KPMG is on the right path as the firm delivers connected, powered, trusted transformation

Connected, powered, delivered with trust: KPMG’s ambitions for its clients  

KPMG’s approach to digital transformation revolves around the firm’s concept of the “Connected Enterprise,” an organization fully embracing information technology, networking and data to take every advantage of existing and emerging technologies. In KPMG’s view, fully embracing IT requires an enterprise’s transformation efforts be sustainable and cross-functional; that is, not simply transformation to a new state, but an ongoing, ever-evolving change process, executed across an entire company, not simply within one functional area, geography, or line of business. As a comprehensive vision of digital transformation, KPMG’s Connected Enterprise serves as both an aspiration and a road map, particularly when coupled with the expertise, capabilities and experience KPMG believes it brings to clients. During the event, both formally and in sidebar conversations, KPMG professionals reiterated the firm’s commitment to delivery, from strategy and road mapping through advice on funding transformation, based on KPMG’s core expertise in finance, and through to implementation and managed services. Multiple client examples, some described in this report, brought forward that commitment and reinforced KPMG’s strategy-heavy emphasis.

When the firm shifted to emerging technologies, the Connected Enterprise became empowered: According to KPMG, the firm brings clients functional transformation advice, deep industry knowledge and expertise transitioning to the cloud. And underpinning the firm’s core strengths around strategy consulting and emerging capabilities around technology, KPMG touted the trust clients have developed with the firm and KPMG’s ability to reassure clients their digital transformations will be connected, powered and secure. In TBR’s view, KPMG’s framing around digital transformation does not differ sharply from its Big Four peers, with “connected, powered, and trusted” echoing both the structures and themes used by PwC and EY, in particular. In the near term, minimal differentiation may not matter to clients. As these firms all begin to more aggressively court new logos, KPMG may need to find a unique way of describing its digital transformation vision if it has yet to establish enough differentiation.

KPMG may find differentiation with its Ignition Centers, even as the field is increasingly crowded with these kinds of immersion, innovation and transformation spaces. As described in detail by KPMG’s leaders, the 25 globally dispersed Ignition Centers “make technology real” for clients and allow clients to “see what tech feels like” within a KPMG setting, but attuned to the client’s specific needs. For KPMG, these centers supply the engine for the firm’s innovation agenda, providing the culture and the space for an “ideas to outcomes” framework for clients’ people processes and technology. Further, the firm’s leadership described “sensory advantage capability” — the ability to look at markets and trends, anticipate what will be coming, and then draw conclusions, with specific context, for clients — as critical to both the Ignition Centers and how KPMG views innovation.

In KPMG’s view, the firm has developed expertise around reading “signals of change from an outside perspective” and relating those signals to client-specific content. All of this — the innovation, technology and future sensing — enables KPMG to translate clients’ needs into strategy for a Connected Enterprise, deliver a detailed and tech-supported road map, and then implement the digital transformation.

As with the firm’s overall framing around digital transformation, TBR cannot be certain the Ignition Centers differ substantially from PwC’s Experience Centers, EY’s wavespaces or the 20-plus other centers TBR has visited in the past three years. In discussions with KPMG professionals around client selection and preparation, staffing and talent management, and technology partner inclusion within the Ignition Centers — all concepts researched extensively by TBR — no substantial differences emerged, suggesting KPMG has at least kept pace with the evolutions to date, if not necessarily leading peers in developing new ways of leveraging these centers.

In mid-June, KPMG hosted more than 50 analysts for an extensive series of large sessions and breakouts intended to showcase KPMG’s capabilities, offerings and innovations. With multiple clients on hand for both the opening dinner and presentations across the following daylong session, TBR had the opportunity to hear why clients select KPMG and the different digital transformation challenges KPMG has addressed. TBR also met one-on-one with KPMG leaders and partners, hearing directly from them the firm’s overall strategy, internal metrics, and sense of where KPMG fits within the consulting market.

Understanding an acquisition: Capgemini snaps up Germany’s energy-centric KONEXUS

Capgemini’s acquisition of KONEXUS, a 30-person Germany-based energy strategy and management consultancy, triggered a reaction at TBR, as earlier this year we had looked at consulting for the energy sector and had been surprised at the relatively small number of acquisitions across the firms we track. Thirty management consultants will be a fractional addition to a company of Capgemini’s size with headcount of roughly 215,000, and the revenue increase will likely be marginal, but the decision speaks to Capgemini’s strategy to build capacity in both emerging areas and areas where the firm has established strengths. Perhaps Germany’s politically charged Energiewende will limit the impact of KONEXUS on Capgemini as a whole, as the strategic advice for companies working in Germany’s energy sector may not easily translate to other countries and regions. More likely, though, energy companies globally will face ever-increasing political pressures to reform and will seek strategic guidance — maybe ever-increasingly from Capgemini.

In our May 2019 full report on Capgemini, we noted that the company’s Energy, Utilities, and Chemicals practice earned the smallest share of revenue by industry (11.3%, but was leading in growth compared to other verticals) and predicted the company would seek acquisitions that will “bolster its services expertise around digital and cloud, such as in automation, analytics, cloud, digital services, AI and IoT, in addition to expanding its onshore presence.” With that context, acquiring KONEXUS appears to be a small move tangential to the company’s broader strategy. Folding KONEXUS into Capgemini Invent could be a way to use experienced management consultants to guide innovation and transformation engagements with a broader set of clients. Some of Capgemini’s peers have similarly made acquisitions expected to provide traditional benefits — enhanced offerings, new clients, additive revenue — while also changing go-to-market strategies, operational approaches to engagements, and overall brand. That may be too much to expect from KONEXUS, but this may indicate where Capgemini is headed.

Look for our initial assessment of Capgemini’s earnings this week.   

Key findings from TBR’s Quantum Computing Market Landscape

While quantum computing continues to make strides, market limitations and technology exploitation are ongoing concerns

Quantum computing vendors continue to make major strides in the technology. Decoherence and qubit quality remain ongoing challenges for which vendors continue to research enterprise-grade workarounds. However, there are challenges facing the quantum computing market landscape that even the smartest physicists and engineers cannot counteract. The first is the looming skills gap that will exist when quantum computing becomes more mainstream. Many customers and vendors alike do not see quantum computing taking off in the near term, despite evidence to the contrary. As such, a majority of organizations are not investing in quantum capabilities, which will lead to a massive influx of demand for quantum-skilled workers once these organizations all begin to rapidly adopt quantum after an adequate number of proofs of concept have convinced the skeptics. Some skills can be retooled from existing capabilities, but others need to be taught through years of schooling. TBR believes this is an opportunity for professional services vendors such as Accenture and Atos, but also for quantum-centric vendors, to invest in the education of future generations. IBM recently announced education-centric investments in Africa, suggesting vendors are recognizing the skills gap that looms and the opportunity that will emerge by investing ahead of the curve.

Determining how to secure both quantum and classical compute instances against bad actors remains a persistent challenge. There are ways to mitigate this persistent threat by adapting cybersecurity capabilities, but the challenge is that, as with other skills shortages, many organizations do not believe this threat is close enough to worry about. Given that TBR research has shown it can take three or more years to adapt current security measures to be quantum safe, organizations, especially those with highly sensitive information in their possession, should begin to monitor this challenge.

The quantum computing market will achieve economic advantage in the next two to five years, one algorithm at a time. Once this is initially achieved, developments will be swift as customers are likely to find ways to repurpose existing algorithms for new uses. While quantum computing brings with it the promise of great, positive change, it also brings the threat of malicious players leveraging this technology for negative purposes, increasing a focus on quantum-safe security developments in line with quantum computing developments. The swift impact of quantum computing will be a key factor in determining who wins and who loses in this technological transformation.

T-Mobile’s 5G Plans Remain on Track

“Steve Vachon, telecom analyst at Technology Business Research, also considers 600 MHz spectrum to be at the ‘foundation’ of T-Mobile’s 5G strategy. ‘The coverage range provided by the licenses will enable the operator to provide nationwide 5G coverage in 2020,’ he wrote in a research note.”

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While competitors stumble and struggle, Raytheon continues to outperform in IT services for the U.S. federal government

The U.S. federal earnings season kicks off the week of July 22, with legacy defense contractors General Dynamics, Northrop Grumman and Raytheon releasing their fiscal results for the second calendar quarter of 2019.

  • General Dynamics IT (GDIT) passed the one-year anniversary of its $9.7 billion acquisition of CSRA in 2Q19. Absent the inorganic impact of the integration of CSRA — and GDIT’s attempt to camouflage the multifaceted disruption — and GDIT’s portfolio makeover to improve the top line, not surprisingly, we expect sales to fall precipitously in 2Q19. In 1Q19 the bulk of GDIT’s new awards were concentrated in the defense sector. Bookings trends inverted somewhat in 2Q19 for GDIT, with a blitz of civilian sector deal activity with a potential aggregate contract value near $2.4 billion. Much of this new work will be to digitally modernize back-office processes or IT infrastructures for civilian agencies; for example, GDIT won a subcontractor position in 2Q19 on a potential $2 billion IT modernization engagement for the Department of Energy.
  • 2019 is shaping up to be another difficult year for Northrop Grumman Technology Services (TS) as headwinds from large-scale contract expirations continue to impede the company’s goal to revive top-line growth amid its ongoing restructuring program. Northrop Grumman will have to fall back on its margin performance as the best indicator of the success that its operational and portfolio realignment is improving TS’ overall cost structure. Northrop Grumman raised full-year 2019 margin guidance for the TS segment last quarter, and Northrop’s management appears comfortable standing by the elevated outlook, validating the company’s efforts to streamline operations and expand higher-value revenue streams in its order book.
  • Raytheon Intelligence, Information & Services’ (IIS) is expected to again be one of the top performing vendors in TBR’s Public Sector IT Services Benchmark in 2Q19 — IIS’ parent company’s massive merger with United Technologies (announced on June 9) notwithstanding. The Raytheon-United Technologies megadeal will result in a $73-plus billion technology giant broadly diversified across global aerospace, defense and commercial markets. Not to be lost amid the hubbub of the merger is how IIS is expected to again deliver robust growth and TBR public sector benchmark-leading margin performance in 2Q19 while expanding its book of business in the lucrative cyber and space sectors as well as with classified programs. — John Caucis, Senior Analyst  

Additional assessments publishing this week from our analyst teams

Leaders in TBR’s Public Cloud Benchmark continue to deliver strong results, but their closest competitors are aggressively innovating to challenge them. Google and IBM have enlisted Kubernetes to help them decouple PaaS business from Microsoft’s and Amazon Web Services’ (AWS) IaaS-led strongholds on the market, while pressure on Salesforce from both full-suite and modular CRM competitors is building. — Meaghan McGrath, Senior Analyst

Microsoft’s Commercial Cloud business continued to grow in FY4Q19, to $11 billion. Office 365 and Azure products accounted for 52% and 33% of total Commercial Cloud revenue, respectively. Though not yet the primary revenue driver of its Commercial Cloud business, Microsoft’s Azure portfolio is critical to the vendor’s long-term cloud growth, prompting investment in its developer community and tools as well as in high-profile partnerships that challenge AWS. — Meaghan McGrath

Tata Consultancy Services’ (TCS) revenue increased 8.6% year-to-year to $5.5 billion in 2Q19, highlighting the successful alignment of TCS’ service delivery frameworks with the needs of its global client base. Digitally based engagements constitute an ever-expanding share of TCS’ revenue base and backlog, and TCS claims nearly one-third of its revenues are digital-related, which would explain the top-line growth despite marketwide pressures facing legacy services, such as traditional outsourcing engagements. — Kevin Collupy, Analyst

Atos is well positioned to compete in the dynamic digital transformation (DT) services market. With Atos’ shift to an industry-specific go-to-market strategy, developing outcome-based vertical solutions will help Atos not only build a business case that persuades clients to invest in DT but also expand mindshare among existing clients, a necessary move as Atos tries to grow sales from digital services. Expanded cloud capabilities with partners such as Microsoft and Google Cloud enable Atos to design, build, manage and deploy cloud solutions and grow revenues in the segment. Two cybersecurity capabilities set Atos apart from its IT services peers: its portfolio of security services and IP-based solutions, and its verticalized cybersecurity offerings. Partnerships with established technology vendors and increasingly with startups enable Atos to innovate its portfolio and expand client reach. — Elitsa Bakalova, Senior Analyst

Fujitsu continues to invest in its portfolio offerings to provide vertical-oriented solutions, including within travel and transportation as well as healthcare. As the company looks to focus on its primary markets, Fujitsu expands its talent bench to support market presence and portfolio development, evidenced by the opening of a security operations center in its office in Canberra, Australia. The center will enable Fujitsu to maintain its client base in the region while also capturing upselling opportunities. We expect these investments will allow Fujitsu to build out its presence outside Japan to bolster revenue streams. — Kelly Lesiczka, Analyst

Recently, Analyst Stephanie Long hosted a webinar on how the quantum computing market will evolve from research-centric to commercial use cases as the technology reaches economic advantage — algorithm by algorithm — in the next two to five years. Once this occurs, developments will be rapid and organizations with the foundation built to take advantage of quantum computing will quickly reap the rewards of their early investments. Quantum computing, as a transformation-inducing technology, will impact multiple aspects of the IT environment, including power consumption, data generation, security and classical computing tie-ins. The swift impact of quantum computing will be a key factor in determining who wins and who loses in this technological transformation. Check out the replay of this webinar anytime in TBR’s Webinar Portal.

We need to talk about the data

TBR believes that creating common terminology and understanding around data is key to successfully implementing an evolutionary digital transformation strategy, one that enables the organization to transform incrementally, as it capitalizes on new opportunities and deals with new challenges. Essential to this approach to digital transformation is an organizational cultural transformation, one that embraces continual innovation and ongoing collaboration across departments and disciplines and that enlists all parties in the process of harnessing organizational data assets to move the organization forward.

The many uses and users of data

It is commonly accepted that IoT represents the intersection of IT with operations technology (OT). This is true, but only part of the story. Business management is another key player in many projects, and TBR believes it should be a component in all IoT projects. In fact, potential users of data from IoT projects extend beyond these three stakeholders, including many of the departments throughout an organization, such as marketing and sales. To deliver the greatest possible value from any project, including but not confined to IoT, all the potential users of the data should be considered in the design and evolution of each project.

In the early stages of the recent surge in IoT, three to four years ago, the different stakeholders were often brought together for workshops or ideation sessions to invent new solutions made possible by IoT. As IoT has become more common and relevant players are more familiar with common use cases such as status monitoring and asset tracking, there has been less need for this challenging and expensive invention phase of IoT projects. Instead, new projects are often undertaken entirely or almost entirely by OT, sometimes working with IT to ensure compliance with company standards. These projects can confidently deliver a positive ROI while only using data for a single purpose, usually operational efficiency. Potential other uses for the data, or from data that could be generated by the solution, are often not considered in the design. This can be a waste.

The data generated from an IoT project often have value beyond the immediate purpose of the project. For instance, data from a status monitoring solution can be used to identify patterns that could predict service-related incidents. Similarly, comparing status reports across different assembly lines or factories might help identify superior or deficient configurations. Status reports could be correlated with operations speed to help identify either capacity problems or the potential for greater capacity. Capacity limitations or windfalls affect both marketing and sales.

The same kind of potential repurposing of data can be found for most IoT projects. Data has multiple uses. Different people within the organization are able to recognize different potential uses. Uses can be classified into short term and long term. Status data is valuable immediately. Indeed, for the purpose of reacting quickly to status deviations, the data has no long-term value. A solution built for only that purpose would often discard the data to minimize project cost, resulting in a loss of the potential value of the data for long-term analyses. To extract the greatest value and meet broader organizational needs, other people in the organization should be involved in the project design.

Examine the role of VMware in the HCI market

“‘VMware has been neck and neck with Nutanix as the software HCI market leader,’ said Allan Krans, practice manager and analyst at Technology Business Research, based out of Hampton, N.H.”

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5G deployments are expanding, but CSP revenue generation will remain minimal in the short term

5G is becoming a must-deploy technology for an increasing number of CSPs globally, prompting accelerated build-out timelines and broader rollouts

The 5G era is progressing as several countries expanded or commenced commercial 5G deployments in 2019, particularly the U.S., South Korea, Australia, the U.K., Germany, Spain, Italy and Switzerland. An increasing number of communications service providers (CSPs) globally, predominantly in developed countries, are accelerating and broadening the scope of their 5G build-outs. There are a few reasons for this pull forward, including the need for CSPs to stay competitive for customers of traditional mobile broadband and high-speed internet services, reducing the cost per gigabyte of carrying traffic (network opex efficiencies), and building a foundation in preparation for new use cases of the network. The availability of 5G devices, including a variety of smartphones, in 2019 is another key driver prompting earlier infrastructure investment.

Though 5G deployments are accelerating, TBR expects CSP 5G revenue generation will be minimal in the short term as consumers will be slow to adopt 5G devices due to their high prices and limited initial 5G service coverage. TBR believes business customers will provide the greatest opportunity for long-term 5G revenue generation as use cases requiring the ultra-low latency and accelerated data speeds enabled by 5G will be more prevalent in the enterprise space. CSPs are positioning to support enterprise 5G use cases by investing in innovation centers and targeting private 5G network customers.

TBR’s 5G Telecom Market Landscape tracks the 5G-related initiatives of leading operators and vendors worldwide. The report provides a comprehensive overview of the global 5G ecosystem and includes insights pertaining to market development, market sizing, use cases, adoption, regional trends, and operator and vendor positioning and strategies.

TBR upcoming research dives into quantum computing market

If you are a skeptic of or bullish on the quantum computing market, or somewhere in between, TBR has insights to share with you! Over the next few months, TBR will dissect the developments occurring in the quantum computing market and share a lot of interesting findings.

The week of July 15  

  • TBR’s blog will feature an infographic highlighting some of the key findings from TBR’s recently published Quantum Computing Market Landscape. According to the report: “At its core, quantum accelerates the mathematical computations seeking to map and compare high volumes of independent variables. Machine learning (ML) is expected to be a key use case for quantum computing initially, as the faster time to insight will enable organizations to train their computers significantly faster than could be done with classical computers.”

The week of July 22

The week of Sept. 9

  • TBR is going to Quantum.Tech! This quantum computing-centric industry event will host analysts, customers and vendors over two days and dive into the real world application of quantum and the rapid development of this emerging market. Reach out directly to Long ([email protected]) or Woollacott ([email protected]) to set up a meeting with them during the conference. 

The week of Sept. 16

  • Long and Woollacott will recap Quantum.Tech as well as share their key takeaways from the event and projections around quantum’s impact on the greater IT market in a TBR special report.

Executive change at Accenture portends changes for the market leader

With Julie Sweet appointed the next CEO of Accenture and David Rowland named the executive chairman of the board, the company doubles down on its proven go-to-market strategy and delivery frameworks. However, as Accenture strengthens its core as a technology organization and Accenture Technology plays a pivotal role in North America’s performance (Sweet was previously CEO of Accenture North America), TBR Senior Analyst Boz Hristov says a couple of questions remain:

  • Will Sweet bring a clear vision and execution strategy for the company’s IP, in particular around monetizing it?
  • Should Accenture consider spinning off its Accenture Software business as a separate entity and launch a mature startup-like software organization?

We do not expect major changes in Accenture’s strategy and/or performance in the short term; however, as with any new CEO, one should always expect some degree of change. Only time will tell if that change will be minimal or involve a 180. As TBR recently noted, Accenture delivered record-breaking quarterly revenue, with growth increasing 3.8% year-to-year in USD (8.4% in local currency) to $11.1 billion in FY3Q19, as the company’s aggressive investments in “the new” are paying off, as the segment now contributes over 60% of total sales and expanding at double digits in constant currency. While many of the new opportunities for Accenture stem from investing in innovative offerings (e.g., Industry X.0) and building out relationships with new buyers, demand for application services in connection with adopting intelligent ERP systems, enabled by key partners such as SAP, Oracle, Microsoft, Salesforce and Workday, drove double-digit revenue growth in local currency, with the segment generating 40% of sales.

Additional assessments publishing this week from our analyst teams

Ericsson has made significant progress in its latest restructuring initiative, leading to higher margins and a more focused go-to-market strategy. The company has also lately been helped by the ongoing deployment of 5G and 5G-ready networks in the U.S. and, to a lesser extent, South Korea. U.S. spend on 5G will accelerate as operators aim to gain a competitive advantage, and Ericsson is positioned to capitalize. In our 2Q19 Ericsson Initial Response, we will examine Ericsson’s continued restructuring progress and monitor its status as a leading 5G RAN supplier. — Michael Soper, Senior Analyst

TBR will publish its 2Q19 Oracle Cloud report on Thursday, discussing where Oracle sits in its quest for cloud dominance, the status of autonomous database adoption and the expected impact of Oracle’s alliance with co-AWS-rival, Microsoft Azure. — Meaghan McGrath, Senior Analyst

Application software vendors continue to realize healthy growth of subscription revenues, accompanied by accelerating declines in licensing, as reported in the upcoming Applications Software Vendor Benchmark. Application vendors aggressively pursue cross-selling of subscription solutions to generate scale and protect operating margins as the cloud sales mix increases. This is particularly true for multiline vendors with substantial legacy license bases, though these vendors are well positioned to upsell existing customers to cloud alternatives by emphasizing the value of deploying managed, unified suites between the front and back office. — Meaghan McGrath

SAP will release its 2Q19 earnings on Thursday, uncovering the near-term impact of its highly transparent restructuring effort. TBR will discuss this, as well as portfolio developments related to C/4HANA and Qualtrics application releases, in our SAP Cloud Initial Response, which will publish on Friday. — Meaghan McGrath

IBM’s acquisition of Red Hat officially closed on July 9 and will impact the trajectory of the business for the remainder of 2019 and beyond. TBR’s Initial Response report will touch on this and other developments at IBM in 2Q19, including within the company’s Systems Hardware business. — Stephanie Long, Analyst

IBM Services continues with its portfolio realignment initiatives to deliver higher-value and higher-margin services that integrate technology and industry expertise and enable clients’ digital reinventions. While IBM Services’ activities around advising, building, moving and managing next-generation technology solutions are increasing, it will take time before the shifting business mix returns sustainable revenue growth. — Elitsa Bakalova, Senior Analyst

On Friday TBR’s 2Q19 IBM Cloud Initial Response is publishing, detailing the company’s last full quarter without Red Hat. Recent and ongoing portfolio investments, particularly at the platform layer, are expected to help boost IBM’s cloud revenue in the second quarter. — Cassandra Mooshian, Senior Analyst

TBR’s 1Q19 Hosted Private Cloud Benchmark discusses how vendors with hybrid PaaS and IaaS portfolios that span vendor and customer data centers are well positioned to capture additional hosted private cloud market share. IBM and Google continue to enhance their Kubernetes-based platforms to be increasingly infrastructure and environment agnostic while Amazon Web Services and Microsoft focus on hybrid cloud stacks, with emphasis on the IaaS layer. — Cassandra Mooshian