GenAI and the Power of the Use Case

Vendors capable of playing nice in the GenAI sandbox and backing up their GenAI stories and promises with delivered results for clients will outpace peers in 2024. Vendors missing any of those components will still be able to benefit from the GenAI gold rush, but they will experience poorer results and diminishing relevance in the market. Download your free copy of TBR’s AI & GenAI Spotlight Report to read more on TBR’s GenAI market research.

What is GenAI?

Generative AI (GenAI) is a type of AI that allows users to create completely unique items, including text, images, video and audio, from written requests. The most critical difference between commonly used AI tools and GenAI is simply the difference between answering a question using available information verse creating a unique answer. AI is asking Alexa who won the Boston Celtics game last night. GenAI is asking Alexa to write a text to a friend to tell him he should have bet on the Celtics for last night’s game.


At TBR we’re continually examining the business models and financial, resource and go-to-market strategies of companies in the technology ecosystem, so we’re often looking beyond the marketing hype to the delivered value and financial results. The use of the word “stories” rather than “strategies” when it comes to GenAI highlights the critical need for use cases for this new technology. In the case of GenAI, what clearly mattered in 2023 and will continue to matter in 2024 is not nuanced strategic decisions or even fine-tuned market positioning but the need to tell a good story.

Top GenAI Uses Cases

Relentless GenAI hype has carried in its wake both credible examples of the technology deployed in pilot projects and wild speculation about use cases that could be scaled once the analytics, compute power, and change management approaches are acquired and aligned.


It is still too early to catalog credible, deployed-at-scale use cases or speculate on which vendors across the entire IT ecosystem have taken any kind of use case lead. Anticipating that kind of analysis in mid-to-late 2024, TBR instead has followed the leads provided by enterprise GenAI buyers who have noted that use cases have mostly been presented in tiers:

  • Short term: Productivity improvements. Notably, these use cases can most credibly and quickly be attested to by IT services vendors and consultancies applying GenAI solutions to their own operations.
  • Midterm: Standard enterprise applications, such as CRM, ERP, HCM and SCM. For these, while the IT services vendors and consultancies may play the role of data and ecosystem orchestrators, the heavy lifting will come from the software and cloud vendors, provided, of course, the infrastructure can support GenAI compute and storage needs.
  • Long term: As one PwC leader put it, “You’re talking to your business, and it talks back.”

Graph: Use Cases GenAI Is Best Suited for

What Makes GenAI Different From Other Next-generation Technology?

How is GenAI technology, especially the popularized applications exemplified by ChatGPT, unique? Well, exactly that popularization, for starters. Enterprise technology buyers and employees influencing technology decision making don’t cower at technical complications; rather, these personas are enthused — possibly terrified, but that’s a short-term phenomenon — by what GenAI can do for them. Plus, most people respond to a story, not a strategy.


A good story around deploying GenAI will stand out in an overhyped market. In the countless discussions around GenAI that TBR has had with clients in the last 13 months, we’ve frequently been asked about use cases, which are, essentially, stories about a company finding a way to use this new magic. Without these use cases, there are no stories around GenAI and, therefore, no excitement. Use cases will remain necessary to GenAI strategy in 2024, but “playing nice in the GenAI sandbox” will increasingly become the clearest marker of a successful GenAI strategy.


While GenAI became the tech world’s darling in 2023, a pivot to ecosystems dominated how TBR began thinking about the changing technology market landscape. At the request of clients and built on decades of deep research around individual vendors, we launched dedicated analysis of how companies we cover interact, including interdependencies, revenues realized, and alignment challenges.


Among the constant themes: Companies that partner well outperform peers. The traditional boast of “end-to-end” makes no sense in today’s technology environment, particularly when one considers the implications of wider GenAI adoption, including challenges around talent, compute power, and compliance. “Playing nice in the GenAI sandbox” will be the difference between making money from GenAI and making a business out of GenAI.


Learn More About the GenAI Landscape

At TBR we’re covering GenAI from nearly every market angle. We publish a wide-ranging view of the GenAI sandbox, from management consultancies to cloud vendors and infrastructure providers to device and chip manufacturers.


Our analysis on how companies will interact around GenAI and, critically, what these companies will look for in alliance partners is just the tip of the iceberg for TBR’s research on the technology. Our recently published new research stream, AI & GenAI Market Landscape, covers GenAI from the perspective of TBR’s Telecom, Devices, Cloud, Infrastructure, IT Services and Consulting experts. Additional market-specific AI research will publish later in the year.


To learn more about TBR’s AI & GenAI Market Landscape, download your free Spotlight Report.

Service Providers: IT Modernization Isn’t Flashy, but It Leads to Tangible Savings. Here’s How …

  • Up to a 75% reduction in time to introduce new services
  • Up to a 99% reduction in time to upgrade or update existing services
  • Average total cost of ownership reduction of 10% to 30%

The above are just a few examples of the real-world business outcomes leading service providers are realizing from their IT modernization projects. These outcomes are critical to ensure service providers can adapt and stay competitive in their respective markets as well as grow revenue.
AI, automation, containers, cybersecurity, hybrid cloud, machine learning and virtualization are all examples of the types of technologies service providers are incorporating into their IT modernization initiatives to yield these cost-efficient, flexible and agile outcomes. AI (especially generative AI) is of particular interest of late following technological breakthroughs from OpenAI’s ChatGPT platform, which has demonstrated that generative AI has developed to a point that it is able to bring useful outcomes to businesses and consumers alike.
Generative AI holds tremendous promise for service providers to further improve business outcomes, primarily thanks to the advanced automation the technology can enable. Though generative AI technology is still nascent, it is likely to be incorporated across service providers’ IT estates, from call centers to cybersecurity to billing systems, bringing cost savings, time savings and resource savings.
The outcomes derived from IT modernization become even more important for service providers as they prioritize fiscal responsibility. With high interest rates and a weakening macroeconomic outlook, service providers need to increase their focus on cost efficiencies. Rather than scale back IT modernization initiatives amid fiscal constraints, service providers should double down on these projects because they can help achieve corporate financial objectives.
IT modernization should be thought of as an iterative journey, starting small and expanding the scope over time. Leading service providers that have significant experience with this journey advise that focused prioritization — a step-by-step, iterative approach that tends to require limited upfront financial commitment and ties up fewer resources — is the best approach because the benefits can be rolled into (built upon) next steps in the journey. This contrasts with a boil-the-ocean approach, which typically encompasses a pan-IT estate lift and shift. This approach tends to be risky and expensive and rarely yields the desired results. Another important factor to yield desired outcomes is to ensure the business is aligned with the IT department on every modernization initiative, because when these stakeholders are not in sync, the desired objectives and outcomes are often not realized.
For a closer look at how the key technologies and processes come together to drive telecommunications IT modernization outcomes (AI, machine learning, automation, hybrid cloud, containerization, cybersecurity and more), download “Adapt, compete and grow: A guide to modernizing telco and cable IT.
To watch a webinar on this topic, “Telecommunications and cable service providers: Modernize IT to adapt, compete and grow,” click here.

Top 2023 Takeaways for the Federal IT Services Market [Infographic]

Current State of the Federal IT Services Market

The most intensive bull market in federal IT spending continues, and the federal IT services market will remain robust through federal fiscal year 2024 (FFY2024). Much IT modernization work has been done, but there is still more to do as federal agencies continue adopting digital technologies such as AI, analytics and machine learning, all while migrating their legacy workloads to advanced cloud infrastructures. Federal spending on technology and related services neared $120 billion in FFY2023, up over 25% from FFY2021 and on a trajectory to surpass $130 billion by FFY2025.


The below infographic contains the three key takeaways from TBR’s latest research on the U.S. federal IT services market and what these events mean for you.

Infographic: Top 2023 Takeaways for the Federal IT Services Market

Top 3 Takeaways for 2024

When Will Leading Federal Systems Integrators Resume a More Active M&A Posture?

Consolidation activity among midmarket federal IT firms remains very robust and will likely generate competitors with the scale and the depth of digital capabilities to challenge the leading federal IT services vendors on future strategic IT modernization programs.

Recent Budget Turmoil Has Not Impacted Federal IT Spending Patterns as Greatly as Expected

Overall growth in the federal IT sector in 3Q23 was the most aggressive TBR has observed since launching its coverage of the market in 2008. The debt ceiling agreement in June 2023 provided a much-needed respite for the federal IT market from the budget turmoil that had impeded growth through FFY2022 and early FFY2023. Latent demand for IT modernization and emerging technologies was set loose by the budget deal in 2Q23, accelerating in 3Q23 and augmenting the usual flurry of award activity in the final quarter of the federal fiscal year.

Federal IT Vendors Standing Up Dedicated Advisory Practices

General Dynamics Information Technology (GDIT) launched a digital transformation (DX) consulting practice in 2Q23, leveraging its network of Centers of Excellence and Emerge Labs, as well as the expertise gained from the more than 4,000 research initiatives that have provided its clients actionable market insights on emerging technologies like AI.


On the heels of GDIT’s announcement, ManTech acquired Definitive Logic Corp. to accelerate the development of its own digital transformation consultancy, adding 330 employees skilled in digital transformation services like data engineering.

What This Means for You

Leading federal integrators will keep a close eye on their midmarket IT services peers, perhaps ahead of renewed M&A activity by the top-of-the-market firms. There is still the threat of a government shutdown during FFY2024, and top-tier integrators have all factored that into their plans for 2024.


Expanding advisory capabilities points not only to the capabilities needs of the vendors that are launching consulting operations but also to the importance of advisory competencies in federal digital transformation.


Technology procurement by federal agencies in 2024 is likely to continue at a brisk pace, as evidenced by expanding outlays for IT initiatives in the Biden administration’s FFY2024 budget across the civilian, defense and intelligence sectors. Several federal systems integrators have also tendered projections for continued robust top-line growth in 2024, even if there is a government shutdown during FFY2024.


As such, TBR is confident there is headroom for growth for not only the legacy federal IT vendors but also their smaller, Tier 2 federal integration peers as well as commercially centric technology companies looking to make inroads into the federal space.


Subscribe to TBR’s Insights Flight to receive exclusive federal IT services content, including excerpts from our top research and invitations to upcoming TBR Insights Live sessions with our subject-matter experts.

SoftwareOne Aims for More Comprehensive SAP S/4HANA Transformation Role With Novis Euforia Acquisition

On Jan. 3, 2024, SoftwareOne announced its acquisition of Novis Euforia, a Spain-based SAP and cloud services boutique. This special report reflects TBR’s discussion with Pierre-Francis Grillet, SoftwareOne’s global lead for SAP Services, immediately following the announcement, as well as TBR’s ongoing analysis of SoftwareOne and the SAP landscape.

With New Talent and IP, SoftwareOne Extends Into SAP S/4HANA

According to Grillet, SoftwareOne intends to improve its position in the overall SAP ecosystem by moving beyond helping clients with cloud migrations into a more comprehensive SAP S/4HANA transformation role. To meet that aspiration, SoftwareOne’s acquisition of the Spain-based SAP boutique Novis Euforia adds experience and competencies around technically driven SAP S/4HANA migrations and positions SoftwareOne to better address growing client demand for modernization with minimal disruption and transformation through the journey to SAP S/4HANA.


While only a 35-person company, Novis Euforia marks about an 8% increase in SoftwareOne’s SAP practice, which Grillet said would be further bolstered by 15 senior functional data architects who are focused on finance and supply chain as well as ongoing growth in traditional SAP technical areas. Grillet believes the Novis Euforia acquisition and the new hires will significantly improve SoftwareOne’s SAP revenues, adding to his assessment that SAP has high growth potential for SoftwareOne.

Upcoming TBR Insights Live: Join TBR’s Cloud team for a deep dive into how vendors will capitalize on new GenAI-led opportunities to combat the general slowing of cloud market opportunity growth in 2024!


Pragmatic Alternative to Complexity

Expanding on clients’ current concerns around SAP, Grillet noted that larger-scale competitors, such as the global systems integrators (GSIs), have increasingly embraced clean core as a means to rein in the rampant customizations often blamed for slowing migration to SAP S/4HANA and limiting innovation on SAP.


In SoftwareOne’s experience, according to Grillet, customizations fall into three categories: unused and therefore nonconsequential; used but no significant remediation required; and used with more complex remediation required. Notably, Grillet added, “a good part of remediations can be automated, further reducing the impact of customizations on the conversion to SAP S/4HANA effort.” A GSI’s greenfield engagement can be relatively expensive, in Grillet’s view, in contrast to SoftwareOne’s focus on preparation prior to a pragmatic and manageable approach to SAP modernization.


Further, Grillet said SoftwareOne has positioned itself well for negotiating a client’s best deal with SAP, given SoftwareOne’s vast experience around licensing and usage. Massive-scale enterprises undoubtedly need GSIs’ capabilities in complex SAP transformations, but many large and most small and midsize enterprises, in SoftwareOne’s view, can be better served through an incremental approach to transformation, framed by a deeper appreciation for customizations’ true hurdles.
Grillet also noted that, “Data, in particular, is relevant in the context of the Novis acquisition, as SNP automates the data transformation and conversion from ECC (ERP Central Component) to SAP S/4HANA, enabling, for example, company code and chart of account rationalization when moving to SAP S/4HANA.”

Gorging on a Massive Pie

The services opportunity around SAP S/4HANA transformations is immeasurable as credible estimates vary widely and, to some degree, do not matter. Services vendors with the available talent and credibility will not lack customers seeking help, especially as SAP’s self-imposed 2027 ECC deadline relentlessly approaches.


SoftwareOne’s latest acquisition helps the company address a larger range of client challenges and expands its footprint in Spain, with expectations of extending into Latin America and South America. While SoftwareOne’s SAP practice, at 500-plus SAP-trained professionals, lacks the scale of the largest GSIs, the vast majority of clients are not dismissing potential services providers because of scale — if you have the talent available now, you are hired. (OK, it is not that dramatic of a seller’s market now, but it will be before the end of 2027.)
Grillet also noted to TBR that one of the company’s “biggest assets is the fact that most of [SoftwareOne’s] professionals are dual-certified and also hold certifications for the three main hyperscalers: Microsoft, AWS and Google. They have a deep understanding not only of the SAP systems but also the platform they run on.”


In TBR’s view, SoftwareOne has consistently played to its own strengths, such as a deep inside view of midsize and large enterprise IT environments, to include spending and actual software usage. This recent acquisition continues that strategy, comes amid a slow-growing rush to add talent around SAP S/4HANA, and should allow SoftwareOne to extend its client base for SAP services over the next few years.


With six successful acquisitions in recent years, SoftwareOne has proven to be adept at integrating capabilities and leveraging IP. This seventh will continue SoftwareOne’s good fortune and make the vendor a must-watch competitor in the SAP space. Success will also depend on SoftwareOne’s ability to use the 15 senior functional data architects it is gaining as a bridge between existing cloud migration capabilities and SAP S/4HANA business transition opportunities, thus helping the company elevate the brand’s permission around SAP, a necessary step to avoid getting stuck in the increasingly commoditized migration services space.
Grillet summed up SoftwareOne’s position by noting that, “The ability to bridge between cloud migration to SAP S/4HANA conversion will depend on more than just these 15 new resources. It will be achieved through the extension of the services portfolio and its [the portfolio’s] underlying tools and IP — including adoption and embedding of the SNP tooling — successfully engaging in the early advisory and preparation engagements, and building an ecosystem of culturally aligned, functionally oriented partners in the various markets where SoftwareOne delivers its SAP services.”

Beyond the Proof of Concept: GenAI Use Cases in 2024

Everyone has an opinion on how generative AI (GenAI) will change the world. At TBR, we have analysis on how companies across the technology space, from consulting firms to hardware vendors, have adjusted investments, business models and alliance strategies to take advantage of the hype and position themselves for the coming reality of GenAI.

Join TBR Principal Analyst Patrick M. Heffernan and Principal Analyst Boz Hristov Thursday, Feb. 15, 2024, at 1 p.m. EST/10 a.m. PST for a free 30-minute TBR Insights Live discussion and Q&A on one of our newest research report, the AI and GenAI Market Landscape. The pair will review specific examples of technology companies’ activities in 2023 as well as what to expect across the GenAI landscape in 2024.

In This FREE TBR Insights Live Session on GenAI Use Cases in 2024 You’ll Learn:

  • Which strategies leading tech companies have followed to leverage the attention around and investment in GenAI to gain an advantage in their respective markets
  • How tech companies are using alliances to extend their reach within enterprises and across the larger GenAI — and emerging tech — ecosystem
  • Which consultancies, IT services vendors, cloud and software companies, and infrastructure players are best positioned for the next wave in GenAI


TBR webinars are held typically on Thursdays at 1 p.m. ET and include a 15-minute Q&A session following the main presentation. Previous webinars can be viewed anytime on TBR’s Webinar Portal.
For additional information or to arrange a briefing with our analysts, please contact TBR at [email protected].

HPE Doubles Down on Edge-to-cloud Vision with Acquisition of Juniper Networks

On Jan. 9, 2024, HPE and Juniper announced they had entered a definitive agreement through which HPE intends to acquire Juniper Networks for approximately $14 billion in cash. The planned acquisition is expected to close in late 2024 or early 2025 should the agreement receive regulatory and Juniper shareholder approval. By acquiring Juniper, HPE’s networking capabilities, especially around AI-enabled networking, will be immediately bolstered. Naturally, the acquisition would also support HPE’s edge-to-cloud vision. Additionally, TBR predicts Juniper’s SaaS assets will be integrated into HPE’s GreenLake platform, which would strengthen GreenLake’s value proposition and expand the audience of enterprise customers.  

Acquiring Juniper Networks Will Bolster HPE’s Edge-to-cloud Networking Capabilities

Demand for networking solutions that securely connect, protect and analyze companies’ data will continue to rise as AI workloads proliferate across a variety of industries and organizations increasingly leverage hybrid cloud architecture. Recognizing these trends, Hewlett Packard Enterprise (HPE) has been increasing its focus on networking to meet the demands of existing infrastructure customers and further differentiate from its main infrastructure OEM competitors.  


Meanwhile, Juniper Networks also identified opportunities presented by trends in AI and hybrid cloud, understanding that customers were seeking simplified networking solutions with an emphasis on flexibility in consumption and deployment. As such, the company prioritized the expansion of capabilities associated with empowering cloud-managed, AI-enabled networking operations. 

HPE’s Road to Enterprise Networking Prominence Began with Aruba

With the development of mobile technologies enabling internet-based data transmission, enterprises began to realize the need for network modernization, supporting the ramping of cloud-driven digital transformation initiatives in the early 2010s. This gave rise to the wireless or mobile enterprise model, which is a near requirement in today’s business landscape.  


However, at this time, HPE’s networking expertise was somewhat limited to wired switching. The company knew it would have to expand its portfolio of wireless mobility solutions to remain competitive, and in March 2015, HPE announced plans to acquire Aruba Networks, a leading provider of network access solutions for the mobile enterprise.  


After closing the acquisition in May 2015, HPE immediately began to see a return on its investment, with the company’s networking segment revenue growing approximately 8% year-to-year in 2015, driven primarily by Aruba’s inorganic revenue contribution to the business, which centered on wireless local area network (WLAN) products.  


In addition to accreditive top-line impacts, the Aruba acquisition drove increasing gross profitability at the corporate level. Over the next few years, HPE leaned further into the WLAN space, leveraging its acquired Aruba assets. In 2018 HPE reorganized its reporting structure, forming its Intelligent Edge segment, which consists of two subsegments, HPE Aruba Products and HPE Aruba Services, and unified the company’s WLAN, campus and branch switching, and edge compute networking solutions. 


The formation of HPE’s Intelligent Edge segment promoted deeper portfolio synergies, supporting the development of new Aruba software and services offerings, including “as a Service” and consumption models for the Intelligent Edge portfolio of products, which benefited the company’s GreenLake “as a Service” business, boosting HPE’s annual recurring revenue (ARR) and the strength of the company’s Network as a Service (NaaS) capabilities. 


The importance of HPE’s Intelligent Edge segment as it relates to the company’s corporate performance was further underscored in recent years as demand for traditional servers and storage stagnated and began to decline due largely to market cyclicality. In the trailing 12-month (TTM) period ending 3Q22, HPE’s compute and storage revenues fell 10.2% and 6.3% year-to-year, respectively, while Intelligent Edge segment revenue soared, growing 41.6% year-to-year.  


To further contextualize the segment’s growth, what started out as 9.9% of HPE’s total revenues in 2018 quickly grew to represent 13.3% of the company’s revenue in 2022, and in the nine months ended 3Q22, Intelligent Edge contributed over 19% of the company’s corporate top line. On top of this, since 2020 Intelligent Edge has contributed a disproportionately high amount to total segment operating income relative to the segment’s revenue contribution. In 2020, 2021 and 2022, Intelligent Edge accounted for 13.4%, 15.9% and 18.1% of HPE’s total segment operating income, respectively, highlighting the opportunity to provide high-value products and services to customers.  

Juniper’s Cloud-managed, AI-enabled Networking Solutions and Expertise Add Another Dimension to HPE’s Intelligent Edge Portfolio

As more and more organizations embarked on cloud-driven digital transformation journeys, it became clear that consumption and deployment flexibility were key priorities among most organizations. Recognizing this, Juniper acquired Mist Systems, a leader in AI-powered, cloud-managed wireless networks, in 2019. Mist’s AI-driven WLAN platform was a strong complement to Juniper’s wired LAN, SD-WAN and security solutions, laying the groundwork for Juniper’s Mist AI platform, which has been key to the company’s growth since the closing of the acquisition. 


In 2020 Juniper continued its acquisition spree with the purchase of 128 Technology, a networking company known for its session-smart networking technology that enables customers to create user-experience-centric fabric for WAN connectivity that is not only simplified and secured but also efficient and agile, basing networking decisions on real-time user sessions as opposed to static network policies. By incorporating 128 Technology’s session-smart technology into Juniper’s AI-driven enterprise network portfolio, Juniper sought to accelerate the adoption and development of modern AI-driven networks aimed at optimizing the user experience from edge to cloud. 


Through these acquisitions, Juniper became a leader in AI-driven enterprise networking, which supported the company’s expanding top line. In the TTM periods ending 3Q20, 3Q21 and 3Q22, Juniper’s AI-Driven Enterprise operating segment revenue, which includes Mist and Technology 128 offerings, has grown 20.4%, 22.7% and 45.9%, respectively, year-to-year. For context, Juniper’s corporate revenue expanded just 5.1%, 10.6% and 9.6%, respectively, year-to-year over the same TTM periods, highlighting Juniper’s focus on AI-Driven Enterprise as well as the market’s strong appetite for these offerings. 

HPE to Solidify Its Presence as an Industry Leader in the Networking Space by Integrating Juniper’s Mist AI Platform into its Existing Portfolio

Juniper’s portfolio of solutions somewhat overlaps that of HPE; however, much of this overlap is complementary. For example, both companies have competency in WLAN, SD-WAN, and enterprise and campus switching, but Juniper’s AI-native networking technology and expertise will bolster the capabilities of HPE’s existing offerings.  


Uniquely, Juniper’s Mist AI platform leverages AI, machine learning and other data science techniques to simplify operations across wireless access, wired access and SD-WAN domains in a way that optimizes the user experience from the edge to the cloud. Essentially, Mist AI brings greater insight and automation to network operators, which improves the end-user experience and is a compelling reason why HPE is moving to acquire the company. Additionally, Juniper’s portfolio lends HPE net-new competencies around WAN routing as well as network firewalls. 


HPE has been vocal in expressing its commitment to grow its highly profitable Intelligent Edge segment revenue stream as the company recognizes the massive opportunity presented by the onset of the generative AI (GenAI) revolution. Should the acquisition close, HPE is expecting to double its networking business, integrating Juniper’s solutions and expertise, especially as it relates to the Mist AI platform, with its own rapidly expanding Intelligent Edge segment.  


By integrating Juniper’s Mist AI platform with its existing technologies and offerings, HPE will further differentiate from its infrastructure OEM peers as an AI-driven networking provider, building a networking portfolio rivaling that of Cisco (Nasdaq: CSCO). However, HPE’s acquisition of Juniper would arguably propel HPE’s portfolio past that of Cisco and other major networking players in terms of technological advancement specifically through an AI-driven networking lens. Juniper’s deep relationships with telcos and service providers and the company’s large router install base will also expand HPE’s addressable market.  


Similar to how HPE integrated Aruba’s management platform into GreenLake, should the Juniper acquisition close, TBR expects HPE will fold Juniper software and services into GreenLake, bolstering HPE’s GreenLake for Networking solution, formerly GreenLake for Aruba. This anticipated move would enhance HPE’s GreenLake value proposition compared to Dell APEX and Lenovo TruScale while fueling continued GreenLake ARR growth, supporting the company’s edge-to-cloud strategy and improving its profitability.  


Additionally, TBR believes that if the acquisition closes, HPE will integrate Juniper’s product offerings into HPE’s “as a Service” portfolio, further augmenting the company’s NaaS offerings. 

Peraton Could Surpass $8B in Sales in 2024, but Will It Go Public?

How Peraton Septupled in Size

Private equity firm Veritas Capital officially bought Harris Corporation’s government IT services business for $690 million in 2Q17. The new assets were quickly spun into a stand-alone company, Peraton, helmed by Stu Shea to pursue opportunities in the communications, cybersecurity and space markets. 


When he was first brought on as Peraton’s president, CEO and chairman of the board, Shea expected that Veritas would financially back his plans for three years before cashing out since the fund was for five years. As part of Shea’s growth strategy, Peraton purchased Strategic Resources International to augment the company’s telecommunication services portfolio in 2Q18 and Solers in 2Q19 to expand its space capabilities. While Peraton did not share the financial values of these transactions, the latter enabled Peraton to generate over $1 billion in annual revenue. 

An Arduous Integration Process

In 4Q20, more than three years after appointing Shea, Veritas’ leadership team approached him about Veritas acquiring the IT services operations of three Northrop Grumman business units (collectively referred to as NGIT) and federal IT vendor Perspecta and rolling these assets into Peraton. Veritas purchased NGIT for $3.4 billion in 1Q21, before acquiring Perspecta for $7.1 billion in 2Q21 and bolting on ViON’s cloud operations to Peraton in 3Q23.  


Anecdotally, Peraton entered this megamerger with industry-leading margins. Following the merger, Peraton’s sales septupled to between $7.0 billion and $7.2 billion in 2021, according to TBR’s estimates, while its headcount surged from 3,500 to 24,000. 


The largest privately owned federal IT contractor faced hundreds of thousands of obstacles at the start of this integration process, according to Shea. As the leadership team streamlined policies and processes while optimizing the business, they made several notable decisions, such as divesting the systems engineering, integration and support services business to a portfolio company of Veritas. (These assets would later become Arcfield and are still owned by Veritas.) By divesting this business, Peraton ensured it was fostering ethical business practices by mitigating potential corporate conflicts while narrowing its focus on core operations. In addition to the divestment, Peraton reduced its physical footprint from 150 facilities to less than 100. The company also made sweeping workforce rationalizations, shrinking its post-merger headcount from 24,000 in 2021 to 18,000 by the end of 2022. Concurrent with implementing these optimization efforts, Peraton had to contend with an array of impeding factors that plagued other vendors across the industry including supply chain disruptions, macro inflation and a sustained bid protest environment. 


Despite this onslaught of obstacles, Peraton has been able to consistently disrupt in the public sector market. The company has been able to successfully compete with Tier 1 vendors to secure high-profile contracts such as the Special Operations Forces IT Enterprise Contract III worth up to $2.8 billion. By August 2022, Shea claimed Peraton only had a few hundred items left to address in its integration master schedule. 

Peraton in 2024

The megamerger has given Peraton the necessary portfolio depth and scale to regularly vie with industry leaders such as Leidos for enterprise IT contracts in the $500 million to $2 billion range in the federal civilian and health spaces while also capitalizing on Department of Defense (DOD) Intelligence Community (IC) needs. Now that Peraton’s assets are fully integrated, TBR believes that Peraton is on course to surpass $8.0 billion in annual sales during 2024. 


Additionally, Peraton’s backlog was last reported at $24.4 billion in the middle of 2022. The company has been placing around 1,200 bids a year worth approximately $40 billion in total. Peraton has not disclosed its current operating margins. 

Will Peraton Issue an IPO?

As Peraton considers going public, it needs to generate predictable revenue and profit streams to avoid pitfalls like failing to meet the company’s forecasted metrics. When the Carlyle Group took Booz Allen Hamilton public in 2010, it ensured investors that the business was in a position to keep expanding and succeed long-term. Peraton’s and Veritas’ leadership teams will undoubtedly take a similar approach. Peraton has become increasingly competitive over the years, and TBR believes it has facilitated sales expansion each year, but it remains to be seen whether Peraton is fully realizing the benefits of cost-saving measures or if it is consistently meeting its revenue goals. If it is not doing either, it will not go public.  


General Dynamics Information Technology (GDIT) and other unencumbered industry peers have been making rapid investments in emerging technologies like generative AI over the last few years. With Peraton no longer focused on fully integrating its assets, it began to broaden its AI and cloud capabilities more noticeably during 2023 by pursuing strategic relationships with SoftIron and UiPath. These two partnerships, in particular, enable Peraton to leverage SoftIron’s HyperCloud technology as well as the UiPath Business Automation Platform while the company helps clients with establishing their respective cloud networks and streamlining their workflows.

TBR anticipates that Peraton will continue to expand its partner network to operate as a cloud services broker. Peraton is positioning itself to capitalize on federal agencies that are increasingly utilizing an “as a Service” cloud environment model to build their own platforms with desired third-party capabilities as well as the steady funding to accelerate agencies’ digital modernization journeys, which is expected to persist for the foreseeable future.  


If Peraton falters with this strategy, it can still continue pursuing opportunities related to next-generation national security. TBR estimates that approximately 45% of Peraton’s sales in 2023 came from the DOD and the IC. Peraton focuses on underpinning missions of consequence that have high barriers of entry and receive bipartisan funding, like protecting space systems, in addition to supporting national security initiatives. 


As of 3Q23, Veritas had more than $40 billion in assets under management. With interest rates expected to remain at elevated levels through 2024, it is unlikely Veritas will make any more multibillion-dollar acquisitions to further augment Peraton. Veritas has demonstrated flexible ownership over the years to work with Peraton. While Veritas has helped take Peraton to new heights and could pursue a sub-$200 million acquisition to broaden Peraton’s capabilities with emerging technologies, Veritas will cash out sooner rather than later. TBR anticipates that Peraton will finally go public in early 2025. 

PwC Stepping Up When Technology Fails to Deliver Value

In late November 2023, TBR and PwC Transformation Consulting Solutions Leader Tom Puthiyamadam continued a decadelong discussion about the consulting business model, reflecting on changes wrought by the pandemic, technology ecosystem partnerships and generative AI (GenAI).  According to PwC’s assessment, technology investments have not delivered the business value or transformative effects enterprises have expected over the last decade. Implementing the latest ERP does not, in itself, deliver growth, and moving workloads to the cloud does not, unrelentingly, reduce costs. Just as commuters have not taken off in the flying cars that “The Jetsons” promised, business leaders have not seen technology provide transformational results.

Technology Is Easier to Use but Harder to Make Useful — and Still No Flying Cars

For PwC, a new year and a hot new technology, GenAI, provide an opportunity to reassess how consultancies and IT services vendors bring value to their clients, first by defining credible, meaningful business outcomes and then creating a value chain back into the technology, process and operations stacks. What does that actually mean? According to Puthiyamadam and other PwC leaders involved in the discussions with TBR, the starting point is defining business value transformation — a desired end state — and then delivering on trust, transparency and speed.


Taking the 10,000-foot view, PwC leaders noted that technology as a whole has been getting easier, perhaps even more so now in the GenAI age. No-code and low-code platforms, visualizations, and GenAI-enabled programs like Microsoft’s Copilot all support a trend toward making technology easier to understand and deploy.


Notably, in Puthiyamadam’s words, “The old hard part is still the hard part. Can you stitch it all together? Can you get people to work differently? Can you drive behavioral changes in an enterprise?” And most critically, can a consultancy “deliver on CFO-level outcomes in 12 weeks, not 12 months?”


Repeatedly, PwC Consulting leaders came back to a fundamental point around how clients view consultancies: How fast can they deliver measurable, meaningful outcomes? Experience, expertise, technology skills and even scale are table stakes. Speed, combined with quality and at a fair price, matters most.

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NASCAR and the Factory Approach: What PwC Can Do Differently

Embracing what PwC leaders have called a “factory approach” to technology-infused professional services engagements allows PwC to reassure clients that the firm is purpose-built when it comes to people, scale, expertise and price.


Critically, PwC reassures clients’ IT professionals that the firm provides advisory and support services, availability, and integrated technologies but does not wholly replace those IT professionals’ roles within their organization.


In TBR’s view, PwC’s recognition that a standardized, scaled business model — the factory approach — combined with high-touch consulting could actually assuage fears around job disruption may prove critical in coming years as GenAI permeates IT services, generating more uncertainty and fear. Paired with the focus on measurable business outcomes, PwC’s factory approach could help separate the firm from peers.


During the discussions with TBR, PwC leaders acknowledged that many enterprise clients struggle with technical debt but challenged the idea that this debt constitutes the biggest obstacle to realizing digital transformation value. Instead, PwC suggested process debt — the ingrained operational tasks, flows and interdependencies — has also accumulated at enterprises, slowing efforts to gain value from the technology (digital) or the business (transformation) investments in digital transformation.


PwC leaders further suggested process debt at many enterprises had reached levels that demand attention, even at the cost of additional technical debt. Here, according to PwC, the firm helps clients gain maximum use from current technology investments, finding additional value while accelerating transformation to new (and better) processes with, as needed, new technologies.


In TBR’s view, a NASCAR pit crew analogy Puthiyamadam invoked multiple times seemed most appropriate in discussing how PwC could help clients with both their processes and technology. Changing tires fast requires not just better tools but also practice, teamwork and performing under pressure. In an increasingly competitive and budget-constrained IT services and consulting market, bringing NASCAR-like precision and speed to digital transformations will be expected of leading vendors.

Business Value Realization and the Art of Keeping Everyone Honest

Speeding and crashing provides no value on the track or to a business, bringing into play the other two elements PwC sees as critical to a new way of framing consulting: trust and transparency. PwC leaders told TBR that the firm has increasingly been bringing a private equity mindset to its clients’ value realization.


Rather than taking three years to fully understand the value of a technology-enabled change, PwC and its clients have been constantly examining ongoing work, determining on a monthly basis whether the expected value continues to be reflected in current progress. The transparency around business value realization — critically here actual measurable business value, not just technology milestones — builds trust and enables speed. PwC has had to reorient its ways of working, reinvigorate its technology training, and build the business model agility to take on financial risks as a way of “keeping everyone honest,” in Puthiyamadam’s assessment.


As he pointed out, PwC can help with “modernizing the core while improving the business, realizing value from existing technology. … The client can hit ‘pause’ if they’re not believing [PwC is] going to hit value.”


Further on PwC itself, PwC leaders reiterated to TBR that the firm has been training strategists on emerging technologies, an effort that began globally years ago with the Digital Fitness app and has continued to be a learning and development priority. Assessing management consulting overall, Puthiyamadam stated that consultants who are not “trilingual will be irrelevant really soon, if not already. Design, business value, and technology. Must speak all three.”


Critically, PwC leaders in the discussion added that the firm’s consultants focused on working within the existing technology stack at their clients, accepting the technology environment that they are in and recognizing that perfect is the enemy of progress. Combining what PwC does for itself and what it brings clients, PwC leaders further elaborated that as clients bring new technologies into their IT stack those clients need the full suite of change management, learning and professional development, and product management critical to successful technology deployments.


In TBR’s view, the near-term disruptions in the management consulting and IT services space will require many traditional services — ones that PwC has experience with and credibility around, in part by applying those services directly to the firm.

Does PwC Have the New Consulting Business Model? If So, TBR Is Here for It

TBR might not be quite as gloomy as some of PwC’s consulting leaders on the failures of technology to date — we may yet see flying taxis in Paris next summer — but we agree fully that most enterprise information technology has been oversold and has under-delivered in terms of overall business value. PwC’s focus on getting the most from technology that clients have already acquired and addressing process debt, those sticky business problems that prevent the full value of technology or digital transformation from taking hold, all while delivering value quickly and transparently strikes TBR as a smart strategy to address an ecosystemwide problem.


There is an old saying, “You can have it fast or good or cheap, but not all three.” PwC is challenging that formulation by saying you can have fast and good, and you will always know what you are paying for and what you are getting, even in a previously nebulously defined area like management consulting. And to back it up, PwC will put its own fees at risk, knowing that value will be evaluated every three months, at least, if not more frequently.


To TBR, this approach echoes the recent attention around financial operations, in which enterprise IT buyers ask how much value they are getting from software, platforms and cloud. At frequent intervals, PwC assesses the value it is bringing to clients with no further steps and no further action until the expected value is understood and credibly on track. Is PwC disrupting the consulting business model? In TBR’s view, there is no better time for it.

Reliable, Proven and High-functioning: HCLTech’s Cloud-native and GenAI Labs

HCLTech considers the “art of the possible” to be what clients can deploy at scale in the near term. In HCLTech’s Cloud Native Labs, “the possible” is grounded completely in what can be done, not what is theoretically possible. In a decade of visiting innovation and transformation centers, TBR has heard every version of blue-sky creativity and out-of-the-box thinking but cannot recall another IT services vendor definitively connecting “the possible” to “deployable at scale.” 

Grounding the ‘Art of the Possible’

Gracechurch Street Cloud Native Lab Echoes HCLTech’s Fundamentals

In fall 2023, TBR met with Alan Flower, EVP, CTO and global head, Cloud Native & AI Labs; Tom De Vos, Google Cloud Platform (GCP) cloud native architect; and Mani Nagasundaram, global head of Cloud Sales, Financial Services, at HCLTech’s Gracechurch Street Cloud Native Lab, one of a network of HCLTech’s worldwide labs, including a Software Defined Infrastructure Lab in Chennai, India, and a Scale Digital Delivery Center and Digital Innovation Lab in Amsterdam.
The HCLTech leaders described in detail the kinds of challenges clients bring to them in the labs as well as why clients come to HCLTech. In use case after use case, the following three elements in HCLTech’s approach in the labs and overall approach to technology and IT services resonated with TBR particularly well based on our experience and view of HCLTech’s peers and ecosystem partners:


  • Engineering credibility — HCLTech has always stood out among the large India-centric IT services vendors for its engineering DNA, a mindset that seems to permeate every aspect of the company’s solutions and engagements. Flower first mentioned his company’s engineering legacy in the context of how his teams approach clients’ problems. Then De Vos described a critical element in HCLTech’s engagements at the labs, saying that clients know they are going to be able to “flip a switch” and have a working, materially important solution, not just a PowerPoint presentation or road map.
  • Sustained engagement — HCLTech’s leaders repeatedly described client engagements that extended over multiple lab visits, whether on-site, virtual, or even set up in the client’s facility. While client selection — who comes to the labs and for what kinds of work — is not handled lightly, HCLTech clearly maintains flexibility with respect to how clients can tap into the time and expertise of the HCLTech professionals at the various labs worldwide, reflecting the company’s desire and ability to deliver on client objectives with its portfolio and resources over relying entirely on transactional volume.
  • Commitment to relationships — For HCLTech, delivering on client objectives includes keeping the Cloud Native Labs and the entire labs network part of the relationship beyond the contract. Flower repeatedly noted that the labs function as an asset that HCLTech can bring to clients to jump-start problem solving and move from strategic decisions around technology choices and approaches to the training and cultural change management needed to sustain a solution beyond the MVP and pilot stages. That commitment came through in both the use cases Flower described and HCLTech’s understanding that these labs are decidedly not a direct revenue generation source but a critical component to HCLTech’s overall strategy.


Technology-centric Cultural Change Management

While HCLTech’s Cloud Native Labs share many attributes with other innovation and transformation centers, including the need to showcase capabilities, challenges managing which clients attend sessions, and opportunities for internal training and skills development, TBR believes these labs could be a blueprint for other IT services vendors, particularly as the entire cloud ecosystem faces disruptions from shifting client expectations and the opportunities around generative AI (GenAI).
No client arrives at a consultancy’s or IT services vendor’s innovation and transformation center completely unaware of emerging technologies, nor do any enterprises have blank slate or pristine technology environments. So when informed clients potentially laden with technology debt arrive at HCLTech’s Cloud Native Labs, the shared mandate to get to a deployable-at-scale solution to a clearly defined (and addressable) problem likely resonates extremely well with clients, in large part because HCLTech continues to engage most frequently with technologists and practitioners, the people tasked with making the tech work at an enterprise.
That said, Flower and De Vos repeatedly noted that HCLTech understands the cultural change management needed for any technology solution to scale. Consulting, yes, but within the context of HCLTech’s engineering and technology-problem-solving strengths.

Partnering with the Right Hyperscaler — All 3 of Them

Putting HCLTech’s Cloud Native Labs in context of other consulting and IT services vendors’ innovation and transformation centers necessarily sets aside the cloud focus of these labs. On that point, Flower and De Vos consistently stressed the importance of HCLTech’s hyperscaler partners, including (in no particular order), Microsoft (Nasdaq: MSFT), Amazon Web Services (AWS) (Nasdaq: AMZN) and Google (Nasdaq: GOOGL).
Notably, HCLTech partners closely with RedHat, and the HCLTech executives repeatedly referenced use cases that featured Red Hat’s and IBM’s (NYSE: IBM) technologies. As TBR has previously examined, how consultancies and IT services vendors manage their ecosystem partners at their innovation and transformation centers (and labs) reveals differences in strategic thinking and intent.
While full-on branding remains rare and having technology partners’ staff permanently on-site is even more rare, consultancies and IT services vendors have become adept at including technology partners as part of clients’ experiences, almost always when the client has already committed to a particular tech stack (ask us about what happens when a particular Germany-based ERP partner is not in the room). HCLTech remains committed to partnering with a broad ecosystem, following leads from its clients and undoubtedly serving those clients well.
Had Flower and De Vos not shared a use case in which a hyperscaler specifically recommended HCLTech to a client — suggesting Flower, De Vos and the rest of the team were best positioned to help the client solve their cloud-related problems — TBR would have questioned how successfully HCLTech balanced being cloud vendor agnostic with meeting clients where they are in terms of their existing technology environments and needs. That a cloud vendor could definitively recommend HCLTech to a client indicates HCLTech, aided by the sustained investment in Cloud Native Labs, has made a compelling case to the cloud vendors.
One further note on cloud partners: TBR persistently pushed Flower and De Vos to distinguish between Microsoft Azure, AWS and Google Cloud Platform and detail differences in HCLTech’s alliances. While refusing to pick favorites, the HCLTech leaders described multiple use cases involving each partner, demonstrating a breadth of client challenges and HCLTech solutions and establishing a credibility around HCLTech’s cloud-agnostic strategy.

Cannot Have GenAI Without Cloud (and Cannot Talk Tech Without GenAI)

One cannot have a technology-centric meeting without discussing GenAI. TBR and HCLTech’s Cloud Native Lab leaders shared mostly synchronized views on the implications and opportunities around GenAI, agreeing that infrastructure players and consultancies should see immediate spikes in engagements and revenues. Long term, HCLTech’s focus on security, responsible AI and intimate collaboration with hyperscalers should prove beneficial.
Notably, HCLTech also maintains strategic partnerships with Dell Technologies (NYSE: Dell) and Intel (Nasdaq: INTC), two technology vendors that are well positioned to provide the necessary infrastructure to a GenAI adoption wave. Overall, HCLTech’s sobriety around GenAI struck TBR as refreshingly honest. In a setting conducive to blue-sky ideas and bleeding-edge technology musings, HCLTech’s Cloud Native Lab leaders kept the discussion grounded.
In a TBR blog, we discussed how GenAI will likely affect IT services vendors like HCLTech: “When looking at the IT services and professional services space, TBR considers two GenAI tracks: What opportunities will vendors seize for generating new revenues, and what changes will GenAI force on how vendors operate? Currently, the first track is pretty straightforward: Fear, uncertainty and doubt around GenAI — fueled by massive hype — create consulting opportunities, particularly for vendors with established governance, risk and compliance offerings.
Every vendor has core artificial intelligence, data orchestration, analytics and cloud capabilities, so no vendor can credibly separate itself from the pack with those tools alone. … On the second track, GenAI could be highly disruptive, especially around managed services, to include changes to the staffing pyramid, as less experienced employees either shift to higher-value tasks or leave.”
Reflecting on the GenAI discussion with Flower and De Vos, TBR believes HCLTech could begin to separate itself from IT services peers by emphasizing a grounded practicality mindset and a focus on bringing real solutions to scale, even when discussing the potential disruptions of GenAI.

Being Productive in a Time of Chaos and Uncertainty

Grounded and concrete. Partnering smartly and focused on what can possibly scale within clients’ existing or near-term environment. In TBR’s view, HCLTech’s Cloud Native Labs have positioned themselves well for what will likely be an exceptionally turbulent time in the cloud and IT services space. HCLTech effectively uses the Cloud Native Labs as a platform to showcase its plethora of products from the HCLSoftware division and helps clients integrate the same into the overall solution architecture.
Clients’ dissatisfaction with costs and unbridled enthusiasm for GenAI will create unrealistic expectations. Competitive pressures around IT services and hyperscalers’ need to find growth will challenge pricing and engagement models. HCLTech has a reliable, proven, highly functioning cloud lab ecosystem that should be a safe space for clients, technology partners and HCLTech professionals to productively manage through the coming craziness.
TBR will highlight HCLTech’s Cloud Native Labs in the next Innovation and Transformation Centers Market Landscape and continue to cover the company in quarterly reports, TBR’s IT Services Benchmark, and in 2024 in TBR’s Cloud Ecosystems Market Landscape.