Revving the engine in Stuttgart: Accenture in the heart of the German auto zone

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In July, Accenture announced a new Customer Experience Center in Stuttgart, Germany, focused on working with automobile manufacturers and their partners to accelerate the future of connected cars. With seemingly every IT services vendor and consultancy rolling out initiatives around automobiles, TBR spoke last week with Accenture’s Axel Schmidt, senior managing director and industry managing director, Mobility, about the new center to better understand why Accenture chose Stuttgart, how this center will differ from others, and what will be the core competencies and additional value the company brings to clients by having this new space.

According to Schmidt, customer behavior trends across the automotive industry, including increased specialization, expectations around connectivity, and even the number of times a buyer visits a dealership, have further emphasized the need for automakers to enhance their marketing and sales capabilities, a core consulting strength for Accenture. In combination with its manufacturing and supply chain expertise, the company can help carmakers understand what is possible with emerging technologies and what clients are increasingly demanding. In answer to the question, “Why Stuttgart?” Schmidt explained that an Accenture acquisition, Mackevision, was founded in the city and had strong ties to the automotive sector there. Schmidt anticipates Accenture will expand the center concept to other car hubs, and possibly other related industries such as travel and transportation, based on the company’s engagements with other manufacturers.

When pressed on how Accenture and its automotive clients have responded to the changing market for cars, including an increase in car sharing and the (hoped-for) emergence of self-driving cars, Schmidt noted that Accenture recognizes that “brand strength alone will not ensure future success in mobility.”  As Accenture has advised, clients that “want to gain relevant market shares in the market of mobility services need to act now and reposition their brand by using their sales reach.” In even broader terms, traditional manufacturers, according to Schmidt, “need to embrace new platform- and customer-centric technologies in order to remain successful. Furthermore, car manufacturers need to pivot their business model wisely from building and selling cars to offering mobility.” For some time now, Accenture has advanced the idea of “the new,” to include promising “the customer a seamless mobility experience by offering him in a comfy and affordable manner that kind of mobility he needs.”

Our discussion with Schmidt ended with a look to the future, when automobiles are essentially “software with hardware wrapped around it” and they become the “ultimate mobile device.” (TBR wonders if BMW will update its slogan.) Schmidt said the current 150 million lines of code per advanced automobile will be closer to 1 billion lines of code in an autonomous vehicle. Given everyday experiences with software in other elements of life — and the trend toward “low code” in some IT environments — I think a niche market will grow for no-code, unconnected, software-free cars. Keep that red Barchetta’s motor in working condition.    

IBM continues to separate itself from the pack

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Senior Analyst Nicki Catchpole reports this week on IBM’s cloud and software practice, noting: “While IBM’s 3Q19 overall results continued to experience a downward slide, its Cloud & Cognitive Software sector experienced immediate positive effects from the much-anticipated $34 billion acquisition of Red Hat. Red Hat’s OpenShift technology and channel-driven approach have boosted IBM’s cloud growth, expanded the broader IBM portfolio, and opened doors to new customers and markets. Post-merger, IBM is focusing on emphasizing its value proposition at the PaaS layer, with the intent to capture enterprise IT spend in the lucrative hybrid cloud market and position itself as the industry’s only true hybrid multicloud platform. While IBM still faces strong headwinds post-merger, TBR expects that another quarter of executing a cloud-native portfolio approach will position IBM for differentiation and continue to yield positive growth results in this segment.”   

Additional assessments publishing this week from our analyst teams

“Capgemini has sustained a midsingle-digit organic revenue growth trend over the past seven quarters, positively affected by strategic expansion into next-generation and industry-specific solution areas. Capgemini’s revenue growth will decelerate in 4Q19 due to potential softness in the banking sector and in the U.K. Capgemini indicated pockets of softness are developing, specifically in banking due to end-of-year budget management and in the public and private sectors in the U.K. due to uncertainty around Brexit. In September Capgemini’s board of directors chose Chief Operating Officer (COO) Aiman Ezzat to succeed Paul Hermelin as CEO in May 2020. While Ezzat will be responsible for the overall management of the company as CEO, Hermelin will remain chairman of the board. This will ensure a smooth transition in Capgemini’s top executive role. Ezzat has been with Capgemini for 20 years and has deep knowledge of the company from holding leadership roles, such as CFO and, most recently, COO.” — Elitsa Bakalova, Senior Analyst

“Atos’ new CEO, Elie Girard, will continue to steer the company’s strategic direction in the next two years, with a focus on delivering business outcomes for customers utilizing Atos’technology and services expertise in cloud, cybersecurity and emerging areas such as IoT and edge and quantum computing. Revenue and cost synergies from the Syntel acquisition will enable Atos to achieve its financial goals in 2019. Atos is positioned well to support its expansion in North America by cross-selling solutions to existing clients. TBR expects Girard, who has been with Atos since 2014, to emphasize execution of financial targets, especially around improving profitability through productivity and efficiencies.” — Elitsa Bakalova

“With its marriage to United Technologies on the 2020 horizon, Raytheon is on the cusp of a game-changing merger that will impact the federal IT and global aerospace sectors for years to come. In TBR’s 3Q19 Raytheon Intelligence, Information & Services (IIS) report, we will begin to examine the implications of the blockbuster, multibillion-dollar consolidation on Raytheon’s government services business. Despite early disruptions from the looming mega-merger and the loss of the Warfighter FOCUS contract, Raytheon IIS continues to post robust fiscal performance, owing to a steady stream of new classified projects in cyber and space, particularly in its core U.S. market but also overseas with its long-established roster of foreign governments the company counts as clients.” — John Caucis, Senior Analyst

“Leveraging its portfolio network to integrate cloud, digital and security capabilities as well as support delivery of software-driven services will help Cisco Customer Experience maintain growth and profitability. Additionally, Cisco’s increased acquisition activity will provide Cisco Customer Experience with access to a broader client base and enable it to more quickly develop cloud and IoT capabilities to bolster revenue streams in 3Q19.” — Kelly Lesiczka, Analyst

“HCL Technologies’ (HCLT) alliance and acquisition strategy helps the company enhance its portfolio to embed vertical and technical expertise and positions it for profitable revenue growth in 2020. Additionally, HCLT’s investments in talent, including fostering its ‘Employees First’ culture, supports the development of a digitally versed talent bench and will allow HCLT entryways into emerging markets.” — Kelly Lesiczka

“DXC Technology made several changes to its management team, including its CEO, following the retirement announcement of its current chairman, Mike Lawrie. New leadership across DXC will bring a fresh perspective and could help turn around its perpetual restructuring initiatives and financial underperformance. During the quarter, the company appointed Mike Salvino as president and CEO, and TBR believes his vision for the company complements DXC’s strengths and will align with much of his predecessor’s values, minimizing disruption, as Lawrie was involved in the selection process.” — Kevin Collupy, Analyst

“Azure has become a consistently strong revenue driver for Microsoft, but it is also notable that Microsoft has been able to sustain growth of its licensed Server software products by stressing hybrid IT environments and high-value use cases like expansive IoT deployments.” — Meaghan McGrath, Senior Analyst 

“Amazon Web Services’ (AWS) days of unrivaled public cloud PaaS and IaaS dominance may be numbered as key competitors such as Microsoft and Oracle rally together to unseat AWS. AWS is fighting to stem their progress, sacrificing margins to win customer workloads.” — Meaghan McGrath

“Comcast’s Cable Communications business remains in an enviable position in the U.S. telecom industry as it continues to sustain solid revenue growth despite increasing competitive pressures and shifting consumer trends. Central to Comcast’s success is the high subscriber growth spurred by the accelerated speeds of its DOCSIS 3.1 broadband services while being free of the burden of maintaining a legacy network portfolio, which is hindering wireline revenue growth for rivals such as AT&T and Verizon.” — Steve Vachon, Analyst

“The fruits of Verizon’s restructuring initiatives, which focus on eliminating nonessential costs while renewing emphasis on the strength of the company’s wireless business, were evident in Verizon’s improved subscriber growth and consolidated operating margin in 3Q19. Verizon’s emphasis on improving the value proposition of its unlimited data plans led to the company gaining its highest third-quarter wireless phone gross additions in five years, but churn is also rising due to stronger competition from T-Mobile and Xfinity Mobile.” — Steve Vachon

Betting on business model transformation through appointment of new leaders

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As companies must manage multidisciplinary and
multigenerational workforces, maintaining properly
trained leaders, with visions closely aligned to the
organization’s DNA rather than investor expectations,
will provide a strong foothold in a largely disrupted IT
services market. The impact on employee culture,
morale, purpose and other organizational behavior
largely depends on the CEO of the company, particularly
if a new one needs to be selected. Promoting from
within typically inspires employees, as is often the case
when a company is performing well, such as with
Accenture; external candidates are often brought in for
fresh, new ideas and are associated with a last resort
measure for companies in distress, similar to Conduent,
DXC Technology (DXC) and Cognizant, to an extent.
While changing a company’s DNA overnight is
impossible, with many examples of leaders who have
tried and failed, embedding new ideas to drive change
must start with a solid foundation. As the decade wraps
up and many ICT vendors place bets on appointing
and/or hiring new CEOs, the question about new ideas
and their execution has yet to be answered. CEOs who
can execute on their initiatives at scale, beyond the
marketing hype and PR, will most likely succeed.

A few recent highlights:

  • In TBR’s view, the CEO changes at Atos and Capgemini will not impact performance. They are both planned, and for Capgemini, the former CEOs will remain part of the board. Both companies will have former CFOs leading, so there will be very strict execution based on numbers. TBR does not expect the stepping down of Atos CEO Thierry Breton on Oct. 31 and the appointment of Elie Girard, current deputy CEO and CFO, to change the company’s strategic direction or to negatively impact Atos’ performance. Atos has been working on a CEO succession plan since the beginning of 2019, when it appointed Girard as deputy CEO. While Girard became CEO on Nov. 1 and will be responsible for the overall management of the company, the chairman of the board position was separated from the CEO’s responsibilities and filled by Bertrand Meunier as nonexecutive chairman of Atos SE’s board of directors. In September Capgemini’s board of directors chose Chief Operating Officer Aiman Ezzat to succeed Paul Hermelin as CEO in May 2020. While Ezzat will become CEO and be responsible for the overall management of the company, Hermelin will remain chairman of the board. This will provide a smooth transition in Capgemini’s top executive role and avert potential execution challenges if a future CEO was to step down completely. Ezzat has been with Capgemini for 20 years and has a deep knowledge of the company from holding leadership roles, such as CFO and, most recently, chief operating officer. TBR expects Ezzat to continue to implement Capgemini’s strategic plans in the coming quarters.
  • Accenture appointed Julie Sweet as CEO effective Sept. 1, 2019. Previously Sweet led Accenture North America operations, where Accenture Technology is a key contributor to revenue performance and the company has successfully executed on its 2017 initiative to recruit 15,000 employees and open 10 innovation hubs across the region by 2020.
  • On April 1, 2019, Brian Humphries took the reins as a CEO of Cognizant, succeeding company co-founder Francisco D’Souza. Shortly after the former Vodafone Business lead stepped in to head Cognizant, the company announced plans to provide voluntary separation to 300 top-level executives in late May. The layoffs, which are part of Cognizant’s efforts to improve its cost structure, have primarily been focused in the U.S. and India.
  • DXC Technology elected former Accenture Operations lead, Mike Salvino, to take over from Mike Lawrie as the company’s CEO. We expect Salvino’s background in operations and DXC’s recent purchase of Luxoft to further expand the company’s opportunities within the BPaaS space.  

Quick Quantum Quips: A call for quantum supremacy sends ripples through the market

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The quantum market changes rapidly, and the hype can often distract from the realities of the technological developments. In our new monthly newsletter, Quick Quantum Quips (Q3), TBR will brief readers on the latest market announcements, stripping that hype to dig deeper into how recent events will impact the market as a whole. To schedule a time to chat with Analyst Stephanie Long or another one of TBR’s quantum analysts about any of the insights below, contact her at [email protected].

October 2019 developments:

  1. Google claimed it achieved quantum supremacy in mid-October, sending ripples through the quantum community. Quantum supremacy is a key milestone many leaders in the quantum computing space have been working toward for years. If true, this milestone would mean that quantum theory has successfully been translated into practical applications, so such a claim has major implications for the industry overall. Google claims its quantum computer was able to perform a truly random number generation in 200 seconds — and that the task would have taken a supercomputer 10,000 years to complete. Further, truly random number generation is necessary for quantum-safe security solutions, making this announcement a multifaceted milestone in the quantum community. Critics of Google’s claim state that it is possible to achieve very similar results in 2.5 days on a supercomputer, although it would require 250 petabytes of storage to do so, potentially diminishing the size of Google’s “milestone” achievement but confirming it as an achievement nonetheless.
  • IBM has been in the news consistently during October for its strong claims against Google’s quantum supremacy claims. TBR believes that the strong opposition signifies the power being the first company to achieve quantum supremacy can hold as well as the damage to the industry an unrealistic claim can cause through false hyping of the technology. The industry already struggles with hype, which pushes C-Suite executives to invest in and expect quick results from a technology that is meant for the long game, and skewed claims only stand to increase the negative impacts of the hype. As such, IBM has made a significant effort to minimize the hype surrounding Google’s announcement to reveal the complete facts surrounding the achievement.
  • IonQ received its latest round of funding in October — to the tune of $55 million. Samsung and a sovereign wealth fund of the United Arab Emirates led the funding this round, while Google, Amazon and New Enterprise Associates re-upped their commitments from earlier funding rounds. The investments in IonQ are significant, as the list includes some potential competitors such as Google. TBR notes that Google is investing in superconducting quantum computing, which presently leads the charge in terms of advancements. However, IonQ’s theory of trapped ion quantum computing is unique in that it does not require cryogenically cold environments to function, making its approach seem more realistic in that it would have broader, more practical commercial applicability. TBR believes Google’s investment in IonQ demonstrates its strong cash position and focus on the applied uses for quantum over being wedded to any particular hardware structure. Google, like many enterprises, is more focused on application exploration rather than the sale of quantum systems.

  • In a true demonstration of the sheer power quantum computing can unleash, customers are jumping on the innovation train to accelerate the development of both the technology and related skills. Airbus announced that it has compiled a list of leading experts to act as judges for its quantum computing competition. The Airbus Quantum Computing Challenge launched earlier this year and is designed to encourage experts and those interested in quantum computing to tackle some of the more complex computational problems for aerospace. All proposals needed to be received by Oct. 31 and are now being reviewed by the team of judges that Airbus compiled. Jury members come from all geographies and from both industrial and academic organizations, including QC Ware, Horizons Quantum Computing, the University of Waterloo, the University of Technology Sydney, QuSoft, the University of California and more. The announcement is significant because a commercial enterprise is recognizing the value quantum can bring to its business and displaying an eagerness to contribute to the advancement of the quantum ecosystem.
  • QC Ware unveiled the list of speakers for its upcoming quantum computing event, Q2B. The event will take place in California in December. Program details can be found at the link provided.

If you would like your company’s announcement featured in an upcoming Q3, contact Geoff Woollacott to coordinate a conversation.

UiPath’s enhanced and expanded technology stack provides a solid foundation to reach scale

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In mid-October Senior Analyst Boz Hristov attended the annual UiPath Forward conference in Las Vegas, and recently, he published his thoughts on the event and UiPath’s role in the robotic process automation market.

He wrote, “UiPath’s position as one of the leading vendors defining the robotic process automation (RPA) market comes with responsibilities for managing expectations across stakeholders, and the company knows it. Enhancing its value proposition by adding the necessary layers of technologies and deploying business-led frameworks internally and with alliance partners helps it build use cases of scale, a necessary attribute to maintain growth momentum, as RPA is no longer a siloed, line-of-business-led initiative, but rather a node in an enterprisewide automation initiative.”

Additional assessments publishing this week from our analyst teams

“TBR’s quarterly full report on IBM highlights the strategic development in the hardware portion of IBM’s larger portfolio. In 3Q19 we discuss IBM’s quantum computing business as well as the positive implications of the September launch of the z15. Additionally, highlights of IBM’s more emerging capabilities such as around blockchain are also expanded on. IBM’s July finalization of its Red Hat buy has sent a wave of open source through the business, impacting Power Systems this quarter.” — Stephanie Long, Analyst

“IBM Services will continue to experience growth in business and technology transformation areas, such as advisory activities around cognitive technology, cloud application modernization and next-generation enterprise applications such as SAP Business Suite 4 HANA (S/4 HANA) and Salesforce. The growth will be driven by IBM Services’ portfolio realignment initiatives to deliver higher-value and higher-margin services that integrate technology and industry expertise and enable clients’ digital reinventions. Synergies with the Red Hat acquisition, which closed on July 9, will continue to generate application modernization deals for IBM Services involving the OpenShift hybrid cloud platform. However, lingering growth challenges in traditional IT service areas and ongoing transformation of the Global Technology Services business will stall IBM Services’ revenue growth and profitability improvement in 2019.” — Elitsa Bakalova, Senior Analyst

“While TBR expects T-Systems’ revenue growth to decelerate slightly in 3Q19, reorganization efforts combined with the company’s investments in cloud, IoT and security capabilities to align its portfolio with client demand will prepare the company to stabilize revenue in 2020.” — Kelly Lesiczka, Analyst

“Sprint’s 3Q19 performance highlights the necessity of the T-Mobile merger and the challenge of Sprint remaining a stand-alone company. Sprint continues to struggle to gain customers without aggressive pricing, while its elevated capex budget is limiting free cash flow and has yet to produce a significant improvement in network quality to lower churn rates.” — Steve Vachon, Analyst

Microsoft beats out Amazon after contentious competition for DOD’s JEDI award

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Last Friday’s announcement of the massive U.S. federal government cloud contract led Senior Analyst John Caucis to publish a special report explaining how Microsoft won, why Amazon lost, and what it all means for the IT services vendors in the U.S. public sector space. “Regardless of why the DOD [Department of Defense] chose to announce the winner of the biggest single cloud contract to date in federal IT (and one of the biggest IT contracts in federal IT history) when it did, Microsoft is now poised to capture potentially billions in revenue as the DOD’s leading cloud vendor on JEDI [Joint Enterprise Defense Infrastructure], an award with a $10 billion ceiling and a potential 10-year life span if all options are exercised. Vendor selection for JEDI has been ongoing for over a year, plagued by multiple protests, internal investigations, and conflict-of-interest allegations by and between the initial four contestants, Amazon, IBM, Microsoft and Oracle. The acrimony kept the DOD from awarding JEDI by its original target date of April 2019, though the agency eliminated IBM and Oracle in April in the first ‘down-select’ of the vendor review process.”

Additional assessments publishing this week from our analyst teams

“Restructuring and automation efforts help Fujitsu reposition for profitable growth in its services business. However, the company may need to look outside its traditional client base to see tangible results throughout 2020.” — Kelly Lesiczka, Analyst

“From a cloud perspective, Fujitsu will align its strategy to its competitors’ strategies, which consist of encouraging customer migrations to hybrid and multicloud environments. However, TBR believes Fujitsu’s expertise in IT outsourcing will serve as a differentiator as Fujitsu looks to explore operational services within multicloud environments more heavily compared to industry peers. Fujitsu announced plans to invest ¥500 billion in its DX business over the next five years and to launch an independently operated consulting business, expected in January 2020, to meet its technology goals.” — Nicki Catchpole, Senior Analyst

“While Cognizant faced challenges within its mature industry segments in 2Q19, we expect the company improved its ability to scale digital solutions through additional acquisitions, such as Zenith Technologies, to offset pressure in 3Q19.” — Lesiczka

“Tata Consultancy Services’ (TCS) Business 4.0 strategy focuses on expanding the company’s solution suite around next-generation offerings such as AI, analytics, big data, blockchain, cloud, IoT and security. Integrating this strategy across service delivery and got-to-market teams enables TCS to sustain its global brand awareness and creates opportunities to upsell existing clients and attract new logos seeking increasingly comprehensive digital transformations, which generates opportunities for longer-term and often larger-dollar outsourcing engagements.” — Kevin Collupy, Analyst

“TBR’s Global Delivery Benchmark shows that agile-based service delivery is speeding up vendors’ ability to deliver at scale, which is forcing vendors to hire more talent with specific skills to keep pace in this delivery model. As vendors continue to adjust business models to operate in an automation-enabled services environment, their inability to systematically and consistently monetize IP will further pressure profits.” — Boz Hristov, Senior Analyst

“In the latest Digital Transformation Insights report on Digital Marketing Services, TBR notes that as the most mature digital transformation process, customer experience process has compelled buyers to embark on omnichannel projects to unify insights and processes across the customer life cycle and deliver more personalized experiences to end consumers. While macroeconomic headwinds will taper revenue growth, AI-enabled user experience solutions will continue to create entry points for customer acquisitions compelling vendors to recalibrate investment strategies.” — Hristov

“Leidos’ 3Q19 revenue is expected to rise between 4% and 6% year-to-year to between $2.68 billion and $2.73 billion as the company’s backlog continues to reach new highs, owing to a strong, sustained pace of net-new contract bookings across defense, civilian and particularly, healthcare areas. Leidos also successfully defended its position on a handful of large projects during 3Q19, including the $2.9 billion, 10-year NASA End-User Services & Technologies (NEST) program and the $927 million IT and logistics support contract with the Transportation Security Agency (TSA).” — Caucis

“CACI’s revenue is projected to increase between 15% and 20% year-to-year to between $1.34 billion and $1.4 billion in 3Q19. A revenue result for CACI anywhere in the projected range would represent another record level for the company, reflecting the tight alignment of its differentiated solutions with high-priority spending areas in the defense and intelligence markets. CACI is beating out incumbents on large-scale program recompetes and effectively defending its incumbency on its own legacy engagements, while the strength of its fiscal performance points to a high-value solutions mix highly relevant to its core customer set. $1 billion in acquisitions made in 1Q19 are also bolstering CACI’s top-line, though concurrently generating margin pressures.” — Caucis

“Booz Allen Hamilton’s (BAH) revenue is expected to increase between 9% and 11% year-to-year to between $1.76 billion and $1.79 billion in 3Q19, consistent with the company’s plan to aggressively execute on its FY2020 growth objectives during the first half of the fiscal year (calendar 2Q19 and 3Q19).  BAH is realizing balanced growth across its government-focused business lines, while growth in its Global Commercial business has been more variable. Irrespective, BAH continues to book a strong volume of IT modernization, advisory and security-focused engagements.” — Caucis

“To further reduce churn and increase revenue, T-Mobile is building a more robust customer ecosystem by launching new value-added services, expanding its IoT portfolio, and entering new markets such as video and residential broadband.” — Steve Vachon, Analyst

“AT&T’s network investments in areas including 5G, NFV, SDN and IoT are providing the foundation for businesses to support digital transformation initiatives to enhance efficiency and customer experience. AT&T is preparing to support next-generation digital solutions by fostering network innovations at its six global AT&T Foundry centers as well as working with multiple leading technology providers including Dell Technologies, IBM, Microsoft, Samsung and Hewlett Packard Enterprise.” — Vachon

IBM and the Raptors: Building an NBA champion and looking for a repeat

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While watching the NBA’s defending champion Toronto Raptors begin their season, I thought back to a trip to IBM’s Toronto office in late summer 2018, where we got to play with the technology IBM built for the Raptors’ draft and trade war room. We created teams, selecting college players, current NBA players and even European league all-stars based on stats and contracts, influenced a bit by our own biases (toward the Celtics). And when we visited IBM Toronto again in 2019, when the Raptors were on the march to the playoffs and a championship, we understood that IBM’s technology had made a huge difference in pulling together an underappreciated, under-the-radar team. IBM’s combination of massive amounts of data, AI and a near-flawless user interface allowed the Raptors’ management team to put the right pieces in place to unseat the Warriors. Will the Raptors repeat? Unlikely, but they’re still partnering with IBM.

Later this month, we’re going to publish a special report on IBM’s role with the Raptors in the context of other consultancies and IT services vendors that have invested in analytics and sports, building on the following assessment from our Digital Transformation Insights Report: Cross Vendor, published in March.

“In 2016 IBM partnered with the NBA’s Toronto Raptors to create a ‘war room’ for the NBA draft, pulling together an exhaustive and diverse set of performance, personality and biological data on basketball players in the league, in college, and around the world.

Leveraging a user-centric design approach, IBM worked with the Raptors’ front office to develop an end-to-end platform that revolutionizes the operations experience and provides them with comprehensive and actionable data about players to support front-office decision-making processes.

IBM worked with the Raptors to gather player performance statistics and contract details, allowing the Raptors to get an instant view of all aspects of player performance and the ability to search and filter players, compare players, simulate trade scenarios, and collaborate with decision makers throughout the player recruitment and acquisition processes — how did a player do and what would it cost to have him play in Toronto.

The IBM Sports Insights Central solution was built over six months using a collaborative and agile model. The platform includes a state-of-the-art digital war room located at the Raptors’ facility as well as a mobile application and a web-based service to enable remote collaboration.

The IBM team synthesized and visualized all aspects of player data through an intuitive and highly functional user experience to make this a transformative engagement for IBM and the Raptors. Since the solution deployed, IBM has assisted the Raptors by further enhancing the functionality of the platform with scouting management, players’ social media profiles, and analytics provided by the IBM Watson AI engine via a native mobile app.”

(The Raptors started their title defense with a 130-122 win over the Pelicans.)

Mixed results expected in the U.S. federal sector for IT services vendors

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Earnings season for federally focused IT vendors begins the week of Oct. 21. Senior Analyst John Caucis has been tracking Northrop Grumman Technology Services (TS), General Dynamics Information Technology (GDIT) and Raytheon Intelligence, Information and Services (IIS) ahead of their 3Q19 fiscal earnings release. 

Raytheon IIS is expected to be the top performer among the first group of companies to tender their financial performance, owing to new contract signings in the lucrative cyber and space sectors and expanding project volumes on existing programs in these segments. Growth is likely to moderate in 3Q19, though this is expected with the ramp down of the Warfighter Field Operations Customer Support (FOCUS) program. Some of the lost Warfighter FOCUS revenue will be offset by a recent rise in domestic bookings that is converting to revenue on IIS’ top line while IIS continues expanding its overseas footprint.

Northrop Grumman TS’ recent sales slide is expected to continue in 3Q19, though we also expect the pace of TS’ contraction to continue moderating as the impact of large engagement losses wanes and bookings with sustainment, logistics and modernization programs strengthen.

The CSRA acquisition is no longer inorganically lifting GDIT’s revenue, and recent business divestitures (GDIT’s call center and 911 businesses) are expected to further erode GDIT’s revenue base. The expiration of a handful of large engagements in 3Q19, combined with the expiration of those in early 2019, will exacerbate the impact of the aforementioned issues on GDIT’s performance. Cross-sales with the Aerospace and Mission Systems segments of General Dynamics are helping offset these headwinds, as are the large-scale awards GDIT is increasingly booking, but a complete return to top-line growth is not expected until 2020.

Additional assessments publishing this week from our analyst teams

Driving innovation across its North America client base via a senior leadership team strengthened by its new Digital Transformation Office and establishing an Application and Technology Services practice will enable Atos to ramp up activities with clients around improving business operations and results through next-generation solutions. The next step for Atos is to successfully cross-sell its solutions by explaining the company’s capabilities to internal sales and delivery teams and to existing clients, as well as to effectively deliver services to grow revenues and improve profitability in North America. — Elitsa Bakalova, Senior Analyst

With Atos’ 3Q19 earnings release TBR expects cloud will remain a vibrant segment for Atos, and revenue growth in the segment will continue to outpace the company’s total revenue growth. Atos’ cloud business will be positively affected by increased activities with clients, such as around transforming legacy applications and infrastructures to cloud, orchestrating hybrid cloud, ensuring cloud security through services and IP-based solutions, and providing cloud-enabled IoT solutions. Collaborating with clients’ IT and business stakeholders during cloud transformations and adding industry expertise will improve Atos’ ability to drive business outcomes for clients through cloud. — Bakalova

TBR expects six consecutive quarters of bookings growth and cross-selling opportunities to clients that came from recent acquisitions such as Leidos Cyber will sustain Capgemini’s growth momentum in 3Q19. Enhancing client relationships and industry expertise, such as through the acquisition of KONEXUS Consulting and the proposed acquisition of Altran, and approaching clients’ CxOs will improve Capgemini’s ability to access budget stakeholders and sustain revenue growth. — Bakalova

With a robust legacy client base and deep relationships with key technology partners, Accenture’s cloud business will continue to flourish. Accenture is doubling down on Google Cloud, adding another node to its multicloud management strategy. Additionally, Accenture Security continues to provide the trust needed to win new buyers and fuel cloud opportunities. — Boz Hristov, Senior Analyst

Though Verizon will continue to trail T-Mobile in postpaid phone net additions for the foreseeable future, Verizon remains able to capitalize on its reputation as a premium wireless service provider to attract customers willing to pay a higher price point for the operator’s network coverage and premium unlimited data plans. Additionally, aggressive cost-cutting and digital transformation initiatives are helping improve profitability. — Steve Vachon, Analyst

HCL Technologies’ (HCLT) acquisition activity and efforts to strengthen in-demand portfolio offerings generated double-digit growth in 2Q19. We expect HCLT will leverage its partner network to gain access to an expanded client base and lead with its expertise in Engineering and R&D Services to support its ability to differentiate and compete against peers as well as maintain growth momentum in 3Q19. — Kelly Lesiczka, Analyst

Growing traditional revenues in IT services remains a challenge

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TBR’s quarterly IT Services Vendor Benchmark published last week, with the following comment from lead Senior Analyst Elitsa Bakalova: “Vendors are scaling transformational portfolios; however, lingering growth challenges in traditional service areas challenge revenue performance. Trailing 12-month IT services revenue growth, at 1.9% year-to-year in U.S. dollars, was down 140 basis points sequentially in 2Q19 and 670 basis points against the year-ago compare. While vendors are not making major downward revisions in revenue growth targets for 2019, revenue growth for the benchmarked vendors has been decelerating due to growth challenges in commoditized traditional service areas; increasing competitive pressures, especially around advisory, implementation and management of next-generation solutions, such as transformational engagements around digital and cloud; and potential macroeconomic uncertainty.”

Additional commentary

“This week TBR publishes its 3Q19 IBM Initial Response, focused on IBM’s corporate and Systems Hardware performance. As the first formal report since the announcement of IBM’s z15 in September, this report will dive into some of the implications of this new launch across the broader portfolio while continuing to provide analysis on IBM’s quantum computing investments and developments. Implications of the Red Hat buy will be highlighted in this report as well, but deeper analysis on this topic can be found in TBR’s IBM Cloud Initial Response. Be on the lookout for TBR’s 3Q19 IBM full report, which publishes on Nov. 6, for a more in-depth look at these topics.” — Stephanie Long, Analyst

“IBM is using its advisory, digital design and technology expertise to win and execute holistic transformational projects and drive management consulting revenue growth in 2019. Value-led and IBM-asset-powered solutions; collaborative innovation, such as in the IBM Garage facilities; and specialized consulting expertise and talent, such as in Global Business Services’ Digital Strategy & iX, Cognitive Process Transformation and Cloud Application Innovation segments, enable IBM Services to position as a digital reinvention partner for clients’ cognitive enterprise journeys.” — Bakalova

“As Julie Sweet takes over the helm, Accenture will continue to capitalize on its momentum, targeting Diamond clients by deploying industrialized, AI-enabled solutions. In FY20 we expect investment in ‘the new’ to help the company expand wallet share within existing businesses as well as position for new logo opportunities, inching total sales from ‘the new’ closer to 100%.” — Boz Hristov, Senior Analyst

Additionally, join TBR’s Professional Services team Oct. 16 for a webinar and Q&A on India-centric vendors, including how they compare to leading IT services vendors and which IT services vendors have the most to lose due to sustained success among those that are India-centric.

Interested in learning more about IT services, cloud, data center and IoT?  Contact TBR today!

Returning to a co-CEO structure completes the executive refresh to support SAP in the ongoing cloud war

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Bill McDermott chose not to renew his contract as SAP CEO, making room for SAP to return to its co-CEO structure with Jennifer Morgan and Christian Klein. This changing of the guard is the capstone on SAP’s management realignment, and the announcement comes with some glaring similarities to key ERP challenger Oracle’s announcement a month earlier.

Morgan and Klein take over the refreshed SAP executive suite

SAP has made numerous management changes in 2019, but all changes had been made with CEO Bill McDermott leading the company — and the newly appointed leaders — through each step. That reassuring constant ended abruptly on Oct. 10, when McDermott announced he will step down from his CEO role instead of renewing his contract. McDermott will stay with the company in an advisory capacity through the end of the calendar year to smooth the transition to the newly appointed co-CEOs Morgan and Klein.

While the personnel is changing, the co-CEO structure is a familiar one for SAP. SAP operated under a dual CEO structure for quite some time, with McDermott himself sharing the CEO responsibilities with Jim Hagemann Snabe before taking over in an individual capacity. The new co-CEOs are well paired from geographical and functional standpoints, as Morgan is U.S.-based and focused on sales, while Klein is Germany-based and more focused on products and innovation. In furthering the consistency, founder Hasso Plattner, himself a former co-CEO of SAP, remains chairman of the board and very involved in the overall strategy.

Morgan was in her role as president of the Cloud Business Group for a mere six months between Robert Enslin’s April departure to Google Cloud and her promotion into the role of co-CEO. Before his appointment to co-CEO, Klein became a member of the executive board in 2018 and served as SAP’s chief operating officer and chief controlling officer. We believe Morgan’s focus on sales and customer relationships as well as Klein’s strength in operations will be required to achieve SAP’s dual overarching goals: to grow revenue through sales and improve margins through operating efficiencies.

Notably, Morgan and Klein are stepping into the driver’s seat as other SAP executives are just finding their footing in new roles:

  • One of the biggest shifts SAP made in the first half of 2019 was changing aspects of its partner programs, capped by the promotion of Karl Fahrbach from chief operating officer of the partner organization, to SAP’s first chief partner officer in March, after Rodolpho Cardenuto left his role as president of the partner organization in December 2018.
  • Without much fanfare, Juergen Mueller was promoted from chief innovation officer to chief technology officer in January 2019, and appointed to SAP’s executive board.
  • Elliot Management disclosed its investment in SAP in April 2019, and immediately directed SAP to further improve margins while chasing revenue growth.

While these changes have all come in different areas of the company, they are aligned with SAP’s goals as it transitions from a traditional software vendor to a cloud solutions provider. With its cloud portfolio largely in place (though innovation, replatforming and acquisitions persist), SAP is at the point in its transformation that requires it to invest in partner enablement to sell its cloud solutions and ongoing competitive innovation within its defined solution areas, and to do so with a focus on operating efficiencies. In this same spirit, McDermott aggregated a portfolio, and Morgan and Klein are well aligned to take that portfolio forward to achieve the goals, with the help of an invigorated C-Suite behind them. Arguably, SAP would have been well served by McDermott’s persistence as CEO to complete the technology transition to the HANA platform before departing, but Mueller and Plattner will likely both lend their technical leadership to ensure the smooth transition alongside the other business leaders.

Releasing earnings alongside the CEO announcement proves SAP’s ERP capabilities against Oracle’s speedy September release

SAP’s announcement was not allowed to pass without parallels being drawn to its most boisterous competitor: Oracle. The most discussed similarity is that SAP’s CEO change came almost exactly a month after one of Oracle’s CEOs, Mark Hurd, took an immediate leave of absence for medical reasons. Outside of the timing, the CEO announcements are, however, vastly different in motivation and succession.

The other similarity, which TBR believe is more noteworthy, comes from both companies’ ahead-of-schedule releases of quarterly earnings data in conjunction with their CEO announcements. When Oracle released its earnings Sept. 11, one day ahead of its scheduled release and 11 days after the quarter ended, CEO Safra Catz underscored the speed with which Oracle was able to prepare its financial statements by running on its own Fusion ERP Cloud suite. Nearly a month later, SAP was able to close and prerelease its results in a 10-day window using its ERP solutions. TBR expects this move to prove critical for SAP, as SAP quickly rebutted what could have been used as a competitive proof point of the capabilities of Oracle’s ERP solutions.