Disruptive technology is anything but stagnant. From the hyperscalers pushing the parameters of their latest large language models (LLMs) to other firms trying to provide their own models in an arguable race to the bottom, the lines of the generative AI (GenAI) stack are blurring.

 

In many ways, this activity is good, elevating innovation, competition and the role of the partner ecosystem, which will increasingly define how cloud vendors go to market in years to come. But at the same time, it is fueling the proliferation of unstructured data and adding to the already complex and redundant IT estate with yet another LLM, another vector database, and more third-party AI orchestration and integration tools.

 

Informatica is on a mission to break through this added complexity, honing the metadata system of record that defines Informatica Data Management Cloud (IDMC) to account for the latest models, databases and integrations that must play friendly with customers’ existing applications.

 

Of course, the challenge remains getting customers to think about data ahead of GenAI amid all the hype. At TBR, we often talk about how GenAI models are only as good as the amount and quality of data that are fed into them. Garbage-in, garbage-out should be self-explanatory when it comes to data’s role in LLMs and GenAI, and yet effective data management is still often overlooked or deployed too late within the enterprise.

 

Corporate culture, executive pushback and integrating point solutions remain among the top obstacles, and according to TBR’s 2H23 Cloud Infrastructure & Platforms Customer Research, 35% of respondents are taking a best-of-breed approach to data management, resulting in fractured data silos. That is why the Informatica World 2024 opening keynote theme — “Everybody’s ready for AI except your data” — rang true and speaks to an opportunity for Informatica, and increasingly its consulting partners, to address as customers try to navigate GenAI’s complexities and ultimately take advantage of GenAI’s opportunities.
 

TBR’s Leading Analysts Discuss Use Cases, Risk and Governance, Commercial Strategies, and Resource Management for Cloud and Software Applications in GenAI: Watch the Full Video Below Now

“CLAIRE GPT is the Chat GPT for Enterprise Data”

IDMC is the culmination of a five-year, $1 billion R&D investment, and executives have clearly articulated the pace of innovation will only accelerate with a meticulous focus on improving the native functionality in each of IDMC’s seven core modules.

 

At the event, product leaders for each of these components (e.g., Data Governance, Integration PaaS [iPaaS], MDM [Master Data Management] & 360 Apps) got on stage to showcase their innovations over the past year. They discussed not only core innovation, which could be anything from improving the user experience to adding new prebuilt connectors and extensions, but also a set of innovations specific to CLAIRE — for example, an automated assessment of metadata in MDM.

 

All these new added capabilities highlight Informatica’s goal of infusing GenAI into every component of the IDMC platform. Perhaps the best example of this strategy, though, is CLARIE GPT, which was first announced at last year’s Informatica World conference and is now generally available. The year 2023 was largely one of execution, as Informatica worked to put the AI engine, trained on vast amounts of intelligent metadata already sitting in CLAIRE, through preview, solicit customer feedback, and prepare for its release to the general public with a fresh message: “CLAIRE GPT is the ChatGPT for enterprise data.”

 

To see this message in action, we were given a hypothetical scenario in which a marketing operations analyst tasked with retaining disengaged customers uses natural language prompts in CLAIRE to find the right data sets and ask questions about that data. For example, the analyst can ask CLAIRE GPT to list data sets for marketing campaign analysis, and CLAIRE will pull the appropriate data, including those sitting in multiple systems like data warehouses and BI tools.

 

But Informatica actually delivering capabilities like CLAIRE GPT with IDMC for customers’ GenAI projects is only one piece of the puzzle. Informatica is also using GenAI to improve the underlying platform capabilities and deliver a unified natural language experience in IDMC. In a move that is now table stakes among SaaS, PaaS and IaaS vendors, Informatica is creating its own Copilot — CLAIRE Copilot — to auto classify and enrich master data.

IDMC Modernization Initiatives Well Under Way

Aside from offering new IDMC capabilities and releasing CLAIRE GPT, 2023 was a major year for modernization, which was a big theme at this year’s event. With license revenue down 68% year-to-year in 2023 and cloud subscription revenue up roughly 40% over the same period, Informatica is executing on its strategy of ceasing new license sales and enhancing programs to help customers move to IDMC in the cloud. This includes strengthening the existing modernization packages for legacy PowerCenter, MDM and Governance workloads with fresh automated tooling, including CLAIRE Copilot for PowerCenter (available in 2H24); increasing partner certifications; and growing these programs within larger accounts.

 

One of the more compelling customer modernization success stories from the event was Takeda Pharmaceuticals, which in the span of 18 months was able to consolidate the 12 data centers still running PowerCenter down to three.

 

Chief Data Officer Barbara Latulippe told a story of how Takeda wanted to become GenAI ready but recognized that modernization was the initial step and that migrating the low-risk and simple applications first was the recipe for success. The second phase for Takeda was consolidating 6 different MDM environments into one, which ultimately paved the way for the company to adopt other IDMC capabilities, including the Informatica Cloud Data Marketplace, on which the company is now live today. As was the case with Takeda, customers that go through the modernization process will ultimately ask how GenAI can be used to create value.

 

We expect data marketplaces to play an increasingly important role here; if a customer needs to automate a certain business process and thus locate the right LLM for that process, as well as the right data to contextualize said LLM, one-click experiences will go a long way, further democratizing GenAI and making it fairly seamless for customers to turn a regular application or process into one that is GenAI-enabled.

Informatica’s Relationships With All Hyperscalers Are Maturing, but Work with Microsoft Fabric Is a Big Win for Both Companies

For any cloud platform company, integrating with all the major hyperscalers is no longer a unique strategy but a prerequisite. As we continue to follow Informatica, however, there are some strategic ecosystem moves the company is making in both its product and go-to-market strategies to reach new customers and protect its positioning as the most neutral data management provider.

 

One key example is Informatica’s fast-growing relationship with Oracle, which Informatica formerly recognized as a hyperscaler partner two years ago. While other platform companies are closely aligned with Amazon Web Services (AWS), Azure and Google Cloud Platform (GCP), many have yet to account for OCI (Oracle Cloud Infrastructure), which could be due to a lack of maturity, including how Oracle cosells with ISVs in the cloud.

 

But as a key member of the legacy Oracle Database ecosystem for some time, Informatica has been able to quickly elevate its relationship with Oracle around OCI and now serves thousands of Oracle customers in North America alone. Informatica recently made Data Governance & Catalog available natively on OCI — ahead of GCP, which will support this capability later this year — and is expanding to more OCI regions.

 

But the most transformative ecosystem development highlighted at the event was Informatica’s work with Microsoft, specifically how it is filling whitespace within Fabric, Microsoft’s own answer to data management in its broader pursuit of GenAI dominance. Specifically, Informatica is coming in with its Cloud Data Quality solution native to Fabric, which means that as customers ingest data into Microsoft Fabric’s OneLake repository, Informatica ensures the data can be automatically profiled and assessed in real time.

 

Unlike many other partners that are joining Microsoft’s partner program as ISVs building and selling applications on top of Fabric, Informatica has signed on as a design partner, an exclusive invite-only track that allows partners to create entirely new workloads consumed natively within the Fabric solution. This distinction is important, as it essentially embeds Informatica’s Data Quality tooling directly within the customers’ analytics workflow and ensures Informatica can offer Microsoft’s roughly 11,000 Fabric customers access to IDMC in the back end and increase the likelihood they explore other aspects of Informatica’s platform.

 

Though Fabric is touted as an end-to-end SaaS solution serving the entire data life cycle, Microsoft understands its gaps and recognizes the trust customers place in Informatica when it comes to data integration, quality and governance. Letting Informatica fill whitespace around Fabric, an integrated platform that is underpinned by a data lake architecture, is a strategic move for Microsoft and should be noted by Azure competitors that similarly partner with Informatica but in some ways lack Microsoft’s platform mentality; to us, the Fabric-Informatica integrations only reinforce how aligned Azure and Informatica are as two platform-centric companies understanding the symbiotic relationship between data and GenAI.

Final Take

In many ways 2023 was an execution year for Informatica. Since last year’s event, when Informatica showcased CLAIRE GPT, the company has been adamantly focused on bringing the GenAI engine into general availability, all the while delivering a broader and deeper set of AI-rich features natively within IDMC.

 

Meanwhile, with momentum for PowerCenter migrations, which in 1Q24 accounted for 80% of all Informatica’s modernization deals, and early success of the MDM program, modernization has been a key initiative for the company, driving cross-selling opportunities and pushing Informatica closer to the $1 billion cloud annualized recurring revenue mark.

 

Rallying a cohesive ecosystem — made up of hyperscaler and global systems integration partners that are expanding their certifications as part of these modernization programs — around IDMC will remain key to Informatica’s success, ultimately allowing the company to cross-sell more services and ensure IDMC becomes the de facto way customers get their data ready for GenAI.

What Caused the Initial Slowdown in M&A Activity in Federal IT Services?

In March 2022 the Federal Reserve raised the federal funds rate for the first time since 2018, increasing it by 0.25% Prior to this, contractors like Accenture Federal Services (AFS) and Booz Allen Hamilton (BAH) had been rapidly acquiring digital transformation capabilities to capitalize on the demand for IT services as well as emerging technologies from the Department of Defense (DOD) and Intelligence Community (IC).

Macroeconomic Pressures Mount

M&A activity by the vendors tracked in TBR’s Federal IT Services Benchmark began to slow down over the course of 2022 as borrowing rates continued to increase and target company valuations climbed. IBM Consulting’s acquisition of Octo Consulting during 4Q22 to expand the federal unit’s digital transformation capabilities for defense and civilian agencies signaled the end of meaningful M&A activity by IBM Consulting and these 10 other benchmarked competitors: AFS, BAH, CACI, CGI Federal, General Dynamics Technologies (GDT), ICF International, KBRWyle, Leidos, Maximus and SAIC.

What Have Vendors Been Doing to Counteract the M&A Slowdown?

In 4Q23, statutory and organic* revenue growth rates converged for the first time ever in TBR’s Federal IT Services Benchmark. These rates remained essentially the same during 1Q24, reflecting the lack of M&A activity in federal IT.

 

Vendors have been monitoring opportunities over the last couple of years but are largely prioritizing using their free cash flow to repurchase shares, make internal investments or reduce debts. For example, while ICF pursued an aggressive M&A strategy between 2020 and 2022 to penetrate the federal health market by vastly expanding its digital modernization business’s capabilities, the company has since focused on making its balance sheet healthy again while interest rates remain elevated.

 

Most vendors have also turned to strengthening their relationships with existing partners and expanding their alliance ecosystem while M&A has been off the table. For example, General Dynamics Information Technology (GDIT), a segment of GDT, has been working with Fornetix to capitalize on the DOD’s Combined Joint All-Domain Command and Control (CJADC2) vision by demonstrating zero trust security at the tactical edge during military exercises.
 

Click the Image Below to Watch: Senior Analyst John Caucis and Analyst James Wichert review key trends and happenings for the federal IT services market in 2024 as well as provide their outlook for the sector

A Different Route

Some vendors are also being creative. For example, BAH has seemingly favored making venture capital (VC) investments after spending over $725 million on M&A within a two-year period. By doing so, BAH can safely expand its capabilities and relationships without needing much financial leverage.

 

BAH launched Booz Allen Ventures, the company’s $100 million VC arm, in 3Q22. Since then, BAH’s capital allocation strategy has increasingly favored funding small promising companies that are innovating with emerging technologies. For example, in 3Q23 BAH invested in a startup AI security solutions developer called Hidden Layer.

 

Maximus also unveiled its own VC arm in 4Q23 called Maximus Ventures. However, unlike BAH, Maximus has not publicly shared any investments it has made with its VC arm and has stated little about Maximus Ventures other than noting the business was beginning to establish relationships with Seed to Series C partners.

Is M&A Activity Ramping Back Up?

While multiple leading federal systems integrators have indicated they will continue to deprioritize M& during 2024, there have been signs that company valuations have begun to decline, which could cause M&A activity to pick back up.

Recent Moves

ManTech was taken private by the Carlyle Group in September 2022 for $4.2 billion. As ManTech’s restructuring efforts continued, it leveraged the private equity company’s financial backing in September 2023 to purchase IT contractor Definitive Logic Corp. The move expanded not only ManTech’s headcount by 330 but also its AI, cloud and other digital transformation capabilities. It also expedited ManTech’s plans to provide a wider array of services to clients, such as by launching a digital transformation consulting practice.

 

While the acquisition of ManTech was notable, the biggest move from the vendors we cover came from AFS. In April the business announced its intent to buy digital transformation and cloud computing firm Cognosante. The deal was finalized in May and adds around 1,500 people to AFS’ workforce, strong relationships with health IT customers as well as a new health portfolio.

 

Shortly afterward, Deloitte announced it had acquired Gryphon Scientific. While this acquisition is significantly smaller in comparison to the other two acquisitions (Gryphon Scientific is expected to add around $6 million to $8 million in inorganic sales over the next year), it expands Deloitte’s public health research and advisory capabilities with AI and increases Deloitte’s expertise in biosecurity and data science.

 

These recent moves by AFS and Deloitte show that vendors are becoming increasingly interested in lucrative public health opportunities. While they could signal that a period of renewed M&A activity in federal IT is beginning, it is important to note that AFS and Deloitte have fundamentally different business models than most other federal players. They also have the scale and financial backing from their parent companies that most others do not have.

TBR Expectations for the Federal IT Services Market in FFY2025

When the M&A environment actually begins to ramp up, we anticipate that vendors will prioritize acquiring peers that can expand their niche capabilities in AI, cloud, cyber, electronic warfare (EW) and other areas as the DOD, IC and civilian agencies are showing more interest in emerging technologies. While private equity firms remain interested in expanding their capabilities in these areas as well, they will be under greater scrutiny by the Federal Trade Commission (FTC) and the Department of Justice’s (DOJ) Antitrust Division. These agencies published a request for information in May to assess how serial acquisitions are impacting competition in multiple industries including defense and cybersecurity.

 

If Tier 1 vendors do revive M&A activity in federal fiscal year 2025 (FFY2025), expect CACI to be one of the first to get involved. CACI has historically used acquisitions to expand its capabilities and penetrate new markets. Do not expect to see vendors abandon their alliance ecosystem or their joint ventures if this happens, though. Vendors will increasingly lean on the hyperscalers and partners that can help expand their capabilities with the emerging technologies as discussed in TBR’s U.S. Federal Cloud Ecosystem Report.

 

 

*TBR calculates organic growth based solely on the impact of acquisitions, unless the company in question provides guidance regarding the impact of divestitures on its top line. We consider the calendar quarter in which the acquisition was made to be the first of four calendar quarters, or one full year, in which inorganic revenue from the acquired company accrues to the acquiring company’s top line. After the one-year anniversary of the acquisition, we consider the peer purchase to be fully integrated from a revenue standpoint.

For the first time in person since 2019, EY hosted a global analyst summit at the start of the firm’s Innovation Realized event, which was held at San Francisco’s Palace of Fine Arts. The 2024 EY Global Analyst Summit included at least 50 analysts, multiple main stages sessions and breakouts. The following special report highlights conversations between TBR and EY leaders during the event.

EY: ‘We are Business Engineers’

In a space designed to compel analysts, clients and partners to rethink EY’s innovativeness, creativity and technology capabilities, Pat Sullivan, EY’s global digital engineering leader, and Errol Gardner, EY’s global vice chair of consulting, kicked off the Global Analyst Summit by challenging attendees to see EY in a different light and appreciate how much had changed since the firm last hosted analysts, pre-pandemic, at a similar space in Boston.

 

Sullivan noted EY’s daily incorporation of AI, cybersecurity and cloud into consulting engagements, establishing one of the event’s themes: the breadth, depth and interconnectedness of EY capabilities. Gardner described the firm’s strategic marketing position, the value EY can provide by helping clients train and upskill their talent in the generative AI (GenAI) age, and the imperative EY sees in leading the market on sustainability.

 

Both Sullivan and Gardner stressed how much had changed at the firm and suggested the two days of presentations, breakouts and one-on-one discussions during the weeklong event would lead analysts to reconsider — to rethink — what they previously thought about EY.

 

Spoiler: TBR has tracked EY closely over the years, and the event confirmed and solidified TBR’s assessments while adding details around specific practices and a clear sense of EY’s strategic outlook beyond 2024. The following reflects TBR’s observations from the summit and analysis of EY.

‘The Best Edge We Have in Innovation Is the People We Have’

Professional services — especially any kind of consulting — depend entirely on talent. Despite business model disruption occurring across seemingly every industry, EY’s business model remains fundamentally unchanged: Bring the best people to a client’s problem.

 

Underpinning this business model traditionally has been an apprenticeship-based talent development and management model that has seen tweaks and improvements (EY’s badges program stands out) but remains in place, even as generational demands and expectations change, technologies such as GenAI threaten to replace people, and the people adjust and readjust to in-office, remote and hybrid work policies. Garder noted that career experiences are the single biggest thing that motivates people, especially younger professionals, to look for “possibilities, not just job security.”

 

In this human capital management maelstrom, EY’s strengths, including attracting, promoting and retaining its own talent, can likely be credited to the firm’s own People Advisory Services practice (see TBR’s special report EY Puts People First: Navigating Growth with Human-Centric People Advisory Services). Amid the competitive and sometimes chaotic market, EY’s talent strategy relies on reskilling professionals, including through an apprenticeship model, rather than acquiring those professionals and providing them with the top technology.

 

In addition to the blocking and tackling of human capital management, Gardner said the cultural shift requires training “more people to get used to the fact that change is constant, transformation is constant.” TBR believes EY has consistently told a talent story that revolves around upskilling to retain and attracting — not acquiring — talent. Even if this year’s Global Analyst Summit did not lead TBR to rethink its assessment of EY, the consistent talent message from all the EY leaders further cemented TBR’s understanding of the firm as being adept at using its culture to inculcate a talent-centric ethos.

EY’s AI Proposition: ‘Take the Toil Out of People’s Work’

Rooted in a robust data and partner story, EY’s AI strategy aims to disrupt both EY’s and clients’ business models. Five years ago, AI was one of the five demo stations featured at the EY Global Analyst Summit in Boston. Not surprisingly, this time the technology had earned a main stage presentation, followed by a dedicated breakout session.

 

While GenAI continues to dominate news cycles and is influencing EY’s investment and go-to-market strategies, the firm is not new to AI. EY Fabric, a global foundational technology platform, has continued to provide the critical distinction for the firm by being run as one global operating model. It now acts as the cornerstone for the next phase of EY’s AI strategy. EY Fabric’s intelligence layer underpins both technical and functional AI patterns, which are necessary to support the firm’s efforts to drive platform-enabled services revenue.

 

The recently launched EY.ai, a unifying platform, leverages EY Fabric as its technology backbone, allowing EY to deliver the necessary tools and technologies, backed by over 10,000 AI-skilled professionals, as many digitally mature clients pivot from proof-of-concept GenAI discussions to scaled deployments. In September 2023 EY launched EY.ai EYQ, an ecosystem of GenAI capabilities powered by EY Fabric, in addition to upskilling EY employees in AI learning and development.

 

While EY Fabric provides the necessary link to managed services, the platform also connects well with partner technologies. For example, Fabric provisions with EY IP (e.g., analytics, optimized business processes) on top of their partner capabilities such as SAP (NYSE: SAP), Snowflake (NYSE: SNOW), ServiceNow (NYSE: NOW) and Microsoft (Nasdaq: MSFT) to expedite delivery and value to their clients. Microsoft underpins the cloud-first EY Fabric and coinnovates with EY on the hooks into customer data.

 

ServiceNow provides the base workflow shell for many of the EY managed services workflows. These relationships further amplify EY’s enterprise transformation value proposition. We believe EY is aware of its strengths as the firm continues to collaborate with partners, including technology and services companies, to ensure it maintains service quality and protects its brand.

 

As with any technology, use cases accelerate time to market, so EY is tapping into its internal transformational efforts as well as across its broader portfolio, including its tax, audit and risk assurance practices, to demonstrate value. Earning and sustaining client trust through audit-grade transparency play to EY strengths but also heighten expectations, especially as vendors often struggle to highlight the golden opportunity of data.

 

With EY transforming its own business model to account for the implications of AI, building a repeatable framework around three pillars — augment (inject AI streamline ways of working with AI-enabled professionals), disrupt (prioritize and execute an AI refactoring of EY’s portfolio) and drive repeatability with GenAI platform and agents (driving new revenue through repeatability) — the firm has an opportunity to test its risk-taking boundaries, as executing on such disruption often requires broader internal consensus, which is not an easy task and is especially harder for Big Four firms.

 

Pivoting from a traditional time-and-materials commercial model to an outcomes-based setup is not a new concept, but EY’s aspiration to make the firm’s AI-enabled services offerings 10 times better and 10 times cheaper will also test the firm’s ability to monetize the technology not just as a service enabler but as a software asset. (Note: During the event, EY claimed it was the 30th-largest software provider. TBR will publish a separate blog post on EY’s software and assets practice.)

 

Strong examples within EY’s Third-party Risk Management solution helped bring ambition to life and highlighted what analysts can expect as the firm applies its own business transformation efforts at scale with clients. On one hand, EY’s “cheaper” and “better” messaging raises questions about the firm’s decision to position AI as a loss leader to drive consulting and managed services opportunities.

 

On the other hand, it would be dismissive for us to put “AI” and “loss leader” in the same sentence, given the opportunity the technology presents to generate high fidelity, data-driven insights and accelerate time to value. Contextualizing data at scale will help EY stand out from a crowded market, but only if clients and technology partners can equally praise the firm’s value proposition and service delivery execution.

‘EY Does a Great Job Providing Confidence in the Market’

Following the failed attempt to split its consulting and audit business, EY now can prove critics wrong. The firm is developing a profile of a solution broker that has the depth and breadth of knowledge of just a few but critically important technology providers, where much of the ecosystem development is occurring.

 

Selling business outcomes orchestrated by EY, and by a collection of partners, enables EY to disrupt the status quo in the traditional bilateral services technology vendor relationships and evolve toward multiparty vendor support. The concept of ecosystem with EY as an orchestrator plays to the firm’s strengths as long as EY stays focused on delivering client outcomes through the best-suited technology.

 

During a main stage presentation, Greg Sarafin, EY’s global alliance and ecosystem leader, hosted three of the firm’s top alliance partners, including Microsoft, SAP and ServiceNow. This is not the first time Sarafin and EY have taken that approach. Back in November 2022, during EY’s Global Data and AI Summit in Malaga, Spain, the firm brought six of its data and AI partner companies, ranging in size and portfolio offerings, to present onstage: Databricks, IBM (NYSE: IBM), Microsoft, RelationalAI, Snowflake and UiPath (NYSE: PATH).

 

EY’s approach to partners is different from many of its peers’ as the firm does not go to market with a particular vendor unless EY uses that vendor internally. Adopting a customer-zero approach to its alliance partners elevates EY’s trustworthiness, a key element in the firm’s efforts to act as an ecosystem enabler.

 

During the 2024 summit, the appreciation for collaboration between EY, SAP, Microsoft and ServiceNow at a multinational dairy company provided a strong use case for how each partner sees its value within the ecosystem supporting EY’s alliance-enabled business. EY’s partner-enabled business has become one of the firm’s key growth pillars. For example, EY has grown alliance-driven revenue from $1 billion in FY17 to $8 billion in FY23 and is on path to reach $10 billion in FY24.

 

Part of EY’s success is the firm’s ability to not pit partners against each other and to have specific solutions with specific partners that are not replicated across partners. This is a strategy we believe will be amplified moving forward as EY strives to grow its overall technology consulting and cloud business while also investing in proprietary software and assets.

 

While one can argue that EY is over indexed on Microsoft, given the relationship helps EY generate roughly 40% of its alliance-enabled revenue, EY’s SAP and ServiceNow businesses are also growing at a strong pace, testing the firm’s agility, especially as a result of SAP’s ever-changing priorities in terms of portfolio and commercial model adoption.

 

Pairing comments from the 2024 main stage presentations with both formal and sidebar conversations with EY’s SAP and ServiceNow practice leads, TBR walked away with a greater appreciation of the firm’s willingness to work toward establishing a preferred partner status with these vendors. For example, during an SAP breakout session, a joint EY and SAP client, a large semiconductor company that previously had not worked with a C&SI provider, discussed the value of the 360-degree relationship EY and SAP have and how that has helped with executing on a back-office transformation program and moving from on premises to cloud.

 

While that use case might appear as yet another SAP migration project, being able to convince a client that had not spent money on SAP and was now looking to try S/4HANA to optimize its supply chain process highlights EY’s ability to manage trust within the ecosystem.

 

Furthermore, now that Phase 1 of the project is complete, EY has the opportunity to not only continue supporting the client but also leverage the use case to create a three-way partnership between SAP, EY and the technology client and drive targeted conversations with clients grappling with similar issues, thus generating partner-enabled revenue from the client as well. Partner integrations with leading data service providers will be a critical component of adoption growth, creating an opening for EY to demonstrate its data orchestration capabilities and drive opportunities that could allow the firm to close the gap with Accenture (NYSE: ACN) and Deloitte in terms of its SAP practice revenue.

 

EY’s SAP strategy has required a sustained commitment to attracting and retaining the right talent, adeptly mirroring SAP’s various strategy shifts and building a credible — and substantial — collection of use cases. TBR has tracked EY’s SAP journey closely over the last decade and anticipates continued growth as the two companies see their strengths reflected in market demands. (Note: TBR is developing a research stream for 2024 focused on services providers’ relationships with back-office systems technology partners, including SAP.)

 

Meanwhile, ServiceNow’s recent purchase of EY Smart Daily Management, a connected digital worker application, highlights the trust and depth of the relationship. Both partners seek to expand addressable market opportunities within the operational technology space, where EY also manages strong relationships with Dell Technologies and PTC. Additionally, ServiceNow’s knowledge-managed text-to-code and text-to-app play will create capacity and opportunity for EY’s business consultants to conduct higher-value work with less need to add talent on the services deployment side.

 

People, technology and processes will remain the key pillars of EY’s ability to grow partner- and overall technology-related revenues. As the firm continues to invest in training and development initiatives across the organization to account for GenAI implications, developing dedicated career tracks will help EY strengthen ecosystem trust. For example, EY is in the process of designing the Distinguished Engineer track, which will be among the highest and toughest EY designations one can earn, helping EY to more closely transform its identity into that of a technology-enabled company.

 

Launching such a career track is a smart strategy and is in line with some of EY’s prominent partners such as IBM. EY understands the gap it must close with some of its services peers when it comes to C&SI revenue. But as long as the firm executes on doing cloud right, rather than pursuing a cloud-first strategy, EY has a chance to increase client and partner stickiness, especially as tech partners now face remaining performance obligations with clients, thus creating a consulting opportunity around FinOps, education and change management for EY.

Keeping It All Together: Supply Chain, Cybersecurity and Managed Services

Everest, the elephant that left the room at the Global Analyst Summit, provided a common, if unintended, theme connecting many of the breakout sessions: EY brings clients a wide range of professional services capabilities, with cross-firm collaboration and coordination more central to EY strategy than ever before. TBR attended breakout sessions in addition to the ones detailed below and will provide details in future EY-specific reports and within the upcoming Management Consulting Benchmark.

‘I Believe Supply Chain Can Change the World’

On the main stage during a presentation titled “How EY teams are helping provide value for a new economy in which businesses, people, and planet thrive” and the following discussion of EY’s sustainability offerings, Sheri Hinish, EY’s global sustainability, technology and ecosystems leader, set the bar high for the subsequent Supply Chain breakout session with her comment about the supply chain’s world-saving ramifications.

 

Glenn Steinberg, global supply chain and operations leader, and Matthew Burton, EMEIA supply chain leader, did not shy away from the challenge and made a compelling case for EY’s role as a leading consultancy and supply chain orchestrator. Steinberg described his firm’s value promise as “resilient, sustainable and tax-efficient supply chains,” notably highlighting tax as a component, which was a prevalent sentiment throughout the event. Steinberg said over 6,000 EY supply chain professionals support “90% of the 50 largest supply chains and 75% of the Fortune 500,” while cautioning that EY cannot serve those clients alone: “You need an ecosystem to deliver.”

 

Burton and Steinberg added that while the firm’s offerings include pure cost-containment engagements, the supply chain practice earns most of EY’s annual revenue from transformational consulting and implementations.

 

Turning back to tax, Burton said the firm has found upward of $100 million in tax savings for clients through supply chain transformation engagements. At the same time, Burton noted that “nearly every [supply chain] project includes a sustainability component … and that percentage is growing.”

 

In TBR’s view, the seemingly seamless connections between EY’s supply chain, tax, cybersecurity and sustainability professionals — not to mention its strategy, transformation and cloud practices — in an unexpected way underscored Gardner’s main stage comment that we are currently in an “era where it’s not about one organization or a single buyer.”

 

Gardner was stressing the importance of EY as an ecosystem partner to technology vendors, academic institutions and other ecosystem actors, but the supply chain leaders highlighted that even within EY, getting the most value comes from tapping into multiple parts of the organization — echoing, fittingly, supply chains.

EY Cybersecurity and Risk: ‘Their Chore Is Our Core’

During a breakout session dedicated to cybersecurity and risk, EY Global Cybersecurity Leader Richard Watson and Global Risk Consulting Leader Whitt Butler described the firm’s go-to-market strategy as rooted in confidence in EY’s capabilities and assurances to clients that the firm can bring the best collection of ecosystem technology partners, most notably Microsoft, Splunk, ServiceNow and CrowdStrike (Nasdaq: CRWD), to any transformational engagement.

 

Butler highlighted EY capabilities around internal audit modernization, responsible AI, resilience (including getting in front of supply chain shocks) and digital risk management. Watson stressed EY’s strengths in cybersecurity transformation, incidence resilience and response, and trusted AI, as well as EY’s fast-growing Cybersecurity Managed Services business.

 

Watson added that Cyber Managed Services currently contributes approximately 30% of the firm’s cybersecurity revenues, and EY expects to reach a 50-50 revenue split between consulting and managed services work by 2030.

 

In mid-2023, TBR spoke at length, over multiple meetings, with EY cybersecurity leaders and noted that in the maelstrom that is cybersecurity, EY has “demonstrated a willingness and ability to play well, enhancing the technologies and capabilities of strategic alliance partners and vetting, nurturing and accelerating the development of smaller firms without compromising EY’s core value proposition around trust and transformation.”

 

TBR stands by that assessment a year later and notes that among the various breakout sessions during the San Francisco event, the cross-practice alignment between Cybersecurity & Risk and Supply Chain stood out, reinforcing another point TBR made in its 2023 special report: EY has shown a “commitment to seamless and highest-quality security services at any client’s location, including the necessary talent on the ground lends credibility to EY’s claim that the firm is a market leader for cybersecurity.”

Managed Services: Evolving Toward $9B

During EY’s Managed Services session, Paul Clark, EY’s global vice chair of managed services; Scott Mullan, EY’s data and insight managed services leader; and Sameer Sinha, an EY technology consulting and finance & data technology partner, discussed the current state of EY’s Managed Services practice and highlighted recent advancements through the firm’s partnership with GE.

 

EY projects the practice will generate $9 billion in EY’s FY24 owing to four main trends: speed, AI proofs of concept, industry layers, and interoperability of data and intelligence. EY looks to evolve the practice, bringing in new domain and industry expertise to transform clients’ business processes and address challenges beyond traditional business functions.

 

Through its work with GE, EY developed the Finance Data Lake (FDL), which connects the talent at GE to data and outcomes. Through the platform, EY was able to centralize and consolidate GE’s back-office functions, providing greater visibility into back-office operations and improved productivity. Further, EY improved GE’s divestiture management by creating three separate businesses enabling a commercial mode. Using the FDL platform, EY can pursue subindustries while also delivering core capabilities that enable users to leverage data insights, enhance user experience and manage a unified data model.

 

EY’s Managed Services continues to focus on people and asset-based functions to support core business needs, enabling EY to provide clients with the tools and services needed to leverage data and insights, experience, and productivity. Leaning on its sector and domain expertise positions the practice to execute on technology needs through a services lens, bolstered by EY’s ecosystem, enabling clients of the Managed Services practice to achieve business function outcomes.

EY-Parthenon: 10 Years of Staying Focused on the Biggest Problems

EY’s 10,000-plus-employee strategy consulting sub-service line, EY-Parthenon, which has been part of the firm for more than 10 years, remains focused on clients’ big-spend events: large transactions and transformations. During the Strategy breakout, Barak Ravid, EY-Parthenon’s Americas leader, and Pierre Beaufils, EY’s Global Business Consulting leader, detailed the firm’s changes and current focuses of EY-Parthenon.

 

Divest, sell and spin activities continued to remain a core piece of the practice as many clients consolidated business operations, requiring the establishment of new operating models. Further, EY delivers on Sell & Separate, Buy & Integrate, and Diligence services.

 

Ravid and Beaufils emphasized the strength of EY-Parthenon’s team and leaders, growing its scale to deliver on client needs and expand the business. Further, hiring both lateral and executive talent extends the strategy brand and enables EY to work closely with its clients on these bigger spend areas. EY-Parthenon focuses on strategy and execution to provide clients with the sales strategy and channels as well as pipeline management they need to progress and navigate in a new operating environment.

People and Organization: Transform and Transact

The People and Organization breakout, led by Joe Dettmann, EY’s Global People Advisory Services Solutions Enablement leader; Maya Smallwood, EY’s Global People Advisory Services People experience leader; Jonathan Sears, EY’s People Advisory Services Global Technology leader; and Randy Beck, EY’s Global and Americas Organization & People Field of Play leader, focused on the influence of AI on people management and resource strategies. The leaders discussed three main points: transact to transform; “humans at the center” and the importance of people; and insight to action.

 

With people experience as a core element of EY’s People Advisory Services, the EY leaders discussed cultural transformation and the importance of bringing talent to the center of the transformation, lessening the uncertainty caused by transformation. For example, as EY has integrated its technology tools within People Advisory Services, it provides analysis on where disruption lies to help manage the impact AI has on the organization. Further, following the analysis, organizations can adjust compensation and talent management measures to reap the benefits of transformation projects.

 

Data and analytics have changed the way People Advisory Services influences client decisions, providing dashboards with insights over spreadsheets of data, equipping clients to gather insights and best practices. To upskill and reskill talent following the business decisions, the EY leaders discussed the use of GenAI to create educational videos as opposed to previous in-person training sessions, which took longer and were more expensive. Keeping true to the themes of the sessions, the leaders indicated the old way of transformation only sought to transform; using the technology and tools enables clients to both transform and transact.

Sustainability Is Front and Center and Has to be ‘Infused’ Into Everything

When EY leaders discussed climate change and sustainability during both the main stage presentations and a special breakout session, they echoed many of the event’s overall themes around talent, partnering and technology. In addition, EY leaders stressed the firm’s dedication to setting an example through its own sustainability commitments (TBR will dive deeper into this topic in our upcoming Decarbonization Market Landscape, scheduled to publish in July).

 

As part of EY’s strategy to advance broad societal goals around climate change and sustainability — while playing to the firm’s own strengths as an ecosystem orchestrator — EY leaders mentioned cooperation with various nongovernmental organizations and academic institutions, including advocating for standards that promote trust and transparency. Unsurprisingly, EY leaders noted regulatory and reporting changes will be a key source of revenue growth for the firm’s Climate Change and Sustainability Services practice. Assurance is now a global sustainability issue, driven in part by U.S. companies with European operations being compelled to adhere to European Union requirements.

 

During a sustainability breakout session, EY leaders noted that many engagements begin with clients seeking capabilities and skills needed for specific sustainability-related issues. EY, which has more than 4,000 professionals dedicated to sustainability and climate change-related services, can bring highly specialized capabilities to address specific problems, and then pivot to broader strategy, transformation and tax consulting services to meet clients’ wider range of sustainability needs.

 

Widening the scope to all professional services, EY Global Climate Change and Sustainability Services Leader Matt Bell noted that “it will be hard to sell anything in professional services without considering sustainability.”

‘Rethinking Is a Deep Process’

Rethinking clients, partners and portfolio offerings requires a commitment by leadership, something that we experienced firsthand at EY and that has set a high bar for the next Global Analyst Summit. The constant presence of multiple EY leaders and partners who were engaged throughout the event provided ample opportunities to have both formal and informal conversations.

 

During the event, TBR captured insights and assessed EY as the firm irons out its new go-to-market strategy. Transformation and the need to recalibrate an organization’s portfolio and skills are topics often discussed by EY peers, but many lack EY’s approach to change, which consists of three steps: recognize that change permeates all layers of the firm and its ecosystem stakeholders; pivot quickly to execute against those changes; and help clients optimize existing assets now, rather than rattling on about digital transformation programs.

 

Following EY’s 2019 Global Analyst Summit, we wrote: “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.” Five years later, as EY continues to maneuver in choppy macroeconomic conditions, we believe the compass readings are even more clear: EY must be the partner of choice for clients and alliances that matter.

 

TBR believes EY’s post-Everest, post-pandemic, GenAI-era strategy will center on three poles: industry expertise, deep-seated technology alliances, and selectivity around clients and opportunities. One consistent element highlighted during the 2023 GenAI hype cycle that has persisted into 2024 has been technology-centric ecosystem players turning to consultancies, such as EY and peers, for domain knowledge.

 

Making AI useful in a business setting requires an understanding of the business setting. Sullivan’s description of EY as “business engineers” fits perfectly within current market trends and can help EY maintain its position in the AI, GenAI and broader technology ecosystem. And within that ecosystem, EY has turned its go-to-market restrictions into an asset: As EY Americas SAP Strategy Lead Jesse Rothermel noted to TBR, EY’s audit responsibilities with Oracle, Salesforce and Workday “give SAP some extra confidence” in working with EY. This is making lemonade out of lemons, perhaps, but it is also how TBR sees EY’s strategy as the firm’s technology partnerships continue to evolve into deeper, more intertwined and more aligned alliances.

 

Lastly, TBR expects EY will focus on using the breadth of its offerings to go deeper with select clients, potentially forgoing an expanded client base in an effort to bring as many of its consulting, tax and technology services to those clients whose needs are most aligned to EY’s capabilities. TBR anticipates EY’s next strategy will focus on being industry experts with tighter-than-average technology alliances that can address clients’ every professional services need.

 

TBR will continue to assess EY’s evolving business model and GTM strategy and will include our analysis in the upcoming Management Consulting Benchmark profile on EY, ecosystem intelligence report series, and Digital Transformation and Professional Services reports and benchmark coverage.

  

TBR Perspective

TBR joined industry analysts at Oracle’s (NYSE: ORCL) former headquarters in Redwood City, Calif., for the one-day Oracle Analytics & AI Summit, which centered on trends, advancements and use cases in the world of analytics and generative AI (GenAI). While we did not shatter any course records on the Oracle Red Bull Racing simulator, we did grasp how Oracle is addressing one of the top trends we see in the market: Cloud computing has become table stakes in digital transformation, and customers are shifting their focus to the data and how it can be translated into actionable insights.

 

In five years, Oracle has consolidated Oracle Analytics Cloud (OAC) and launched prebuilt cloud-native analytics solutions for each of its four Fusion apps suites. Oracle is now embarking on a new frontier with Fusion Data Intelligence (FDI), the intelligent analytics layer that will fuse Oracle’s roles as both a SaaS and IaaS provider in the race for GenAI workloads.
 

New Intelligent Data Layer Elevates Oracle’s Role as Full-stack Cloud Provider

At TBR, we often talk about how Oracle uniquely serves the entire cloud stack at scale with infrastructure, platform services and applications. With its strengths solidified in database and back-office apps, the rapid emergence of Oracle Cloud Infrastructure (OCI) is rounding out Oracle’s full-stack narrative, driving a greater level of stickiness with customers looking to consolidate point solutions and potentially reduce costs.

 

But we are seeing an inflection point in the market. Cloud computing has become a standard component to digital transformation in some capacity, and buyers are shifting their focus to the data; specifically, how they can access and integrate cross-departmental data to capitalize on GenAI and streamline their business.

 

With finance, sales and HR data already sitting in Fusion applications — which are native to OCI — and an OCI lakehouse architecture built on trusted database services (e.g., Exadata, MySQL Heatwave), Oracle has a unique ability to build out an intelligent data analytics layer that cements Oracle’s role as both an IaaS and SaaS provider. We are seeing this firsthand with FDI.

 

Announced at Oracle Cloud World 2023, FDI marks a shift in the Oracle Analytics strategy to focus less on addressing one-and-done tasks but more on making analytics part of an ongoing, integrated process with additional AI models. For instance, FDI still draws on the platform foundation of OAC and the four Fusion Analytics modules (ERP, Supply Chain Management [SCM], Human Capital Management [HCM] and Customer Experience [CX]) but also incorporates new prebuilt models for predictive and prescriptive insights within those Fusion applications. For example, in Fusion HCM, these models might support analytics use cases for continuous listening, diversity analysis and employee skill matching.

Because of Fusion Applications, Oracle Analytics Can Close the Loop on Business Processes

With the Fusion applications suite, Oracle Analytics has always had a unique ability to engage with HR, finance and supply chain leaders directly within their workflow to solve a unique problem. We expect FDI will fast-track adoption of analytics among Fusion customers by allowing them to run Fusion data pipelines uninterrupted with each software update and then perform tasks like snapshots and KPIs on that data as part of a single SKU.

 

This is particularly true of customers that want to focus less on DevOps and more on analytics but also want to close the loop on an entire business process. One compelling example was a theoretical healthcare organization using FDI to not only understand why vaccination rates are down but also connect to Fusion HCM to see if there are enough staff on hand to launch a new program, and schedule accordingly. FDI already exists today for Oracle Health and is one of the key value propositions behind the Cerner acquisition.

AI Enhances OAC’s Value for Both Customers and Partners

Oracle has a rich history of embedding AI into its products, and the company’s approach to GenAI is no different. With support for the OCI GenAI service in OAC, the core component of FDI, Oracle is enabling self-service analytics with features like natural language queries that help analysts contextualize and interpret data.

 

One of the more interesting features we experienced through an OAC demo was the use of AI-based avatars. Oracle is working with Synthesia, a third-party firm, to pull data from OAC and have different avatars tell stories around that data for specific clients. In addition to watching live demos, we also heard directly from customers in industries like healthcare, transportation and technology on how they are using OAC. As is true for many Oracle solutions, the primary adoption driver for OAC was standardization and the ability to consolidate disparate tools like Power BI (business intelligence) and Tableau on a single platform that can be scaled to different personas throughout the organization.

 

We also heard from both Tier 1 and Tier 2 professional services partners that are driving SI business by migrating customers from the legacy Oracle BI stack to OAC and, increasingly, selling FDI as part of broader app transformation engagements. If the global system integrators (GSIs) want to drive high-margin consulting services around GenAI, we believe they need to account for an intermediary layer that bridges the gap between cloud infrastructure and the back, middle and front office. FDI serves this purpose. Since for most customers analytics will almost always be the end state, GSIs have an opportunity to work backward from FDI into key workloads, including data lakes and ERP systems as part of a client’s cloud transformation, supplemented by their own IP.

OCI GenAI Service Hits the Market

At the start of this year, the OCI GenAI service became generally available, officially marking Oracle’s entry into a budding market. With general availability, Oracle extended support for large language models (LLMs) beyond Cohere, including Meta’s (Nasdaq: META) Llama, as part of the notion that customers should be able to use different models that can be tweaked with their own data, according to use case.

 

Meanwhile, capabilities like OCI AI Agents — which enable RAG (retrieval augmented generation) — and AI Quick Actions within OCI Data Science, also support specific use cases by helping customers contextualize data and access third-party LLMs. On their own, these capabilities do not necessarily differentiate Oracle from what other hyperscale clouds are delivering — although Oracle was smart to cozy up to NVIDIA (Nasdaq: NVDA) for GPUs early on — but the ability to power the same analytics and apps stack with the OCI GenAI service is unique. As we have long said, differentiation in GenAI will not come from the models themselves but rather from the data that feeds into them and ultimately connects customers to solutions and use cases.

 

As such, successful vendors will take a measured approach and will need to partner with GSI peers to address data literacy challenges and apply model governance. FDI’s ability to collect data from Fusion applications and deliver a unified data model that can establish a governance framework and help train nontechnical personas speaks to the elevated role of Oracle Analytics in not only capturing GenAI workloads but also executing on the full-stack narrative throughout the broader Oracle organization.