Big Blue turns purple

Rometty steps down, making way for cloud champion Krishna as IBM’s new CEO

At close of business on Jan. 30, IBM unveiled Virginia Rometty was stepping down as CEO. Arvind Krishna, current SVP of Cloud and Cognitive Software at IBM, will take over effective April 6. It was also announced that James Whitehurst, IBM senior vice president and CEO of Red Hat, will become the new IBM president, also effective April 6.

Traditionally, CEOs come from finance or sales and marketing. Finance leaders are tapped when the bottom line is the priority; sales and marketing leaders are selected when the top line is the priority. However, the current market climate presents a different kind of IT landscape. The rapidly shifting requirements and demands from enterprises necessitate a different kind of leader.

Krishna’s presence should assure customers, particularly those with primary concerns around IBM’s product road map and the ways in which IBM will build out the safe, secure and innovative ecosystems components for the new multi-enterprise business networks and company federations. Installing a career technologist at the helm addresses the marketing challenge of countering competitors that rose to prominence in Chapter 1 of cloud computing. Large enterprises seeking to future-proof their investments in Chapter 2 of the cloud, as digital transformation continues to transcend the enterprise, will look to IBM for a well-articulated technology vision.  

While Krishna will message to the market, Whitehurst will work on needed cultural change as IBM president

Much of IBM’s recent struggles have revolved around execution, as the organization’s culture and operating practices were misaligned to the prevailing ways of working and innovative best practices that came from native cloud competitors. IBM historically has deployed ROI business case justifications in silos that worked well for transaction selling. This ROI process has to give way to a companywide viewpoint of overall revenue contribution — or lifetime customer value — regardless of which discrete technology assets receive the recognition in the internal accounting process. The two models are not compatible. In purchasing Red Hat, IBM acquired a company with vastly different operating practices that created a sustainable and consistent revenue model based around a free product. Fourth quarter results showing Red Hat’s sequential growth and the traction IBM gained with its Cloud Pak rollouts are leading indicators of the directional shifts these two executives will steward.

In promoting Whitehurst to the role of president, IBM signals to customers, investors and employees that it will be changing its internal operating models to be more like those of Red Hat. Symbolically, this indicates the acquisition was more a merger of equals and should allay the concerns of the broad Red Hat ecosystem of developers and customers IBM has to retain and expand to realize the value IBM expects to gain from the purchase as it takes aim at becoming a share leader in Chapter 2 of the cloud.

Rometty started to write IBM’s cloud narrative, yet with Red Hat now in the mix, the story is far from finished

In many ways, IBM’s true cloud story began once Rometty stepped in to run Big Blue in 2012. Just over a year after assuming the role, IBM acquired SoftLayer in an attempt to become the leader in cloud computing and catch the leader in public cloud infrastructure, Amazon Web Services (AWS). However, amid heavy competition, SoftLayer quickly fell behind, causing IBM to shed the brand and incorporate the acquired control plane into what became IBM Bluemix — a rebranding effort with inconclusive results as it would ultimately become IBM Cloud. Over the past eight years, Rometty has been ambitious in laying out her goals to capture “the big 3” — AWS, Microsoft and Google — yet the market remained skeptical as IBM consistently failed to deliver on its top line and the ability to catch industry leaders was viewed as a pipe dream. In many ways, this prompted the acquisition of Red Hat — a $34 billion bet IBM officially made in July 2019 to take the 80% of customers still operating on premises to the cloud. Microsoft, with its competitive platform know-how through Azure, successfully captured cloud in its infancy by shifting customers’ front-end applications. However, IBM, with the help of Red Hat’s platform, is looking to take customers’ mission-critical back-office workloads to the cloud, in what it deems Chapter 2 of the cloud. This is a competency that has yet to be proven but may hold true under new leadership. 

Systems Hardware has been on a cloud-centric pivot for a while, and Krishna is likely to reinforce and cement this transition

TBR believes that from a hardware strategy perspective, the CEO shake-up will have little impact. The z14 and z15 refreshes have focused on positioning the venerable mainframe as a critical gateway into the hybrid multicloud world by building in critical firmware and software features to deliver the mainframe capability with public-cloud-like operating characteristics, enterprise-grade security and data management capabilities. TBR does not see this changing anytime soon.

A new CEO brings promise of stabilization to IBM Services, which has performed inconsistently over the past few years

While IBM’s CEO transition is not strictly tied just to IBM Services, it is a positive move for the services business. Over the past six years, IBM Services’ revenue has been uneven, and has largely been in decline during the past five quarters. Filling the role of CEO with an employee who has been with the company since 1990 and has been instrumental to the development of IBM’s cloud business and the acquisition of Red Hat will likely bring a fresh perspective to IBM and IBM Services, which has been struggling to overcome growth pressures in traditional labor-based services, such as in Global Technology Services and Global Process Services. Meanwhile, IBM Services is experiencing growth in cloud-related activities as the company leverages its technology incumbency to advise, migrate, build and manage clients’ hybrid cloud environments. IBM Services will benefit from IBM’s new public cloud offering for financial services clients, the new IBM Cloud Paks portfolio, and synergies from the Red Hat acquisition as well as the related launch of consulting and technology services offerings for Red Hat and multicloud management. However, such offerings have yet to gain scale to offset lingering growth challenges in traditional services segments.

Krishna’s experience and expertise, including around operations, will help IBM Services continue with its technology-led transformation value proposition and also help overcome execution challenges, which were present during 2019 and negatively affected services revenue growth and profitability. The Cloud and Cognitive Software business, which Krishna is currently leading, has been a growing business; sharing knowledge and supporting the ongoing market trend of convergence between services and software will help IBM Services transform into a growing business.  

 What to watch going forward

This is as critical a juncture for IBM as when it installed Lou Gerstner from the outside in 1993. In this transition, IBM is splitting the responsibilities between an IBM insider as chairman and an IBM outsider instrumental in building one of the best technology operating models for the new technology era. From this vantage point, TBR will be evaluating and monitoring the following:

  • Reorganization: IBM has to change how it works internally to align with subscription monetization models. Executive measurements have to shift to align to the best practices Red Hat has deployed building a business around free products. IBM historically has jettisoned business lines that lacked discrete profit metrics as stand-alone products. We will be looking to see which members of the respective teams move into leadership roles under the new stewardship.
  • Developer reactions: It is said the developer is king. TBR would expect the developer community to be heartened by these appointments, and we will be tracking this sentiment in our ongoing cloud research streams.
  • Employee reactions: Will this result in high-profile exits or will this provide middle managers with the air cover necessary to act more like “wild ducks” in IBM internal parlance?
  • Customer reactions: This will flow from the ongoing Wall Street analyst briefings on quarterly results. Rometty was conspicuously absent from many of these calls, and we expect that one or both of these new leaders will be available for the all-important Q&A sessions of these briefings.
  • Competitor reactions: Market share positions in Chapter 2 of the cloud are up for grabs, with many entities, notably Microsoft, AWS and Google aiming to become the de facto hybrid cloud standards. Traditional peers of IBM fared far worse than IBM in Chapter 1 and will struggle to remain relevant as anything more than a derived decision for increasingly commoditized infrastructure. IBM likewise has the installed base advantage for protecting enterprise IP assets. At issue, of course, is whether it can maintain that customer trust by articulating a product road map that resonates, coupled with an organization that can deliver on that vision. Krishna and Whitehurst have clear remits and track records to suggest they can deliver.

Accenture’s 3 I’s of the future: Integrated, innovative, impactful

Accenture’s Jan. 13 announcement of plans to change its growth model from Operating Groups aligned to profit & loss (P&L) to a geo-centric alignment as of March 1 sent a clear message to the IT services market. Many peers look to Accenture as the go-to business and account management model, and this change, guided by recently appointed CEO Julie Sweet, aligns with the meaning behind the company’s name, “Accent on the Future,” to set the course for the ever evolving company’s operating model. As Accenture continues to go to market by industry and expand its global industry programs, doubling down on executing through integrated scale will further strengthen its market-making position. As Accenture describes it, “These changes are designed to help extend market leadership, drive significant value for all stakeholders and continue to deliver market-leading growth.”

TBR Perspective

Accenture’s changes have yet to take effect, but they are certainly raising the eyebrows of many of the company’s rival executives, especially as some would say, “Don’t fix what isn’t broken.” Ultimately, we do not believe much will change for Accenture, especially as it pertains to the company’s account management approach. It will certainly create a healthy dose of internal competition between the different regions. It will also likely result in a certain level of turnover, which rivals could take advantage of. But, the increased investments in industry development programs will continue to provide Accenture with the necessary expertise to speak to line-of-business buyers, as Accenture Innovative Architecture continues to stitch together all parties involved, comforting stakeholders that business continues as usual.

Doubling down on developing security-wrapped functional technology expertise, executed through Accenture Technology, will provide the backbone for long-tail “as a Service” opportunities both in the software and infrastructure layer as Accenture Operations, which will be led by 24-year Accenture veteran Manish Sharma, will stay strong providing managed services across business processes. Before the announcement, TBR estimated that Accenture would reach $50 billion in annual sales by 2021, up from $43 billion in 2019. We are keeping the estimate unchanged as Accenture is increasing the amount and scope of work it performs for its 200 Diamond Clients. The company has also become a household brand, shielding IT buyers in front of their boards adopting the “no one gets fired for hiring Accenture” mentality. Only time will tell how well Accenture does after all these changes, but the company certainly has time on its side for now.

What changes?

For over a decade Accenture has been operating and reporting its financials under five Operating Groups, which accounted for over 40 industry verticals. While we expect the company to continue to provide most revenue information (e.g., industry verticals, “in the new” revenues) as it has been historically, beginning in FY3Q20 Accenture will reorient its primary operating segments toward reporting by Markets (e.g., geos), including North America, Europe and Growth Markets. The three markets are not new ground for the company, as it has been reporting these geo revenue splits for several years. However, within the new growth model they will serve as the beacons for Accenture’s future, enabling the company greater agility. The change will come from the way the P&L will roll up. This shift closely resembles the way the Big Four run their businesses, but Accenture remains a global management company with a single P&L rather than a union of country-aligned member firms. As a result, the consistency in deployment of Accenture’s shared services model supersedes those of Big Four firms that often struggle with who will pick up the bill when cross-country resources are utilized. Accenture also realigned its five businesses, Strategy, Consulting, Digital, Operations and Technology, into four services with the key changes including merging Strategy and Consulting and elevating Accenture Interactive (contact TBR for further discussion of Accenture Digital) as a key service similar to Accenture Operations, Accenture Technology and Accenture Strategy and Consulting.

Combining Strategy and Consulting under one umbrella is not that surprising to TBR considering enterprise sentiment toward the traditional consulting model. As a CTO of a multinational healthcare brand said in a recent interview with TBR: “[Consultancies] need to decide who they want to be. I mean, you’re going to be someone who fights the war. Are you going to be someone who sells arms to people that fight the war, or are you going to be someone who just gives advice? Many of these companies want to be too many things. You can’t be everything to everyone.”

Quick Quantum Quips: Talent acquisition becomes a larger challenge as vendors achieve additional proof points

Welcome to TBR’s monthly newsletter on the quantum computing market: Quick Quantum Quips (Q3). This market changes rapidly, and the hype can often distract from the realities of the actual technological developments. This newsletter will keep the community up to date on recent announcements, while stripping away the hype around developments.

For more details, reach out to Stephanie Long or Geoff Woollacott to set up a time to chat.

January 2020 Developments

In January, changes in the quantum market revolved around IBM and its partnerships and coopetition with first movers in addition to pushing the first-mover advantage in live quantum computing systems. First, IBM offered a proof point of commercial viability in a partnership with Daimler and later saw top talent leave for IBM customer JPMorgan Chase. Another startup, QCI, entered the market, and the French government, recognizing the strategic importance of the technology, began outlining its investment strategy for quantum investments. 

  1. IBM unveiled a real-world application in the quantum computing space leveraging its quantum computing capabilities. In partnership with Daimler AG, IBM leveraged its quantum computing technologies to create and analyze lithium-containing molecule models as IBM strives to make higher-capacity and faster-charging batteries to bolster the electric car market. The ability to model — not simulate — a molecule will dramatically speed up the drug and material discovery process.
  2. IBM unveiled a new 28-qubit quantum system at CES 2020. The new system is said to have accomplished IBM’s goal of doubling quantum volume, achieving a score of 32 — up from 16 from last year. To emphasize the potential of quantum computing to speed up development, IBM leveraged its 53-qubit system to improve on the 28-qubit connectivity. The improved hexagonal lattice connectivity structure used in the development of the 28-qubit system was a contributing factor in the system’s ability to meet the quantum volume goal of 32.
  3. JPMorgan Chase, a current customer of IBM for quantum computing, poached one of IBM’s executives from the group. Marco Pistoia, who worked at IBM for 24 years, most recently led IBM’s quantum computing algorithm team. This departure underscores the challenges talent acquisition and retention will pose in the quantum computing space. Vendors are already working to fight against talent shortages. IBM, in particular, is investing heavily in academia to promote degrees in quantum-relevant fields, but the shortages will persist and talent acquisition and retention will be of rising concern as the technology matures. For further details on this announcement, please check out TBR’s blog post on the topic.
  4. Quantum Computing Inc., a startup in the space, unveiled a quantum application development platform called Mukai. This is largely in the experimental phase despite the formal announcement, but Mukai is designed to leverage software to improve speed of development of quantum-ready applications.
  5. France unveiled a framework for its quantum strategy. While many of the details remain undisclosed, likely due to the classified nature of government investments in emerging technologies, France is making formal efforts to invest in and leverage quantum technologies to improve its research capabilities, overall technological development and economic security. The public investment by governments in quantum technology highlights the value quantum technologies can bring and reinforces the eventual power of quantum, even though true commercial use of the technology remains a few years away. It also highlights a degree of fear among countries of creating vulnerabilities if they choose to ignore quantum’s potential. We have seen ongoing investments in quantum from China and the U.S. as well as a variety of European countries making consistent investments in the technology, including the Netherlands and Russia.

If you would like more detailed information around the quantum computing market, please inquire about TBR’s Quantum Computing Market Landscape, a semiannual deep dive into the quantum computing market. Our latest version published in December.

Analytics within digital transformation engagements depend on high-quality people and data

This week, TBR publishes the first Digital Transformation Insights report for 2020, building on the 2019 series, which included analysis around blockchain, digital marketing, IoT and quantum. The first report centers on IT services vendors’ strategies and performances within their analytics practices. Senior Analyst Boz Hristov notes that, “The maturing A&I services market continues to hold strong digital transformation opportunities for vendors, as long as they can address buyers’ business model complexities through collaborative and coopetitive delivery frameworks. Additionally, vendors that can address skills gaps and ensure data quality and security standards are met are positioned to win.” Next month’s DTI report will look at edge computing within digital transformation. In March TBR will examine the SAP practices of a few leading services vendors.

Additional assessments publishing this week from our analyst teams

Sprint’s rising churn rates, weakening financial performance and high debt load highlight the necessity of the proposed T-Mobile merger. Subpar network quality remains at the root of Sprint’s issues as postpaid phone subscriber losses continue to escalate, despite the operator’s aggressive pricing and elevated network capex spending since 2018. A more significant capex budget is required for Sprint to successfully compete long-term in the U.S. market; however, Sprint’s inability to generate significant free cash flow hinders the company from doing so.” — Steve Vachon, Analyst

“As Infosys ramps up cyber offerings to better address the complexities associated with the next wave of emerging technologies, an aggressive pricing strategy paired with revamped account management enables the company to expand its client roster as it turns into a solutions broker.” — Hristov

Verizon remains able to capitalize on its reputation as a premium wireless service provider to attract customers willing to pay a higher price for the operator’s network coverage and premium unlimited data plans. However, Verizon’s wireless network is becoming a less significant differentiator as AT&T and T-Mobile are now on par with Verizon in LTE coverage and as the rival companies are improving signal quality and data speeds by deploying services on additional spectrum.” — Vachon

“Though AT&T is facing short-term challenges, the company’s ambition to transition from a traditional telco to a global digital service provider is a long-term endeavor requiring a broad array of assets that may not all pay dividends in the short term. AT&T also has abundant opportunity to reduce expenses without divesting core business units via initiatives such as WarnerMedia synergies, nonvital headcount and real estate reduction, and deeper integration of network virtualization.” — Vachon

“TBR anticipates Fujitsu Services will report revenue growth acceleration in 4Q19, as Fujitsu enhances its software, digital, hybrid IT and cloud offerings, which help offset declines in traditional areas. Reorganization and investments within its sales organization, such as the consolidation of its European sales force and the implementation of Account Planning and Opportunity Planning software to improve management in North America, will also contribute to revenue expansion in 2019. The business model adjustments allow the company to better execute and deliver on initiatives to drive adoption of hybrid IT and software offerings, providing recurring revenue opportunities.” — Kelly Lesiczka, Analyst

Senior Analyst John Caucis notes that the U.S. federal earnings season kicks off this week with three defense majors and one services-led defense contractor releasing the results from the final calendar quarter of 2019. First up is General Dynamics Information Technology (GDIT), releasing earnings on Jan. 29. Sales are expected to continue sliding for GDIT, owing to recent asset disposals, portfolio reshaping and operations realignment. TBR projects GDIT’s top-line revenue will decline between 11% and 12% year-to-year to roughly $2.1 billion. A strong rebound for GDIT will hinge on the full leverage of CSRA’s capabilities to win big-ticket, next-generation federal IT engagements in 2020. 

Two additional defense majors, Northrop Grumman and Raytheon, will release their earnings on Jan. 30. Northrop Grumman’s Technology Services (TS) unit completed what was likely its final quarter and last fiscal year as a dedicated, stand-alone business line offering technology, sustainment and modernization solutions in 4Q19. TS, which includes the bulk of Northrop’s technology-related services, was integrated into Northrop’s emerging Defense Systems (DS) business group, effective Jan. 1, 2020. TBR projects TS’ 4Q19 sales will continue the rebound begun in 3Q19, with year-to-year growth between 2% and 3%, bringing TS’ 4Q19 revenue to roughly $1.1 billion. Raytheon Intelligence, Information and Services (IIS), the services division of Raytheon Technologies, is expected to continue expanding its sales at a robust pace, putting the wraps on a red-letter year accentuated by consistent revenue and bookings growth, record backlog levels, improved margin performance, and of course, the pending merger with United Technologies (UT). TBR projects IIS will post revenue of about $1.9 billion in 4Q19, up between 10% and 11% year-to-year.

Finally, Booz Allen Hamilton (BAH) will release earnings on Jan. 31. We project BAH will expand its top line between 8% and 9% in 4Q19 to over $1.8 billion, building on the momentum established during the first half of its FY2020. BAH’s strong performance stems from traction with its technically focused solutions, increasingly infused with advanced technologies that enable the mission aims of its federal agency clientele. Operationalizing AI has clearly become a strategic growth platform for BAH; AI featured prominently in the company’s alliance activity, new contract awards and introduction of new offerings in 4Q19.

Quantum computing talent war: JPMorgan Chase poaches a top IBM exec

“JPMorgan Chase announced on Jan. 22 the hiring of Marco Pistoia from IBM. A 24-year IBM employee with numerous patents to his credit, Pistoia most recently led an IBM team responsible for quantum computing algorithms. Algorithm development will be key to developing soundly engineered quantum computing systems that can deliver the business outcomes enterprises seek at a faster and more accurate pace than current classical computing systems. A senior hire into a flagship enterprise in the financial services industry is the proverbial canary in the coal mine, as TBR believes such actions suggest our prediction of quantum achieving economic advantage by 2021 remains on target.” — WRAL TechWire

5G Strategies of T-Mobile US, Sprint Hinge on Merger

“‘I’m leaning more toward yes than no. I think the federal backing is going to help with this decision,’ Vachon said, noting that the DoJ and Federal Communications Commission already reached agreements with the companies and signed off on the transaction. Vachon is convinced that the merger is beneficial for competition. T-Mobile US will remain a disruptive player in the market, regardless of the outcome, and Sprint ‘hasn’t been very much of a threat’ and if it were to leave the market it wouldn’t have much of an impact on T-Mobile’s strategy, he said.” — SDxCentral

Fear of the death of ‘digital’

When we published our professional and IT services predictions for 2020, we anticipated feedback would center on the seemingly most controversial forecast: the end of “digital” as an industry catch-all term, nearly always followed by “transformation.” Initial comments from clients suggested we touched a bit of a nerve. We do not believe a possible economic downturn (also a 2020 prediction) would mean a return to analog IT. We ended 2019 with the expectation that one or more major IT services vendors or consultancies would drop “digital” from their go-to-market strategy and positioning, and we were surprised to be so right within the first two weeks of the new year (see: Accenture).

And earlier this week, we hosted a webinar on our predictions, and many of the questions centered on what the “demise of digital” really means, illuminating two likely fears in the market. The first fear is that an easy way to signal newness, creativity and up-to-speed technology ― just saying “digital” ― has fully lost its meaning, forcing marketers and IT services leaders to move from the vague and suggestive to something more concrete. While some leading consultancies and the more technology-centric IT services vendors may see this as a differentiating opportunity, other companies may struggle to find the right terms to project their competitiveness in a “digital”-free market. The second, and perhaps deeper, fear is that the change has been happening for long enough now that companies risk looking uncomfortably outdated, marketing themselves as “digital leaders,” when their clients have already begun looking for something truly new.

During the predictions webinar, my colleague Kelly Lesiczka noted how Fujitsu had initially launched Digital Transformation Centers, but then redirected its facility investment toward specific centers focused on emerging technologies, such as blockchain, security and AI, to more aggressively pursue opportunities in these areas. For example, Fujitsu strengthened its AI headcount in Canada and opened a Cyber Resilience Center in Canberra, Australia, in 2H19. If anything, “digital” stopped being useful as a term when every enterprise in every sector in every industry started calling themselves a “digital company.” And in 2020, the word is finally going to fade away completely.

What is the next catchy word or phrase, you may ask? We will leave this up to the marketers and their teams. What we do know is what enterprise buyers care about: As digital transformation programs mature, exploring new connection points made possible by data and emerging technologies helps businesses embark on more initiatives beyond discrete process areas. Vendors should take note of that and avoid relying solely on existing relationships, as buyers do not seem to view a past relationship as critical in vendor selection and are rather open to new ideas offered through integrated and coopetitive scale. Yes, in the end, we always come back to what all this means for the consultancies and IT services vendors.

Use of container technology solidifies Red Hat’s DevSecOps approach amid intensifying threats toward IT

Through DevSecOps, Red Hat builds in security across the entire stack, preserving its differentiation in the security space

In today’s IT landscape, security is often overlooked in many DevOps and Agile models, yet for some, it is becoming a priority. Put simply, DevSecOps takes DevOps to the next level, tightly integrating security in every stage of the product lifecycle to ensure a secure technology stack. While containers are not imperative for DevSecOps, the technology greatly improves efficiency and aids in implementing the process at scale. Red Hat demonstrates this approach via its hybrid cloud, enterprise Kubernetes platform, OpenShift. Essentially an enterprise version of Kubernetes, Red Hat OpenShift delivers a cloud-like, managed application platform, across on-premises and public cloud environments. Red Hat has taken a holistic approach to DevSecOps, securing every layer of the stack from the OS to microservices. TBR believes this approach has allowed Red Hat to position its security portfolio as one that will encourage adoption of OpenShift and containers in general, as automation tools help customers manage IT with process scalability, system response and compliance:

  • Red Hat Ansible Automation – Ansible is Red Hat’s enterprise automation platform that provides a universal IT automation language that can be used to build and operate automation at scale. Red Hat introduced Ansible integrations with third-party security tools, such as IBM QRadar and Splunk to help security operations centers quickly respond to threats. As such, Ansible users can automate and integrate different security solutions that can respond to threats across the enterprise using a curated collection of Ansible modules, roles and playbooks.
  • Red Hat Satellite – Red Hat Satellite is an infrastructure management product specifically designed to manage Red Hat environments at scale and keep RHEL and other Red Hat infrastructure environments running securely and compliant to both industry and custom security standards.
  • Red Hat Insights – Insights is Red Hat’s SaaS-based predictive analytics engine that analyzes registered Red Hat-based systems across physical and virtual environments. In addition, Insights provides users with Ansible remediation playbooks to fix issues; Insights is included with all RHEL subscriptions.

On Dec. 12, 2019, Red Hat and co-sponsor, Intel, hosted the Red Hat Security Summit in Waltham, MA. Key talks included: Automating security and compliance in the world of containers and hybrid cloud, Security concerns in container runtimes and Simplifying security through Red Hat Satellite and Insights. The event concluded with a hands-on workshop, providing access to Red Hat technologies and products, for discovering the importance of implementing security and compliance automation at scale in a hybrid world.

Economic advantage: Preparing for lift off

Talent poaching within industry first warning of things to come

JPMorgan Chase announced on Jan. 22, 2020, the hiring of Marco Pistoia from IBM. A 24-year IBM employee with numerous patents to his credit, Pistoia most recently led an IBM team responsible for quantum computing algorithms. Algorithm development will be key to developing soundly engineered quantum computing systems that can deliver the business outcomes enterprises seek at a faster and more accurate pace than current classical computing systems.

A senior hire into a flagship enterprise in the financial services industry is the proverbial canary in the coal mine, as TBR believes such actions suggest our prediction of quantum achieving economic advantage by 2021 remains on target. Quantum executives discuss the three pillars of quantum commercialization as being:

  • Ongoing scientific discovery to improve the overall fidelity of quantum computing systems; discovery is not the same as a technology road map. These advancements are not easy to predict given the limited supply of individuals skilled in the topics as well as the challenge of pursuing breakthroughs solving the known unknowns.
  • Great advancements have been made in curating scientific discoveries into system components able to generate sufficient yield quality in manufacturing.
  • Application discovery has early activity, most notably in academic research institutions but also within blue chip establishments in the areas of financial services, healthcare, materials science and native cloud companies.

Scientific and engineering obstacles persist, bottlenecking progress. The fluid nature of IP sharing and innovation through ecosystem participation across the above three pillars means businesses that have a trusted track record around groundbreaking innovations will be first to gain the aforementioned economic advantage. As advantage nears, the early adopters will require senior talent with the vision to look across the landscape of technologies and potential use cases and prioritize efforts to gain advantage. Pistoia’s remit will be as the lead researcher for JPMorgan Chase’s Future Lab for Applied Research and Engineering, which seeks out commercial use cases around emerging technologies such as quantum, edge computing, 5G and IoT to create market distinction.

What lessons can be learned from this strategic hire in a domain with acute skills scarcities?

Losing a valued contributor to scientific innovation can certainly hinder an organization such as IBM and decimate smaller firms more reliant on a few key executives. The movement, however, is neither uncommon in industry nor unexpected. Leading technology companies and the professional services firms that translate their capabilities into business results are in the same situation as JPMorgan. Most companies in the industry have focused more on science and engineering than on translating these technical advancements into business value. As economic advantage nears, TBR expects:

  • Talent poaching between technology companies and the leading-edge enterprises they support will accelerate.
  • Advisory services and road maps will be built out rapidly. Smaller, quantum-specific firms will seek to establish these road maps out of necessity, while the advisory firms will likewise seek to find repeatable frameworks to scale across their existing account base. For example, IBM helps enterprises with early exploration through its QStart program while startup Xanadu has built a services team focused on executive education, early corporate preparations or prioritizations, and then the requisite technical training and technical diagnostic services to partner with first-mover enterprises.
  • The ecosystem will be further developed for the cross-sharing of algorithms and best practices as they pertain to the early use cases where economic advantage will appear first.
  • Industry hype and impatience around expected investment returns from enterprise leadership and venture capitalists will continue to present challenges.

Quantum is not a short-term opportunistic investment. In TBR’s opinion, it remains a necessary long-term investment where diligence coupled with patience situate enterprises to exploit first-mover advantage as well as mitigate the risks of falling victim to an economic extinction event brought about by competitor advancements in determining where, and in what sequence, quantum can yield economic advantage.

TBR’s next Quantum Computing Market Landscape will explore the professional services offerings in place or being established by the key market entrants and is due for publication in June 2020. We welcome input on the topical questions our readership would like to see addressed.

Other recent quantum-related publications:

Quick quantum quips: Cloud players are now looking for a piece of the quantum pie

Translating quantum science into business value: Tradeoffs between precision, speed and cost

Quick quantum quips: Hardware entrances gain VC funds while established innovators partner across architectures to secure a place in the broader quantum ecosystem

Traditional ports and quantum computing: The now and the future

Quick quantum quips: A call for quantum supremacy sends ripples through the market

Can IBM pivot fast enough?

This week, TBR publishes its initial thoughts on IBM’s 4Q19 performance, featuring insights from our data center and professional services analysts.

“Another quarter, another IBM Initial Response from TBR. And while our initial report on IBM’s earnings release remains constant, IBM’s strategy and investment focuses continue to pivot,” says Analyst Stephanie Long. “This quarter we’re looking at recent developments in IBM’s quantum computing business, including how high-performance computing ties into the market, as well as what’s new in IBM’s Systems Hardware portfolio and strategy.”

Senior Analyst Elitsa Bakalova adds, “IBM is winning transformational deals that include consulting, implementation and management of next-generation solutions such as cloud, AI, blockchain and IoT. IBM is advancing in quantum computing research and expanding outside the U.S., in Germany and Japan, to broaden the practical application of quantum computing and speed up the development of the digital economy. Enabling hybrid cloud adoption remains at the forefront of IBM’s strategy, and the extended partnerships with VMware and HCL Technologies solidify IBM’s ability to transform clients’ infrastructure and application environments.”

Additional assessments from our analyst teams

Tata Consultancy Services (TCS) closed 2019 with continued revenue growth, which TBR attributes to ongoing investments in its solution suite and talent pool, alongside aggressive pricing. Strengthening its digital capabilities that enable technology-based transformation, at scale, for the company’s global clientele will drive further growth in 2020. Additionally, preserving a low turnover rate compared to India-centric peers will be important for TCS.” Kevin Collupy, Analyst

On Wednesday Principal Analyst Patrick Heffernan, Senior Analyst Boz Hristov, Analyst Kevin Collupy and Research Analyst Kelly Lesiczka discussed IT services and professional services market developments of 2019 and expectations for 2020, including why TBR anticipates at least one IT services vendor or management consultancy calling an end to the term “digital.” Check out the replay of this webinar, “The end of ‘digital,’ anytime in TBR’s Webinar Portal.