline and automate lower-value tasks. Genpact’s approach to digital transforms clients’ traditional workflows to address their business challenges. Genpact views digital transformation as a set of opportunities that enable clients to change their business models to address human need and unlock business value. Three key aspects guide Genpact’s digital transformation method — scale process to power transformation, connectivity and data at scale — helping clients create the “human experience.”

During the event, Genpact noted that less than 50% of its approximately 98,000 employees are based in India. Building talent throughout the U.S., Australia, LATAM and Europe increases Genpact’s client touchpoints and enables it to work more closely with clients around transformation and drive business value and insights for clients. Also, the expanded global client base improves Genpact’s position as a global professional services vendor and helps the company move beyond the perception of being a low-cost BPO provider.

Genpact Analyst and Advisor Day: Genpact (NYSE: G) hosted approximately 50 analysts in Boston’s Seaport District to provide an update on its business and transition to the digital age. Additionally, the company highlighted its service design capabilities and how it is differentiating from peers.

Peak PwC or just getting started? PwC’s NYC EC

No bigger stage: Have to get it right in New York City

Opening the New York City Experience Center (EC) long after the first one in Hallandale, Fla., launched allowed PwC to learn lessons about design, operations, talent and culture that will help ensure the high-profile NYC location excels in every way that PwC measures the success of these centers. According to PwC’s Seb Wocial, a design architect and member of The Difference team at the NYC EC, every design element of the new center built on ideas hatched and tested in its ECs, of which TBR has visited five others: Hallandale, Fla.; Frankfurt, Germany; Shanghai, Tokyo, and Toronto. Having seen the advantages of a stand-alone center in Miami and the challenges inherent with keeping the EC colocated with other PwC offices (such as in Frankfurt, Germany), TBR expected a more limited change to the physical space and was surprised by the PwC professionals’ intense attention to small details (such as where a carpet ends and hard flooring begins) and how enamored they appeared to be with their space. TBR has long maintained that digital transformation and coinnovation centers must be more than funky chairs and cool spaces, but very few of TBR’s visits to consultancies’ centers have included as much discussion of the purposeful architectural choices. One additional note: TBR has met with leaders and professionals working at the ECs and competitors’ similar centers and has seen the infectious enthusiasm they have for the environment and the work, which came through again clearly during this NYC visit. Finding the right people, like Wocial, a three-year veteran of PwC with a background in process optimization, and placing them in the collaborative and creative environments, accelerates change within the larger organization and continues to attract the best talent. 

Operations now, internal change later

Two elements of the new EC came as no surprise to TBR: an early preponderance of financial services clients and a steady stream of in-house sessions, designed to bring more of the BXT approach to NYC-based PwC professionals. While the more mature ECs have diversified their client bases (at least by industry), serving a heavy dose of financial services clients without explicitly making the NYC EC a banking hub echoes PwC’s approach overall. Other consultancies and IT services vendors have designated their innovation and digital transformation centers as single-industry-focused, a decision typically reflecting the vendor’s culture with respect to organization and industry alignment. The second element, internal sessions to promote BXT (Business, eXperience, Technology) and explain the EC’s capabilities, carries forward PwC’s best practices from established ECs and reflects a common thread through these kinds of centers: facilitating internal change in addition to serving clients. In TBR’s view, PwC’s ECs, like Accenture’s acquisition of Fjord, created a substantial ripple effect through the firm, changing culture and allowing long-tenured professionals opportunities to see what the firm could become. At every digital transformation center TBR has visited, this internal change has been discussed, but with varying degrees of commitment, with the most dominant variable the vendor’s expectations around return on investment (and corresponding metrics around number of client engagements — internal change gets shunted if the number of client engagements per month is the priority). Catalyzing internal change, of course, does not mean neglecting clients but does include careful selection of which clients use the centers and preparation prior to on-site engagements.

TBR had the opportunity to take an informal tour of PwC’s latest Experience Center (EC), hearing directly from one of the professionals running day-to-day client engagements about what makes the center work. The tour included discussions around operations, talent, and culture and what will be next for PwC, BXT and the ECs.

Reading the tea leaves again: TBR’s Professional Services and IT Services Team looks ahead to 2Q19

Talent remains the catalyst to success, with leadership

Every vendor raises the issue of talent when discussing disruptions and strategic priorities, reflecting the continued struggle to recruit, retain, retrain and reward skilled resources in a crowded, competitive market. To track how vendors have been handling these challenges, TBR will continue analyzing every step of the journey, including recruiting at universities, where TBR has seen an uptick in apprenticeships and training so new employees arrive ready to work on day one. TBR has also seen an increase in training and reskilling budgets, with a common emphasis on digital skills considered essential for every digital transformation engagement. (And what engagement now isn’t digital transformation?) Notably, Accenture (NYSE: ACN) has pledged to spend $1 billion on training per year for the next few years and is increasingly using AI-enabled platforms to support that effort. In a recent post, Accenture’s head of human resources, Ellyn Shook, said that Accenture can be a case study for reskilling talent. Over the past four years, the Dublin-based consulting firm has, Shook said, “reskilled” nearly 300,000 of its total body of 469,000 employees. Beyond bettering their employees, many IT services vendors and consultancies have revamped efforts to spread their HR successes such as Cognizant’s (Nasdaq: CTSH) “Future of Work” campaign. Accenture has a Future Talent Platform, and PwC has described a diverse, multichannel and multimode digital training program to TBR.

TBR recognizes this trend around talent isn’t new, but as vendors develop offerings and fund training programs, IT services vendors and consultancies begin to ask a new question: How much will firm culture need to change to accommodate new digitally focused talent? The new concerns around talent are bigger than the decade-old question of how to handle Millennials. Vendors have seen traditional strategy firms alter their hiring practices and adjust their professional development tracks. And more IT services-centric vendors have begun re-hiring experienced professionals to both fill talent gaps and provide leadership, especially as engagement teams shrink and clients demand more agility and flexibility from the IT services vendor. With the advent of automation, we expect the challenges associated with attaining, retaining and upskilling to get worse before they get better, as the fear of losing jobs to machines still persists in the market. It may take a generation to record a full pivot to and recognize the benefits of a right-skilled bench and the associated KPIs. The services firms that can rotate their workforces to establish these new skills from both the bottom up and the top down, in terms of organization hierarchy, are positioned to win. The C-Suite of the future needs to be ready to operate in the boardroom of the future, and vendors that recognize and act on that shift — not just through marketing materials but also execution — are positioned to earn share from rivals.

TBR’s Professional Services and IT Services Team will take a closer look over the second quarter and the rest of 2019 at three trends sparking extra attention among vendors, their technology partners, and clients: cloud, talent and vertical approach. None of these trends are remarkably new, but subtle shifts TBR has seen in recent months, combined with questions from clients about the direction of the IT services and consulting market, provide new frameworks for analysis. 

Public Cloud Vs. Private Cloud: Top Pros And Cons Of Each

“If you had a new initiative — say if you wanted to do a new marketing campaign — with private cloud, you still have to go buy all the servers, hook them up and orchestrate it before you could even get to executing that. With public cloud, the IT resources are ready whenever the business is ready to execute the new initiative.” — Senior Analyst Allan Krans

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5G-related investment fuels vendor growth; greenfield 5G and Industry 4.0 opportunities emerge

U.S. cable operators and Dish Network are exploring building out their own 5G networks

Rakuten’s mobile broadband network deployment demonstrates that vendors must be aware of new opportunities to deploy 5G networks for customers that do not currently own mobile broadband networks. In November Dish Network selected Ericsson to supply a radio access and core network for Dish’s Narrowband IoT (NB-IoT) network, which is expected to be completed in March 2020. Dish, which has been closely watching Rakuten’s build-out, is also contemplating a nationwide 5G network, on which it could spend up to $10 billion. Cable operators Comcast, Charter and Altice, which are currently mobile virtual network operators (MVNOs) of Tier 1 mobile operators, are contemplating greenfield 5G network builds as well.

Industry 4.0 will drive demand for cellular connectivity within the enterprise, but not for a few years

TBR’s research suggests that Industry 4.0, which includes mass 5G adoption globally, will not ramp up until between 2022 and 2025, at which point business cases will be proven, justifying an increase in market spend on ICT infrastructure. Cellular technologies, namely LTE and 5G, have better uplink and security capabilities, and lower latency than Wi-Fi, all of which are necessary as enterprises begin to use network technology for mission-critical workloads rather than “best effort” communications. Certain vendors, namely Nokia, Huawei and Cisco, are better positioned than others to capitalize on this trend as they sell both directly and indirectly into enterprises, as well as through communication service providers (CSPs). Ericsson, in contrast, plans to go to market almost exclusively through CSPs, which will place it at a disadvantage as many large enterprises will want private networks.

TBR’s Telecom Vendor Benchmark details and compares the initiatives and tracks the revenue and performance of the largest telecom vendors in segments including infrastructure, services and applications as well as in geographies including the Americas, EMEA and APAC. The report includes information on market leaders, vendor positioning, vendor market share, key deals, acquisitions, alliances, go-to-market strategies and personnel developments.