Relying on strong governance capabilities to bridge relationships between IT and business will enable KPMG to drive new opportunities in the ESG domain

With KPMG CEO Bill Thomas kicking off the two-day Global Analyst Day it was evident that KPMG’s approach to clients’ changing business models due to COVID-19 has compelled the firm to also transform its own operations to better protect and expand client mindshare. KPMG’s internal transformation began well before COVID-19 when in 2019 the firm announced a $5 billion investment in technology, people and innovation.

Two years and a pandemic later, KPMG is accelerating this transition with the latest examples focused on expanding cloud, environmental and social capabilities, bringing the latter two under one umbrella and committing to zero emissions by 2030. With KPMG working toward establishing a bridge between business and IT stakeholders, the firm also continues to invest in its global team of data and analytics professionals, many of whom focused on translating the business value of IT using low-code and no-code technologies. The strategy — folding analytics within its core offerings — reflects strategies of the Big Four and some of its multinational peers.

But KPMG has an opportunity — and a responsibility — to carve a niche in emerging areas developing frameworks for clients that do not report against financial metrics, particularly within the environmental, social and governance (ESG) domain. With KPMG relying on its robust governance, risk and compliance legacy capabilities, the firm is now focused on the “E” and “S” parts of the three-legged framework, and its clients’ stories provided strong examples of how well the firm handles the change and expectations, from finding the right partners to introducing the most suitable solutions, among others.

Clients are eager to innovate; KPMG knows this and executes against it

With innovation — amplified through KPMG’s global network of Ignition Centers — becoming the connective tissue between the firm’s legacy and new business model, KPMG now has the opportunity to drive change at scale. Peers have often pursued acquisitions that have served as the catalyst of change (think Accenture’s purchase of Fjord and PwC’s buy of BGT that later led to the launch if PwC’s BXT framework). KPMG, however, relies on its organic investments, suggesting the firm is taking a measured but strategic approach, trusting that its own capabilities and culture are strong enough to affect change. A successful execution of this strategy requires broader buy-in across all stakeholders, especially member firm partners who are closer to retirement age and might be more resistant to change.

One group of stakeholders that is open to change is KPMG clients, especially those that are also facing pressure from their end customers that have largely been impacted by the advent of digital. According to TBR’s May 2021 Digital Transformation: Voice of the Customer Research, COVID-19 accelerated demand for services supporting both ongoing and new programs. As cloud continues to be the main technology driving digital transformation investments, buyer-vendor relationships are entering the next phase, where parties must account for new ways of engaging and delivery and opportunities are pivoting from projects to products.

In a use case discussion centered on KPMG’s work at the Johan Cruijff Arena in Amsterdam, TBR heard echoes of similar digital transformation engagements, which encompass innovation, emerging technologies and ecosystem collaboration all within a constrained environment but with implications and lessons for smart city transformations. Arenas can provide a useful test bed for emerging technologies, new business models and digital transformations given the mix of activities that take place inside, the opportunities for customer engagement — from before people arrive through to when they leave — and, of course, the opportunity to gather massive amounts of data.

KPMG’s role, as explained by Sander van Stiphout, head of innovation for the Johan Cruijff Arena, included orchestrating the ecosystem by helping the arena find suitable technology partners; ensuring compliance, particularly around the General Data Protection Regulation (GDPR); and providing staff as the arena’s innovation team grew. Most notably for TBR, van Stiphout said KPMG also helped his team create a “new value model,” to include turning the stadium into “a platform for innovation.”

In TBR’s view, shepherding a client’s innovation and digital transformation so successfully that the client becomes an innovation hub for others sets this engagement apart. Van Stiphout added that the arena and KPMG’s partnerships with the city of Amsterdam had been critical to the transformation’s success, and his team and KPMG were now helping Amsterdam officials “get the learnings in place, pave the way for scaling in other cities.” With “lots of demand for an ecosystem approach,” van Stiphout said the arena could now offer consulting to other stadiums on how to run more efficiently, create an environment, and then take transformation to scale.

Turning back to his own staff and echoing a detail provided by Red Hat in TBR’s most recent Innovation and Transformation Centers Market Landscape, van Stiphout noted that his employees now constantly interact with new technologies on a daily basis, which changes their mindset. In TBR’s view, this kind of change, coupled with new and innovative business models, serves KPMG well in describing the impacts the firm can have on clients’ digital transformations.

KPMG 2021 Global Analyst Day: In early June KPMG hosted analysts, clients and executives for two 90-minute virtual sessions during which KPMG demonstrated its evolving value proposition toward becoming a technology-enabled consultancy backed by its ability to trade on trust. KPMG used the time allocated for the presentations wisely and amplified its messaging through four client use cases that not only told the “Why KPMG?” part of the story centered on innovation but also connected to broader societal implications including ever important topics around environmental

Integration of AI into open architecture positions IBM hybrid cloud as ideal platform for mission-critical workloads

Since acquiring Red Hat, IBM has undergone a major strategic shift to accommodate for hybrid cloud, abiding by the philosophy that the hybrid model — whether it consists of core or edge infrastructure and/or multiple public clouds — captures more value than a traditional cloud. Drawing on more than a decade of experience in traditional and cloud-ready infrastructure, IBM provides a foundation on which to run Red Hat OpenShift and deliver a common software layer designed to abstract the underlying complexities.

However, Red Hat’s prowess in containers and Linux only completed half the story as IBM built on top of the platform with a suite of software, including IBM Cloud Paks and partner SaaS, and services supported by the “advise, build, move, manage” methodology that trickles down the technology stack. Based on Red Hat OpenShift, which has grown to nearly 3,000 clients, this architecture gives credence to this statement from IBM Cloud & Data Platforms SVP Rob Thomas: “There is no AI without IA (information architecture).” A key theme at Think Digital 2021, AI is becoming more relevant in IBM’s overall strategy as CEO Arvind Krishna looks to define IBM as a “hybrid cloud and AI company.”

Unifying AI with hybrid cloud speaks to IBM’s attempts to gain share in “Chapter 2 of the Cloud,” or take large amounts of data, which can largely be accessed through AI, and extend it to the cloud. Given that operational AI is most successful running on containers and Kubernetes by allowing users to apply AI algorithms across architectures with consistency, IBM again benefits from Red Hat’s underlying platform and gains positioning to deliver AI to the enterprise with a degree of flexibility and vendor-agnosticism. For example, IBM Watson Studio is available as an add-on to the new Red Hat OpenShift Data Science service, to create and manage AI. With the support for Red Hat, applying AI to areas such as security and compliance, application modernization, IT support, and business process transformation could be the differentiating factor IBM needs to capture new cloud customers outside the IBM ecosystem.  

IBM tackles automation as it looks to democratize AI and bring all software back to the platform

IBM asserted itself in the AIOps market at Think Digital 2020 with the announcement of Watson AIOps, which is designed to automate how clients run their IT systems. However, in the last year, IBM has accelerated investments outside AIOps, making big bets on automation underscored by acquisitions in robotic process automation, process mining and business process automation. These investments were likely prompted by market changes stemming from the COVID-19 pandemic, which Salesforce President Bret Taylor noted at the event brought a “decade’s worth of digital transformation into 13 months.”

Building on last year’s theme of solidifying a hybrid cloud architectural approach through Red Hat, at Think Digital 2021, IBM (Nasdaq: IBM) emphasized the importance of infusing AI into the platform to help enterprises make sense of data and achieve true insights in a digital economy. IBM again used the event to emphasize the power of adopting hybrid cloud architecture integrated with AI-driven cognitive services to help businesses adapt to change. Naturally, AI and automation were key themes of the one-day virtual event, and discussions with CVS Health (NYSE: CVS) and Delta Air Lines (NYSE: DAL), among other companies, highlighted how AI has supported IT and business transformation across industries during the COVID-19 pandemic.

TBR perspective

Based on a foundation in Linux, which enables containerized applications to move across physical and virtual environments, Red Hat maintains a unique market presence with its neutral PaaS solution, Red Hat OpenShift. Red Hat’s vision to extend the applicability of Red Hat OpenShift, which is leveraged by 90% of Fortune 500 companies, to new use cases, consumption models and environments was one of the key takeaways from Red Hat Summit 2021.

As discussed by Paul Cormier, one of the main benefits of an open hybrid cloud approach, which is based on open code, processes and cultures, is the flexibility to run applications across environments with consistency. This approach positions Red Hat and its customers to evolve alongside emerging market trends such as AI, 5G and even quantum computing. As seen in Red Hat’s expanding top line, the company has been successful leading with an architectural approach under core brands such as Red Hat Enterprise Linux (RHEL), OpenShift and Ansible. TBR believes Red Hat will be well positioned to expand its portfolio to new markets and customers and push its open-source expertise beyond the bounds of cloud computing due to continued support from IBM (NYSE: IBM) and an expanding ecosystem of systems integrators (SIs) and ISVs.

Red Hat expands Red Hat OpenShift usage with new managed cloud services

While Red Hat has offered Red Hat OpenShift as a managed service for some time, scaling up managed support is becoming a key initiative for the company, especially as more customers pursue managed offerings to offload operational tasks at both the applications and infrastructure layers. To broaden the applicability of Red Hat OpenShift, at the event, the company unveiled three new cloud managed services supporting customers’ need to build, deploy and integrate modern applications within their existing Red Hat OpenShift environment, either in the cloud or on premises.

At the Red Hat Summit 2021 conference, Red Hat continued to convey to a group of customers, partners and industry analysts the message of open hybrid cloud the company has been leading with for over a decade. Over the course of the three-day event, executives including Red Hat CEO Paul Cormier and Products and Technologies EVP Matt Hicks outlined Red Hat’s evolution from an operating system company to one offering a full suite of self-service software and services for hybrid cloud.

5G represented a small portion of the overall PCN market in 2020, but is poised to rapidly scale in coming years

According to TBR’s estimates, 5G represented 8%, on average, of benchmarked companies’ private cellular network (PCN) revenue in 2020, with the rest being LTE. LTE remains the de facto technology for PCN, thanks to its maturity and vibrant ecosystem, which has been developed over the past decade. 5G for private networks, on the other hand, remains in its infancy, with key 3GPP Release 16 standards recently ratified, 5G spectrum gradually coming to market, compatible infrastructure commercialized and endpoint devices becoming available in the past year.

The endpoint device aspect of the nascent 5G ecosystem will begin to proliferate over the next couple of years, at which point 5G PCN implementations can be scaled commercially. In the meantime, most of the 5G engagements that occurred in 2020, with the notable exception of those in China, were focused on experiments and pilots, pending the commercial availability of compatible endpoint devices.

China has a significant head start with private 5G, with Huawei and ZTE equipping leading entities in the country, particularly the government, with the technology as part of national digitalization-related initiatives. Other developed APAC countries, namely South Korea, Japan, Taiwan and Singapore, are following closely behind China in 5G readiness.

Vendors’ PCN sales funnels are burgeoning

Vendors are experiencing significant and broad interest from enterprises and governments for how to leverage PCN for digital transformation-related initiatives. 5G is of particular interest, portending a strong growth profile through this decade.

Though 5G remains primarily in the exploratory phase, many of these engagements are likely to convert into commercial contracts over the next couple of years. In the interim, the bulk of PCN deal wins will be for private LTE networks.

TBR’s Private Cellular Networks Vendor Benchmark tracks the revenue key vendors obtain from the sale of LTE- and 5G-related infrastructure (includes RAN, core, transport and services provided for that infrastructure) to governments and enterprises, including large, medium and small non-CSP (telco, cableco, webscale) businesses. The benchmark ranks key private cellular networks vendors by overall revenue and by segment. Global market share and regional data and analysis are also provided.

After over a year of discussions about the future of the Dell-VMware relationship, on April 14, 2021, it was confirmed that Dell (NYSE: DELL) will spin off its 81% majority stake in VMware (NYSE: VMW) to create two independent companies, effective CY4Q21. Evidenced by the market’s immediate reaction, the spinoff will be an overall positive move for both companies, giving Dell the chance to reorganize as a leaner, more targeted organization while offering VMware more go-to-market flexibility. Of course, as independent companies, Dell and VMware will face challenges, but increasingly differing portfolios, revenue models and market views will position both companies for longer-term success as separate entities. 

While mostly beneficial to VMware, the spinoff will offer stand-alone Dell some pockets of opportunity

While it is true that VMware has been Dell’s secret sauce for years, the announced spinoff will not necessarily cost Dell a long-term competitive advantage. Given the investments VMware has made in the last five years to accelerate its cloud strategy and position itself as more than a virtualization software company, it makes sense for VMware to operate separately. This is true even from a branding perspective, given Dell EMC’s play in many legacy markets.

However, there is also a potential upside for Dell, as the separation could enable the company to be less reliant on VMware and move beyond the big bets it placed on software-defined hardware solutions, which have generally performed below market expectations over the past few years. TBR suspects this strategy will allow Dell to become more focused on capturing the roughly 80% of enterprises that continue to operate on premises by providing them with access to cloud services and flexible pricing within their own data centers. There are already signs of this strategy developing.

While this release could be viewed as Dell giving the market a sense of what its post-spinoff portfolio could look like, at issue for the company is that it will now be more directly aligned with competitors such as Hewlett Packard Enterprise (HPE) (NYSE: HPE), Cisco (Nasdaq: CSCO) and Lenovo. Given HPE’s head start in the market through its GreenLake brand, Dell will be forced to explore new avenues for differentiation with Project APEX, and this could largely come down to Dell’s still unique five-year go-to-market agreement with VMware and any potential influence from Dell Technologies CEO and Chairman Michael Dell, who will remain VMware’s chairman of the board post-spinoff.

Apart from the near-term impacts and challenges in the competitive landscape, the spinoff is best viewed in opportunities. Following the sale of RSA and current speculation regarding Secureworks (Nasdaq: SCWX), Dell has recently focused on shedding underperforming brands to become a leaner organization. TBR suspects the spinoff of VMware, along with potential sale of integration PaaS (iPaaS) subsidiary Dell Boomi, will present an opportunity for Dell to streamline its operating structure and support the large investment it made in legacy EMC.

Additionally, TBR believes Dell has in many ways backed the innovative concepts and ideas that have emerged from VMware, namely intrinsic security, but have not been fully executed. As such, this spinoff could help Dell become more selective in which markets it wants to innovate and truly scale in, which may include enabling enterprise hybrid cloud, edge computing and data management. TBR expects Dell will turn to its partner network as an immediate avenue for growth, yet as the company more aggressively pursues new growth areas, tuck-in acquisitions that complement the EMC software cannot be ruled out and, down the road, could be essential to competing on par with peers.

Corporate structure does impact performance

In theory, the ownership structure and model of firms do not impact their business model, but in practice they sure do. The evolving case of Dell and VMware is one of the most — if not the most — complicated in the history of the IT market. VMware has grown accustomed to operating under a complex and dependent ownership structure; the firm has not been fully independent since EMC acquired it in 2004 for $635 million.

Since that time, VMware has been an embedded gem within both EMC and Dell, driving growth and profitability well above the traditional hardware segments that made up the majority of both firms. VMware’s consistent performance over the past 15 years is driving this latest change in ownership structure, with VMware set to be spun out of Dell and have its most independent ownership structure since 2004. For VMware, the change is all positive, giving the firm a single-minded clarity to operate in its own best interest, without the weight of supporting the corporate performance of either EMC or, more recently, Dell