SAIC and Unisys Federal: Penetration, growth and confidence, with questions around IP and integration

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Consolidation continues

SAIC’s agreement to purchase Unisys’ federal business for $1.2 billion (which includes present value tax assets of approximately $175 million) is just the latest example of the continued consolidation of the public sector IT services market, which has been ongoing for the past four years. For example, Leidos (NYSE: LDOS) purchased Lockheed Martin’s (NYSE: LMT) IT services business; General Dynamics Information Technology (GDIT; NYSE: GD) purchased CSRA; DXC Technology’s (NYSE: DXC) U.S. Public Sector business combined with Vencore and KeyPoint Government Solutions to form Perspecta (NYSE: PRSP), which subsequently purchased Knight Point Systems in 2019. The same year, SAIC purchased Engility, CACI (NYSE: CACI) made six acquisitions and Raytheon (NYSE: RTN) announced a “merger of equals” with United Technologies (NYSE: UTX), to be finalized in 2020. Additionally, Leidos recently finalized its purchase of Dynetics and announced the purchase of BAE’s airport security business only days before SAIC announced its plans to acquire Unisys Federal. Along with these marquee deals, the market saw a smattering of smaller and/or less strategic deals over the past four years. Much of this M&A activity has in some way emphasized scaling to compete for mega-deals such as Next Generation Enterprise Networks Re-compete (NGEN-R) or Defense Enterprise Office Solution (DEOS) contracts. Based on recent market activity and the federal government’s increasing emphasis on digital transformation and next-generation technologies, it seems unlikely the need for scale will diminish for federal market players anytime soon. For SAIC to acquire another company of this size so quickly after the purchase of Engility only underscores the importance the company’s leadership places on scale. In fact, this purchase would theoretically boost SAIC to fourth place in TBR’s Public Sector IT Services Benchmark (behind only Leidos, GDIT and Booz Allen Hamilton [NYSE: BAH]) based on the most recent trailing 12-month federal revenues of the companies we track.

Unisys Federal impact and opportunities

Aside from the additional scale in both employees and revenue, Unisys Federal will provide SAIC with deeper access to the Department of Homeland Security and Treasury Department through U.S. Customs and Border Protection (CBP) and the IRS, respectively. For calendar year 2019, Unisys Federal had approximately $179 million in obligations to CBP and $84 million in obligations to the IRS. Both agencies are relatively underpenetrated by legacy SAIC and should provide more opportunity for growth with other civilian agencies. Unisys Federal realized a CAGR of 10% over the last two years, far outstripping the average of 4.6% for the 15 companies tracked in TBR’s Public Sector IT Services Benchmark, supported by a $1.8 billion backlog (2.6 backlog-to-revenue ratio), which TBR believes should provide ample opportunity for the new SAIC to continue Unisys Federal’s strong growth, especially in cloud adoption and other modernization services. Most of this backlog consists of slightly higher-margin projects than legacy SAIC engagements. TBR expects this deal will improve margins for SAIC by somewhere between 20 to 40 basis points by the two-year mark. In addition to the scale, agency access and large backlog, SAIC now has the right to sell CloudForte, a key platform for Unisys Federal’s business in the public sector that typically forms the backbone for the cloud services the company has delivered and likely will continue to offer as part of SAIC.

TBR believes SAIC’s (NYSE: SAIC) purchase of Unisys Federal, announced on Feb. 6, 2020, will provide the combined company with broader agency access and a strong potential for growth while signaling the extreme confidence of SAIC’s leadership. We also believe the lack of IP included in the deal and the challenges associated with SAIC’s previous and upcoming integrations mean this deal likely carries more risk than reward. This acquisition comes almost exactly one year after SAIC’s purchase of Engility for $2.5 billion, which has yet to produce organic growth for SAIC, though SAIC claims cost synergies have been fully realized. The inorganic boost of Unisys Federal (which achieved approximately $689 million in revenue for the trailing 12-month period ending Sept. 30, 2019, with an impressive 10% two-year compound annual growth rate) will bring the combined organization’s annual federal revenue for the same 12-month period to approximately $6.6 billion on a pro forma basis.

HCLT builds its IoT practice on experience, expertise and IP

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TBR perspective

While HCL Technologies (HCLT) initially used its intellectual property (IP) to create complete solutions for its customers, it is now making available other third-party solution packages, white-labelled components and solutions for end customers, other systems integrators, and value-added resellers. The company’s partnerships with PTC and edge hardware vendors Dell Technologies and Hewlett Packard Enterprise (HPE) facilitate the delivery of integrated software and hardware solutions for engineering- and manufacturing-centric OEMs. These edge-to-cloud solutions integrate IT and operational technology (OT) data sources and are highly scalable; HCLT’s representatives estimated that they are now approximately 50% to 60% preconfigured and can be rolled out to multiple plants and locations in a pre-built factory model. Irrespective of HCLT’s decisions regarding routes to market, the company continues to create reusable IoT building blocks.

Reuse is at the heart of IoT maturity

The continual development of reusable solutions and components has always been the key to growth of information technology. In the wave of interest in IoT, starting about five years ago, the relative lack of reusable solutions and components demonstrated the immaturity of this segment. While growth has been substantial, it has not been explosive, similarly reflecting this immaturity. Technology Business Research, Inc. (TBR) estimates the current size of the IT portion of IoT at $565 billion, growing at a slightly accelerating 24.6% annual rate, and we do not anticipate growth to slow for at least five years. One driver of this acceleration is the accumulation of experience, expertise and intellectual property by vendors and customers.

Leveraging common technology and business processes across vertical divisions

Some of HCLT’s solutions, outlined here, require integration typically performed by HCLT:

  • Manufacturing: Remote Services Management, Inventory Management, Predictive Operations Monitoring, and Real-time Manufacturing Insights
  • Healthcare: Remote Patient Monitoring, Smart Clinical Trial, Medical Devices – Remote Monitoring and Servicing
  • Travel, Transportation, Logistics: Remote Asset Monitoring, Warehouse Automation, Building Automation
  • Energy and Utilities: Remote Asset Monitoring and Predictive Operations, Intelligent Linear Asset Monitoring, Active Grid Management, ADMS and AMI Testing, Distributed Grid Operations – Resilience at the Edge
  • Retail: Real-time In-store Insights, Warehouse Optimization, Cold-Chain Logistics, Supply Chain Insights

There is overlap of solutions across verticals, which reflects overlap in both business processes and relevant technologies. In keeping with IoTWorks’ orientation toward reuse, common pieces of solutions are joined to additional components to create new solutions. In the case of Real-time In-store Insights, HCLT added radar-based customer tracking hardware to keep track of customers with lower data-related costs, while improving customer privacy. HCLT Engineering designed the radar modules. An RFID-based asset tracker for end-user devices was adapted to help make sure airplanes have the full tool kit accounted for before takeoff. A similar solution applies to surgical kit tracking and compliance monitoring in hospitals.

AI, Accenture and Amazon: HITS acquisitions update 2020

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Accenture’s steady appetite, Amazon’s potential new offering and Google’s uncertain moves

Accenture’s acquisition of Clarity Insights follows the company’s INTIENT purchase and rounds out a typically active acquisition year for one of the leaders in TBR’s HITS benchmark. Clarity Insights brings Accenture AI and machine learning capabilities, 350 healthcare data scientists, and healthcare industry clients. As noted in our most recent full report on Accenture’s HITS business, “Accenture targeted the AI opportunity in life sciences in mid-2019, launching its INTIENT platform for collecting, storing, monitoring and analyzing data from life sciences clients’ business environments. The platform leverages Accenture Applied Intelligence to provide AI and analytics services, improving efficiency and data management.” Beyond extending Accenture’s capabilities, the Clarity Insights acquisition reinforces Accenture’s strategy around AI and life sciences that the INTIENT purchase supported. The report adds, “TBR believes Accenture must foster industry-specific partnerships to extend the capabilities of INTIENT and drive traction for the platform in the industry.” TBR will closely track how Accenture’s partnerships evolve and how the company drives new revenue based on these acquisitions.

Echoing Accenture’s focus on AI, Amazon acquired Health Navigator, a platform designed to foster more expeditious collaboration between healthcare providers and patients, in part through natural language processing and enhanced analytics. Amazon reportedly purchased the company amid efforts to build out Amazon Care, its in-house healthcare services, which it launched in September 2019. On the surface, Amazon’s healthcare-related acquisitions and moves denote neither an immediate threat to traditional HITS vendors nor a clear signal Amazon intends to become a different kind of player in the HITS space. Analyzing Amazon only on the surface would be foolishly shortsighted. Once the company irons out the challenges within Amazon Care, including fully integrating Health Navigator, TBR expects the company will craft a new offering for Amazon clients, potentially starting first with healthcare joint venture partners JPMorgan (NYSE: JPM) and Berkshire Hathaway (NYSE: BRK.A; NYSE: BRK.B). At 1.2 million employees for those three companies combined, Amazon would have a sizable test bed for enhancing current capabilities and developing new offerings. If Amazon can demonstrate an ability to provide top-notch healthcare services for its own employees and a few select partners, every household will wonder if the first step in getting healthcare should start with, “Alexa …”     

In acquiring Fitbit, Alphabet (Google) alarmed some data privacy and industry analysts concerned that the search engine and advertising giant bought the wearables company to gain access to massive amounts of personal, and specifically healthcare-related, data. Both companies’ executives declared data protections would be unchanged and the underlying reasons for the acquisition centered on Fitbit’s expertise and intellectual property around wearable devices and health-tracking applications, platforms and user experience. In TBR’s view, acquiring Fitbit conforms with Google’s overall expansion strategy and specifically boosts the company’s potential role in the overall HITS space. Enhancing Fitbit’s platform with Google’s AI capabilities could further minimize perennial HITS challenges, such as around data privacy and population health, but only if Google can manage the delicate tasks of leveraging user data without violating privacy, crafting and enhancing algorithms that improve the user experience, and maintaining the streamlined seamless flexibility of Fitbit even as the data flows into the highly regulated healthcare ecosystem.  

Accenture’s 3 I’s of the future: Integrated, innovative, impactful

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Accenture’s Jan. 13 announcement of plans to change its growth model from Operating Groups aligned to profit & loss (P&L) to a geo-centric alignment as of March 1 sent a clear message to the IT services market. Many peers look to Accenture as the go-to business and account management model, and this change, guided by recently appointed CEO Julie Sweet, aligns with the meaning behind the company’s name, “Accent on the Future,” to set the course for the ever evolving company’s operating model. As Accenture continues to go to market by industry and expand its global industry programs, doubling down on executing through integrated scale will further strengthen its market-making position. As Accenture describes it, “These changes are designed to help extend market leadership, drive significant value for all stakeholders and continue to deliver market-leading growth.”

TBR Perspective

Accenture’s changes have yet to take effect, but they are certainly raising the eyebrows of many of the company’s rival executives, especially as some would say, “Don’t fix what isn’t broken.” Ultimately, we do not believe much will change for Accenture, especially as it pertains to the company’s account management approach. It will certainly create a healthy dose of internal competition between the different regions. It will also likely result in a certain level of turnover, which rivals could take advantage of. But, the increased investments in industry development programs will continue to provide Accenture with the necessary expertise to speak to line-of-business buyers, as Accenture Innovative Architecture continues to stitch together all parties involved, comforting stakeholders that business continues as usual.

Doubling down on developing security-wrapped functional technology expertise, executed through Accenture Technology, will provide the backbone for long-tail “as a Service” opportunities both in the software and infrastructure layer as Accenture Operations, which will be led by 24-year Accenture veteran Manish Sharma, will stay strong providing managed services across business processes. Before the announcement, TBR estimated that Accenture would reach $50 billion in annual sales by 2021, up from $43 billion in 2019. We are keeping the estimate unchanged as Accenture is increasing the amount and scope of work it performs for its 200 Diamond Clients. The company has also become a household brand, shielding IT buyers in front of their boards adopting the “no one gets fired for hiring Accenture” mentality. Only time will tell how well Accenture does after all these changes, but the company certainly has time on its side for now.

What changes?

For over a decade Accenture has been operating and reporting its financials under five Operating Groups, which accounted for over 40 industry verticals. While we expect the company to continue to provide most revenue information (e.g., industry verticals, “in the new” revenues) as it has been historically, beginning in FY3Q20 Accenture will reorient its primary operating segments toward reporting by Markets (e.g., geos), including North America, Europe and Growth Markets. The three markets are not new ground for the company, as it has been reporting these geo revenue splits for several years. However, within the new growth model they will serve as the beacons for Accenture’s future, enabling the company greater agility. The change will come from the way the P&L will roll up. This shift closely resembles the way the Big Four run their businesses, but Accenture remains a global management company with a single P&L rather than a union of country-aligned member firms. As a result, the consistency in deployment of Accenture’s shared services model supersedes those of Big Four firms that often struggle with who will pick up the bill when cross-country resources are utilized. Accenture also realigned its five businesses, Strategy, Consulting, Digital, Operations and Technology, into four services with the key changes including merging Strategy and Consulting and elevating Accenture Interactive (contact TBR for further discussion of Accenture Digital) as a key service similar to Accenture Operations, Accenture Technology and Accenture Strategy and Consulting.

Combining Strategy and Consulting under one umbrella is not that surprising to TBR considering enterprise sentiment toward the traditional consulting model. As a CTO of a multinational healthcare brand said in a recent interview with TBR: “[Consultancies] need to decide who they want to be. I mean, you’re going to be someone who fights the war. Are you going to be someone who sells arms to people that fight the war, or are you going to be someone who just gives advice? Many of these companies want to be too many things. You can’t be everything to everyone.”

Use of container technology solidifies Red Hat’s DevSecOps approach amid intensifying threats toward IT

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Through DevSecOps, Red Hat builds in security across the entire stack, preserving its differentiation in the security space

In today’s IT landscape, security is often overlooked in many DevOps and Agile models, yet for some, it is becoming a priority. Put simply, DevSecOps takes DevOps to the next level, tightly integrating security in every stage of the product lifecycle to ensure a secure technology stack. While containers are not imperative for DevSecOps, the technology greatly improves efficiency and aids in implementing the process at scale. Red Hat demonstrates this approach via its hybrid cloud, enterprise Kubernetes platform, OpenShift. Essentially an enterprise version of Kubernetes, Red Hat OpenShift delivers a cloud-like, managed application platform, across on-premises and public cloud environments. Red Hat has taken a holistic approach to DevSecOps, securing every layer of the stack from the OS to microservices. TBR believes this approach has allowed Red Hat to position its security portfolio as one that will encourage adoption of OpenShift and containers in general, as automation tools help customers manage IT with process scalability, system response and compliance:

  • Red Hat Ansible Automation – Ansible is Red Hat’s enterprise automation platform that provides a universal IT automation language that can be used to build and operate automation at scale. Red Hat introduced Ansible integrations with third-party security tools, such as IBM QRadar and Splunk to help security operations centers quickly respond to threats. As such, Ansible users can automate and integrate different security solutions that can respond to threats across the enterprise using a curated collection of Ansible modules, roles and playbooks.
  • Red Hat Satellite – Red Hat Satellite is an infrastructure management product specifically designed to manage Red Hat environments at scale and keep RHEL and other Red Hat infrastructure environments running securely and compliant to both industry and custom security standards.
  • Red Hat Insights – Insights is Red Hat’s SaaS-based predictive analytics engine that analyzes registered Red Hat-based systems across physical and virtual environments. In addition, Insights provides users with Ansible remediation playbooks to fix issues; Insights is included with all RHEL subscriptions.

On Dec. 12, 2019, Red Hat and co-sponsor, Intel, hosted the Red Hat Security Summit in Waltham, MA. Key talks included: Automating security and compliance in the world of containers and hybrid cloud, Security concerns in container runtimes and Simplifying security through Red Hat Satellite and Insights. The event concluded with a hands-on workshop, providing access to Red Hat technologies and products, for discovering the importance of implementing security and compliance automation at scale in a hybrid world.

Amid rise of Kubernetes as standard in cloud-native deployment, vendors vie to be leading hybrid enablers

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Startups seek differentiation in an escalating market with niche, data-friendly tools

While many industry incumbents are taking the fast-paced Kubernetes market by storm, TBR argues the overall market is still in its infancy, leaving ample room for vendors to position their offerings as unique to developer customers. In a room filled with ambitious startups, Humio emerged as a standout due to its enterprise-grade partnership with IBM and impressive scale for a short-lived solution.

Humio streamlines visibility for on-premises and cloud-native environments, easing pressure on developers

Founded in 2016, Humio offers an index-free logging platform for on-premises and cloud environments that processes large data volumes in real time, providing users with greater visibility into both structured and unstructured data. While many competing vendors market public clouds as the home to their streaming technologies, Humio views its on-premises tool as a differentiator given that data challenges, particularly ingestion and investigation, impact legacy customers. TBR believes one of Humio’s distinguishing features is its unlimited pricing plan, which was launched over one year ago. Contrary to a “pay as you scale” model, Humio’s unlimited option flattens the cost curve when customers incur higher data volumes, helping users save on data ingestion and retention costs. While still in its early stages, Humio’s offering, as well as those from other vendors that follow the same pricing model, may end up disrupting the market.

Looking to technology and reseller partners for early entry

An indirect sales strategy is critical for startups, and Humio looks to both technology and reseller partners for success; ahead of the event, Humio entered into an integration and reseller partnership agreement with IBM. IBM now supports Humio’s logging tool on its recently launched Cloud Pak for Multicloud Management — in this instance, Humio’s tool runs as a SaaS offering in the IBM Cloud, where Humio will monitor data health and notify users of issues, all while being simplified for end users via the one-click deployment that the IBM Cloud Paks provide. TBR believes IBM’s backing of Humio’s platform, despite being newer to market, highlights the validity of the technology in its early stages, and we predict that through the IBM Cloud Paks, which are based on Red Hat’s OpenShift platform, Humio will be successful in scaling its offering.

Ericsson’s focused strategy and strong 5G position yield results

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TBR perspective

Ericsson’s recovery continues into its third year, evidenced by revenue growth and expanding margins, trends that TBR expects to continue in 2020. A strong 5G position with respect to both RAN and mobile core is a significant driver of this improvement as Ericsson’s early technology bets and increased investment in Networks unit R&D are spurring CSP adoption of Ericsson’s competitive 5G portfolio. Ericsson has notched high-profile wins in 5G and grown its market share at Huawei’s and Nokia’s (NYSE: NOK) expense thanks to ERS, which offers an attractive total cost of ownership and a powerful baseband unit. As restructuring progresses, Ericsson will shift from an emphasis on cost reduction and efficiency to a disciplined growth mindset, evidenced by the recent acquisition of Kathrein’s antenna business and an effort to poach LTE customers from rivals for 5G upgrades. With China deploying 5G en masse in 2020 and the next wave of adopters expected to roll out through the early 2020s, Ericsson has the ability to wring a few more years of growth and market share gains from this cycle.

TBR views Ericsson’s turnaround as a success, but multiple headwinds will take shape over the next few years, such as vRAN; the rise of disruptive startups like Altiostar, Mavenir and Parallel Wireless; and uneven CSP spending. TBR believes Ericsson has baked 5G market share gains in China into its 2020 guidance. These gains are likely to come at Nokia’s expense.

Long term, Ericsson is hoping that emerging businesses including IoT Accelerator, Edge Gravity and eModo scale up. The company needs to succeed in an area outside of RAN and core to maintain share, but Ericsson is not currently preparing to expand its addressable market in terms of enterprise verticals.

Ericsson (Nasdaq: ERIC) hosted its annual Industry Analyst Forum in Boston, bringing along a range of executives to provide an update on the company’s corporate strategy, which includes continued restructuring, particularly within Digital Services, as well as infusing AI and automation across key product areas and selective expansion in emerging technology areas. 5G, however, was the dominant topic due to Ericsson’s market share gains spurred by the Ericsson Radio System (ERS), which is optimized to meet the cost-conscious needs of communication service providers (CSPs). Similar to last year, the tone of Ericsson’s 2019 analyst day was upbeat as the company continues to execute its focused strategy — now in its third year — which is driving improvement in its financial metrics. Following the main session, analysts could attend three tracks — Building the Network Platform, Automation in 5G Operations, or New Business Opportunities for Service Providers (i.e., IoT, private cellular networks and fixed wireless access [FWA]) — and then participate in one-on-one speed meetings.

TBR 2020 Services Predictions: Everything is up for grabs

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With or without chaos, 2020 will be a turning point

TBR’s 2020 predictions for the IT services vendors and management consultancies we cover center on a potential external disruptive force, ongoing internal changes, and a market shift that will happen regardless. If a global economic slowdown occurs in 2020, changes to the consulting business model will accelerate. Either way, the term digital as we know it will disappear.

While TBR is not forecasting a recession, either globally or in specific markets, like the U.S., we have had extensive discussions with leaders at IT services vendors and consultancies who have been preparing their teams and their clients for that possibility. As a result, these firms are at an advantage and have been cementing their relationships with clients worried about funding what they’ve been told are necessary digital transformations. In contrast, other IT services vendors have been projecting growth without preparing their own people or finances for a substantial slowdown in IT buying.

At the same time, consultancies have been struggling with significant shifts in how they build capabilities along with selecting services and how to deliver them. As we move into 2020, a well-established resistance to selling software — or be in the products business, in general — will give way to the inevitable rise of software licensing and “as a Service” models, as well as solutions bundling and clearly defined product sets that consultancies now package and deliver. While these products are not completely stand-alone and remain subject to internal debate over the specifics of commercial arrangements, the clear result will be a shift in the consulting model from people to people-enhanced-by-products. And a global economic slowdown would force consultancies and IT services vendors to automate themselves further and adopt new business models, accelerating these changes.

Whether a recession strikes or consultancies evolve quickly or more slowly, TBR expects 2020 will mark the first time an IT services vendor or consultancy declares “digital” has outlived its usefulness as a delineation between various elements of technology and business. Everything will be digital, making a digital designation obsolete. For TBR’s purpose — understanding professional services vendors’ strategies and how they make money — the shift from digital as a label will impact how vendors report their earnings, how they describe their investments, and what kinds of alliances they create across the broader technology ecosystem. In the short term, most vendors will continue reporting, marketing, investing in and adhering to digital. In the longer term, the term is dead.

2020 Predictions:

  • A correction or recession will stall digital transformations and slow growth for IT services vendors and consultancies
  • Consultancies will sell more products and will emphasize and invest more in that part of their business
  • ‘Digital’ will disappear

Register for TBR’s 2020 Services Predictions webinar, The end of ‘digital,’ Jan. 22, 2020.

Technology Business Research 2020 Predictions is a special series examining market trends and business changes in key markets. Covered segments include telecom, cloud & software, devices & commercial IoT, data center, and services.

2020 Cloud & Software Predictions: A decade in, cloud’s real work begins

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The easy days of cloud are finished

Cloud customers and the plethora of cloud vendors have seen the era of simple, easy implementations pass. Most customers have moved the majority of their productivity, CRM, development & test, and web hosting workloads to cloud, which drove the sustained 50%-plus year-to-year revenue growth for vendors in the space over the past 10 years. And while the growth rates may be lower, the good news is that the benefits of cloud are not just a marketing pitch; they are very real for adopting customers. Along the way customers have figured out where cloud is and is not a fit within their environments. They have also realized that public cloud is not the only cloud option and expanded their consideration to include on-premises private, hosted private and the emerging segment of hybrid devices like Azure Stack and Amazon Outposts.

Customers will need to leverage their more mature cloud decision making, honed through early implementations, to address the workloads that remain on premises, which are a challenge and risk to alter in any fashion, whether the delivery method is cloud or not. Supply chain networks, inventory systems and manufacturing systems are IT workloads that defy standardization. If these workloads are to move to cloud delivery, they will require multiple cloud environments and myriad service options to implement and operate these workloads. In short, the real work of applying cloud not simply as a technology but as a solution to core business problems will begin in 2020, and vendors must adjust to accommodate customers’ heightened needs.

This overall landscape will be manifested very specifically in the following trends during 2020 and beyond:

  • Executive changes — the initial stewards of cloud’s growth are turning over.
  • Cross-vendor cooperation moves from important to necessary.
  • Customers eventually favor best-of-suite rather than best-of-breed.
  • Amazon Web Services (AWS) is being targeted by both direct competition and new market approaches.

2020 Predictions:

  • Key software vendors will settle into new leadership styles, while indecision could leave others behind
  • Uptick in hybrid cloud adoption drives increase in partnerships to securely support the enterprise journey to digital transformation
  • Customers adopt full, single-vendor suites as integrated apps’ capabilities outweigh those of best-of-breed apps

Register for TBR’s webinar 2020 Cloud & Software Predictions webinar, A decade in, cloud’s real work begins, Jan. 8, 2020.

Technology Business Research 2020 Predictions is a special series examining market trends and business changes in key markets. Covered segments include telecom, cloud & software, devices & commercial IoT, data center, and services.

Translating quantum science into business value: Tradeoffs between precision, speed and cost

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IT industry monetization has evolved dramatically; quantum computing adds yet more choice, and therefore more complexity, for purchase decision makers

Historical context

For years, technology buyers had to consider hardware choices ahead of anything else. Software solutions were built to the specifications of proprietary hardware architectures and operating systems such that the business outputs were inextricably linked to the hardware vendors and the software vendors that wrote to them. Chart 1 depicts the core influences that dictated not only how technology was purchased but also how the industry itself evolved. Choke points in innovation across the continuum of compute, storage and networking brought new entrants into the market, ameliorating the bottlenecks and helping to spur overall scientific and engineering advancements to keep pace with business demand for “faster, better, cheaper” solutions.  

The only fundamental difference between the two charts from the historical picture on the left to the current picture on the right has been removing input and output devices from the equation, thanks to cheaper device access for human interaction with what can broadly be defined as the compute network. Science and engineering have brought down price points and simultaneously ramped up compute power. The software abstraction inventions that brought us virtualization, however, brought forth a series of innovations that have driven far greater complexity into the purchase equation, which has not only disrupted technology vendor business models but also radically transformed the way in which businesses can consume and deploy technology for competitive advantage.

Cloud, the first of two major inflection points for business buyers

From the IT side of business, the three transformative elements have been virtualization, standardization and automation. Virtualization abstracted the compute power from physical infrastructure, standardization established rules of engagement between systems, and automation accelerated deployment and stripped labor out of the process. This reality has flipped the axis on IT vendors and business buyers alike and makes the infrastructure a derived decision rather than a primary or constraining decision.

From the business side, virtualization does not necessarily apply, but standardization and automation certainly do to exploit technology fully for competitive advantage. To capitalize on compute today, business units and trading partners have to come to a consensus around business rules and then gain strict human compliance with those rules when interacting with the systems. Without human compliance, the automation will require labor remediations that will put that business at a competitive cost disadvantage against those enterprises that have clean system data from compliant human inputs. That clean data is what fuels the outputs that machine learning (ML) and AI generate. Blockchain, aka distributed ledger technology, is the codification of those business rules into smart contracts that can distribute the clean data as needed to the ecosystem participants, who can then apply that data against their AI systems for business value creation.

This reality was on full display several years ago during an EY event breakout session discussing how ServiceNow could be used to improve clients’ business processes. The presenter, who was being peppered with “What about this?” questions from an eager and interested audience, answered both vaguely and succinctly by saying with a wry smile, “We can do whatever you want; you just have to make up your minds.” This is the business process change management necessary to establish the business rules or standardization that can now be automated through all elements of the business value chain. However, there must be industrywide consensus for the full power of blockchain and AI/ML in business processes to be unleashed.