Demand for digitization to support European economies drives IT services vendor investment

/0 Comments/in /by

Dramatic need to shift to contactless payments

Prior to the pandemic, demand for digitization services and deals in the European financial, public and retail verticals grew at a generous rate. Europe-focused vendors covered by TBR, including Accenture (NYSE: ACN), Atos (Nasdaq: ATOS), Capgemini, Deloitte and T-Systems, consistently expanded services and contracts surrounding related capabilities, such as cloud, blockchain and automation, feeding these healthy verticals. However, vendors and clients faced numerous challenges as the pandemic hit, such as the need to shift to remote work environments and the need for digital, e-commerce and contactless solutions. In 1H20 most vendors focused on client retention and headcount management, rather than entertaining expansionary strategies. Europe, which felt the impacts of the pandemic in its early months, was among the first to experience a need for digital alternatives, evidenced by accelerated demand for digital infrastructure, banking and payment solutions, benefiting IT service vendors and the struggling European economy.

As consumers faced pressures to go cashless, demand for contactless payment alternatives increased dramatically. While the financial and public sectors had been prioritized in 2020, as they typically make up a large percentage of IT service vendors’ revenues, the retail vertical contracted drastically as lockdowns and supply chain challenges impacted inventory levels. So, while tailoring contracts and generating solutions to attract clients in the financial and public sectors was imperative in the thick of the lockdowns, addressing challenges in retail will complement vendors’ efforts in other verticals as well. From an influx of credit card and debit card usage to increased demand for Apple Pay and other tap-to-pay capabilities, retail clients of IT service vendors were transitioning their client-facing solutions to meet the demand to go digital.

For example, in 4Q20 Atos announced it will use the Atos Codex Internet of Things solution to develop and run nutrition company Goli’s cashless and contactless vending machines, which will be deployed in numerous environments such as shopping malls and airports. The solution also leverages cloud technology to connect cashless payment alternatives and digital wallets to the network. Additionally, Atos holds shares in Worldline, a payment and transaction services company that offers a strong digital payments and contactless solutions portfolio, along with a collaborative partner network. In December Worldline partnered with P3 Financial Group to bolster the real-time digital commerce and e-payments ecosystem in much of Europe.

Other vendors have taken similar action; T-Systems Hungary drove real-time payments on a single platform for ACI Worldwide (Nasdaq: SCIW) in September, strengthening regional initiatives to meet expectations for safer and more secure vertical operations, and Capgemini partnered with SharpEnd and The Drum to develop CornerShop, a retail innovation store that is helping brands, retailers and shoppers utilize technologies to transform their shopping and customer engagements in preparation for the post-pandemic world. Further detail and analysis on the store are available in TBR’s 4Q20 Capgemini report.

Previous investments in emerging tech like blockchain paved the way

Going back about 10 years, digitization drew consumer attention in the mid-2000s, when in-house cloud computing caught fire and distributed ledger technologies emerged. Leveraging blockchain, cryptocurrency entered the market as a private payment alternative that offered greater security and cut out banks altogether. Bitcoin, arguably the poster child of cryptocurrency, quickly became an investment tool for many users, though its position as a go-to currency in the black market and, more importantly, its price volatility made its use an unpopular choice for the average consumer.

Changing regulations related to IT technologies, such as blockchain and digital assets, have challenged Europe-centric vendors despite the opportunity to capitalize as consumer preference shifts to digital. IT services vendors covered by TBR will likely face new contract and deployment challenges in the region, alongside pre-existing obstacles related to the COVID-19 pandemic. TBR believes a greater focus on digital and contactless payments, e-commerce, and digital banking and currencies from vendors will be an important aspect of economic regrowth in Europe and lead to adjustments in financial, public and retail verticals to better complement one another.

Digital twins, innovation and Godzilla: 3 IT services trends for the rest of 2021

/0 Comments/in /by

Digital twins, supply chains and IoT fuel near-term opportunities

Increasingly in 2021, IT services vendors and consultancies will expand their offerings around digital twin solutions, reacting to both the maturation of the technology enabling digital twins and the heightened awareness, brought on by the pandemic, of the value of digital twins, particularly in the manufacturing space. Vendors that have acquired manufacturing sector expertise or can build on legacy capabilities around product engineering services should be best positioned to expand within existing clients and grow market share.

As digital twins become part of the supply chain, consultancies will likely use IoT-enabled solutions to mitigate some of the challenges brought forward in the pandemic, when manufacturers over-rotated on supply chain optimization without sufficient consideration for broad-based ecosystem risk. As technology vendors, such as Microsoft (Nasdaq: MSFT), strike new partnerships to bring cloud-enabled analytics to shipping, opportunities for IT services vendors and consultancies will expand for interoperability across supply chains, orchestration of technologies and data, and change management. This will be especially true as manufacturing clients with legacy machinery look to move to the cloud following the pandemic-induced stampede by all industries to cloud.

Key marker for TBR as 2021 unfolds: The number of IT services vendors’ and consultancies’ SAP-specific engagements in the manufacturing sector

Notable recent vendor activities:

  • As cloud becomes Accenture’s (NYSE: ACN) de facto technology driving services opportunities, the company is also building relationships with local leaders to create alternatives to widely adopted supply chain channels that COVID-19 highly disrupted. For example, the purchases of REPL Group and GRA will bolster Accenture’s supply chain consulting and operations capabilities across the U.K. and Australia. At the same time, Accenture collaborated with data intelligence vendor Ripjar to jointly support Royal Dutch Shell’s efforts to enhance its supply chain screening capabilities.
  • In 1Q21 Tata Consultancy Services (TCS) launched the Autoscape Autonomous Vehicle (AV) Solutions suite, which provides data services and tools to accelerate AV development for OEMs, startups and other players in the AV ecosystem. Establishing itself as an innovative partner in spaces such as AV development and leveraging deep domain expertise help TCS pursue high-value business advisory services.
  • Enterprises in the manufacturing sector weathered the worst of the pandemic at the beginning of 2020 and made the necessary run-the-business operational changes to improve operational efficiency and reduce costs. As such, Atos (Nasdaq: ATOS) evolved its relationships and is currently working with clients to ensure their IT environments and workforce processes are modernized, secure and digitally enabled, and their operations are resilient. Atos is offering the benefits of cloud infrastructures through the Atos OneCloud portfolio initiative aimed at modernizing clients’ applications and improving business processes through industry-specialized cloud solutions and acquisitions, such as that of Maven Wave, which added cloud and technology consulting capabilities, notably around Google Cloud, and Miner & Kasch, which added AI and machine learning capabilities.

For additional information, see TBR’s upcoming IT Services Vendor Benchmark in June, which will contain a special section on manufacturing, as well as TBR’s quarterly reports on the vendors mentioned above.

Give me innovation, not transformation — or maybe the other way around

As dramatic operational fluctuations stemming from the pandemic — with companies scrambling to first ensure employee safety and well-being, then secure productivity and push for a return to growth — begin to level off and move into more normal cadences and reliably predictable financial performances, enterprises forced to be resilient and innovative in 2020 have begun expecting increased innovation and transformation from their IT services vendors. Run-the-business and cost-cutting engagements, paired with cloud adoption, drove revenues through the second half of 2020; innovative strategies to take advantage of a massively disrupted market and transformation to take advantage of the cloud will drive revenues through 2021.

After a year of risk and worry and a period focused on optimization and stabilization, enterprises have returned to pilot projects aimed at internal disruption and capturing new market opportunities. This trend increases consultancies’ stickiness with clients in the short term, while opening those consultancies to risks of losing market share as more technology-centric IT services vendors use cloud and an entry to IT transformation. In the words of one IT services vendor senior executive, “Innovation is strategy; transformation is a repeatable framework. Get the expensive consultants for innovation and the cheaper offshore-centric services vendor for transformation.”

Every quarter, TBR’s Professional Services and Digital Transformation teams consider trends across the IT services industry, expected impacts on leading vendors, and opportunities for further competitive differentiation and separation. We then fold these trends into our ongoing research and examine how each vendor responds, often through speaking directly with the vendors to assess their positioning against these trends and expected opportunities.

Is it time for the Big Four referees to educate the public sector on the benefits of rules changes?

/0 Comments/in /by

In TBR’s newest blog series, What Do You Think?, we’re sharing questions our subject-matter experts have been asking each other lately, as well as posing the question to our readers. If you’d like to discuss this edition’s topic further, contact Geoff Woollacott at [email protected].

Adoption accelerated as innovation stalled

Last year’s pandemic-induced changes across the technology space and society overall led TBR to consider how the pandemic accelerated existing technology adoption trends. From an emerging technology perspective, we increasingly believe private sector adoption will remain stalled until public sector actors with scale and influence rethink operating practices and enact and enforce regulatory governance. Several years ago, our “wallet versus will” special report argued that the public sector used to lead in technology adoption when funding was the decisive factor but lagged in technology adoption when consensus on common business rules proved elusive. Add in a pandemic, and we’re questioning whether private sector innovation has hit a roadblock that will be resolved only when there is greater public-private partnership and, more importantly, an ability for our political leaders to come to some consensus. Consider the following:

  • Our latest research around blockchain suggests a current period of disillusionment. Reaching the scale technologically feasible to generate business returns requires better automation and regulatory agility or the networks won’t achieve scale through broader ecosystem participation.
  • Globally, poor international cooperation related to the sharing of information and the movement of people between countries contributed to the spread of COVID-19. Imagine a blockchain-enabled universal product code (UPC) on a smartphone functioning as an international system of record regarding vaccination history.  

Early in the pandemic, supply chain disruptions made headlines and every consumer felt the impacts. Blockchain-enabled smart supply chains, tied into ports and international transactions, could have smoothed out some of these disruptions if the distributed ledger technology had been broadly embraced by countries and their import/export hubs. The Republic of Venice once ruled commerce, reaching the pinnacle of its power from 1425 to 1500. It’s no coincidence that general ledger accounting was invented in Italy during that same period.

Moving from city-states to countries, nations fundamentally seek to protect their citizens through sovereign laws, with many regulations revolving around property, currencies and finances. Cryptocurrency purportedly separates currency from nations. In one potential scenario, China’s newly launched digital yuan topples the U.S. dollar as the de facto international currency trading standard, greatly reducing the impact of economic sanctions from the U.S. foreign policy tool set. Venice’s grip on the Mediterranean loosened for many reasons and while blockchain wasn’t among them — needing another 500 years to be invented — the parallels to the U.S. can be unsettling.

Private sector initiative proved emerging tech-enabled practices are essential; now comes public sector education

Out of necessity, the private sector accelerated emerging technology-enabled use cases to address the pandemic’s impact. This highlighted gaps in how the public sector operates and responds to significant changes in the commercial space. For newly enhanced technological tools to deliver tangible business and social benefit after these proofs of concept, government must accommodate new ways of working while still providing expected regulatory benefits to its citizens against moral hazards. Not surprisingly, advisory firms with the tax and audit knowledge essentially acted as referees within the free-market systems that frantically developed the workarounds to sustain business operations in 2020, exposing the ways in which the public sector decreases, rather than increases, the efficiency and viability of emerging technology-enabled operations.  

So, what do you think? Is it time for the Big Four referees to educate the public sector on the benefits of rules changes?

Know your consultancy: EY’s FinCrime practice and the future of compliance

/0 Comments/in /by

Be the frictionless provider of FinCrime services

Ron Giammarco, leader of EY Global FinCrime Managed Services, described EY’s foundational principles for the financial crime practice in both technology and business model terms, noting that the firm has been committed to making every new offering cloud-native, but still deployable on premises. EY’s FinCrime practice, which was established 20 years ago, generates $1 billion in annual revenue, and there are over 30 clients on the firm’s FinCrime technology platform. To further its business, EY is determined to own the technology ecosystem, including all the intellectual property within the practice and every aspect of the relationship with clients.

In Giammarco’s view, EY should provide “frictionless” experiences for clients using its different platforms and solutions, with EY smoothing out any underlying technology or partnering issues. To offer those platforms, Giammarco noted, the firm has decided to acquire and partner as much as possible, building assets internally only when needed. In TBR’s view, these foundational principles reflect a shift in EY’s approach to technology and the firm’s overall ecosystem.

Embracing the business model shift and the substantial financial investment needed to be a technology company — at least to the degree EY is now — requires reorienting around the current competitive and partnership landscape, not the more siloed and opaque environment of several years ago, when digital transformation emerged as a challenge to the traditional consulting business model. Among the significant changes, Microsoft (Nasdaq: MSFT) and SAS now list EY’s offerings within their own services catalogs, and EY expects those partners to not only provide technology support but also engage in sales efforts and the onboarding of new clients.

EY’s differentiation: Expertise, discipline and global standards

Within this changed competitive and partnering environment, EY has been challenged to differentiate from peers, an effort TBR has tracked across Strategy and Transactions, Blockchain and other EY practices. For Nic Bastable, leader of EY Global Financial Crime Managed Services Delivery, the firm’s uniqueness has coalesced around three main characteristics. First, EY has developed deep domain expertise, which continues to evolve. Bastable explained that every FinCrime interaction, even through a managed services arrangement, has eventually led to an analyst helping a bank make a financial crime risk decision, which has involved more than just following simple procedures.

EY has invested in its professionals, building career tracks for FinCrime analysts and providing ongoing training, which led the firm to have, in Bastable’s opinion, differentiated expertise. Second, within the complex environment of helping banks make decisions about risk, EY has exhibited tight operational controls — essential at the global scale of EY’s services and to meet clients’ needs. Third, over years of providing FinCrime services, EY has created a global standard operating model, distilling best practices from dozens of engagements, by thousands of professionals, across more than a million events. Underlying all this, according to Bastable, EY brought automation and efficiency to the firm’s operations and delivery, further differentiating the value of EY’s services.

In TBR’s view, while each of the core elements of EY’s FinCrime practice does not separate the firm from specialists or niche services providers, the combination, particularly with global reach and substantial scale, gives the firm a compelling story. Overall, EY’s FinCrime practice does not depend on setting itself apart from peers, especially as professional services firms rarely differentiate from one another; instead, EY succeeds through solidifying trust by offering domain depth and delivering.

With Nuance, Microsoft buys into healthcare and more

/0 Comments/in /by

Microsoft announced its second largest acquisition in company history on April 12 with its intent to purchase Nuance Communications for $19.7 billion. Nuance’s presence in the healthcare vertical was touted as driving the move, but TBR believes much deeper and broader strategies were behind Microsoft’s decision.

Buying Nuance gives Microsoft an opportunity, but not a guarantee, to sustain growth

The announced acquisition of Nuance is the culmination of multiple elements of Microsoft’s recent performance, strategy and growth plans. On performance, Microsoft has benefitted from the COVID-19 pandemic perhaps more than any other technology vendor. Technology demands of businesses and consumers reacting to the pandemic boosted nearly all of Microsoft’s sprawling businesses, aside from an initial downturn in advertising spend that negativly impacted the LinkedIn business. From a strategy perspective, industry specialization has been a growing focus for Microsoft over the past five years, which is a shift in its mostly horizontal technology approach throughout its long history. Healthcare has been a frequent focus, but so too have retail, manufacturing and financial services specialization.

Lastly, in growth, Microsoft has been searching for the next $10 billion plus growth business. Microsoft Office 365 and Azure are clearly carrying Microsoft’s financial performance to date, but new addressable markets are needed to carry corporate growth and profitability for the next decade. While Nuance itself cannot assume that burden, the capabilities Microsoft will acquire will make many of its core technologies relevant to a much wider audience and set of use cases. In this way, the purchase of Nuance is similar to that of LinkedIn, with the full value of the investment hinging on successfully leveraging the technology to benefit as many other business units as possible.

Healthcare is large and ripe for IT investment

Unsurprisingly, healthcare has a profound impact on modern society, with an industry size to reflect that. In the U.S. alone, healthcare spending was $3.8 trillion in 2019, representing 17.7% of total gross domestic product (GDP). Furthermore, healthcare spending increased by 4.6% in 2019, a rate far outpacing growth of the overall economy.

Those facts are only part of the reason healthcare is such an attractive market for IT companies. While many verticals have fully embraced technology-driven transformation over the past decade, healthcare has been much slower to change. While technology has fundamentally changed the retail experience and business model, healthcare’s core operations and customer experience have remained much the same. Delaying this maturity in part are the strict regulations, such as the Health Insurance Portability and Accountability Act (HIPAA), which healthcare entities in the U.S. must meet, creating substantial risk for any IT budget decision makers planning to modernize their environments with cloud, let alone pursue innovative technologies such as IoT to improve the care they provide to patients.

There are glimmers of promise that the healthcare vertical is ready to begin transformations driven by increased technology adoption. Part of the shift is a generational change in doctors and providers. The influence that doctors have within the healthcare industry is one of the attributes that makes the healthcare vertical unique. Generational change among the physician ranks is having an outsized impact on the acceptance of technology within healthcare, but that is only one of the factors pointing to an increase in technology adoption.

Outside of shifting perception, the impact of COVID-19 has forced hospitals and patients alike to embrace solutions that have been around for years but are now a necessity to maintaining the patient-doctor relationship and safety, such as telemedicine. And with all major cloud technology providers offering HIPAA compliance, along with an ecosystem of partners that can leverage those delivery platforms, the aforementioned regulatory requirements are now less of a barrier in slow technology adoption.

TCS Will No Longer Be World’s 3rd Biggest IT Firm Because Of This Surprise Reason!

/0 Comments/in /by

“The Atos-DXC transaction could form the world’s second-largest global IT services vendor, closer to the size of Accenture ($45 billion revenue in 2020) and larger than TCS ($22 billion revenue in 2020), according to Elitsa Bakalova, Senior Analyst at research firm Technology Business Research, Inc. … This is something the company has been pursuing in fits and starts over the last five years, mostly through acquisitions and changes in leadership in North America, Bakalova said.” — Trak.in

Edge computing: 2Q21 insights from TBR’s Services and Cloud teams

/1 Comment/in /by

Technology and complexity bring opportunities to services around edge

Join Patrick Heffernan, Boz Hristov and Nicki Catchpole for a cross-practice discussion on how the ever-evolving complexity of edge computing is impacting digital transformations and creating opportunities for IT services vendors and consultancies. TBR’s subject-matter experts will discuss edge-specific use cases across multiple industries and unpack implications for partnerships across the full digital transformation ecosystem.

Don’t miss:

  • Key trends driving the evolution and adoption of edge computing, as well as the current state of the market
  • Use cases for edge computing, including those stemming from the COVID-19 pandemic
  • Overview of the ecosystem of partners who come together to support growth at the edge
  • How IT services vendors and consultancies are responding to the uptick in demand for edge computing

Register today to reserve your space

Cloud vendors make the most of their COVID-19 stimulus

/0 Comments/in /by

Join Allan Krans, Nicki Catchpole, Evan Woollacott and Catie Merrill for a glimpse into the continued acceleration of cloud adoption as the COVID-19 pandemic abates. The discussion will shed light on how the value of cloud was reinforced during the pandemic, leading to accelerated spending as conditions have stabilized and improved in the first half of 2021. 

Don’t miss:

  • How technology and business strategies have changed for cloud customers and vendors
  • How mission-critical workloads are now moving to hybrid and cloud delivery methods
  • The role consumption-based pricing options are playing for customers

Mark your calendars for June 9, 2021 at 1 p.m. EDT,
and REGISTER to reserve your space.

Blockchain: 2Q21 insights from TBR’s Digital and Services teams

/1 Comment/in /by

Transforming the economic engine one block at a time

Join Patrick Heffernan, Boz Hristov, Evan Woollacott and Geoff Woollacott for a webinar examining the state of adoption for blockchain as well as the impact on buyer’s digital transformation initiatives. The need for a community approach will require frenemies to collaborate but only if enabled by public-private frameworks. TBR will discuss blockchain-specific use cases through the lens of a multienterprise business network (MEBN) framework and unpack insights around the impact of blockchain on business models of technology and services vendors.

Don’t miss:

  • Key trends driving the evolution and adoption of blockchain, as well as the current state of the market
  • Use cases for blockchain through the lens of an MEBN framework
  • Overview of the ecosystem including implications to vendors’ business models and the role of blockchain as it relates to digital transformation  

Register today to reserve your space

COVID-19 will fade, but cloud reliance will remain

/0 Comments/in /by

The COVID-19 pandemic and its wide-ranging effects forced businesses to adjust in 2020 and now into 2021, but these changes will persist much longer than the pandemic. Most businesses made a wide range of changes to their IT strategies over the past year, but there are a number of commonalities. The first commonality is that technology is at the heart of how organizations have adjusted to COVID-19’s effects, to service their own employees and the changing needs of their customers. Cloud-delivered technology, in particular, has been core to providing the speed and scalability needed to support these adjustments in the most agile manner possible. The other commonality in COVID-19 responses is that organizations found a way to support increased technology spending, even in a time of much economic uncertainty. Cloud investments were prioritized during the course of 2020, which is reflected in the overall stability and continued growth of the market throughout the year.

Figure 1

AWS, Microsoft Azure and Google Cloud Platform are even more critical to the IT industry

While the market continued to grow and leading firms maintained their momentum, they were not unscathed by the effects of COVID-19. Vendors experienced a dip in revenue growth rates during 2Q20, at the height of uncertainty and pessimism. The dip was driven by businesses pulling back spending in anticipation of a pronounced economic slowdown. Even though COVID-19 infection rates grew worse through the end of 2020, economic expectations recovered and the uncertainty around how COVID-19 would impact business results diminished, putting cloud revenue growth from the leading vendors back on previous trajectories. Though the business strategy and dynamics were much changed, the continued growth of the leading firms was back on track.

In many ways, COVID-19 accelerated but did not actually alter the course of cloud technology’s impact on the IT market. As a delivery method, cloud was already eroding traditional IT and far outpacing the overall growth in spending. Most customers had some level of cloud investment prior to 2020, with many using cloud solutions for mission-critical elements of their enterprises. After a year of dealing with pandemic-driven disruption, cloud utilization has grown significantly. Cloud adoption happened faster than most organizations planned moving into 2020, as business changes forced customers to overcome cultural, budgetary and technological barriers in making adjustments to their operations. The good news for cloud vendors is that this change in behavior should last well beyond the direct impacts of COVID-19. The challenge is how to meet this enhanced level of demand, which requires investment now to get additional data center capacity and services online ahead of increased needs. The market may have reached this place eventually, but both customers and vendors are accelerating their cloud strategies to account for the more prominent role cloud will play in the overall IT market moving forward, even as COVID-19 fades, hopefully sooner rather than later.