Capgemini provides transformational services that drive business outcomes

In an early session at the Global Analyst and Advisor Summit, Capgemini CEO Aiman Ezzat declared Capgemini had become a business and technology partner to clients, helping them with their digital transformation and delivering business outcomes.

 

To make clear the change from years past, Ezzat said unequivocally that Capgemini is “not an IT services company,” a sentiment echoed throughout the day’s sessions and in many of TBR’s side discussions with Capgemini leaders and professionals.

 

In TBR’s view, Capgemini must shift more than just its approach toward clients if the company wants to bring a truly robust breadth of offerings, from strategy to core IT services to cocreation of shared IP. Capgemini must shift its culture, an effort TBR believes is well underway. Across a number of competencies, strategies and go-to-market motions, TBR saw examples of Capgemini bringing a new focus on value, such as the comment by Capgemini’s Group Chief Strategy and Development Officer Fernando Alvarez that Capgemini would be selling “value and delivering business outcomes,” not just basic IT services.

 

Given the global economic uncertainties, newly developing competitive pressures and accelerating commoditization of IT services, cultural and business model shifts might challenge Capgemini’s performance as businesses might cut back on discretionary spending on transformational projects; however, TBR expects the company to leverage Capgemini Engineering as the bridge between transformation and a new wave of outsourcing opportunities.

 

 

Positioning as a strategic partner for clients enables value creation

Capgemini places value creation at the center of its strategy and creates value utilizing its technology background and software engineering skills. The company is looking for ways to help run clients’ businesses more efficiently and also establish new business models, such as by utilizing its development skills to build software architectures for e-vehicles. Pushing client centricity and selecting 10 focus industries to drive specialization improves Capgemini’s ability to create value and increase client reach.

 

While in the past Capgemini was not as vocal on being proactive on the topic of innovation, its leadership team is placing innovation at the core of its strategy. The company is running an initiative to increase perception with clients around innovation and is involving two-thirds of its strategic accounts in coinnovation activities in the Applied Innovation Exchange (AIE) network and labs to address areas of transformation such as around quantum computing, metaverse-related solutions and sustainability.

Capgemini attracts clients and talent by leading with value

Capgemini is positioning as a strategic partner for its clients to address their needs. Alvarez stated during his presentation that listening to clients is the rule for Capgemini and the company must communicate in a focused way by industry to better serve its clients. Delivering value to clients is driven by measurable business outcomes, industry expertise and data-driven industry solutions.
 
Creating new business models, harnessing the value of partners and data ecosystems, and supporting talent that has a passion for innovation are also value creation factors. According to Alvarez, Capgemini does not just address clients’ needs around cloud; it covers what runs on top of cloud. For example, data is a critical asset for clients, and Capgemini pushes to drive excellence around implementing data solutions and focusing on insights and business outcomes, and the data capability is coupled with cloud for scalability. Capgemini’s ability to build ecosystems to create value with partners by industry verticals and bring subject-matter expertise in engagements drives value creation and improves the company’s ability to price differently and position as a talent magnet.
 
Capgemini’s management team is no longer seeing the company as an IT services provider with outsourcing heritage sitting in Europe, but as a global digital and technology transformation provider that focuses on value creation, a strategic direction that will enable the company to continue to drive profitable revenue growth in the coming years.

Capgemini is shifting from selling capabilities to selling transformation

Establishing a proactive offerings development strategy and packaging offerings with clear value proposition and business outcomes improve Capgemini’s ability to expand wallet share with existing clients and approach new clients before they reach out with a request for proposal.

 

Capgemini’s corporate strategic framework, which has two pillars (data/AI and cloud) and three playing fields (customer first, intelligent industry and enterprise management), allows the company to support clients’ technology-based transformations. Investing in developing industry and domain expertise enables Capgemini to become a transformation partner for clients and drive revenue growth of over 20% year-to-year at constant currency in its three playing fields and 25% year-to-year in its two pillars.

 

According to Franck Greverie, head of Portfolio and Global Business Lines at Capgemini, connecting the dots by delivering end-to-end transformation that starts at the customer-first playing field and moves through intelligent industry and enterprise management is a key emphasis for Capgemini. Clients expect activities across the value chain, and engagements typically start with strategy services and work with clients on use cases and on transformation tasks to reach the endpoint. The strategy piece is key, so Capgemini is not only selling solutions but also providing transformation components and is partnering with clients to help them reinvent themselves. According to Greverie, two-thirds of Capgemini’s offerings were related to technology-enabled transformation four years ago while two-thirds are related to business-led transformation today, a shift that also contributes to Capgemini’s value creation.

Applying innovation at scale supports value creation

According to Pascal Brier, chief innovation officer, innovation enables clients to drive change, grasp opportunities, build value and separate from competitors. Placing innovation at the center of its strategy enables Capgemini to help clients change their status quo. Capgemini has a three-step approach to innovation that helps create value and deliver innovation at scale.

 

First, the company highlights what comes next and puts technologies to the test. Second, the company develops a tailored approach for each client, and third, it deploys innovation at scale. In the first step, the company conducts self-funded internal research and utilizes partnerships with academia to look at emerging trends and prepare capabilities. For example, Capgemini works with MIT around defining a framework for trust in AI and autonomous systems. The partnership with the MIT Initiative on the Digital Economy and joint research on B2B platforms was highlighted at the event.
 
Capgemini also participates in industry consortiums with government subsidies and conveys joint research with clients. Capgemini also cited the EcoSat R&D program, an initiative led by Capgemini Engineering to develop a solar balloon to conduct observations of the Earth and expand 5G capabilities. Capgemini’s labs, such as around quantum, 5G and edge, the metaverse and Web3, and autonomous systems, support the company’s research programs and thought leadership, improve its internal readiness and enable early business engagement.

 

In the second step, Capgemini’s global network of 22 AIEs across the globe enables tailored coinnovation with clients that is catered to specific industries and applies technologies to use cases. The key for innovation is that it is deployed at scale, and this is the way value is generated. Capgemini’s frog studios, ecosystem of technology partners and startups, Centers of Excellence and established network of global delivery centers enable scaling of innovation.

 

Capgemini Invent, the digital innovation, design and transformation business of Capgemini, highlighted two brands that drive technology-based innovation — Cambridge Consultants and Synapse.
 
Cambridge Consultants, which Capgemini acquired as part of Altran in 2020, is a specialist in identifying and developing breakthrough products and services that drive differentiation to clients. Headquartered in Cambridge, U.K., it has generated over 5,000 patents for its clients and comprises over 800 engineers, scientists, designers and consultants across offices and over 140 labs in the U.K., U.S., Japan and Singapore. Synapse, which is based in the U.S. and was a Cambridge Consultants company, is a product engineering company whose mission is to positively impact people and the planet through sustainable product development and improved user experience. Such expertise strengthens Capgemini’s transformation and innovation capabilities, enabling it to attract clients by reinventing their business models and generating business outcomes.

Industry expertise augments business outcomes delivery

Integrating the industry angle into its strategy and offerings, applying industry expertise with global accounts, and touting industry specialization through marketing messaging and branding supports Capgemini’s industry mission. Capgemini has selected 10 priority industries in which the company is building depth and investing in talent with the goal of helping clients offset pressures from external factors that negatively affect their business performance.

 

Capgemini shared six factors for disruption across industries, including geopolitical conflicts, energy crises, supply chain disruptions, economic factors, labor constraints and planet boundaries. For example, Capgemini stated that the consumer products and retail industry is challenged by labor crises and increasing labor costs, which are negatively affecting distribution centers that move daily household essentials. There is also approximately 35% employee attrition, on average, in stores and approximately 30% in manufacturing. To capture opportunities in consumer products and retail and help clients drive revenue growth, manage costs and operate sustainably, Capgemini is showcasing its capabilities around omnichannel commerce, advanced user experience, and solutions that combine physical and digital shopping.

 

Capgemini’s emphasis is to drive innovation in the sector and enable clients to improve customer experience and take costs out through a transformational effort, not a transactional effort, such as around changing store designs, addressing specific store employee needs and balancing activities with clients’ brand purpose. Consumer products and retail accounted for 13% of total revenue in 3Q22 and grew 14.5% year-to-year in constant currency in 3Q22 and grew 20.4% year-to-year in constant currency for the first nine months of 2022.

Capgemini creates new business models in the automotive industry

During the event, Capgemini augmented the sessions with multiple client representatives discussing their work with Capgemini on stage or connecting live through a virtual communication platform to show Capgemini in action and provide insight on successes and challenges during engagements. For example, Capgemini invited its client Lynk & Co, a global mobility company and part of Geely Auto Group, to talk about the journey around implementing an innovative and sustainable car-sharing service in Europe.

 

According to the presentation, cars stand still during their lifetime approximately 96% of the time, on average, while just 4% is spent on the road, or 6 hours and 43 minutes in a week and 14.6 days in total for the year. Lynk & Co is improving car usage by launching a car-sharing model in Europe, in which a person’s Lynk & Co car can be rented out while it is not used by its owner.

 

The Lynk & Co mobile app enables car owners to make their cars available to the community, including establishing rental pricing and requirements about parking the car when the rental time is over. The cars are built to be shared, with advanced telematics and connectivity to make the rental process secure. Community members receive star ratings from car owners based on their behavior to avoid vehicle misuse, while car renters get rated for the condition of the vehicle they own. The customer journey for purchasing a Lynk & Co vehicle is fully digital, with an online sales channel and no dealer involvement.

 

Capgemini was instrumental in the initial development of the business model and launch of the solutions and digital platform program with Lynk & Co in Europe. Capgemini was involved in the development and implementation of a custom-built platform, CRM solutions and mobile apps, and implementation of financial management software from SAP. The Lynk & Co client case highlights Capgemini’s capabilities around business and digital design consulting, along with its technology and systems integration expertise, which drives superior customer experience and new business models.

 

UiPath’s annual FORWARD conference provides a forum for the company to outline the next phase of its growth aspirations. TBR attended this year’s event, FORWARD 5, alongside 3,500 participants, including representatives from nearly 1,000 partners, and learned about UiPath’s goal to build on its position as a leading vendor in the robotic process automation market — in which it reportedly holds over one-third in market share — to become an automation platform capable of addressing enterprise transformation needs across all lines of business of an organization. To achieve this objective, UiPath’s ecosystem partners, from IT services and consulting firms like EY to cloud platforms like Microsoft, will be crucial. Similar to previous FORWARD events, UiPath reiterated its desire to scale within its existing install base — a number that now exceeds 10,500 global customers — by selling business outcomes.

Turning the corner from a pure play RPA vendor to an enterprisewide automation vendor compels UiPath to stay the course of its portfolio expansion

Three years ago, UiPath saw the opportunity to develop a platform that will help it build the de facto layer that will enable enterprises’ core processes from ERP to HR and finance to identify, gather and manage data with minimal human intervention. Fast-forward to 2022, and UiPath is adding modules to enable its Business Automation Platform (BAP) to meet its goal of departing from being viewed as purely a robotic process automation (RPA) vendor.

Combined with the purchase of the no-code AI communications vendor Re:infer, these elements will enable UiPath to provide support in high-volume communications channels — across email, chats, service desk and CRM notes — augmenting the task mining cycle and providing enterprises with key insights around how business gets done. As UiPath strives to bring together integrated discovery and automation to optimize enterprise processes, BAP provides the layer between enterprises’ processes and employees with three distinct functions enabled by UiPath’s portfolio and organized into three categories: Discover, Automate and Operate.

While the majority of the opportunity remains within the Automate cycle, the acquisitions of Process Gold three years ago and now Re:infer have added the necessary modules and capabilities for UiPath to continually uncover opportunities throughout the cycles of process mining, task mining, communications mining and idea capture. We view these cycles as necessary steps for UiPath as it seeks to elevate the value of its platform and provide the enabling layer for enterprises to use automation for innovations and operations.

With cloud becoming the backbone of enterprises’ digital transformation programs, UiPath also seeks to find a spot in the otherwise crowded technology space. Developing a solution that will allow enterprises to migrate, automate and manage their cloud workloads provides the company with the necessary use case to demonstrate the value of its API-led automation and integration services, as these assets allow UiPath to standardize the opportunities around BAP. We believe the long-term opportunity around integration services for UiPath depends on the company’s ability to not just build connectors — which it has done quite well, supporting over 2,400 clients that have purchase integration services and over 5,000 active connections — but also extract the data that gets processed through the connectors.

We believe this data will be invaluable to UiPath’s partners as they seek to elevate the value of automation from a discretionary to nondiscretionary line item of IT and line of business (LOB) budget spend. Additionally, UiPath’s integration services supports multiple personas from Centers of Excellence and IT through RPA and app developers and citizen developers, which we believe will help UiPath to build the orchestration layer.

The technology partner ecosystem will be vital in supporting UiPath’s evolution from RPA incumbent to an enterprise automation platform at scale

Cloud platforms provide the infrastructure backbone and data center footprint to expand the addressable market of UiPath’s proprietary technology. Further, these same entities power the SaaS and on-premises workloads, enabling organizations’ business processes and workloads. UiPath must be able to reflect these workloads in its catalogs of prebuilt integrations to deliver on its promise of enterprisewide automation. By deepening its leverage of the technology partner ecosystem, UiPath will gain access to a wider variety of enterprise workloads and, more critically, provide customers with its growing array of Discover and Operate capabilities, to extract insights from the associated business process data being captured during the company’s Automate process.

While other cloud players are racing to build out their portfolios of automation capabilities, including RPA and low-code/no-code development assets, to support the growing customer appetite for workload customization, their capabilities lack the depth of UiPath’s and, in the near term, their value will be highest when used in conjunction with vendors’ first-party applications. This value-add does not align well with the reality of today’s enterprise SaaS environments.


Specifically, TBR’s 1H22 Cloud Applications Customer Research found that enterprise preference for best-of-breed SaaS deployment strategies is rising, with 40% of respondents stating they use three or more SaaS vendors today, and 60% of respondents stating the number of SaaS vendors they utilize will increase over the next two years. UiPath has an opportunity to exploit its position in the market and become the enterprise automation platform for tomorrow’s multi-enterprise business networks. In short, UiPath has the ability to provide customers with an automation platform capable of enhancing not only the processes corresponding to a single SaaS-workload like CRM but also the processes underpinning an end-to-end business outcome across workloads leveraging IP from multiple ISVs in areas like CRM, sales forecasting and marketing automation.

Over time, this approach will allow UiPath to achieve its goal of selling outcomes to clients, building libraries of process automations with cross-industry applicability and thus making its IP stickier across the enterprise landscape. In support of this aspiration, UiPath announced an expanded relationship with one of its largest partners, Microsoft (Nasdaq: MSFT). The two announced they will collaborate on a vision for the future of automation in the cloud; with Microsoft naming UiPath as a preferred enterprise automation partner and UiPath endorsing Microsoft Azure as its preferred cloud platform.

The pair, which have already developed 80 integrations available out of the box to joint customers, will further integrate UiPath across Microsoft Power Platform, Dynamics 365 in Business Applications, in addition to Microsoft’s Cognitive Services. While Microsoft has aggressively expanded the scope of Power Platform in areas like RPA and development, an IT services and consulting executive recently commented to TBR that Microsoft’s platform capabilities are not yet robust enough to support enterprises’ end-to-end automation projects. By further weaving UiPath across Microsoft’s vast portfolio, joint customers will be able to augment Power Platform with UiPath’s market-proven Automate assets, thus providing UiPath with a vast install base across Office 365, Dynamics 365 and Azure to drive traction of assets across Discover and Operate.

But to be a true enterprise automation company, UiPath will need to expand its current relationships with cloud platforms Amazon Web Services (AWS) (Nasdaq: AMZN) and Google (Nasdaq: GOOGL) to the same level and magnitude as that with Microsoft to position itself as a multicloud automation partner. Specifically, just as enterprises’ application environments increasingly consist of multiple SaaS vendors, so too do their IT infrastructures. Client preference for multicloud, hybrid cloud and hybrid IT deployments has steadily risen over the past few years as a means to reduce vendor lock-in, with TBR’s 1H22 Cloud Infrastructure & Platforms Customer Research finding that 46% of respondents plan to increase the number of infrastructure vendors utilized over the next two years.


This dynamic again presents UiPath with an opportunity to exploit client preference for multicloud environments, as the growing automation tool kits from AWS, Google and Microsoft will not be well served to automate the business processes and workloads spread across peers’ cloud infrastructure and legacy on-premises environments in the near term. In summary, UiPath’s ability to leverage the technology ecosystem — from cloud platforms, SaaS incumbents and the massive ISV community — will be critical to achieving the objectives laid out at FORWARD 5 around scaling, selling outcomes, and establishing itself as not just an RPA incumbent but also the enterprise automation platform market bellwether.

 

 

Partners provide access and use cases necessary for UiPath to scale adoption compelling the company to fine tune go-to-market efforts

To complement its technology ecosystem-led approach, UiPath will increasingly leverage services entities to gain access to enterprise LOBs. More critically, services entities today have the trust of C-Suite buyers, which will be needed to scale automation projects beyond single LOBs to achieve enterprisewide automation objectives. During the event, UiPath made several announcement highlighting the company’s efforts to strengthen relationships with services partners, recognizing the opportunity they offer when it comes to scale.

For example, EY unveiled that UiPath is now a Tier 1 alliance partner, a designation EY has only given to four other vendors and is often a confirmation of aligned vision, go-to-market efforts and client support. Accenture (NYSE: ACN) announced it will deploy UiPath automation to all of its employees (Accenture’s headcount stood at 721,379 as of 3Q22). Other partners like PwC held multiple sessions on stage, providing insights and sharing best practices from its collaboration with UiPath and the overall value of automation especially as it pertains to enabling its staff and creating capacity for higher-value tasks.

Given UiPath’s plans to pivot to selling outcomes, leveraging services’ partners vast benches of consultants will be crucial to clearly articulating its business cases across the industry continuum to secure the necessary enterprise budget to scale automation projects. Amid the growing macroeconomic uncertainty, UiPath’s promise of cost savings via automation — a mantra it touted endlessly at FORWARD 5 — may be well received by enterprises globally, but securing IT budgets is becoming more difficult as spending is increasingly scrutinized and will require the involvement of services partners that have the permission and trust of the budget decision makers.

Implications and opportunities

UiPath’s success lies in the company’s ability to evolve its value proposition as it executes on its three core pillars: technology, ecosystems and culture. With UiPath’s platform remaining open and easy to access, developing and integrating the focus of the co-CEOs has increasingly been focused on ecosystems and culture. We see the background of each CEO playing a key role in shaping leadership dynamics. We believe former SAP (NYSE: SAP) and Google executive Robert Enslin will remain largely focused on developing and executing UiPath’s sales and go-to-market strategy, which primarily revolves around its relationship with key alliance partners. Enslin understands the value of the ecosystem, especially as UiPath is trying to develop the next chapter of its client management strategy.

With UiPath’s roster of over 10,500 clients, Enslin knows that the company needs to develop a tier-based structure with large services partners and consultancies getting involved in relationship mining with the bigger accounts and also develop more self-service support mechanisms for smaller logos. Increasing expectations from partners will have to come with the necessary enablement framework. Providing access to clients and retuning incentive models will be key as UiPath strives to scale annual sales fivefold by capturing enterprisewide automation opportunities within the IT service management space.

In parallel, UiPath’s co-founder and CEO Daniel Dines’ humble beginnings provide the necessary foundation to ensure the company’s culture stays intact as it enters the next chapter of its growth strategy. Dines’ previous stint at Microsoft also helps him understand the value the partner brings to the relationship, evidenced by the two companies endorsing each other as preferred partners. Adopting an evolved sales and partner strategy while preserving culture will not be an easy task, but we believe UiPath’s leadership’s grounded vision and execution will help bring the company to the next level. Additionally, the incoming global downturn might even accelerate the transition for UiPath from a pure play RPA vendor to a subprocess platform enabler. With AI and automation providing enterprises with insights into how and where they can create efficiencies, we believe UiPath’s UI+AI+API framework around continual discovery mining will help elevate the value of its offerings.

VMware is heralding VMware Explore as “the center of the multicloud universe,” aligning its annual conference with the company’s ambitions to become the de facto control plane for hybrid, multicloud environments. During his keynote and subsequent breakout sessions at the newly named VMware Explore global cloud conference, VMware CEO Raghu Raghuram laid out the company’s case for why and how it will succeed in achieving these goals, focusing much of the discussion on product initiatives that add to its end-to-end platform and modernize legacy products.

These products target the growing need for “cloud-smart” infrastructure management, and VMware, with one foot in the cloud and the other on premises, continues to make a compelling case for many enterprise customers. Throughout the event, VMware management highlighted the importance of strong partnerships that support product integration as a key to execution, impacting not only its vSphere business but also multicloud products. The company was joined on stage by hyperscalers, such as Microsoft (Nasdaq: MSFT) and Amazon Web Services (AWS) (Nasdaq: AMZN), to discuss ongoing joint product initiatives that are expanding customers’ ability to preserve past virtualization investments while migrating these environments to the cloud.

Specifically, the new Azure VMware Solution fills a critical gap in the VMware Cloud Universal program, and new flexible consumption options are opening doors for smaller enterprises looking to utilize VMware Cloud on AWS. In multicloud, new integrations with rival IBM (NYSE: IBM) involving both its Red Hat OpenShift and IBM Cloud Satellite were announced, underscoring both vendors’ commitment to openness and flexibility to deliver on the promise of “any cloud, any Kubernetes.” With product launches and partner initiatives indicating an innovative future, VMware Explore 2022 felt entirely like business-as-usual, and one could be forgiven for forgetting the significant transaction that looms in the future.

Innovating to enable modern applications and cloud-smart IT strategies

vSphere 8 brings modern application capability to update the virtualization platform and support modern applications with new DPU functionality

In VMware’s opinion, cloud-smart strategies require enterprises to retain some workloads on premises due to cost considerations and performance requirements, pushing the company to continue to innovate with its popular vSphere platform. With vSphere 8, customers gain access to the long-promised Project Monterey. Originally announced at VMworld 2020, Project Monterey rearchitects vSphere to support data processing units (DPUs), providing far better performance when running data-intensive, modern applications in the cloud, on premises and at the edge.

Specifically, DPUs augment the power of the CPU or graphics processing unit (GPU) by providing a place to offload core infrastructure tasks like networking and data storage. This frees up core capacity up to 20%, allowing the CPU or GPU to focus on the specialized tasks present in modern applications like AI, machine learning (ML) and high-performance computing (HPC). Instrumental to Project Monterey, the company partnered with chipmakers NVIDIA (Nasdaq: NVDA), AMD (Nasdaq: AMD) and Intel (Nasdaq: INTC), and hardware OEMs Dell Technologies (NYSE: DELL), Hewlett Packard Enterprise (HPE) (NYSE: HPE) and Lenovo, relying on this ecosystem to support the hardware integrations necessary to offer DPU architecture support with vSphere 8.

TBR believes that with Broadcom as a major chipmaker itself, vSphere and future innovation around silicon architectures could be an interesting possibility. Regardless, the improvements in compute performance added through vSphere 8 are unlikely to change the long-term trajectory for the virtualization platform. Public cloud providers continue to invest heavily in specialized server chips to come to market with application-optimized instances capable of delivering superior performance in the cloud for many modern applications. Instead of differentiating, these updates prolong vSphere’s relevance by enabling customers to preserve their past virtualization investments.

 

Introducing hybrid, multicloud management with VMware Aria

At VMware Explore 2022, the most noteworthy announcement was VMware Aria, which, according to VMware, will represent the core of the company’s multicloud management strategy going forward. VMware Aria is a new hybrid, multicloud management portfolio built to alleviate modern IT complexity challenges, which VMware management accurately refers to as “cloud-chaos.” The portfolio includes a set of end-to-end solutions for managing cost-performance optimization and consistent policy implementation across any cloud. The foundation of the portfolio rests on the announced VMware Aria Graph and VMware Aria Hub. Customers will manage and apply policies within the graph via the VMware Aria Hub, the portfolio’s control plane, while the graph data store serves as the engine of the offering, providing a connection to an enterprise’s complete array of IT assets, from multiple public clouds to virtual private clouds and on premises.

VMware Aria Graph’s application mapping serves as the basis for newly announced end-to-end management services: VMware Aria Guardrails, VMware Aria Migration and VMware Aria Business Insights. Aria Guardrails helps enterprises automate policy implementation at scale to support multicloud networking, security and configuration through an everything-as-code approach. Meanwhile, VMware Aria Migration promises to accelerate multicloud migrations with automated assessment, planning and execution, and Aria Business Insights provides full-stack process analytics by leveraging machine learning and AI to support infrastructure optimization and security.

TBR believes VMware’s position as a virtualization provider could provide the company with an advantage in attracting enterprise customers. With many enterprises preserving their virtualization investments in the near term, tight integrations with vSphere could create meaningful value for complexity-conscious customers. Further, as VMware management claims, the expertise in infrastructure management VMware has accumulated over the years through the development of the company’s virtualization platform will serve it well as it builds products that reduce complexity in multicloud management.

However, VMware must execute on this promise by maintaining its investments in R&D, as well as its go-to market effort. As the fight for the multicloud control plane grows, any deviation from the company’s current investment path would likely be detrimental to adoption as others maintain their pace of innovation. Further, with headwinds to virtualization unlikely to abate, failure to remain competitive would have significant ramifications in VMware’s ability to generate sustainable long-term growth.

Partnering to deliver on ‘any cloud, any Kubernetes’

VMware Explore 2022 follows a year of transformation regarding the company’s relationship with its partner ecosystem, and commentary during the conference suggested this change of heart is here to stay. As VMware pivots toward the cloud, it will need to engage with not only hyperscalers but also professional service providers as the company looks to accelerate vSphere migrations and drive adoption of its cloud-native portfolio.

Over the past year, VMware has seen significant success in bolstering its relationships with services partners, a reflection of recent ecosystem investments that are adding technical resources to joint customer engagements. While management highlighted these recent successes, conference announcements focused on collaborative product initiatives and integrations, aligning with the conference theme of “any cloud, any Kubernetes.” Considering Broadcom management shares similar views on shifting the business toward the cloud, TBR believes that the momentum in partner engagement is unlikely to change following the acquisition, at least as it pertains to significant revenue generators like vSphere.

‘Any cloud’ achieved with the addition of Azure to VMware Cloud Universal

While multicloud offerings like VMware Aria and Tanzu represent a long-term growth opportunity for VMware, shifting vSphere customers to subscription-based consumption methods is a more near-term strategic objective for the company, requiring it to work with hyperscalers to provide the necessary infrastructure component. So far, the company has been successful in this pursuit, with subscription revenues growing over 20% year-to-year in recent quarters.

On track to its FY2023 subscription revenue goals, subscription growth is driven by vSphere migrations, which are supported by joint product initiatives between VMware and its hyperscaler partners. Adding to the VMware Cloud Universal program, the company announced the general availability of the new Azure VMware Solution, improving vSphere migrations to Azure’s public cloud. Over the past year, VMware’s partner initiatives with Microsoft have largely mirrored its efforts across the public cloud landscape, with its cloud-native applications recently becoming available on the Azure marketplace.

However, VMware continues to view AWS as its preferred cloud provider, emphasizing the partnership at VMware Explore with the launch of new consumption options for the VMware Cloud on AWS. VMware’s favoritism toward the company threatens its multicloud reputation, especially given AWS’ restrictive stance on multicloud environments. Going forward, this perception can be combated by accelerating development programs with its other hyperscaler partners, such as Microsoft Azure, to bring the same level of capability and the same breadth of consumption methods to all cloud environments.

Integrating with rivals to deliver on ‘any Kubernetes’ promise

As VMware positions VMware Aria at the core of its multicloud strategy, the underlying Kubernetes deployment platform is becoming less of a differentiator, with “any Kubernetes” integration taking precedence. Announced at VMware Explore, VMware will enable cross-platform container deployment with rival Red Hat OpenShift, a move that recognizes the likelihood enterprise customers will consume multiple Kubernetes platforms.

While “vendor-neutral” has been a common marketing phrase used to describe the lack of direct affiliation with a public cloud provider, this integration pushes platform openness further. Given VMware’s and Red Hat’s market share, TBR expects other vendors will be pressured to follow their lead, initiating an “any Kubernetes” approach across the industry. Outside of product integrations, IBM Consulting was named a global systems integrator (GSI) for VMware, adding to an expanding list of GSIs building their VMware-related business. IBM’s focus on executing on its hybrid cloud strategy makes its partnership with VMware more of a necessity based on the company’s enduring presence in the cloud.

Conclusion

With the conference emphasizing a multicloud future, VMware Explore 2022 felt like business as usual, an indication for TBR that strategy will remain unaltered post-acquisition. Led by its product-focused CEO, VMware’s ability to innovate was on display as the company pivots toward cloud-smart strategies. VMware’s updates for core products, like vSphere 8 and vSAN 8, are creating enduring value for enterprise customers, prolonging their secular decline. Meanwhile, VMware Aria takes the company into its next chapter of multicloud management. Now, VMware must execute on this pivot by maintaining its pace of innovation and the growth of its partner ecosystem.

With Broadcom (Nasdaq: AVGO) CEO Hock Tan watching from the front row, Raghu Raghuram and the rest of VMware management hosted the newly named VMware Explore global cloud conference, a change from its namesake VMworld. The rebranding, which is significant based on the prior event’s reputation as a go-to event, appears to be driven not by the pending change in VMware’s ownership but by the company’s efforts to position itself as a provider of more than its virtualization platform.

Major announcements emphasized VMware’s ongoing evolution from an on premises virtualization provider to a leading enabler of “cloud-smart” IT strategies, with launches for VMware Aria, vSphere 8 and vSAN 8 exemplifying the company’s ability to innovate. However, while an innovative spirit remains at VMware today, a feeling of uncertainty around future innovation existed among conference attendees this year as stakeholders grapple with the impending change in ownership. While much is to be determined, prior public statements by both companies describe the transaction as transformational to Broadcom Software Group, and TBR walked away with our prior stance unchanged, believing in incremental benefits for VMware if investments in strategic areas remain consistent.

Overview

EY has evolved with the management consulting market, growing a sizable technology consulting practice and increasingly partnering with tech giants and niche software vendors to respond to client demand for advice and assistance infused with technology. The regulatory constraints around EY and the rest of the Big Four, however, have not evolved. As EY’s audit client base has increasingly included technology giants, limiting the firm’s consulting opportunities, internal pressures and external forces have reached a point where EY has had to consider a split. After evaluating client demand, its portfolio and market dynamics, EY announced plans at the beginning of September to move forward with a split — coined Project Everest — of the firm’s consulting and audit businesses. EY’s consulting business will go public and provide tax, business advisory, and technology adoption services while the remaining legacy EY will continue to deliver audit services.

 

To support the firm’s goal of driving business outcomes, EY will leverage four new areas following the separation. First, independence from audit constraints will allow EY to broaden engagements with new clients around technology, data, and environmental, social and governance (ESG) needs, on which the firm could not previously advise. Second, partnerships with technology vendors that were previously restrained because of audit engagements, such as those with Amazon Web Services (AWS) (Nasdaq: AMZN), Salesforce (NYSE: CRM) and Google (Nasdaq: GOOGL), can be deepened. EY has indicated it audits 25% of the Fortune 500 firms, which means the firm will have ample opportunities to deepen its technology-centric partnerships, such as developing scale through partner-oriented practices including both talent and platform-based services. Third, EY will leverage partnerships to create future-proof solutions on the cloud and deliver on a wider range of client needs. Lastly, to provide higher-value business advisory, EY will grow its tax and legal engagements to support clients’ additional needs that cross business segments and operations.

 

 

 

Talent landscape

As with any major organizational transformation, EY risks losing talent through the shift, but efforts to include share compensation and allow individual countries to decide whether to take part in the split will help the firm retain and recruit staff to support the transition. Additionally, the opportunity to pursue new advisory and technology transformation engagements will serve as a retention point, enabling staff to expand their skills and move into newer areas. Growing technology platforms and solution development skills will remain a key part of EY’s business proposition, but the firm recognizes it will not become a technology hub and looks to strengthen its existing 80,000 technology-oriented staff to facilitate portfolio and client relationships expansion instead of greatly accelerating hiring to reach the scale of competitors such as Accenture (NYSE: ACN), which manages around 700,000 employees.

Partner ecosystem

As EY’s partner ecosystem evolves to include newer partners such as Salesforce, AWS and Google, the firm will look to combine existing advisory and implementation skills with partner cloud solutions and platforms. The partnerships will serve to build skills, facilitate interactions within centers of excellence, and ensure execution and delivery of technology solutions. For example, growth around industry clouds and capabilities associated with platforms will depend on ecosystem partners to develop solutions and address more specific business needs. Narrowing its capabilities by embedding partner expertise to support supply chain and data needs will allow EY to penetrate its client base and increase the contract value of existing relationships.

 

EY will not likely face pressures in forging partnerships with technology vendors that were previously off limits. While the partners have pre-existing relationships with other IT services vendors such as Deloitte and Accenture, EY’s reputation and project history with clients will validate the firm’s credibility, helping to provide additional opportunities for the partners as well as the firm.

Impacts for other vendors

As EY progresses through the split, the firm will look to expand its partner ecosystem, growing its breadth of offerings around technology and benefiting from increased scale within the cloud space. The lack of regulatory constraints around partnerships will allow EY to offer a broader set of solutions and services that can be integrated more seamlessly into clients’ existing IT environments. The ability to forge these partnerships will create pressure on peers such as Accenture, which can deliver on a similar set of services and has a similar reputation for quality and industry expertise. EY will retain its client relationships, focusing on deepening engagements around expanded capabilities with partners.

 

EY made the decision to split the firm in response to client demand for additional services beyond traditional audit or tax. Freeing the consulting business from regulatory requirements will help EY retain clients and potentially recapture clients that can now work with EY across a broader set of services. Emphasizing a focus on business value and outcomes for clients will enable EY to preserve its market reputation as the firm executes on the transition while also maintaining relationships with clients.

 

While EY will likely benefit from the additional opportunity around talent acquisition as well as an enhanced value proposition to compete for additional advisory and transformation engagements, the firm could also face some pressures within the market. Competitors such as Accenture and IBM (NYSE: IBM) that have pre-established technology backgrounds, paired with advisory talent and complemented by partner ecosystems, could pressure EY’s ability to grow outside of its traditional consulting engagements as it markets with a refreshed image. EY’s existing culture, which is relaxed and focused on entrepreneurial activities, will translate into a transactional sales approach at the new company that puts clients at ease.

3 trends setting the stage for the end of 2022

IT services will continue to grow in a good or bad economy

As we start the final four months of 2022, trying to read the macroeconomic tea leaves for signs of a recession, a recovery, or something in between may be a fool’s errand as most reliable markers currently provide mixed signals. In place of confidence and certainty around broad economic conditions, we are focused on the challenges and opportunities emerging for IT services vendors and management consultancies.

• With technology vendors slowing their hiring cadences or even shedding headcount, IT services vendors may find more talent available, which could ease attrition pressures and allow some vendors to lessen dependencies on subcontractors. If M&A activity remains muted, TBR expects IT services vendors and consultancies will increasingly hire technology-experienced talent to support revenue growth.
• TBR expects IT services revenue to continue growing, even in the event of a global recession. IT systems have become corporate utilities, a necessary cost that must be maintained and even consistently improved to contain costs and support growth. Through surveys and in-depth interviews with IT buyers, TBR sees a recurring sentiment that IT budgets will stay steady or grow through the end of 2022 and well into 2023.

India-centric IT services vendors, such as Tata Consultancy Services (TCS) and Infosys, may be the best positioned to weather substantial economic pressures, in part because of their lower-cost talent base and decades of investments in automation. Building facilities and recruiting in India’s second-tier cities could also provide the India-centric vendors with a cushion in the event of a downturn. In addition, TBR expects IT services vendors will increasingly invest in Latin and South America to hedge against overexposure to India’s risks.

A lull in decarbonization support may provide an opening for less active vendors

In TBR’s first Decarbonization Market Landscape, we noted that, “although some firms have been active over the last few decades around developing and acting on decarbonization strategies, many were induced — be it from competition, stakeholders or regulatory evolution — to improve, update, revisit or outright announce new net-zero targets, which in recent years have become somewhat of a comprehensive measure of a firm’s overall decarbonization efforts. Critics of the net-zero slogan argue that it is yet another disguise for inaction as firms can simply continue business as usual while betting on nascent carbon sequestration techniques or other unproven technologies.”

IT services vendors and consultancies that have been slow to invest in and publicly announce aggressive decarbonization initiatives and capabilities may find their approach provides advantages as they can focus their go-to-market messages on low-cost solutions that marry decarbonization with sensitivities to an uncertain macroeconomic picture. Rather than bespoke — and potentially expensive — engagements, buyers may shy away from large investments if net zero fades as a corporate priority.

For those vendors TBR has identified as decarbonization leaders, based on both their own commitments and their services and solutions for clients, maintaining trust and demonstrating transparency around decarbonization efforts will remain the critical success factor. Continuing from the report quoted above, “Overcoming this fate is up to leadership to ensure transparency and organizational commitment by reporting emissions reduction progress, verifying and auditing with independent parties, and embedding the GHG [greenhouse gas] accounting process within financial reporting.”

TBR believes Europe will remain the proving ground, demonstrating to management consultancies, IT services vendors, clients and regulators what can and cannot happen in decarbonization. Vendors most active in Europe will remain at the forefront, even if energy pressures and a continuing war in Ukraine dampen overall enthusiasm for decarbonization.

 

A new world order, brought on by Kyndryl, Atos, maybe EY, and definitely VARs

Kyndryl’s split from IBM created a new force in the IT services space, a $19 billion vendor with “an established customer base, skilled talent, IP, and expertise around modernizing and managing customers’ mission-critical systems,” as TBR noted in our first report on the company. With Atos expecting to split into two separate companies and rumors that EY may carve out its consulting practice, the entire IT services and management consulting landscape seems ready for a new world order.

• According to TBR’s 2Q22 Atos report, “Atos is accelerating its transformation path, with plans over the next 12 to 18 months to split into two separate entities — Tech Foundations (TFCo or new Atos) and SpinCo (or Evidian) — to unlock value for clients, employees and shareholders. … Evidian, which will see an accelerated investment of €0.4 billion over the next five years, will work in digital transformation, big data and cybersecurity. New Atos, which will be restructured through a €1 billion plan between 2022 and 2026, will work in managed infrastructure services, digital workplace and professional services. The reasoning behind the planned split is that the two segments have different performance, business models, dynamics and strategies; therefore, a one-size-fits-all approach with the two segments staying within one company does not deliver superior performance.” Atos’ decoupling appears to be following Kyndryl’s path, and the two new companies will likely have a solid partnership similar to Kyndryl and IBM’s to deliver holistic solutions that cover the advise-build-run life cycle.
• In contrast, EY slicing off its advisory practice to create a stand-alone management consultancy unencumbered by tax, audit, and risk obligations and restrictions would break ground and compel the remaining Big Four firms to adjust their strategies and investments to meet the new competitive threat. Allied more tightly with Infosys, Microsoft and even Kyndryl, the new EY consultancy could challenge the full spectrum of digital transformation vendors, from McKinsey & Co. through Accenture to Wipro.

Off the radar for many but potentially more disruptive over the long term, TBR has noted that every vendor in the IT space, including cloud and hardware-centric providers and value-added resellers, aspires to orchestrate services and tap into the ever-growing market for managed services. The VARs have established client bases and the ability to see, in real time, shifting IT budgets and demands, which may provide them — if they can shift business models away from a transaction-always mindset — the best opportunity to evolve rapidly in this space.