EY tackles COVID-19 and prepares for Next and Beyond

Now, Next, Beyond: The perfect framework for our COVID-19 present

In a wide-ranging discussion centered on COVID-19, EY’s global leaders detailed for TBR the firm’s views on the current situation, the immediate needs and opportunities ahead in 2020, and what the post-pandemic reality will be for EY and its clients — Now, Next and Beyond. As an EY framework for a couple of years, Now, Next, Beyond perfectly suits the current moment, when enterprises across the globe need assistance addressing immediate operational challenges, from supply chain to financing to human resource management. At the same time, EY’s clients have already begun planning for or taking the early first steps in implementing changes necessary to survive and grow in the near term, the next few quarters and years. And for EY, the deepest client partnerships are forged through transformations, in which EY serves as trusted partner.

Now: Know your business, know your environment, become resilient

In the Now, EY has brought clients multiple trackers — tools that provide enterprises immediate insights into their operations and expected near-term challenges — while helping to build greater resiliency over time. Even though the pandemic’s impacts vary widely by location and seemingly change daily, assessment and resiliency tools, in EY’s view, remain essential for most enterprises, partly because very few companies came into the pandemic with a data and technology strategy.

As part of the response to COVID-19, the firm rolled out its Enterprise Resilience Assessment Tool and overall COVID-19 Enterprise Resilience Framework to help clients understand the current state, map a route to resiliency and track progress. Extending beyond the enterprise, EY has developed a suite of trackers to help clients follow and understand the constantly changing impacts of the pandemic. EY’s Trade Tracker, for example, provides clients updates on government changes to trade rules, a kind of one-stop trade policy shop. Other tracker focus areas include tax policy, labor and employment law, and immigration. In TBR’s view, these tools — and EY’s emphasis on the big picture, not simply operational needs — underscore the broader value the firm brings to transformational engagements, which should benefit EY as clients move from COVID-19 response to post-pandemic strategy.

Next: Bringing technology to bear in a way EY has not done before

“As one EY professional explained, ‘When we solve a problem through applying tech, and thus creating an asset or tool, we want to productize and commercialize and globalize.’ Like a ship making course corrections while still navigating toward a desired destination, EY has adjusted its business model, folded asset-based consulting and managed services into traditional consulting, and committed to emerging technology.”TBR special report Now. Next. Beyond.: EY’s road map for moving from current to future, May 2019

Turning to growth, EY’s leaders noted that clients increasingly speak to the firm about the need for technology at speed and innovation at scale, with humans at the center. For a firm with a relatively new foundation in technology at speed, EY provided TBR use cases and details around how the firm meets those clients’ technology demands.

Over three separate hourlong briefings with EY leaders in Europe, Asia and the Americas, TBR analysts heard details on the firm’s initial response to the COVID-19 pandemic as well as its strategies for serving clients in the post-pandemic world. While this special report contains information provided by EY as well as TBR’s analysis, a more complete assessment of the firm can be found in TBR’s recently published semiannual Management Consulting Benchmark.

Even with slower growth, management consultancies should come through 2020 positioned to help clients weather disrupted digital transformations

Management consulting market summary

Outlook

Regardless of whether the pandemic lingers, re-emerges in the second half of 2020 or significantly subsides, TBR expects consultancies will benefit from opportunities created by the chaos of COVID-19, such as uneven responses from government authorities around economic fallout, pandemic protocols and continued uncertainty throughout 2020. Vendors with greater scale, more established technology-centric brands, and deeper partnerships with cloud and software providers will weather the crisis and alleviate pressures on front-end management consulting by price-conscious clients that demand flexible payment terms. TBR expects management consulting revenue growth for the benchmarked vendors to decelerate to 3.5% year-to-year in 2020 but to continue to outperform revenue growth for the benchmarked IT services vendors.

Disruptors

Every part of the global economy, including the IT services and management consulting markets, are experiencing serious disruptions from the global COVID-19 outbreak. Countrywide lockdowns and changes in travel and personal interaction to limit the spread of the virus, have forced changes in human resource management for vendors and their clients, some short term and some likely permanent. Macroeconomic uncertainty due to the pandemic is pushing clients to re-evaluate their spending and shift their priorities from high-touch, large-scale strategic transformational discussions to tactical run-the-business and price-competitive managed services opportunities.

Overview

Benchmarked vendors in the management consulting segment increased revenue 7% year-to-year in 2019, a growth trend that continued to surpass that of benchmarked IT services vendors in TBR’s IT Services Vendor Benchmark, which expanded 1.9% year-to-year in 2019. The Big Four vendor group remained the largest revenue contributor at 55.8% of benchmarked revenue in 2019; however, strategy-led vendors increased their market share by 10 basis points year-to-year to 28%. Big Four and strategy-led firms are expanding their intellectual property assets and managed services capabilities to position as business advisers with holistic service capabilities.

The Management Consulting Benchmark provides key service line, regional, vertical and operational data and analysis for 13 leading management consulting firms. The research program also includes a deep dive into 11 vendors’ business strategies as well as SWOT analysis.

Vendors pursue tactical run-the-business engagements to help clients react to COVID-19 and relaunch business operations

Management consulting market summary

Outlook

Regardless of whether the pandemic lingers, re-emerges in the second half of 2020 or significantly subsides, TBR expects consultancies will benefit from opportunities created by the chaos of COVID-19, such as uneven responses from government authorities around economic fallout, pandemic protocols and continued uncertainty throughout 2020. Vendors with greater scale, more established technology-centric brands, and deeper partnerships with cloud and software providers will weather the crisis and alleviate pressures on front-end management consulting by price-conscious clients that demand flexible payment terms. TBR expects management consulting revenue growth for the benchmarked vendors to decelerate to 3.5% year-to-year in 2020 but to continue to outperform revenue growth for the benchmarked IT services vendors.

Disruptors

Every part of the global economy, including the IT services and management consulting markets, are experiencing serious disruptions from the global COVID-19 outbreak. Countrywide lockdowns and changes in travel and personal interaction to limit the spread of the virus, have forced changes in human resource management for vendors and their clients, some short term and some likely permanent. Macroeconomic uncertainty due to the pandemic is pushing clients to re-evaluate their spending and shift their priorities from high-touch, large-scale strategic transformational discussions to tactical run-the-business and price-competitive managed services opportunities.

Overview

Benchmarked vendors in the management consulting segment increased revenue 7% year-to-year in 2019, a growth trend that continued to surpass that of benchmarked IT services vendors in TBR’s IT Services Vendor Benchmark, which expanded 1.9% year-to-year in 2019. The Big Four vendor group remained the largest revenue contributor at 55.8% of benchmarked revenue in 2019; however, strategy-led vendors increased their market share by 10 basis points year-to-year to 28%. Big Four and strategy-led firms are expanding their intellectual property assets and managed services capabilities to position as business advisers with holistic service capabilities.

The Management Consulting Benchmark provides key service line, regional, vertical and operational data and analysis for 13 leading management consulting firms. The research program also includes a deep dive into 11 vendors’ business strategies as well as SWOT analysis.

Atos and COVID-19: Serve now and prepare for the future

Atos, its clients and its communities will be ‘Future Ready’

In a one-hour virtual session with analysts, Atos’ Pierre Barnabe, head of Public Sector & Defense as well as Big Data & Cybersecurity, and Robert Vassoyan, head of Healthcare & Life Sciences as well as Unified Communications & Collaboration, detailed the company’s response to COVID-19, framing the discussion around communities, clients and technology and explaining what Atos expects as the world emerges into a post-pandemic, “Phase 2 Future Ready” world. In contrast to some peers in the IT services space, Atos’ initial emphasis on “serving our communities” reflected an ecosystem-centric view of the changed environment that brought the company’s responses to the pandemic to a different level. Barnabe and Vassoyan spoke specifically about serving national governments, healthcare providers, schools and public safety officials.

In addition, Atos mentioned helping clients facilitate an increase in remote and contactless payments, adjust their responses to new behaviors and consumption patterns (such as in utilities), broadcast media from remote and global locations, and enhance cybersecurity in work-from-home environments. In all, Barnabe and Vassoyan emphasized that the company’s ethical commitment to being an active and responsible corporate citizen was not challenged in response to COVID-19 but was, instead, core to how the company managed the pandemic and positioned itself and its clients for the next phase. 

Atos uses an industry-led organization to understand clients’ business priorities

Atos leads with technology-enabled solutions and technology expertise to solve clients’ business problems. The new industry-led organization, which has been in the works since early 2019 and was implemented in 1Q20 with six global industries and five regional business units, improves the company’s ability to cater to clients’ industry-specific needs and generate business outcomes. According to TBR’s 1Q20 Atos report, “While Atos’ performance will be negatively affected by the COVID-19 outbreak, the company has a relatively resilient business profile that will enable it to operate in the crisis. Approximately 67% of Atos’ revenue is generated by multiyear contracts that contribute recurring revenue streams; 10% by big data and cybersecurity solutions, which are in demand due to COVID-19; and 23% by projects, which depend on discretionary spending and usually experience slowdowns during economic uncertainty.”

TBR also noted that “a balanced vertical mix with revenue contributions of between 12% and 20% across the six industry groups will allow Atos to use growth opportunities in sectors such as telecommunications, healthcare and public sector to compensate for growth challenges in industries highly impacted by COVID-19” such as automotive, retail, and travel and transportation.

Atos in a post-pandemic world: Atos is utilizing its industry-led approach and technology expertise in areas such as supercomputing and machine learning to address clients’ immediate needs driven by the global COVID-19 outbreak, help clients recover and adapt, and prepare their businesses for the future.

Rooted and stable yet innovative, HCLT relies on core strengths to drive profitable growth

TBR assessment

HCL Technologies’ (HCLT) Mode 1-2-3 strategy remains a core pillar in the company’s efforts to navigate the dynamics of the ever-evolving IT services market, and positions it to transition its portfolio and address client needs now and post-pandemic. At the 2020 Analyst and Advisor Day, HCLT President and CEO C Vijayakumar noted, “The strategy is applicable to any business or enterprise.” Executing successfully on the strategy requires equal commitment from leadership and employees.

HCLT’s leadership is “strong and stable,” according to C Vijayakumar, with 30 top executives with an average of 26 years of experience with HCLT — a striking contrast to some of the company’s peers that have experienced a slew of executive departures and changes at the helm in recent years, such as Wipro’s (NYSE: WIT) May appointment of former Capgemini executive Thierry Delaporte as CEO. As such, HCLT is able to stay the course of its strategy — to utilize engineering and infrastructure services as a core enabler to drive digital transformation engagements and profitable growth — without deviating too far into unchartered domains. Its leadership also acts as a talent magnet, as a charismatic and consistent vision often trumps micromanagement tactics.

Services remains a people business, and HCLT knows it. While the company continues to embed automation to augment services, it relies heavily on its greatest asset, its employees, to extract the most value from its investments. With engineering services at its core, HCLT can execute on what the client wants — provided the client knows what they want — and the company is not shy about challenging its clients as it seeks to not simply solicit new business but to introduce innovative ideas. All of this would not be possible if HCLT did not stay true to its talent strategy.

Just like with its portfolio offerings, HCLT relies on staff with core capabilities. Consulting engineers, not consultants, are what differentiates HCLT from many of its peers, which often lose sight and aspire to be something for which they are not known. Just as talent carries a significant weight in HCLT’s differentiation, the way the company manages its partner network also has an impact on value proposition. As services and software relationships evolve to account for changing buyer expectations, HCLT must remain vigilant in not just how it partners but also with whom it partners. With COVID-19 shifting buyers’ digital transformation priorities and forcing clients to consolidate budgets, maintaining trusted relationships with business leaders will be key, compelling HCLT to forge exclusive relationships with technology-inclined business consultancies to ensure long-term success.

“A simple strategy and relentless focus on execution” fueled HCLT’s ability to accelerate revenue growth while maintaining margin performance over the past two years. During the HCL Analyst and Advisory Day, company executives, along with regional and segment leaders including the CEO, walked through HCLT’s business performance and growth areas, identifying bright spots within industry and service segments that align with the company’s business investments. While HCLT’s areas of investment, such as security, cloud, IoT and digital, do not vary significantly from those of its peers, the company has differentiated itself with its Mode 3-specific investments and leans on its talent and culture, ongoing innovation, and business outcomes achieved for clients to capture new opportunities around these growth areas.

Cloud professional services and hosted private cloud markets will grow over the next 5 years as COVID-19 drives cloud adoption

COVID-19 has undoubtedly created financial pain for businesses across all verticals. Business operations have been disrupted and revenue streams have declined in many industries across the globe. At the same time, the pandemic has required additional investment to support remote work and adjust business processes to align with public health guidance from the Centers for Disease Control and Prevention, including social distancing. However, even amid these financial challenges, businesses have spent and plan to continue spending more of their IT resources on cloud-delivered services. Cloud’s benefits of agility, innovation and a high degree of automation have been reinforced during the pandemic and have prepared adopters for the next unknown disruption to their business.

Given these circumstances, TBR’s market forecasts for cloud professional services and hosted private cloud have been adjusted to reflect the impact of COVID-19 over the five-year forecast period. In the next two years, we anticipate growth will slow slightly due to the impacts social restrictions are having on supply and demand. Particularly given the uncertain environment, business spending will likely take longer to rebound than in previous economic downturns. This holds true across IT departments, as many businesses that have on-premises IT infrastructures will postpone cloud deployments until after the pandemic abates.

As such, workload activity including legacy SAP, VMware and Oracle migrations to bare metal IaaS and the associated services opportunity will be affected. While these impacts will reduce market growth by a few percentage points through the remainder of 2020 and into early 2021, the flexible nature of cloud-based transactions make the cloud professional services and hosted private cloud markets less susceptible to the virus’s near-term effects than other markets within the IT industry. COVID-19 is testing many companies’ IT preparedness, and as a result, a notable increase in cloud usage will occur once the virus subsidies and IT spending returns to normal, driving accelerated growth from 2022 to 2024.

TBR’s Cloud Professional Services Market Forecast and Hosted Private Cloud Market Forecast provide insights into how market sizes, growth and vendor positions will change over the next five years. Each forecast is broken down into four subsegments and both forecasts cover the Americas, EMEA and APAC.

Accelerated adoption of cloud due to COVID-19 will lift cloud professional services and hosted private cloud markets

COVID-19 impacts and assumptions

COVID-19 has undoubtedly created financial pain for businesses across all verticals. Business operations have been disrupted and revenue streams have declined in many industries across the globe. At the same time, the pandemic has required additional investment to support remote work and adjust business processes to align with public health guidance from the Centers for Disease Control and Prevention, including social distancing. However, even amid these financial challenges, businesses have spent and plan to continue spending more of their IT resources on cloud-delivered services. Cloud’s benefits of agility, innovation and a high degree of automation have been reinforced during the pandemic and have prepared adopters for the next unknown disruption to their business.

Given these circumstances, TBR’s market forecasts for cloud professional services and hosted private cloud have been adjusted to reflect the impact of COVID-19 over the five-year forecast period. In the next two years, we anticipate growth will slow slightly due to the impacts social restrictions are having on supply and demand. Particularly given the uncertain environment, business spending will likely take longer to rebound than in previous economic downturns. This holds true across IT departments, as many businesses that have on-premises IT infrastructures will postpone cloud deployments until after the pandemic abates.

As such, workload activity including legacy SAP, VMware and Oracle migrations to bare metal IaaS and the associated services opportunity will be affected. While these impacts will reduce market growth by a few percentage points through the remainder of 2020 and into early 2021, the flexible nature of cloud-based transactions make the cloud professional services and hosted private cloud markets less susceptible to the virus’s near-term effects than other markets within the IT industry. COVID-19 is testing many companies’ IT preparedness, and as a result, a notable increase in cloud usage will occur once the virus subsidies and IT spending returns to normal, driving accelerated growth from 2022 to 2024.

TBR’s Cloud Professional Services Market Forecast and Hosted Private Cloud Market Forecast provide insights into how market sizes, growth and vendor positions will change over the next five years. Each forecast is broken down into four subsegments and both forecasts cover the Americas, EMEA and APAC.

IBM Z’s relevance will persist in the digital world

Software abstraction converges ICT onto single platforms

Software-defined networking essentially virtualizes the last leg of the three-cornered compute, storage and networking stool. Similarly, the software abstraction makes compute and networking mere workloads on the compute instance. Vodafone’s (Nasdaq: VOD) customer case study at Think 2020 addressed this integrated data and networking construct being delivered from one cloud computing architecture. New terms are now being coined to talk about the various compute form factors rapidly coming into view. Edge computing, edge cloud and fog computing all seek to describe new compute instances being deployed closer to humans and connected machines that will drive economic and social activity in the digital age. A single cabinet Z, therefore, can become the converged ICT install at the department and branch level. Carry out several more form factor reductions, and the concept of Z at the edge does not seem so far-fetched or beyond the realm of IBM (NYSE: IBM) engineering to achieve.

Form factor miniaturization comes to the Z; is Z at the edge on the horizon?

Most people unfamiliar with Z view it as a “behind the glass” monolith in need of air-cooled rooms and water-cooled architectures. Z now comes in standard 19-inch rack cabinets, with the first air-cooled model introduced this year at Think 2020. IBM aims this form factor at SMBs and startups, each of which represents new markets for Z. This design enhancement is the latest of many innovations IBM has brought to the Z architecture in recent product cycles.

Chapter 2 of the cloud, as IBM defines it, will be the unlocking of enterprise data for distribution throughout a hybrid multicloud world. Distributed, ubiquitous computing might flip the axis on the business considerations and technology applications for risk mitigation as the frictionless movement of data among and between enterprises becomes the norm, but it does not signify the death knell of the mainframe. If anything, this new computing architecture requires a virtual custodian and traffic cop for data security and for dynamic identity access and management. Recent design enhancements to the venerable Z architecture, coupled with bringing the Red Hat developer community to Z, have the potential to defend and extend Z’s market relevance far into the future.

Egypt and IT and the center of the world

What makes Egypt attractive

Egypt’s growing IT services and technology sector has been built on important natural advantages and few forward-looking investments in recent years. The country’s proximity to Europe, considerably large and educated talent pool, and relatively low costs compared to nearshore locations such as Poland, Romania and Bulgaria make Egypt a natural hub for IT services, just as it has been a hub for commerce for millenniums. In addition, multinational companies have long-established histories of doing business in Egypt, building up the trust and goodwill needed for large investments and sustained operations. IBM has had a presence in the country for 66 years, and in addition to its six regional delivery centers in Cairo, in 2019 it opened two new centers — an Innovation and Industry Client Center and a Marketing Services Center — to accelerate digital transformation for public and private sector clients through next-generation solutions such as AI, cybersecurity, digital technology, blockchain and hybrid cloud. Sharing a time zone with much of Europe provides Egypt with a natural advantage, particularly relative to India and the Philippines, two outsourcing megacenters. 

Atop these advantages and potentially separating Egypt from other growing outsourcing locations has been active investment by the Egyptian government in developing a business ecosystem, creating jobs and exports, fostering entrepreneurship, encouraging foreign direct investment, and assisting Egyptians in innovation efforts. While this mandate may sound ambitious, Egypt, a country known for large projects, has kept a tight focus on successful development of IT services and technology exports.

Sustained investment in talent

Egypt’s critical advantage could be its talent base, particularly due to the group’s size, technology skills and fluency in multiple languages. According to the Central Agency for Public Mobilization and Statistics in Egypt, approximately 500,000 students graduate from universities in Egypt every year, of which around 90,000 speak English. To assist graduates in finding employment with multinational companies — and to help those companies develop their employees’ skills — the Egyptian government, through ITIDA, partners with companies to provide mentoring, tools and competitions for startups as well as sponsor various hackathons and other initiatives.

The Egyptian IT sector exported around $4.2 billion in services in 2019, according to the Egyptian Information Technology Industry Development Agency (ITIDA). The country’s IT sector has become a substantial part of the overall economy growth, contributing both jobs and export revenues, primarily from BPO, software, application development and maintenance, and technical support services. TBR sees advantages for Egypt in the post-coronavirus world.

COVID-19 will have a relatively limited impact on the TIS market overall as CSPs remain committed to and focused on deploying new technologies

Strong investments by webscales and China-based telcos will carry the telecom infrastructure services (TIS) market through the COVID-19 crisis relatively intact, with a shallow decline of relatively short duration expected in the overall market followed by a robust, sustained recovery as CSPs in other key countries accelerate their infrastructure initiatives to align with the new normal, post-pandemic world.

COVID-19 was a catalyst to accelerate and broaden the scope of digital transformations as well as 5G and edge computing adoption in addition to other trends that were already in motion before the virus entered the picture, such as network transformation via virtualization and cloudification.

 

The Telecom Infrastructure Services Global Market Forecast tracks spend by communication service providers (CSPs), which includes telecom operators, cable operators and webscales, on infrastructure services. TBR categorizes infrastructure services into four distinct buckets: deployment services, maintenance services, professional services and managed services. This research includes current-year market sizing plus a five-year forecast across services segments and regions as well as examines growth drivers, top trends and leading market players. Vendor market share is also included.