Unisys hosted its first in-person Analyst Day event in Boston on June 2 to bring together leaders from segment groups and the top leadership team to discuss the company’s strategy pivot and refreshed branding image within the IT services space. CEO Peter Altabef; SVP and CTO Dwayne Allen; SVP and CMO Teresa Poggenpohl; and SVP and Chief Commercial Officer Maureen Sweeny led the presentation, walking through partnerships, modern workplace solutions and cloud strategies that will propel the company through 2022 and into 2023. Leon Gilbert, GM of Digital Workplace Solutions, and Mike McGarvey, senior director of Global Hybrid Cloud, led the discussion on Digital Workplace Solutions, and Manju Naglapur, GM of Cloud and Infrastructure Solutions, and Dan Chalk, senior director of Cloud and Infrastructure Solutions, discussed Cloud, Infrastructure and Application Services.

TBR Perspective

Over the past year, Unisys has executed on rebranding and marketing efforts to transform its image in the IT services space and offer a refreshed technology portfolio that allows the company to expand revenue and profitability.

 

Centering its solutions and talent around four key areas — Digital Workplace Solutions, Cloud, Infrastructure and Application Services, Business Process Solutions and Enterprise Computing Solutions — helps Unisys provide clients with the tools and services to uphold their modernized workplaces. To execute on this transformation, Unisys expanded its ecosystem to include the expertise, technology capabilities and scale required to move beyond traditional services needs and highlight its broadened experience and optimized portfolio. By leaning on its expanded ecosystem and undertaking internal innovation projects, Unisys has developed industry-specialized applications that better fit within clients’ environments.

 

As part of its rebranding, Unisys refined its talent strategy, looking to fill gaps around technology and make cultural improvements to bolster its companywide shift. With increasing competition around talent, Unisys aims to ensure it can recruit and retain resources that support growth opportunities. Unisys is not alone with attrition pressures as peers have also experienced jumps in attrition rates, particularly over the last 18 months, pushing vendors to hire and offset talent shortages.

Changing marketing and portfolio trends

Unisys executed on refreshing its brand and marketing plan to better align its business offerings and market positioning to clients’ needs. A core piece of the company’s marketing transition was building partnerships with clients and instilling trust across its engagements, which will serve as a lead-in for both new and old clients and guide the integration of new technologies and solutions within IT environments. To support this end, Unisys updated its website to leverage a more content-oriented approach, showcasing client testimonials and experiences as well as outcomes. Additionally, increased marketing efforts to grow awareness of its portfolio and wealth of experience transform Unisys’ image and guide business model shifts. Increasing brand trust improves market perception, which will help Unisys grow its client base and existing engagements as well as attract new talent.

 

Shifting its marketing approach created opportunities for Unisys in the C-Suite. As clients look to establish new security, cloud, digital, and environmental, social and governance (ESG) offerings, Unisys strengthens its ability to engage with different levels within the C-Suite to guide these projects. The content-driven approach is geared toward attracting higher-level stakeholders and generating larger-scale transformation projects.

 

By deepening its involvement in the ESG market, Unisys is able to better help clients address their sustainability targets and improve their environmental footprints. In 2006 Unisys set internal targets to control and reduce emissions and outputs, which helped it gain experience and outcomes in the area. Unisys has since updated its targets to continue its progress toward the company’s sustainability goals.

 

Developing the internal skills and resources needed to implement the company’s sustainability goals enables Unisys to execute on similar efforts for clients, particularly in Europe, where it has helped clients adapt to new regulations regarding emissions and energy consumption. Unisys also executes on the social and cultural aspects of ESG to help clients improve internally and externally.

 

In July TBR published the special report, Atos’ sustainability play relies on ecosystems, science and leading by example, which expands on the customer-zero approach, showcasing the SI vendors that have created more resonant use cases. For example, according to the report, “Atos has rarely presented itself as customer zero, but with sustainability the vendor has been showing its own standards to clients and the internal lessons learned on adoption, measurement and change management.” By expanding its breadth of ESG capabilities and its brand recognition, Unisys has established a foundation it can build upon in its growth areas.

 

Business models shifts, including support from Unisys’ external branding and marketing efforts to transform market perception, have allowed the company to lead with trust and deliver on clients’ needs to drive outcomes, leaning on its portfolio depth and partner ecosystem. Showcasing the depth of its portfolio and services will allow Unisys to better lead discussions with new stakeholders within emerging areas.

Emphasizing digital workplace and cloud

As clients execute on larger-scale transformation projects, they look for vendors to guide projects from beginning to end and to provide support following completion. Repositioning through marketing plans and a refreshed portfolio image allows Unisys to serve as a go-to partner for its clients.

 

The key theme of partnerships and value-driven outcomes for clients was embedded throughout the event, serving as evidence of Unisys’ efforts to improve relationship management and the relevancy of its portfolio. By working closely with clients to update their environments and business strategies, underpinned by emerging technologies, Unisys can enable clients to respond more quickly to market changes and operate more cost effectively. While the majority of Unisys’ revenue is generated through outsourcing and support and maintenance — which represent approximately 65% of total revenue — consulting work is helping to guide the adoption of digital workplace and cloud solutions. Expanding those conversations with clients will expand the breadth of Unisys’ consulting experience and ability to guide transformations.

 

During the event Unisys also highlighted its partner ecosystem and the roles it plays in accelerating digital transformation and helping the company grow its portfolio around both consulting capabilities and emerging technology. Forging partnerships enhances Unisys’ value proposition around industry solutions, improving its ability to identify and address clients’ transformative needs.

 

Additionally, Unisys incorporates consulting services derived from partnerships to better guide cloud migrations to Amazon Web Services and other hyperscaler solutions. This aligns with TBR’s findings in its May 2022 Digital Transformation: Voice of the Customer Research, which supports the idea that SIs will be capable of delivering an ecosystem of solutions to enable transformation. According to the report, “While cloud migration and IT modernization continue to provide the bulk of the services opportunities, buyers, especially the ones that have led the way in terms of adopting a business-first, technology-second mindset, are now demonstrating an appetite for experimenting with new technologies in areas such as AI, enabling them to further enhance customer experience.”

 

TBR’s June 2022 Digital Transformation: Cloud Ecosystems Market Landscape also emphasizes the need of hyperscaler partners is deeply rooted in platforms and scale to transformation projects. The market landscape states, “While hyperscalers’ platform capabilities provide the necessary hooks into IT systems, both new and old, to enable the construction of hybrid IT and cloud environments, the SI community serves as the tip of hyperscalers’ go-to-market spear, capable of establishing the business case for emerging DT [digital transformation] initiatives to gain the trust and buy-in from a diverse array of buyers.”

 

Working with partners supplements Unisys’ internal innovation efforts to deepen its experience around digital workplace services and cloud solutions. During this event, Unisys walked through its digital solutions, including intelligent workplace services, modern device management and Workplace as a Service as well as its cloud solutions such as cloud data and analytics, management and hybrid infrastructure services. The solutions help clients navigate technology debt — debt incurred from technical assets and/or data centers — while also modernizing traditional elements, bridging the gap between legacy and emerging areas. Addressing the cost impacts in addition to technology needs allows Unisys to serve as a trusted partner for its clients, enabling them to sustain and manage transformations.

Differentiation through trust

While differentiation presents a challenge for all vendors, Unisys leans on its client engagement and relationship management to serve as a go-to partner and deliver across different needs. Instilling trust by testing and working on capabilities internally, such as around ESG with company targets, can help bolster conversations with clients. Strong relationships with clients help increase awareness of Unisys’ portfolio depth and efforts to transform the company’s image in the market. Centering engagements on trust through outcome-driven solutions that bring value to clients leads to higher renewals for Unisys and new logo generation. Showcasing client experiences and business outcomes on the website and through digital marketing efforts will resonate with clients and prospects and guide further discussions.

 

Unisys’ efforts to grow its cloud portfolio and support its partner solution adoption provide opportunities for the company to drive larger-scale transformations. More specifically, Unisys executes on technology debt reduction, creates interoperability between different environments and devices, and increases internal agility to respond more rapidly to client needs. The portfolio expansion allows Unisys to help clients navigate multicloud complexities as well as guide the use of applications to help modernize business operations and utilize data. Leaning on its client relationships, Unisys proactively helps clients solve current problems while creating more resilient business environments that can be more flexible when confronted with unexpected challenges.

Conclusion

As clients’ and market needs change, Unisys evaluated its portfolio offerings and infused an expanded set of digital workplace and cloud solutions to refresh its business strategy and align with client requirements. Coupled with a more active marketing strategy that centers on content and experience underpinned by client testimonials, Unisys helps progress beyond traditional transformation engagements to deliver on more complex cloud and digital transformations.

 

Working as a partner to guide clients through challenges and improve their flexibility further strengthens Unisys’ position as a trusted vendor that can drive outcomes and value. A greater emphasis on clients’ needs, with outcomes at the center, will continue to showcase Unisys’ ability to deliver on changing market dynamics and accelerate from a revenue growth and portfolio expansion perspective alongside its clients.

Hiccups in hitting hypersonic speeds

U.S. interest in hypersonic missiles, projectiles capable of maneuvering midflight while maintaining a minimum speed of Mach 5, has surged over the last few years. The Department of Defense’s (DOD) budget for hypersonic research grew 18.8% year-to-year from $3.2 billion in FY21 to $3.8 billion in FY22. Now, the proposed FY23 budget for this research is set to expand by 23.7% year-to-year and reach $4.7 billion.

 

TBR analysts anticipate the final budget will ultimately be even larger after the Senate Armed Services Committee requested in June that over $44 billion be added to the initially proposed $773 billion defense budget for FY23. [Tweet this!] Yet despite further funds being rapidly reallocated to support its hypersonic programs, the U.S. has been hampered by multiple troubling and public setbacks. In October 2021 the booster stack on the Conventional Prompt Strike prototype failed during a launch, and as a result, the hypersonic glide vehicle test was called off.

 

In November 2021 the U.S. Space Force’s vice chief of space operations, Gen. David D. Thompson, raised concerns that the U.S. was falling behind Russia and China in developing hypersonic technologies. In February 2022 a meeting was called between U.S. Defense Secretary Lloyd Austin and representatives from prominent defense contractors including Northrop Grumman (NYSE: NOC), Lockheed Martin (NYSE: LMT) and Raytheon Technologies (NYSE: RTX) over the need to enhance and expedite the development of hypersonic technologies going forward. The group also discussed what has been disrupting the progress of their respective hypersonics projects. Limited usage of test sites, supply chain pressures and unsatisfactory funds were cited as persistent, underlying issues.

 

On June 29, the U.S. hypersonics program incurred another setback with its Conventional Prompt Strike prototype. The Common Hypersonic Glide Body (C-HGB) trial was deemed a failure by the DOD after an “an anomaly occurred following ignition of the test asset,” according to Lt. Cmdr. Tim Gorman of the U.S. Navy.

 

While recent reports indicate that the U.S. Navy still expects the C-HGB will be ready to be fit onto a Zumwalt-class destroyer in 2025 before being integrated with a Virginia-class submarine in 2028, there is uncertainty about whether speeding up hypersonic weapons development could result in even more issues when working with these complex designs. This is especially true if access to testing facilities remains constrained, limiting the “test often, fail fast and learn” methodology associated with the nation’s hypersonic programs.

 

On top of trying to run tests more often and with fewer disruptions, the Pentagon has struggled to find cost-effective ways to develop hypersonic weapons. As Under Secretary of Defense for Research and Engineering Heidi Shyu stated in October 2021, “We need to figure out how to drive towards more affordable hypersonics.” Yet the budget requests to study hypersonics have only trended upward. The Pentagon’s own estimates suggest the U.S. Air Force’s hypersonic missiles will cost up to $106 million apiece, causing concern about the feasibility of amassing an arsenal of these weapons over the next decade.

Recent progress in next-generation weapons development

While frustrations have been increasingly mounting about the state of the nation’s hypersonic weapons programs, some prolific U.S. initiatives have been making notable progress.

 

The Defense Advanced Research Projects Agency’s (DARPA) Hypersonic Air-breathing Weapon Concept (HAWC) initiative led to Raytheon Missiles & Defense allying with Northrop Grumman to compete against a team composed of Lockheed Martin and Aerojet Rocketdyne (NYSE: AJRD).

 

In late September 2021 the Raytheon Missiles & Defense and Northrop Grumman team successfully trial-launched their scramjet HAWC from an aircraft, ensuring the missile maintained a speed of over Mach 5, approximately six months before Lockheed Martin and Aerojet Rocketdyne were able to conduct their own free-flight test. Now with the HAWC program’s flight-test goals achieved, DARPA is taking the next step by launching MoHAWC. This new initiative will see the two teams further mature their respective designs, including advancing their scramjet propulsion systems.

 

Beyond HAWC and MoHAWC, the U.S. government has been investing in several other offensive hypersonic weapons programs. The Operational Fires (OpFires) and Tactical Boost Glide (TBG) initiatives are a couple, but recently the Air-launched Rapid Response Weapon (ARRW) program made notable progress. After a series of setbacks, Lockheed Martin’s AGM-183A ARRW completed its booster experiments following another successful trial on July 12, meaning that all-up-round testing will take place during 2H22.

Responding to threats faster than the speed of sound

In its FY23 budget request, the Missile Defense Agency (MDA) asked for $225 million to support its hypersonic defense programs, including its Glide Phase Interceptor (GPI), a solution meant to strike a hostile hypersonic missile during its glide phase.

 

Raytheon Missiles & Defense, Northrop Grumman and Lockheed Martin were awarded contracts in November 2021 to develop a GPI prototype concept design. In June the MDA moved on from Lockheed Martin for this project, compounding the contractor’s troubles after the U.S. Federal Trade Commission (FTC) blocked its acquisition of Aerojet Rocketdyne. The MDA has since awarded approximately $41.4 million to Northrop Grumman and $41.5 million to Raytheon Missiles & Defense to develop their own prototypes.

 

Northrop Grumman’s GPI design is meant to leverage the capabilities of the Hypersonic and Ballistic Tracking Space Sensor (HBTSS). This constellation of low-Earth orbit satellites would detect when a hypersonic or ballistic missile was fired, then relay relevant data to the GPI to assist with destroying the incoming threat. The contractor is competing to develop the HBTSS as well as the GPI, hoping to secure both contracts. Northrop Grumman and L3Harris Technologies Inc. (NYSE: LHX) are set to launch their respective HBTSS prototypes around 2Q23, which will be monitored for a period of at least six months before any final decision is made.

GAO concerns

Both the GPI and HBTSS programs came under scrutiny by the U.S. Government Accountability Office (GAO) in June, with the agency recommending the DOD play a bigger role in their development. The GAO highlighted that the MDA is not actively working on the HBTSS initiative in conjunction with the DOD’s Space Force and Space Development Agency, limiting its potential positives. The GAO also indicated that the MDA was not seeking an independent technological risk assessment or independent cost estimate for the GPI.

Superpowers showcasing their recent successes

China and Russia have been increasingly flexing their newfound hypersonic capabilities on the world stage over the last year, leading to fears that the U.S. hypersonics program is underperforming.

Intelligence reports stipulate that the “routine spacecraft experiment” China claimed it conducted during August 2021 was a nuclear-capable long-range hypersonic missile that had been fired into space, rounded the globe and struck a deliberate target.

 

With China aiming to have a stockpile of 1,000 nuclear warheads by 2030, the nation has gained a new invaluable asset. On July 4, China showcased its Feitian-1 hypersonic missile. Reports indicate this projectile does not require as strong of an initial booster as previous hypersonic weapons. It features a lightweight waverider design with an adaptable kerosene combined-cycle rocket/ramjet engine, enabling it to either deliver a heavier payload or hold additional fuel.

 

Russia revealed in October 2021 that the nation successfully completed its first Tsirkon hypersonic cruise missile launch from a submarine, giving Russian submarines the capacity to strike targets 660 miles away at Mach 9 while remaining underwater. The nation has also been actively demonstrating the capabilities of its hypersonic arsenal in the Ukraine, utilizing Kinzhal hypersonic air-launched ballistic missiles to wreak havoc on targets.

 

Dubbed the Satan-2, Russia’s RS-28 Sarmat nuclear hypersonic missile entered production in June following a successful test in April. The 220-ton, 116-foot-long intercontinental ballistic missile (ICBM) has a range calculated to be between 6,200 and 11,180 miles while being able to carry 15 light or 10 heavy Multiple Independently Targetable Re-Entry Vehicles (MIRVs) containing warheads to decimate multiple targets in a single launch. The RS-28 Sarmat ICBM is expected to undergo further tests in July before serial production begins.

What is next?

As the U.S. looks to remain competitive with China and Russia and expand its capabilities, more resources will be set aside to mature the U.S.’ hypersonic weapon as well as defense efforts at an expedited rate. Human-operated directed energy (DE) weapons, which could be used to defend against incoming threats, including hypersonic missiles and hypersonic glide vehicles, are an option the DOD has expressed interest in.

 

To function at their desired level, these devices will need AI system support to assist with targeting incoming threats, minimizing collateral damage and helping warfighters get comfortable with weaponry faster. TBR anticipates that Booz Allen Hamilton (NYSE: BAH) will be one of the leaders in getting this emerging battlefield technology to seamlessly function with AI programs that will receive data from a network of sensors. [Tweet this!] Inevitably these programs will become integral assets within the DOD’s Joint All-Domain Command and Control (JADC2) vision, giving U.S. armed forces an edge on the ever-evolving battlefield.

 

While income from hypersonic programs will not comprise the bulk of contractors’ profits, they will propel meaningful revenue growth. As a result, Alliances with peers capable of expanding a contractor’s reach will be crucial. For example, in January 2022 Booz Allen Hamilton formed a partnership with Stratolaunch to study hypersonic aerospace systems to bring more consistent and less expensive hypersonic flight environments to the DOD and others looking to conduct experiments.

 

Developing technology that can support the hypersonic programs will also be a way to generate new revenue streams, with Leidos’ (NYSE: LDOS) Dynetics winning a $478.6 million contract in November 2021 to design thermal protection solutions for long-range, surface-to-surface hypersonic weapons (LRHW).

 

Contractors will continue to position themselves to support the DOD’s vision that it will have a hypersonic missile battery by FY23, DDG 1000 ships fitted with hypersonic weapons by FY25 and a hypersonic cruise missile by FY27, yet they will also keep an eye on international interest. Analysts believe the global hypersonic technology market in 2020 was worth $4.98 billion. By 2030, they forecast it will have reached $12.2 billion and expanded at a CAGR of between 9.5% and 10%. Contractors will undoubtedly pitch their solutions to clients beyond U.S. shores in the future as global defense spending continues to ramp up.

PwC’s My+ may revolutionize professional services talent management

If PwC’s plans pay off, in a few years every professional at the U.S. firm will have choice in how they work, determining for themselves what they do, where they do it, how much time they do it, whether they travel for work, and what benefits meet their needs. This choose-your-own-adventure approach to talent management, which PwC calls My+, could completely alter the way Big Four firms and other professional services vendors recruit, retain and manage their talent.

 

In the current market, with a war for talent and organizations competing for the same people, PwC could be at the leading edge of infusing analytics into pandemic-driven employee experience lessons and building a leading talent development program.

 

How The New Equation helped bring PwC to My+

In mid-June, TBR spoke with J.C. Lapierre, PwC’s U.S. chief strategy and communications officer, to better understand PwC’s My+, including how the initiative fits within the firm’s The New Equation strategy and framework and what the firm’s near-term expectations for the initiative are. The following reflects that discussion, separate TBR discussions with PwC professionals, and TBR’s ongoing research around PwC, management consulting, and the broader IT services space.

 

Lapierre started with an update on PwC’s The New Equation, roughly a year after launch, and outlined the five basic “chapters”: (1) trust and sustained outcomes, (2) investments in capabilities, (3) simplification and making PwC easier to work with, (4) the people experience, and (5) purpose and community.

 

TBR noted that multiple discussions with PwC professionals and the firm’s clients — inside and outside the U.S. — revealed that the firm’s emphasis on trust, as part of both the business strategy (Chapter 1) and the Trust Leadership Institute (integral to Chapter 5), resonated positively and provided professionals, stakeholders, and clients with a sense of the firm’s mission and direction. Regarding Chapter 3, Lapierre said clients had told her, “We are seeing a different PwC show up,” indicating internal efforts around removing friction and bringing a new way of teaming to every client had begun to show results.

 

To explain PwC’s My+ approach, Lapierre described an imaginary PwC professional (the heart of Chapter 4), making the following choices: What type of work do I want to do, and with what kinds of clients and engagements? Where do I want to work, and how much of my time will be in the office or remote? How much do I want to travel for work? How many hours per week do I want to work? And what benefits matter most to me, aside from compensation?

 

Once the employee makes his or her choices, the firm responds with an offer: “Here is the compensation, and this is the career path.” Lapierre believes this approach allows employees to feel they have a choice in what their PwC experience will be — an employee can “cultivate and curate the career” they want while being part of a community.

 

A core component of My+ is development and how PwC will be a “leading developer of talent,” enabling employees to succeed elsewhere if they choose to leave the firm. Lapierre recognized this kind of radical change requires cultural shifts within PwC, technology enablement, and a commitment by leadership to evolve the program and the firm over the next three years. In TBR’s view, should this vision become a reality, PwC will have radically transformed itself and the professional services space.

Shifting the traditional work culture by supporting well-being

Underpinning PwC’s My+ strategy, according to Lapierre, are four pillars: Well-being, Total Rewards, Development, and Always a PwCer. After noting that the U.S. firm had already announced it would be shutting down its operations for a second week each year to allow employees to recharge, Lapierre said the efforts around well-being would include “protected time,” in which an employee’s bosses and peers would be notified that the employee would not be available.

 

The technology aspect of this initiative would include prompts before taking protected time and analytics around employees’ actual behavior. Further, by introducing “upward feedback” and emphasizing across the entire firm the importance of protected time for promoting well-being, Lapierre believes individuals will be both empowered and held accountable.

 

In TBR’s view, professional services firms — and most notably the Big Four firms — struggle with balancing client demands and partners’ expectations with employees’ need for time away from work. Some firms’ partners develop professionals with 70-plus-hour workweeks and expect the same from new hires. Shifting this culture and enabling employees’ protected time stays the employee’s own would be a significant change and, in TBR’s view, may be necessary to retain talent coming into the workforce post-pandemic.

 

With Total Rewards, the firm intends to enhance benefits, including providing additional resources around mental health, and continue offering competitive compensation. Always a PwCer reflects the firm’s understanding that cultivating its alumni network can benefit current employees by demonstrating possibilities beyond PwC. In a circular approach to fostering sustained relationships, PwC will offer alumni continued access to professional and career development tools. For both these pillars, TBR believes PwC has incorporated lessons learned from managing professionals through the pandemic, including the need to expand the firm’s understanding of employees’ needs beyond standard expectations.

The carrots of professional development and the need for accountability

To cultivate “top talent,” as Lapierre described PwC’s professionals, the firm’s approach to the Development pillar will include master classes demonstrating “leadership in action.” Lapierre said the entire firm would participate, making a comparison to a TED talk-like, at scale, but also customized to PwC. In addition, the firm’s training and professional development initiatives will focus on “topical skills — what’s needed today” and will include recommended training curricula depending on the professional’s career path.

 

All four My+ pillars, Lapierre noted, will be “very personalized, tech-enabled,” and fully integrated across the entire firm. Understanding that the firm currently stands at the start of an expected three-year journey to the choices scenario described above, Lapierre said PwC will enlist around 1,000 current employees starting this fall to be “My+ Activators,” essentially evangelists for adoption and change.

 

When TBR questioned whether experienced PwC partners and longtime employees would welcome a new way of working, Lapierre said the firm believed in “leading with carrots” and giving all employees the necessary support to make changes. And the firm’s leadership believes that after a certain amount of time — and carrots — it is then about accountability.

When you make an empowered choice, you own it

Accountability might be the key to unlocking a successful choose-your-own-adventure career path. If this initiative works, in three years PwC employees will be empowered to choose not only what they work on but also how, where, when and how long they work while also being held accountable — to themselves and to the firm — for their choices. If this works, PwC will also have rewritten what work culture can look like at a Big Four firm and will, by example and by taking away top talent, force peers and competitors to change as well.

 

In TBR’s view, PwC should be able to pull this off. PwC Products marked a radical departure from traditional consulting and professional services while also evolving almost naturally from leadership, technology and business model decisions the firm had been making for years. The New Equation set a well-defined course for change with the North Star — trust — deeply rooted in the firm’s traditional culture and value proposition. The technology underpinnings for My+, including firmwide administrative tools and analytics, have been in place, tested and refined, for at least five years. And the talent — the professionals staffing services firms — are ready for change while expecting more from their employers: more flexibility, more benefits and more choices.

 

In all, PwC may have picked the right time to choose its own HR adventure.

 

EY views managed services as a ‘no regrets business’

Discussion of EY managed services strategy in context of EY’s overall operations kicked off the EY Managed Services Analyst Summit. EY Global Vice Chair – Markets Jay Nibbe touched on the rumors around the operating models with the cryptic statement that regardless of how EY looks from a financial reporting system, managed services will continue to be a strategic aspect of the EY business or businesses.

 

In Nibbe’s view, managed services are strategic to the pivot EY and its peers are making in the market. Nibbe described this shift as going from an advisory and compliance model to a report-advise-operate model. Data-driven insights are provided to clients, EY advises and assists with transformation and change management, and then EY operates the critical services through its ongoing managed services capabilities.

 

A $750 million investment underpins EY’s commitment to growing out its managed services portfolio, with more money to follow. Nibbe described managed services as a “no regrets business,” as in no regrets to continue investing in the space.

 

 

‘Managed services’ is an improper label for its portfolio, according to EY

Global Vice Chair – Managed Services Paul Clark re-enforced Nibbe’s commitment, saying EY managed services was currently 18% of its total revenue, with a $360 billion total available market estimate. Clark also called managed services “a broad church” and stated EY is not after traditional ITO or BPO engagements.

 

Therein lies EY’s branding challenge. Many view managed services as a new label for the labor arbitrage outsourcing services that rose to popularity at the turn of the century. These BPO services were colloquially described as “handling the mess for less” and do not accurately depict, EY believes, the value proposition of the new suite of services infused with AI and resting on top of a standard data platform such as EY Fabric. For example, EY equated legacy BPO offers to bookkeeping whereas its service is accounting.

 

Most EY managed services engagements start with an advisory engagement. Pandemic pressures held a mirror up to customers’ operations as they struggled to continue their legacy practices amid remote working. Further, the increasing volume of regulatory change across the globe makes it hard for multinational enterprises to keep pace, increasing their risk of being out of compliance.

 

Regulatory change and associated business risk results in greater boardroom attention to operations, with a focus on making sure the business processes work. Handling the mess for less, EY asserts, does not resonate with the board when the current operations leave the company open to risk and regulatory fines for noncompliance. Savvy managed service buyers want to know the process will better monitor outside-in changes to their business environment and will provide advice on impact to internal operations.

A global data platform, EY Fabric is EY’s distinctive accelerator for managed services

EY said little about infrastructure technology, and yet the value propositions discussed throughout the day repeatedly referenced EY Fabric. A cloud-based data lake infused with AI and machine learning, the critical distinction of EY Fabric is that it is one global operating model. A single global operating model requires a standard set of business rules and inordinate amounts of data wrangling before any analytics can be applied against the data for business insights.

 

For years technology vendor events have brought forth clients to share their operating horror stories of trying to get right the standard data model. That EY, a global partnership, was able to settle on one global data model internally, and then drive it out to market is a testament to the EY operating culture, and a boon to its managed services practice.

 

EY Fabric automates data wrangling for EY clients. It then extracts data from client systems, normalizes the data in EY’s data lake and runs proprietary algorithms against the data. Finally, EY Fabric reports fact-based insights and change management recommendations to the client. From those advisory engagements flows the managed services agreements, where EY “lands” by addressing the topmost set of operational pain points, and then “expands” through that proof of value into adjacent service modules.

Critical alliances link EY Fabric to customer instances and orchestrate the services

EY is quick to say it orchestrates and deploys popular commercial software applications rather than builds software. Partners SAP, Microsoft and ServiceNow joined EY on stage at the managed services event. SAP represents the legacy application layer housing most EY client data that must be extracted and run against EY algorithms for business insights. Microsoft underpins the cloud-first EY Fabric and co-innovates with EY on the hooks into customer data. ServiceNow provides the base workflow shell for many of the EY managed services workflows.

 

Other partners exist to provide necessary information feeds, but these three underpin the platform. In emerging technology, EY uses its overarching theme of “making sure it works” to explain why it is reticent to embed software from smaller companies into its services. It stated it will integrate and orchestrate such offerings on behalf of clients, but it does not intend to be on the technology bleeding edge. Its focus, in TBR’s view, is to protect its clients from the bleeding edge of regulatory change.

EY organizes its managed services into five broad categories

EY visually represents its managed services offerings as five suites that all revolve around data and AI, or the EY Fabric platform at the core. Some of the operational themes cut across suites, but how the portfolio is arranged is immaterial to the way in which EY pursues managed services.

 

For EY, the pursuit starts with determining the top pain points customers seek to address, then conducting a business assessment and presenting recommendations on how the EY managed services components can improve operational flows and reduce business risk in the process.

 

Each module has been written under the one global EY architecture in a cloud-first containerized fashion running on Microsoft Azure. As such, the mixing and matching of services integral to the “expand” element of a land-and-expand process becomes a function of activating new services, as proof of value has been displayed.

 

The core modular groupings of EY managed services are:

• Finance and Tax is by far the largest segment of EY’s managed service portfolio, as expected from an advisory firm with tax and audit lineage. EY Fabric brings the potential of moving to a continuous audit function based on the ongoing AI monitoring of the regulatory environment that is then mapped against the client’s business parameters to create a custom set of action items for the client. EY Virtual Internal Audit is at the core of the disruptive capability. These capabilities augment internal audit functions, enabling internal teams to shift focus in real-time based on the automated advisory notices EY algorithms generate from reviewing regulatory notices.
• Risk and Cyber grows in client importance with each passing data privacy law and well publicized security breach. Here EY relies on partnerships for threat monitoring to ingest into its AI engines to proactively push alerts and recommendations to its client base. EY claims its cyber practice is growing 30% year-to-year. EY sees the upside to these as cyber engagements continue converting to managed services clients.
• Talent is an area EY expects to grow rapidly. Accelerated by the pandemic, these EY services are aimed as much at managing the regulatory environment for payroll across multiple countries as they are at improving user experience. From its global platform, EY provides a set list of standard forms employees need for various work verification requirements for home loans, among other things. Additionally, EY talent customers can offer EY tax preparation services to their employees as well as access to EY education modules called EY Badges for ongoing professional development.
• Legal is a domain EY bolstered with the acquisitions of Pangea3 Legal Managed Services (part of Thomson Reuters) and Riverview Law. EY’s internal relationships with certain clients, including those more acquisitive in nature, allow the firm to lead itself into new engagements in an event-driven business. Leaning on its existing relationships and strengths around contract management and compliance, EY will create repeatable processes that help clients execute on legal managed services contracts.
• Sustainability is a hot topic industrywide. It is where the notion of evaluating risk for competitive advantage comes to the fore. In anticipating the regulatory change, EY clients can evaluate the upside and the risk of existing businesses against the anticipated back drop of sustainability regulations globally. Additionally, increased scrutiny around the measurement and reporting of environmental, social and governance (ESG) metrics aligns with EY’s auditing resources to secure data management and sharing, validate data, and prepare reports from a standardized perspective.

Like many managed services, EY’s services have evolving commercial constructs

Multienterprise business offers are in a state of commercial flux as legacy license models give way to “as a Service” models. Most commercial contracts are between EY, as the solution orchestrator, and the client. Its strategic partnerships with Microsoft, SAP and ServiceNow also mean it can negotiate terms with greater flexibility and cooperation than most partners of those firms.

 

With customers, the EY value proposition revolves around outcomes and cost avoidance. Similarly, the value proposition is not about labor arbitrage, rather real-time access and insight from EY’s domain experts that are baked into the offer through AI automation and expert pattern recognition. In this sense, EY’s value proposition is strategic staff augmentation rather than data entry staff augmentation.

 

The explanations and use case examples for this strategic staff augmentation were clear at the event. The regulatory environment is moving too fast for individual firms to hire the requisite number of domain experts to reduce risk. It is better to rely on the outside experts ahead of the audits to reduce risk exposure and better inform the accelerating strategy cycles.

 

Examples offered by EY of this point included:

• Over 57,000 regulatory alerts in 2021 and the $6 trillion cost of breaches; Virtual Internal Auditor handles those alerts in real time
• $537 billion cost to enterprise for data integration/data wrangling, which EY Fabric does, with two-thirds of the enterprises surveyed intending to spend more in the future
• A Talent entry point is to assume payroll responsibilities in the second-tier countries where enterprises operate, given EY has domain expertise in 160 countries under one global data model. Further, EY has a real-time chat bot that can answer strategic staffing queries for engaged leaders. EY claims this is the first of its kind in the talent management space.

 

One of the clients speaking on the panel exports products to 140 countries and has localized presence in 50, with only three tax specialists. The Group Tax, Customs and Insurance head summarizes its contract outlook thusly: “We are not after a discount; we want to get it right.”

 

According to this client, the EY value proposition was that EY would return twice the cost of the managed service back to them in savings and cost avoidance. They stated that, to date, EY has returned close to $900 million in savings to the company.

Market implications

Tax and audit firms are extremely well positioned in the IT industry writ large. Tax and audit firms are the final translation layer between business process and automated data flows. They translate business rules into the bits and bytes orchestrated by traditional technology vendors. EY has a distinct advantage and value proposition that focuses more on business risk and strategic planning rather than cost savings.

 

Lone enterprises cannot afford to keep human resources staff also knowledgeable of the rapidly shifting regulatory environment. With this in mind, EY aims to become the real-time advisor to these internal operations through automated delivery of curated EY IP based on its domain expertise.

 

While EY managed services might cost more than the in-house labor, the managed service will reduce the liability of noncompliance and likewise boost the strategic planning scenarios ahead of expected regulatory changes.

 

The implications to EY competitors are broad.

• India-centric vendors whose value proposition rests on labor arbitrage must show greater value in risk mitigation and domain expertise. Some are wisely partnering with EY in specific use cases where EY’s service provides an additional value layer to the India-centric client.
• Traditional ITO and BPO vendors face a similar threat. Can these vendors, through alliances or staff hires, provide the domain IP EY is capable of curating and rapidly scaling on the EY Fabric platform?
• Emerging technology vendors will be well served by entering discussions with EY on how they can integrate into the EY Fabric. While EY is selective, gaining the EY seal of approval would go a long way toward validating the long-term viability so critical to global enterprise decision makers.

 

Clark says the only thing holding EY back is more orchestrators. These orchestrators consist of project heads with the necessary domain expertise to curate client processes for ingestion into EY Fabric as well as orchestrator AI chat bots to be run against the increasing volume of regulatory changes flowing from the public sector as governments seek to keep up with the rate and pace of business change technology unleashes on the economy and environment itself.

 

Relative to peers, EY is better positioned to meet the challenge given the sound fundamentals it deployed in building out a single, global data platform to scale its managed services offerings.

Lenovo is executing on ambitious growth objectives

At Lenovo’s ISG Analyst Summit, ISG Executive Vice President Kirk Skaugen expressed Lenovo’s ultimate goal is to become the world’s largest IT infrastructure provider, and the group is executing on strategies across all segments within its Infrastructure Solutions Group (ISG) to meet this objective.

 

Lenovo’s ISG growth over the past two years has been strong, closing its 2022 fiscal year with over $7 billion in revenue, up from $5.5 billion in revenue in 2020, and a profitable operating income. Lenovo ISG is still relatively small compared to Dell Technologies ISG or Hewlett Packard Enterprise (HPE), which reported $34 billion and $28 billion in revenues, respectively, in 2021. But Lenovo’s rapid growth and road map position it to overtake smaller vendors in server and storage market share over the next five years.

 

 

Lenovo’s growth strategy has two main facets, building ISG brand awareness and honing its business strategy across the core ISG segments. Lenovo ISG is about 10% of corporate revenue, compared to the devices business at roughly 84%, making building awareness critical to gaining share in infrastructure segments such as server, storage, hyperconverged infrastructure and high-performance computing.

 

Lenovo is expanding awareness of its ISG portfolio through corporate advertising and sponsorship initiatives as well as tactically through the company’s One Lenovo strategy. One Lenovo will integrate devices and infrastructure go to market more closely, particularly in sales and channel compensation, to ensure customers are aware of the full Lenovo portfolio and to incentivize business referrals across the two groups.

 

Honing the ISG business strategy to deliver growth across all business segments is a more detailed and complex endeavor that consists of several operational, product and go-to-market initiatives. Core initiatives include:

• Become a trusted partner
• Capture vertical-specific edge compute demand
• Accelerate growth in CSP business
• Differentiate in Enterprise and SMB (ESMB) with services and cloud capability
• Build nuanced portfolios that address geo-specific needs
• Leverage in-house design and manufacturing for competitive advantages

Become a trusted partner

Among the many themes emphasized during the summit, multiple Lenovo executives highlighted: Lenovo strives to earn and retain trust with its partners and, especially, its customers.

 

Skaugen made this point time and again with external evidence and KPIs Lenovo keeps at the forefront of its organization, such being partner of the year to Nutanix, VMware and Microsoft. The company also boasted its 93.6% on-time deliveries rate, which represents the accuracy of its delivery timeline estimates to its actual execution.

 

Regardless of the uncertainties created by global supply chain disruptions, Lenovo wants partners to know that they can rely on the company’s word, even if that means taking conservative estimates on delivery lead times and leaving deals on the table that have the potential to dilute customer trust of Lenovo.

Capture vertical-specific edge compute demand

Edge compute still has no dominant forces, but countless vendors are vying for market share in the emerging industry. Lenovo believes its portfolio spanning the data center to the edge to individual pockets with mobile devices differentiates it from competitors.

 

Beyond its expansive vision, Lenovo’s head of edge infrastructure, Charles Ferland, made it clear the company’s edge compute technology is itself differentiated with practical and customer-centric designing baked into the process of innovation. Lenovo believes its design strengths include physical features ranging from noise minimization and a broad range of form factor sizes to security features with encryption and tampering protection as well as connectivity and automation features.

 

Lenovo’s portfolios range from a “backpack fitting” form factor to high performance, compute-dense form factors that enable on-site AI inferencing and data-intensive applications. It will take a vertical-centric approach to building edge solutions with the help of its Project and Solution Services group, which has a long-standing history of developing vertical-centric solutions such as retail and quick-service restaurant capabilities. To date, Lenovo’s edge customers range from small nonprofits to large retailers with thousands of locations worldwide.

Accelerate growth in CSP business

Over the past five years, Lenovo has grown its cloud service provider (CSP) business, which designs and manufactures IT infrastructures for cloud service providers, to about $3 billion in annual revenues. The ODM business model is generally considered to be less profitable than the OEM model in sales, but Lenovo is well positioned to generate profitability since bringing its entire ODM process in-house.

 

In Lenovo’s “ODM+” model, the company provides in-house design and engineering services, builds the infrastructure in its own manufacturing facilities and provides global deployment services, giving Lenovo an opportunity to cut out costs from other vendors while providing customers with end-to-end service capability.

Differentiate in ESMB with services and cloud capabilities

Lenovo’s ESMB segment accounts for roughly half of ISG revenue and faces stiff competition from fellow OEMs as vendors fight for limited share as growth is constrained by cloud erosion. Lenovo’s approach to adding value in the ESMB segment is similar to competitors, focused on providing a portfolio of end-to-end, “as a Service” solutions and developing private cloud and hybrid cloud capabilities.

 

Lenovo is rapidly expanding its portfolio of TruScale subscription offerings, which currently includes storage, hybrid cloud, multicloud, virtual desktop infrastructure and SAP solutions, in addition to device-specific offerings. Beyond adding use cases, Lenovo will expand the capabilities of the TruScale platform with more options for metering, AI-based insights, and enhanced user interface for management and automation.

 

Like peers, Lenovo has built a portfolio of private and hybrid cloud solutions leveraging alliances such as Microsoft Azure Stack and VMware-based cloud offerings. Lenovo’s strategy diverges from peers in the storage space, where Lenovo offers cloud services through its partnership with NetApp, including the ONTAP operating system and NetApp Cloud Volumes services. Other vendors, such as Dell Technologies and Pure Storage, are rewriting their storage operating systems to run on major public clouds or acquiring software companies that specialize in cloud management.

 

Regardless of vendor alliances used in building solutions, Lenovo intends to be an end-to-end cloud solutions provider and the accountable point of contact for customers.

Build nuanced portfolios that address geo-specific needs

Lenovo believes its competitive advantage is its positioning as a global vendor that can deliver on localization. With its focus on bringing design services and manufacturing completely in-house, Lenovo can provide local customization for its products that meet the specific needs of the region, including power specifications and component configurations. Lenovo’s presence with headquarters in both the U.S. and China gives it the ability to separate its businesses for the two countries, including software design and hardware manufacturing, to navigate geopolitical pressures seen across the market.

 

Partner strategy is also a key piece of tailoring the IT infrastructure portfolio to specific markets, particularly in China, where local vendors dominate market share compared to global ISVs and CSPs that hold a commanding presence in other markets, requiring a deep and specialized partner base.

 

Following the successful implementation of a joint venture with NetApp in China, which began in 2018, Lenovo also announced it is expanding its partner investments with a new APAC-based technology solutions business, PCCW Lenovo Technology Solutions Limited (PLTS). Lenovo will own 84% of PLTS, including 80% direct interest in its partner PCCW. PCCW Solutions is an IT services provider with over 4,000 employees specializing in systems integration, application development and operations, which will be complemented by Lenovo’s infrastructure portfolio and close-to-the-box services.

Leverage in-house design and manufacturing for competitive advantages

Throughout the event, Lenovo made it clear that despite challenges in 1Q22, the company’s supply chain and vertical integration is one of the most valuable assets it has. As part of its ODM+ model, Lenovo has its own in-house design and manufacturing capabilities, which allows it to supply hyperscalers but also leverage processes to optimize cost in ways traditional OEMs cannot.

 

Lenovo utilizes the Root of the Tree Model, which uses adaptable base models that act as the “root” and can therefore be modified to bifurcate into distinct products fill various performance and use-case niches. Significant advantages of this model — and key tenets of the philosophy — are the reuse of design and the commonality between products, which unlocks otherwise inaccessible component procurement scale and simplifying assembly, ultimately lowering cost. Powerfully, this reuse of design and components can be leveraged across portfolios, across ISG products as well as between ISG and CSG products, such as reuse of XPUs, motherboards, cabling or even certain chassis.

According to Lenovo, high-performance computing clients are taking full advantage of its robust, in-house design capabilities. For next-generation exascale supercomputing, Lenovo emphasized two primary factors that differentiate its approach from competitors: the modularity of its systems and its energy efficiency.

 

Competitive exascale offerings mainly consist of large rack-sized units, many of which are larger than standard server racks, weighing in at thousands of pounds. Customers can purchase Lenovo’s exascale servers down to the server, enabling smaller customers without large capex budgets to acquire and access the same technology at lower scale to large enterprise customers.

The other differentiating factor is Lenovo Neptune, a direct, warm-water-cooling system that eliminates the need for refrigeration, thus reducing power consumption. By decreasing energy consumption, Lenovo Neptune subsequently reduces energy costs, which aligns with its environmental objectives to lower emissions.

Conclusion

Lenovo’s ISG division remains small versus market share leaders, but the company is invested in building the business into a formidable competitor. With a multifaceted strategy starting at the corporate level, with One Lenovo initiatives, product-centric development strategies, and a robust design, manufacturing and supply chain, Lenovo is well positioned to maintain, and even accelerate, its revenue and profitability growth.