Digital transformation at scale faces its biggest test yet

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It takes a village, but a distant one

For years, IT services vendors — and now increasingly consultancies — have been building business models around supporting enterprises’ IT and business processes, largely by leveraging the human arbitrage model and price-competitive offshore centers. While in recent years many vendors have begun to build on-site and/or nearshore facilities offering higher-value services, COVID-19 is now challenging these vendors to shift to remote support. For vendors that largely rely on using offshore hubs in locations such as India and the Philippines, the struggles will be even greater as these countries typically lack well-established infrastructure, iNet connectivity and electricity. But even vendors that rely on a high-touch consulting model and house the majority of their workforce in more developed countries with reliable infrastructure could be pressured in the short term due to an absence of personalization and face-to-face interaction. In addition to these hurdles, all vendors face the challenge of skill shortages, particularly in emerging areas such as AI, blockchain and data science, further hindering vendors’ ability to deliver on their DT programs’ promises.

According to TBR’s December 2019 Digital Transformation Insights Report: Voice of the Customer, improving HR operations, employee efficiency and effectiveness ranked in the middle (No. 5 out of 10) as a DT objective among surveyed enterprise buyers, not only currently but also within the next two years. We believe, however, that COVID-19 will likely force buyers to reorder their DT objective priorities and place HR transformation at the forefront. Vendors that are able to weather the storm by successfully navigating their own internal HR transformation, addressing remote working challenges and executing on business continuity plans with minimal disruption will likely emerge as the winners when the COVID-19 crisis abates.

The two largest opportunities within HR transformation will be centered on: 1) change management, which is typically a consulting discussion, especially for buyers that have yet to embrace the remote working culture; and 2) digital workplace solutions, as the need for implementation and management of platforms like Zoom (Nasdaq: ZM) and Microsoft Teams (Nasdaq: MSFT) at the enterprise level is already positively impacting vendors’ top line.

While digital transformation (DT) began to permeate both the lexicon and the minds of enterprise buyers and third-party providers about five years ago, the current global pandemic has brought a dose of sobering reality, raising questions around not simply when to embrace DT programs but also which processes are most critical to weather the storm. We see employee management, aka HR operations, and cybersecurity as two areas enterprise buyers will race to invest in as the COVID-19 outbreak disrupts operational cadences and highlights security risks associated with remote working. Supplying those services will not be enough; IT services vendors and consultancies must bring their clients reliable scale, making partnering even more critical for digital transformation. 

Enterprises thinking above and beyond the bottom line

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Not all news related to the pandemic is bad news

Just a couple of months ago, the term “going viral” lightly referred to the match-to-kerosene-like spread of images, videos or other content across borders and populations. Today’s news has literally gone viral, carrying coverage of the COVID-19 outbreak in an unfortunate and devastating new realization of the term.  Every day, there is a deluge of information detailing the impact of the outbreak, including the havoc COVID-19 is wreaking on every person, institution, government and country on the planet. While we may now be associating “going viral” with a darker and more ominous meaning, there are some bright spots that are worth highlighting to complement TBR’s ongoing coverage of the business and technological impacts of the COVID-19 pandemic.

Virtual tools and aid help soften a steep learning curve

After healthcare, education is perhaps the sector most immediately impacted by the COVID-19 pandemic in ways that are evident to individuals and businesses alike. Access to quality education across socioeconomic and geographic groups has been a subject that has inspired a mix of outrage and hope for decades, and there has never been an easy answer. The mandate to institute virtual classrooms has raised the question of how all this can be made possible for the vast majority of global students who have no choice but to continue their education at home.  

A notable example comes in the form of AT&T’s $10 million Distance Learning and Family Connections Fund in support of the education community, including parents, teachers and students. The money will also provide ways to bridge socioeconomic gaps in communities that have become isolated. Specifically, the first $1 million will support the Khan Academy, an educational platform available in more than 40 languages offering practice exercises, videos and dashboards that can be customized to each learner’s unique distance learning needs.

The mandatory pivot to digital learning has also been recognized and addressed by companies such as Logitech and Babbel. Logitech is offering free webcams and headsets to K-12 teachers who may not have the funding to support the transition to virtual learning. Babbel is ensuring that students’ language studies are minimally disrupted by offering three months of free language learning to U.S. students through mid-June. 

Distance working

Until recently, working from home was either an occasional break in one’s schedule or a work lifestyle provided to those who do not have easy access to an office environment. While the work-from-home model is not new and supporting solutions have long been on the market, how to quickly scale remote office environments and capabilities was never considered until very recently. To answer the need for individuals and businesses, especially small ones that may not have the rainy-day funds that larger enterprises usually possess, many collaboration, cloud and CRM providers are stepping in to make “business as usual” possible in the short term.

Google, a leading provider of services to support working environments, is offering Google Meet’s premium features for free until July 1, and Microsoft and Amazon are similarly implementing measures of their own. Zoho is another company with deep collaborative roots and the capability to support workflows of all types. Recently, Zoho announced a program that would offer free support to existing customers that otherwise could not afford it. Launched and deployed in just a matter of days, Zoho Remotely not only enables existing customers to continue their operations but also provides an attractive onboarding mechanism for future paying customers.

Cloud leaders prioritize healthcare as well as mission-critical workloads to ensure public safety

The education and healthcare industries are more frequently converging. For example, Google Cloud earmarked $20 million for medical research and academic institutions. The funds will assist researchers in both the short and long term in the pursuit of a vaccine for COVID-19 as well as the collection of ongoing clinical data to assist in the prevention of future outbreaks. This is one of the many examples in which the cloud leader has dedicated funding and resources to the dual causes of healthcare safety response and education. 

Achieving balance between staving off disaster and facilitating a somewhat palatable day-to-day existence is the ongoing challenge pressuring enterprises, many of which are proving to be the backbone of modern society. As the remote working population has surged exponentially, so have the pressures placed on enterprises that support the new environment. Companies such as Microsoft and Amazon Web Services have clearly prioritized several sectors for mission-critical workload solutions, beginning with first responders, health and emergency management services, and critical government infrastructure.

To hear this clip in its entirety, check out COVID-19 Business Impacts: How the Community Is Coming Together on TBR’s YouTube channel.

Accenture and COVID-19: Challenges ahead

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COVID-19 will pressure Accenture’s short-term performance but could accelerate adoption of automation as the company maintains pricing agility

While a global health pandemic is not something vendors typically prepare for as part of their business continuity plans, for many, including Accenture, the COVID-19 outbreak will certainly test the resiliency of their business models. As a company that came out strong after the financial crisis in 2008 and 2009 with total revenues more than doubled — from $20.9 billion in 2009 to $43.9 billion in 2019 — Accenture has certainly proved that it can navigate the influx dynamics of financially disrupted markets while taking advantage of the advent of emerging technologies.

At large, the shift toward working from home due to COVID-19 will certainly constrain Accenture’s high-touch consulting model, pressuring advisory-centric sales. However, we also see pockets of opportunities, particularly around change management services, where the company can support clients that have not previously adopted work-from-home policies. We see the larger opportunity around integration and management of digital workplace solutions enabled by technology platforms such as ServiceNow and Microsoft Teams. Managing internal knowledge sharing and shifting on-site frameworks to remote will likely be the biggest hurdle as Accenture strives to ensure standardized service delivery. While the company’s Future Systems framework provides a strong foundation to innovate at scale through adopting KPIs centered on outcomes rather than tactical financials, Accenture Interactive’s unit has an opportunity to demonstrate its core value proposition — being creative — as it determines how to best engage with clients during the COVID-19 outbreak.

While we expect Outsourcing, led by Accenture Operations and Accenture Technology, to provide a strong backbone for Accenture’s financial performance, we also anticipate the company’s high reliance on offshore hubs such as India and the Philippines will challenge its global delivery capabilities during the COVID-19 outbreak due to underdeveloped infrastructure, lack of iNet availability and the need for employees to work from home. During the company’s FY2Q20 earnings call, Accenture CEO Julie Sweet said, “We have already enabled a very significant percentage of our people to work from home, approximately 60% of our people in our centers in India and the Philippines. … In the Philippines, we’re probably about where we expect to be. In India, we’re still adding.” TBR estimates that over 44% of Accenture’s workforce is housed in India and the Philippines, raising questions about the company’s ability to leverage these two hubs at maximum capacity and the need for distributing workloads to other sites, where working remotely at 100% capacity is more feasible. 

While Accenture’s deep relationship with many of its clients will help the company address these challenges, demonstrating pricing agility will be a must, likely providing an opportunity for greater use of automation for service delivery.

Note: The above text will be included as a scenario in TBR’s 1Q20 Accenture report, publishing April 9. For additional insights, please see this recent special report on Accenture Technology.

In time of pandemic, IT services focuses on leadership, partnerships and automation

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Accelerated automation

Following market leader Accenture (NYSE: ACN), IT services vendors will aggressively adopt automation tools to drive down their own costs, improve remote delivery and retain clients during the global economic downturn. Automation will help ensure standardized delivery, even as engagements, implementation cycles and large-scale integrations change amid more remotely managed IT environments. IT services vendors that have implemented automation at scale internally will most readily serve clients seeking the same.

Splintering acquisition strategies

Global economic conditions will allow some IT services vendors to acquire talent and IP at discounted prices, provided leadership at those vendors maintains control of cash flow and risk assessments. In contrast, those vendors ill-suited for work-from-home and remote delivery or struggling through corporate restructurings will miss the opportunity to soften organic declines with inorganic boosts. While on the surface this might not be significantly different from normal disparities in companies’ acquisition strategies, the current massive disruption will reveal weaknesses around leadership and organizational nimbleness that may see normally aggressive acquirers struggle and typically passive nonbuyers make bold moves. TBR expects M&A moves made within the first half of 2020 will substantially impact which vendors will be best positioned to grow during the expected late 2020/early 2021 recovery.

Every part of the economy, including the IT services market, will suffer serious disruption from the COVID-19 outbreak. While not predicting which of the many possible scenarios will be most likely to play out through 2020, TBR’s Professional Services, IT Services and Digital Transformation team anticipates three overarching themes will dominate, leading to six topics worth watching in detail. In the first theme, leadership at every level will not only reveal which IT services vendors and consultancies were best prepared for a pandemic disruption but also determine which will continue to succeed, relative to peers. Second, alliances between IT services vendors and their technology partners will be stressed by immediate economic pressures, talent constraints, and uncertainty surrounding 2020 and 2021 forecasts. And third, IT services vendors that invested in automation early and at scale will see their ability to standardize delivery and reduce costs become essential to retaining clients and meeting their own financial targets. Automation, already a priority for some, will become a mission-critical capability, and accelerated adoption will separate leaders and laggards.

Predicting the unpredictable: COVID-19 is changing the IT devices business

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The devices business is sensitive to how and where people work, communicate and play

The COVID-19 crisis is changing how and where people work and how they spend their free time, all of which directly affects the PC business, adjacent devices and services businesses, in addition to networks, data centers and cloud businesses. Many of these changes are opportunities for device vendors, but the global recession, and buyers’ conservatism in the face of uncertainty, will negatively impact vendors until a recovery is underway. The novel coronavirus illness and consequent control measures are influencing the supply and delivery chains as well as sales and servicing processes. Even after recovery from both the pandemic and the recession, some of the changes in working patterns are likely to be permanent as institutions and people find benefits in remote work, accelerating and institutionalizing a growing trend. Similarly, the movement toward using technology to improve health and healthcare is being greatly accelerated by the crisis.

The global crisis has many moving parts, all affecting devices and how they are used

There are several different components to the changes brought about by the COVID-19 pandemic.

  • The illness itself is changing the lives of many people and directly affecting the global workforce as people become ill and others are caring for them.
  • The measures taken to slow the spread of the disease are drastically reducing economic activity, and devices sales are closely tied to economic activity.
  • Most importantly for the devices business, many more people are working remotely and many are relying more heavily on home-based communication and entertainment.
  • The implosion of the travel and hospitality businesses, as well as other personal services and retail businesses, is causing a rapid decrease in global economic activity, exacerbated by the downstream consequences of direct impacts to business.
  • It is possible that the virus and its mutations will impose a long-lasting threat, resulting in long-term changes to patterns of living and working.
  • Some of the changes brought about by the pandemic are accelerations of existing trends, such as working remotely, adoption of cloud-based solutions, and telemedicine; as such, these will remain in place after the crisis subsides.
  • The severity and the duration of the current crisis is indeterminate, undoubtedly leading to long-term consequences.
  • It is likely that as some geographic areas recover, other areas, especially rural areas, will experience new pandemic-based limitations on social interaction.