From process to people to place, EY has crafted something unique

Every consultancy has its own process for digital transformation: a mix of design thinking, agile methodologies and sprints, usually starting with a business problem and resulting in application of a new technology-enabled solution (i.e., the “digital” in digital transformation). And nearly every consultancy and IT services vendor brags of end-to-end capabilities, from identifying the business issues to implementing a solution. EY’s Innovation Hub at Nottingham Spirk, however, does something: It actually delivers on that promise.

EY and Nottingham Spirk’s immersive process (enabled by wavespace), honed pre-pandemic and deployed throughout with virtual sessions, unpacks clients’ most intractable business problems and identifies potential pathways to resolving those issues, taking into account change management, technology enhancements and business model implications. Where a wavespace team — or similar group at a peer’s innovation and transformation center — would then hand off the client for the next steps, including innovation around technology changes and minimum viable products, in Cleveland the EY wavespace team simply walks the client downstairs to the Innovation Hub, where the next steps in the process begin immediately. And when the client’s needs include any kind of physical construction or prototyping, the rest of the Nottingham Spirk facility comes into play.

Critically, EY and Nottingham Spirk include every human professional involved in the process at every point in the process. A Nottingham Spirk designer and a Microsoft-certified developer participate in the wavespace engagement at the start, and the wavespace consultants follow the client through their entire journey, bringing life to “end-to-end.” In TBR’s view, combining the innovation process with the technological and physical capabilities of EY and Nottingham Spirk and capturing everything — and everyone — under one roof portends a sea change in how innovation and transformation centers will be run going forward. 

While extending innovation from business challenge consulting sessions into implementation of technology and physical solutions requires a commitment from EY firm leadership and business model shift for EY, the physical space EY and Nottingham Spirk have created warrants attention as a blueprint for future center construction.

Nottingham Spirk contains a maker’s dream space, with the tools, equipment and supplies to craft and test virtually anything. The main floors boast product engineering labs and countless examples of previous work taken from idea to commercialization. Attached to Nottingham Spirk’s manufacturing innovation paradise, EY built an IT innovation hub, outfitted with the latest tools from partners like Microsoft, SAP, Nokia and PTC, and key contributors such as GE Digital, PROS, Simio, and Blue Yonder. On the second floor of the innovation hub, EY’s latest wavespace offers room for large discussions or more intimate problem-solving sessions. Literally atop a hill and graced with a belltower, the facility allows clients, partners and employees to feel adequately physically removed from day-to-day concerns and fully focused on innovation. A visit to the Cleveland facility reinforces TBR’s view that innovation and transformation centers benefit from being physically separated from the vendor’s home offices.

EY-Nottingham Spirk Innovation Hub: To mark the opening of its first Innovation Hub and latest wavespace location, as well as its partnership with Nottingham Spirk, EY hosted a ribbon-cutting ceremony and daylong event for local civic and business leaders, clients in the manufacturing space, and technology partners. TBR attended and spoke with EY leaders, attendees from EY’s technology partners, and multiple EY professionals, including Jerry Gootee, EY Global Advanced Manufacturing Leader (and EY-Nottingham Spirk Innovation Hub visionary); Greg Sarafin, EY Global Alliance and Ecosystem Leader; John Nottingham, Nottingham Spirk Co-Founder and Co-CEO; and Regan Grant, EY Global Advanced Manufacturing & Mobility Marketing Leader.

TBR perspective

With the looming separation from Dell Technologies (NYSE: DELL) and departure of long-trusted CEO Pat Gelsinger, 2021 has undoubtedly been a turbulent year for VMware (NYSE: VMW). Since effectively taking over as CEO on June 1, Raghu Raghuram has been tasked with executing on Gelsinger’s vision of bringing the same virtualization products trusted by enterprises for decades into the cloud era. As many legacy software companies can attest, capturing net-new business in a market crowding with ‘born-in-the-cloud’ startups is no easy feat; yet, as the company that brought virtualization technology into the mainstream and remains pervasive throughout enterprises today, VMware faces a unique set of challenges and opportunities.

Since starting with stand-alone vSphere license agreements then progressing into full Software-Defined Data Center (SDDC) stack sales, VMware is now entering what Raghuram deems the company’s Chapter 3, the era of hybrid multicloud. Like the first two chapters, Chapter 3 will be defined by product innovation, but it will require a more nuanced partner strategy, leaning on value-added resellers and hyperscalers that will help bring VMware into the cloud. This is an area TBR expects VMware to execute on especially as it enters 2022 as a stand-alone company.

VMware unveils Cross-Cloud Services to drive multiproduct adoption and position as a SaaS company

At VMworld 2020 VMware was coming off a series of tuck-in acquisitions that provided the company additional value in areas like networking, security and modern applications. Evidenced by historic acquisitions, such as VeloCloud, and more recent purchases, including Pivotal, VMware has proven its ability to use acquired IP to quickly pivot and meet demand from customers’ IT operations and development teams. While Gelsinger’s departure and the company’s spinout could be playing a role in slowing acquisition activity, VMware also appears to be at a point where it has all the workings of a competitive portfolio and must now determine how to integrate and scale it. Marking a key step in this direction was the announcement of Cross-Cloud Services at VMworld 2021.

Cross-Cloud Services is a manifestation of the company’s five-pillar framework and brings application, cloud infrastructure, cloud management, security & networking and anywhere workspace & edge services into a single, unified platform that can be deployed in any IT environment. In addition to established offerings such as VMware Cloud solutions and vRealize for cloud management, VMware released new products, such as Tanzu Application Platform (TAP) and Project Arctic, which are also offered as part of the Cross-Cloud Services product family. More services are expected to be offered under the Cross-Cloud Services umbrella in the future to provide existing customers with more choices and the flexibility to deploy VMware services anywhere.

Like many market players defined as SaaS companies, such as ServiceNow and Salesforce, VMware recently has been emphasizing product bundles. For example, in 2Q21 VMware launched Anywhere Workspace, which brings endpoint management, security and networking capabilities into a single subscription through Workspace One, VMware Carbon Black Cloud and VMware Secure Access Service Edge (SASE), respectively. However, as a company born on premises, VMware is more closely aligned with vendors such as IBM and Microsoft, which are similarly looking to support customers’ hybrid cloud journeys but face pressure to appeal to customers outside their own install bases.

While VMware faces similar challenges, the pervasiveness of VMware — evidenced by roughly 80 million vSphere-based workloads currently in production — arguably puts the company under less pressure to look outside its customer base, at least in the near term, and focus on upselling cloud and application services to its loyal base of traditional virtualization customers. The release of Cross-Cloud Services indicates VMware will take a land-and-expand approach to increase annual contract value (ACV) and become perceived as a SaaS company.  

VMworld 2021: As the coronavirus delta variant continues to take its toll, VMware held its annual event virtually for the second consecutive year. While VMworld 2021 was unique largely because it was the first VMworld in nearly a decade without Pat Gelsinger as CEO, the feel of the event remained the same, offering various breakout sessions and independent talks from customers speaking to each of the five pillars that define VMware’s DT-enabling strategy. VMware also welcomed the CEOs of all major hyperscalers, further highlighting not only its commitment to partners but also to hybrid multicloud as the model that will shape enterprise IT throughout the next 20 years.

Hyperscalers’ focus is on creating value from distributed computing

Hyperscalers are at the cusp of scaling out their edge computing deployments as they focus on creating value from distributed computing, which is a key foundational aspect of their digital ecosystem initiatives. They must pivot from centralized data center build-outs to building out the edge to achieve the latency and quality of service that new network use cases will require.

TBR believes the world’s largest hyperscalers are all likely to extend their cloud footprints closer to endpoints through this decade and expects hyperscaler capex will shift significantly from central cloud to edge cloud over the next five years. The Big Nine hyperscalers will drive significant innovation in the edge space, contributing design references, technology standards, and best practices to facilitate ecosystem development.

Hyperscalers have been experimenting with ways to make it more economically feasible to deploy distributed edge network resources at scale. The commercial model will likely see hyperscalers partner with ecosystem stakeholders, such as tower companies and data center real estate investment trusts, to offset the financial burden of deploying, owning and operating edge compute environments. For example, a hyperscaler could partner with tower companies to site micro data centers at the base of cell sites and plug directly into the access and backhaul network.

Models such as this would help defray the cost and complexity of building and managing many sites. TBR also believes telco sites, such as central offices and aggregation hubs, are logical locations for edge compute resources. These facilities are usually strategically located, are owned and controlled by the operator, have access to power and cooling, have fiber readily available, offer secure access, and are ruggedized to withstand the elements.

Telcos are divesting their tower assets, which limits their opportunities and market leverage in the edge compute space; supply issues delay rollouts

Telcos relinquishing control over network sites opens door for hyperscalers

Hyperscalers are likely to continue their encroachment of network ownership as they build out their distributed computing platforms. Network access sites, particularly cell sites such as towers, are of unique strategic importance as hyperscalers aim to extend their platforms closer to data origination sources. The ultimate shift toward open virtual RAN and the radio intelligent controller will also spur significant innovation at the access layer of the network, which will prove to be an area of keen interest to hyperscalers that are looking at how to capitalize on new opportunities presented by edge computing, 5G and AI.

TBR believes it is highly likely that hyperscalers will become key customers of shared infrastructure owners, particularly towercos, during this decade as their reach extends beyond their central clouds.

Supply chain constraints will delay peak telecom edge compute spend growth rate to at least 2023

Delays in chipset availability — partly due to the COVID-19 pandemic and partly due to geopolitical factors and technological complexity — will slow the pace at which the vendor ecosystem can meet customer demand for edge compute infrastructure through at least 1H22. Supply chains should be able to meet demand by 2H22, setting the stage for projected 66.7% year-to-year growth in the market in 2023.

Shipping constraints are another headwind to meeting demand. Even if products can be manufactured, there are chronic problems with exporting and importing those products and bringing them to customer sites. This too will push out build timelines.

TBR’s Telecom Edge Compute Market Forecast, which is global in scope, details edge compute spending trends among communication service providers, which include telecom operators, cable operators and hyperscalers. This research includes current-year market sizing and a five-year forecast by multiple edge compute market segments and geographies. TBR’s Telecom Edge Compute Market Landscape, also global in scope, deep dives into the edge compute-related initiatives of stakeholders in the telecom market, including telecom operators, cable operators, hyperscalers and vendors that supply the telecom market.

Webscales need to enter and disrupt trillion-dollar industries to maintain growth trajectories and sustain stock valuations

Transportation (e.g., connected vehicles), logistics, financial services, healthcare, telecom and other sectors each represent at least a trillion dollars in economic value globally, and webscales are targeting each of these industries for disruption.

Webscales need to rapidly scale their presence in these industries to add billions of dollars in top-line revenue to their respective income statements each year to sustain their stock valuations.

Telecom is a unique market to disrupt because it represents around $2 trillion in current economic value and provides foundational infrastructure to drive disruptive initiatives across other industries. Intelligent connectivity transcends all industries in a digital economy and is the foundational medium for data transmission and the conveyance of cyber-physical exchange that fuels digital transformation. Moves by Microsoft to acquire Affirmed Networks and Metaswitch underscore the strategic imperative for webscales to disrupt the telecom sector.

Webscales will ensure the Fourth Industrial Revolution becomes a reality

The Big Nine webscales are investing over $300 billion annually collectively (R&D and capex), and this amount is growing rapidly, on world-changing endeavors, such as building virtual worlds, truly autonomous vehicles, conversational voice AI, quantum computers, and frictionless, intelligent and ubiquitous connectivity. These initiatives will push the rollout of ICT infrastructure at scale and get governments and businesses aligned to ensure they are digitally transforming.

Webscales are standardizing industrial digitalization to bring enterprises into their ecosystems, and over time the webscales will enhance and broaden the capabilities they offer to enterprises en route to full realization of Industry 4.0.

TBR believes the world’s largest webscales will likely own and control key platforms and ecosystems pertaining to the realization of Industry 4.0 and will garner an outsized portion of the value that is created from the digital economy.

The next major device category is AR/VR

AR/VR represents a relatively new, trillion-dollar market category that could eclipse the market impact smartphones have had on the global economy since the inception of the iPhone in 2007. Microsoft’s up to 10-year, $21.9 billion contract with the U.S. Army for HoloLens-based solutions exemplifies the potential of this market.

All of the Big Nine webscales are investing in AR and VR devices and/or applications as they aim to capitalize on this market.

As with the smartphone era, AR/VR will put enormous requirements on global networks as uptake of new devices occurs. Webscales are learning from prior issues and are actively exploring connectivity options to mitigate the high bandwidth/low latency requirements of AR/VR devices to ensure user experience is acceptable.

TBR has revamped its original Webscale ICT Market Landscape starting with the 1H21 publication. As part of this revamp, the report name has been changed to Webscale Digital Ecosystem Market Landscape. Though this report still covers the end-to-end digital ecosystem endeavors of the major webscales at a holistic level, the content of this report will focus on webscales’ disruption of the telecom industry. The 1H21 publication of the report specifically focuses on webscales’ disruption of the network intelligence-layer technologies domain. TBR’s next edition, expected to publish in January 2022, will focus on the connectivity infrastructure and connectivity business model disruption endeavors of the webscales and what this means for telcos and vendors.

After KPMG highlighted the firm’s relationship with Johan Cruijff Arena in Amsterdam at a recent analyst event, TBR requested a follow-up discussion to better understand how the innovation team at the arena had been excelling at many of the key characteristics TBR has identified in consultancies’ and IT services vendors’ innovation and transformation centers around the world. TBR met with Sander van Stiphout, the arena’s innovation lead, and Wilco Leenslag, the KPMG partner leading his firm’s efforts with the arena.

Framed within the context of TBR’s recently published Innovation and Transformation Centers Market Landscape, three key elements of van Stiphout’s work at the arena stood out

Trust is crucial  

First, the arena’s innovation team works with external clients on a subscription basis, a business model rarely deployed by consultancies and IT services vendors. The arena’s clients, which include startups and enterprises testing new technologies and means of enhancing the customer experience, have to fully trust the arena’s innovation team will deliver value for the investment they are paying in subscriptions. TBR believes this business model may be directly related to the unique nature of an arena but could be replicated by a consulting firm or IT services vendor that is willing to bet on collaboration consistently leading to valuable, and deployable, innovation.   

Make your pitch and test your tech  

A second key element that stood out was how the Johan Cruijff Arena serves as a test bed in multiple ways, benefiting the arena’s clients that are startups and the arena itself. Startups not only test their technology solutions in a real-world environment with continuous access to all the variables found in any sporting or entertainment event, but van Stiphout noted that startups also pitch the solutions to internal operational professionals at the arena. For example, the arena’s marketing department must approve a marketing solution prior to testing, enabling startups to pitch and refine solutions with a real-world client before taking it to other clients.

Innovations, particularly from startups, often stall when they meet real-world requirements and clients making investment decisions beyond prototypes. By creating a stage for startups to test run both their product pitch and their product, the Johan Cruijff Arena innovation team helps these companies overcome that innovation roadblock. Additionally, this prototyping method helps to overcome issues associated with the traditional engagement model of working with clients’ innovation departments on pilot projects. Specifically, TBR often hears of emerging technologies becoming “stuck in pilot mode,” a challenge that we feel is directly related to the sheer number of ecosystem participants that are required to scale a solution after proving its value to a client. With the arena-led engagement model, ecosystem entities must first work together ahead of a live trial in the arena, addressing the issue of scaling before testing, not after.