Recent earnings calls by IBM and SAP triggered two broad yet interconnected thoughts:

• The current pause in economic activity presents a pervasive period of thinking slow — recalling the book “Thinking, Fast and Slow” — for businesses, which could result in persistent share shifts.
• The tactical need for more digital commerce avenues seems poised to accelerate a skill set transformation in selling organizations, away from the affable blue suit seller and toward a more consultative selling model.

Thinking slow requires deliberation, and deliberation comes when life-changing events happen

That headline is the fundamental premise of the book, which nets out as two different lines of thinking. System 1 is our reflexive thinking, and System 2 is our more deliberate thinking. System 2 gets triggered by life-changing events, such as reviewing purchase patterns while preparing to add the first child to a family. This was the underpinning of Target’s strategy to market to expectant mothers to lock them in to long-term buying patterns. COVID-19 has certainly triggered System 2 thinking for business decision makers.

IT is the backbone of digital commerce and, therefore, gets called into question by virtually all businesses no matter where they are on the transformation continuum. Close scrutiny of all discretionary spend and major projects means IT purchasers will be rapidly assessing their buying criteria, including revisiting those used prior to the COVID-19 outbreak to determine if they still apply in light of the current economic climate and somewhat fuzzy future outlook.

IT firms with solid digital practices and the ability to meet enterprise demands from a nimble virtual environment will be able to gain long-term share once the economy stabilizes and thinking fast returns to the business community.

Is COVID-19 the Death of a Salesman?

Both IBM and SAP mentioned in their earnings calls the need to shift more of their selling motions to virtual activities. IBM also highlighted the shift to virtual garages. This movement has a couple of potential impacts:

• Blue suit selling has to shift from relationship building to advisory selling, satisfying the aforementioned System 2 thinking going on among enterprises around the globe. This shift will require more immediate translation of technical implications and seller capabilities around business pain points — something that was previously addressed in the second or third sales interactions when the blue suit seller brought in a coterie of subject matter experts. In essence, that first point of contact is being replaced by digital tools. That somewhat depersonalizes the engagement, but it also strips considerable cost and turnaround time out of the prevailing selling models while enabling decision makers to seek answers through System 2 thinking. In some ways, this brings the consumerization of IT into the enterprise in much the same way that omnichannel marketing from e-tailers such as Amazon has disrupted traditional brick-and-mortar delivery of consumer goods to the populace.
• Advisory selling will have to become more of the norm for all technology sellers and not just the high-end advisory firms. Buying more network capacity could be considered a quick-hit selling transaction for a territory sales rep. It could also be an opening to discuss the overall IT estate, the impact of SD-WAN on security and cloud access, and the need to revisit the whole enterprise IT construct for better resiliency lest an economic impact like COVID-19 — or COVID-19 itself — resurfaces in the future. System 1 thinking would have the seller “take the order,” no questions asked. System 2 consultative selling would ask the questions of the purchaser and seek to expand the engagement into a broader discussion more beneficial to the client and more lucrative to the seller.
• Will the buildup of design centers wind up as a competitive cost disadvantage as more businesses become comfortable with virtual engagements? We saw the phenomenon of virtual activity replacing in-person activity solidify teleconferences as a business after 9/11 curtailed air travel. Now the health risks of in-person meetings will spur further use of virtual meetings and, with it, a potential reduction in demand for these high-cost design-thinking studio facilities.
• Transformation maturity impacts buying behaviors considerably. Those ahead of the curve on transformation are feeling very optimistic about their ability to weather this economic pause. They did the System 2 thinking and are somewhat comfortable in System 1 mode. They also are likely to have some checklists and deeper understanding of the ramifications that they can step through more quickly than less digitally savvy peers. Others are delaying transformation engagements due to a desire to conserve cash, and still others hear horror stories in other industries and see where digital transformation of their operations could inoculate them against this business threat if they move ahead with infusing intelligence into their front- and back-office systems. So leaders lengthen their leads, the hesitant can fall behind, and the newly awakened can get ahead of the vertical impact by heeding the lessons learned of their business colleagues in adjacent industries.

The global economy as we know it is on pause. Our System 1 thinking — our conventional wisdom — is being seriously challenged. This enables savvy business leaders to take this time to rethink their IT investment decisions. When thinking slow, they will be making decisions on suppliers that will have far-reaching market share implications. In turn, savvy technology companies will need to pivot to virtual engagements to provide customers with the desired self-service content and the technically savvy advisors to help work through customers’ future plans in light of this once-in-a-lifetime economic event still cascading through economic activity in real time.

For more insight on how COVID-19 is changing IT sales strategies, read Principal Analyst Allan Krans’ special report SAP and IBM were prepared, responding rapidly, but are still waiting for COVID-19’s peak impact.

This piece is an update to our blog post in late March that looked at how IT organizations are being impacted by COVID-19, including insights from TBR’s survey of enterprise IT leaders. The blog discussed how we are experiencing the second wave of impacts from the outbreak, in which widespread business disruption is affecting demand for IT products and services.

In typical IT research, we tend to track trending on a quarterly, semiannual or annual basis. Given that nothing we are experiencing during this pandemic aligns with the typical way of doing business, we have decided to compare how sentiment has shifted among IT leaders over a roughly two-week span. During the first half of April, we refielded our March pulse survey questions, which yielded the following trends in sentiment.

Overarching IT projects remain in wait-and-see mode

A delay in IT initiatives is one of the clear emerging trends as companies ride out disruptions to employees’ workflows and gauge the financial impact of the pandemic. Compared to the second half of March, there has been no change in the status of existing projects in the first half of April, with 42% of respondents indicating they are delayed. Trends have also remained constant in regard to IT budgets, with about 32% of respondents indicating budgets are frozen and new spending is on hold.

Attention is increasingly shifting toward enabling remote work

While long-term projects may be slowing or paused, there is growth in IT teams’ spending on and delivering of remote work capabilities for end users. In the latter half of March, 34% of respondents reported increasing spending on remote productivity; by mid-April, nearly half of respondents indicated this was the case. TBR believes this trend is driven not only by extensions of stay-at-home orders but also by general acknowledgement that a reintroduction to “normal” life will likely be a slow process.

Reliance on cloud is increasing

SaaS and IaaS are among some of the few IT segments that may see increased demand in the first half of this year. Responses from IT experts reflect this trend, with a considerable increase in respondents indicating usage of cloud resources has grown compared to our survey fielded in March. Currently 30% of respondents are increasing cloud usage due to data center shortages while 19% are increasing cloud consumption to offset labor shortages related to social distancing.

The impacts of the pandemic will be lasting

Respondents have not wavered from their belief that the use of cloud technology at their company will increase in the long term due to the COVID-19 pandemic, as indicated by 48% of those surveyed. Further, a decrease in respondents indicating their use of cloud technology will diminish in the long term suggests that companies expect this wave of cloud adoption will be maintained in the future, rather than serving as a temporary fix for employees needing to conduct business remotely.

On the other hand, there are also simultaneous increases in optimism and uncertainty compared to responses from two weeks ago, as more respondents indicated that they intend to return to typical IT strategies post-pandemic or that they do not know how the pandemic will shape their IT strategy.

While the pandemic has a variety of implications across different types of businesses as well as the IT vendors that serve them, our survey data suggests that IT strategies and ways of working will change for many. Contact TBR to learn more from our analyst team.

Economic activity currently appears more in cessation than recession. It is as if the world is suspended, untethered between two trapezes. As activity resumes, we know inquisitive humans will turn to easy-to-assemble technology to meet the emerging business demands and consumer pain points materializing daily. We will see a flurry of IoT-enabled endpoint applications that will spur new demand. Increased interconnection will pressure networks, with businesses and service providers looking for easy-to-deploy provisioning using traditional compute as the underpinning infrastructure. In short, whatever Horizon 2 and Horizon 3 concepts are being dissected by the strategists will be fast-tracked for trials if they can address the near-term business, social and policy pain points being magnified for us in this once-in-a-century crisis.

In the current climate, strategy really nets down to agile thinking: the ability to make tactical shifts necessary in the heat of the moment to keep operations sage, secure and adaptable. Compute is far more ubiquitous today than in prior economic downturns, and, as such, the problems that can be solved from the practical applications are equally as ubiquitous. Multi-enterprise collaborations built on top of open platforms will create opportunities.

Pervasive compute represents a fundamental difference today compared to the recent economic jolts of the 1987 stock market crash, the dot-com bubble, or Sept. 11. For example, Sept. 11 gave rise to business web conferencing as business travel stalled. Today, with consumerized IT, we are seeing the rise in social conferencing keeping families and friends connected on inexpensive compute devices. We have likewise certainly seen broad shifts in where compute cycles reside since the banking crisis of 2008-2009 when cloud was just beginning to gain market traction. As such, when looking at the implications of COVID-19 on compute, we really have to evaluate an entire suite of compute instances including, but not limited to:

• Traditional data centers
• Cloud computing data centers
• Edge computing or micro data centers
• Colocation data centers

Traditional centers: Delayed refresh cycles with pockets of modernization opportunities

The short-term outlook for those focused on selling silicon into enterprise data centers is to expect a steep stall out on the refresh cycle rhythm of business. Executives across virtually all industries will put the hammer down on discretionary spend, and a server refresh will be hard-pressed to move forward until the business fundamentals improve to the point where leadership will not want to conserve cash.

However, pockets of opportunity should persist.

• COVID-19 pressures the traditional “fortress” data center given the need for remote monitoring and management of the data center. Those needing to make the pivot over to greater remote monitoring will be looking for the equipment required to augment that existing infrastructure, whether it is to turn this remote monitoring over to existing staff in work-from-home mode or to take advantage of remote managed services in the event staff illness depletes existing capacity.
• Networking capacity expansion to accommodate the surge in remote work has been well documented.
• Colocation (COLO) center compute could well be repatriated back to the data center due primarily to worker safety issues pertaining to entering and exiting COLO centers to perform whatever smart hands work is required.
  

Cloud computing: The RPMs on the flywheel should spin faster, requiring capacity build-outs

Cloud computing, especially for the exascale cloud providers — Amazon, Azure and Google, or “Amazurgle” — has been well documented for having seen demand surge due to COVID-19. These surges have come from the rapid move to remote work and the uptick in collaboration and video conferencing application usage as well as increases in consumer use of various streaming video platforms these exascalers underpin. This all points to data center expansions and build-outs by the exascalers. This will increase chip demand, but more chips will flow to the ODM market than to the OEM market based on exascaler preference for these lower-cost, built-to-spec systems.

Furthermore, enterprises reluctant to migrate to the cloud will be forced to as part of their business’s continuity planning around the need to keep their IT staffs at home or to shut down data centers where employees exposed to COVID-19 have been working. In this way, COVID-19 will accelerate the prevailing trend of more application migration to cloud. Not all activity moving to cloud under these unique conditions will revert back once the crisis abates. The current economic environment merely accelerates a trend that has been largely anticipated as hybrid multicloud integrations have become more automated and secure.

An offset to this demand surge will be lower transaction volumes in some industries. E-tailers will certainly spin the meter faster, but online travel, hotel bookings and their adjacencies will slow. Ultimately, TBR expects the exascalers’ revenue will grow as a variety of factors, though societally disruptive, positively impact the need to move more compute to the cloud.

The edge will likewise accelerate

Edge compute has more issues influencing demand and activity. There will be the near-term surges to accommodate the need for added remote compute and networking cycles within enterprise. Additionally, we expect to see the rapid assembly of new use reference architectures for a host of point-of-sale configurations as customer and worker safety concerns begin to be addressed with technology-enabled solutions. This demand will not be a one-for-one contribution. Edge deployments need the “killer app” to have enterprises commit to the infrastructure purchase in much the same way that mobile voice put smartphones in people’s hands. As such, some of these rapidly assembled solutions will only be layering an additional app onto an existing edge configuration with new end-point devices being tied into the compute instance.

But in the midterm, TBR expects to see a rapid increase in the reference architecture designs for additional edge services that will pull more software and specialty devices and have a minor, cascading impact on the edge above and beyond the prevailing activities that have been taking place.

The downdraft will be seen in the verticals most seriously impeded by reduced human movement such as the retail and hospitality sectors. Healthcare, on the other hand, will certainly see spikes in new configurations for patient screening within the existing medical infrastructure.

Colocation centers: A still maturing space addressing foot traffic

Few anticipated a human virus as a threat to COLO operations, but recent articles indicate the novel coronavirus can challenge current operating practices. The comings and goings of enterprise employees who may have the virus can lock down COLO centers until sanitation teams can decontaminate the space. Workarounds consist mainly of additional screening of the customer technicians entering the facilities. We anticipate there could be additional remote monitoring done by customers of their COLO instance, potential construction retrofits for better isolation and portioning, and additional services COLO providers can offer to minimize human traffic within the centers.

The need for dedicated cloud interconnections will not abate as more business and streaming activity demands distributed compute across cloud data centers for geographic density. Micro data centers under cellular towers are edge applications that will increase in popularity and potentially take some share of wallet from COLO centers. But, like the cloud and the edge, we expect the COLO segment to weather the current economic climate better than others.

As the COVID-19 tsunami crests, will new opportunities be in the offing?

No one still gainfully employed has navigated a business through a pandemic. No employee with less than 12 years of experience has even worked in an economic downturn let alone a cessation of business activity. Senior leaders will be well served by staying close to their middle management executives to help them stay measured and calm. Companies with sufficient cash to take the long view can use this slowdown to invest in employee training and education on digitally transformative business applications and devices to upskill staff to handle the pent-up business demand when the economy re-engages.

The world as we knew it on New Year’s Day 2020 will not return, but the world that will emerge will be better in the long term. The companies that have been at the forefront of digitally transforming their operations will have better operating methods for the near-term impact; services firms with templated frameworks will have near-term opportunities to help late majority businesses make the leap to the digital world; and from the current tactical firefights will come scalable solutions benefiting society as a whole. As a world, we are suspended between trapeze bars, reaching for the Fourth Industrial Revolution on the horizon.  

The bar is sturdy and well within the grasp of those businesses stewarded by steady hands in these unsteady times.

Please contact TBR for reuse of this content.

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

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

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

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

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

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

We asked 205 IT leaders who are decision makers for cloud purchasing about the current impact of COVID-19 on their companies and their expectations for the future. These responses were collected between March 17 and March 24. Initial findings show disruption to ongoing projects and increased importance of cloud capabilities in the future.

The impact of COVID-19 on the technology market is coming in waves. The first wave was the disruption caused by the shuttering of key hardware manufacturers in Wuhan province as China grappled with the initial outbreak of the virus in January. The impact was slightly delayed because of inventory levels within the supply chain, but in February and early March major hardware OEMs experienced shortages of key components for their data center infrastructure offerings. Just as those hardware supply chains are beginning to be replenished, the second wave of impact is occurring. As widespread business disruption occurs in Europe and the United States, it will affect customer demand for IT products and services. There is still much uncertainty about exactly how this disruption will play out, but it has caused vendors like Oracle and Microsoft to decrease or widen the range of their 2020 financial guidance. During the third wave of disruption, we expect long-term changes to spending patterns and business strategies.

TBR asked customers about the impact of the second (short-term spending patterns) and third (long-term spending patterns) waves of COVID-19 disruption.

For second-wave impacts, existing projects are slowing and new spending is frozen, but customers are spending to triage urgent COVID-19-related responses:

• The majority of IT organizations are being impacted by COVID-19, with only 19% of respondents indicating they have not yet experienced changes to IT operations.
• While 43% of respondents indicated existing projects are being delayed due to social distancing restrictions, companies are opening their wallets to maintain productivity as many employees shift to remote work. About 34% of organizations surveyed have spent on technology related to productivity as a result of the COVID-19 pandemic.
• Cloud consumption is also up, with 17% of respondents indicating higher cloud usage due to data center component shortages and 10% indicating higher cloud usage due to labor impacts.

In the third wave, cloud delivery will play an even greater role after the COVID-19 outbreak has abated:

• Disruption to normal business processes has highlighted the importance of having remote access to data, apps and collaboration tools.
• While all organizations we surveyed are already using cloud technologies, 48% of respondents believe that the COVID-19 pandemic will lead to an increase in their cloud technology usage as part of long-term IT strategies. A lesser amount, 26%, are not expecting changes to long-term IT strategies at this time. The remaining respondents are unsure about the impacts to long-term strategies.

Today, only one thing is certain: uncertainty:

• At this point, it is too soon to tell what the final impact on IT organizations will be in terms of technology spend and initiatives.
• Companies are likely to take a wait-and-see approach to better understand impacts to revenue, profit and ultimately budgets before committing to new IT spend.
• Cloud adoption, collaboration and employee mobility were already major industry trends prior to the COVID-19 pandemic; however, TBR believes the outbreak will accelerate the development of organizations’ business continuity strategies and remote workforce programs going forward.