Be bold and get moving: PwC on risk, digital transformation and embracing data

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TBR perspective

With risk permeating every business conversation and PwC accelerating investments in digital-related offerings, including PwC Connected Solutions, which sits within its Risk and Regulatory Platform business, the firm has prepared for the next wave of opportunities. Trading on trust remains at the core, especially as the politics of data continue to disrupt PwC and its clients. Becoming customer zero keeps PwC consistent with peers, while pulling in risk differentiates, particularly against non-Big Four competitors. But the firm creates a good use case for embracing digital when it comes to managing risk. PwC’s broad spectrum of capabilities, including digital risk solutions, internal audit support, cyber and privacy advisory, due diligence, and third-party certification, add necessary dimension to its risk practice. They also help PwC protect its spot in the market as the shift to digital operations elevates the strategic importance of risk and compliance functions.

“By rethinking risk, you create confidence at scale”

Across client panels, which featured risk and IT professionals from various industries and countries, similar themes emerged, including the evolution of understanding the value of smart risk-taking (Being a smarter risk taker through digital transformation, a recent PwC paper). Additionally, panelists, attendees, and PwC risk and consulting specialists spoke of the profound shift from managing and containing risk to leveraging risk processes and profiles to build transparency and confidence in an organization and enhancing trust with customers and partners. The similarities among the professionals’ comments created layers of emphasis, particularly around trust and scale.

One client noted, “Companies that know and manage risk smartly, build trust with their customers [and] move faster themselves.” The client explained that risk management enables his company to build trust with customers faster and react to security issues more quickly than competitors. When a futurist spoke about emerging technologies and their impact on future organizations, he peppered his remarks with comments around the ethics of powerful technologies. The underlying questions: “Is the system trustworthy?” and “Can we trust the people [working those systems?]”

Scale risk management across an organization through developing talent

The PwC client who reintroduced PwC’s tagline, “by rethinking risk, you create confidence at scale” succinctly pulled together two recurring thoughts across this year’s Risk Summit: talent and digital transformation. Multiple clients and PwC professionals spoke of the importance of talent. One client stated, “The first priority is to develop talent,” even as they recognized that decreasing budgets for risk management and increasing competition for skilled IT talent resulted in pressure to expand an appreciation for risk more widely across an organization — or essentially to scale risk management practices through education and analytics-based decision making. Not surprisingly, all of these issues and opportunities fall well within the scope of PwC’s expertise.

For the second year in a row, TBR attended PwC’s annual Risk Summit, a client-centric event geared toward sharing lessons learned among client risk professionals and presenting PwC’s thinking on risk and successes to date to the analyst community. This year the summit featured multiple client panels and created a clear picture of issues most prominent in the Risk space.

Not your father’s partner programs: How vendors and partners are evolving cloud ecosystems

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Chicken or egg first? For partner programs, that makes a big difference

As Intel (Nasdaq: INTC), Microsoft (Nasdaq: MSFT) and Cisco (Nasdaq: CSCO) created the modern computing era in the 1990s, partner programs were at the forefront. The success of these companies and the distributed computing era in general was largely built on the backs of technology and distribution partners. In fact, these companies still rely on partners to drive a majority of their revenue today. The same cannot be said for the cloud era of IT, which was led by the direct sales strategies of top vendors such as Salesforce (NYSE: CRM) and Amazon Web Services (AWS; Nasdaq: AMZN). These two vendors became leaders in their respective cloud markets by selling directly to customers, bypassing distribution partners altogether. Partners are certainly playing a larger role now, but the timing does impact their position in the value chain for cloud. Without a well-defined value-add in the self-service, transactional and passive sales strategies for cloud, partners are forced to create or carve out activities that are both unaddressed by the cloud provider and hold value for the end customer. Rather than traditional IT vendors relying on partners to drive their business, in cloud those partners are on their own in many respects to identify and develop their own value-add. Being creative, developing intellectual property and focusing on the gaps between multivendor solutions are much more important activities for partners in cloud programs compared with traditional ones.

Partners may look the same, but are in fact quite different

“What does a cloud partner look like?” was a common question as these new cloud-centric programs came to be. It was unclear if a new startup class of born-on-the-cloud partners would come into existence, or if the existing stock of VAR, distributor, MSP, systems integration (SI) and hosting partners would eventually transform their businesses to align with the new cloud business opportunities. As shown in Figure 1, the types of partners participating in new cloud programs is just the first category of changes programs are undergoing. As the answer to what type of partners are needed for these programs comes into view, it is looking like a little bit of the former and a lot of the latter. Cloud-native partners that are focused on consulting, managed services, intellectual property development and cloud solution integration hold a small but important space in the market. The difficult thing for vendors is that there are not very many of these newly formed partners, and to make matters worse, many are being acquired. It is also difficult to spur their creation or fit them into a traditional partner program. While traditional partners are cattle that can be controlled and herded in a consistent direction, cloud-native partners are wilder animals that create, forge and follow their own path. In terms of existing partners changing to focus on cloud solutions, that, too, is a difficult task. The truth is that many traditional VAR-type partners, focused on reselling and implementation activities, may not survive the transition to cloud solutions. Part of this is generationally driven, as many of the baby boomer-owned partner businesses lack the incentive to adapt their business model with retirement looming. Many of these partners will ride the slow decline of traditional IT opportunity until eventually closing their doors. Those traditional partners that do make the transition to a more cloud-focused business model will compose the largest segment of cloud partners. While they may keep the same name, these partners will be operating in a fundamentally different manner compared with traditional partner models.

Informatica adds intelligence to data management but faces unusual competition as traditional roles blur

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The Customer Data Management landscape

Informatica continues to thrive in its position as an agnostic third-party data management vendor that supports enterprises’ applications and data initiative. This approach has served Informatica well, as tailored solutions such as Customer 360 have complemented and supported leading front-office applications like Salesforce with customer data management. As front-office application vendors innovate to challenge Salesforce for market share, many are building customer data platforms that enhance the information feeding these applications and build a case for full-suite sales across front-office touch points. Among this competition, there is also a driving need to build greater insight and intelligence into customer data. Informatica’s acquisition of AllSight greatly strengthens the intelligence it can deliver around its clients’ customer data, but applications-led vendors will increasingly challenge Informatica in the customer data management space as they look to build out their value propositions.

Unifying and adding intelligence around customer data is a ubiquitous priority

Vendors across the cloud-based and traditional software landscapes want to elevate the value they provide customers and increase their addressable market by prioritizing unified and intelligent data to power enterprises. Data efforts are following the same workloads trends as cloud applications, focusing on CRM first before HCM and ERP to build traction in the market.

Applications-led vendors such as Salesforce, Oracle, SAP and Adobe are leveraging the data their individual sales, marketing, customer support and commerce applications generate and consume. This allows vendors to craft partnerships, new solutions and data model transformations to unify and enrich the data across all discrete application areas. The message shapes up to enable an enterprise to equip all front-office functions with a single and complete depiction of each customer or prospect that tracks and contextualizes actions at every point of the customer life cycle. In the last nine months we’ve seen numerous developments along these lines, including:

  • SAP announced the unification of its customer experience applications into a single suite, C/4HANA, with plans for deep integrations and layers of intelligence.
  • Adobe, Microsoft and SAP announced their alliance under the Open Data Initiative to give joint clients a more comprehensive view of their customers by enriching data across each vendor’s front-office applications.
  • Salesforce announced Customer 360 to update records across its systems with new information via a unique customer identifier.
  • Oracle announced CX Unity as a data platform that unifies data across Oracle and partner front-office applications to provide a comprehensive view of engagement points and additional data intelligence.
  • Salesforce announced intentions to offer a customer data platform to store a unified profile of customers.
  • Adobe announced a customer data platform.
  • Adobe and Microsoft expanded their relationship, launching new tools and leveraging data from LinkedIn to provide purchasing insights for B2B sales and marketing.

TIS market returns to positive growth as key operators accelerate and broaden 5G build-out plans

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TIS market returns to growth …

According to Technology Business Research, Inc.’s (TBR) Telecom Infrastructure Services Global Market Forecast 2018-2023, the telecom infrastructure services (TIS) market has returned to a positive growth trajectory through the forecast period after several years of declines, now that the 5G cycle is underway and webscales continue to increase their spend on network technologies to drive their strategic initiatives. Leading operators globally have accelerated their 5G timelines by up to two years, and this has correspondingly pulled forward the TIS market growth curve by two years. 2018 was a key year where leading operators invested to prepare their networks for 5G and, in some cases, began deploying 5G technology. This trend will play out over at least the next five years as operators build out their 5G networks and continue their transformational journeys toward becoming digital service providers.

… but growth rate suppressed by offsetting factors

Offsetting factors that will constrain the rate of TIS market growth include the shift to more efficient network architectures (NFV/SDN and cloud); the decommissioning of legacy infrastructure; the increasing use of network resource pooling, such as network sharing; and operator consolidation.

Professional services will be the fastest-growing services segment through the forecast period

Increasing technology and business model complexity will drive demand for a broad range of professional services through the forecast period. Leading operators will continue their journeys toward evolving into digital service providers, and this will require the full spectrum of professional services, from consulting to systems integration. Operators will increasingly rely on the vendor community for assistance, requiring expertise, staff augmentation and access to intellectual property, or a combination off all three, as they pursue digital transformation.

TBR’s Telecom Infrastructure Services Global Market Forecast provides annual analysis and forecasting of the deployment, maintenance, professional services and managed services markets for network and IT suppliers.

Operators are partnering more deeply with webscales to support multicloud and hybrid environments

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Combined Cloud as a Service revenue for telecom operators in Technology Business Research, Inc.’s (TBR) 4Q18 Carrier Cloud Benchmark rose 13.2% year-to-year in 4Q18, primarily due to investments in new data centers and portfolio expansion in growth segments such as SaaS and hybrid cloud. All benchmarked companies sustained year-to-year Cloud as a Service revenue growth as significant opportunity remains for carriers to target businesses seeking greater cost savings, scalability and efficiency by migrating traditional infrastructure and applications to the cloud.

Combined IaaS revenue among benchmarked companies rose 11.2% year-to-year, driven by portfolio expansion and data center investments to reach customers in new markets. IaaS revenue growth will decelerate over the next several years, however, as operators increasingly emphasize supporting in-demand IaaS solutions from third-party providers such as Amazon Web Services (AWS) (Nasdaq: AMZN) and IBM (NYSE: IBM) over first-party IaaS platforms.

Other Cloud (which includes SaaS, PaaS and BPaaS) revenue rose 16.8% year-to-year, driven by the adoption of services including unified communications, CRM and office productivity solutions. Operators are capitalizing on the demand for SaaS and PaaS applications by cross-selling the solutions with IaaS platforms and other network services.

The bulk of revenue is being generated in APAC and EMEA as local operators benefit from data sovereignty laws that require cloud data be stored in local data centers, which is slowing the momentum of U.S.-based webscale providers. The Americas accounted for only 15% of Cloud as a Service revenue in 4Q18, as AT&T and Verizon are no longer competing in the IaaS market and Asia- and Europe-based operators are primarily targeting foreign-based multinational customers with operations in the Americas.

TBR’s Telecom Practice provides semiannual analysis of Cloud as a Service revenue in key segment splits and regions for the top global carrier cloud operators in its Carrier Cloud Benchmark. Operators covered include Bharti Airtel, British Telecom, CenturyLink (NYSE: CTL), China Telecom, Deutsche Telekom, Korea Telecom, NTT, Orange, Singtel, Telefonica (NYSE: TEF) and Vodafone (Nasdaq: VOD).

5G-readiness spend and webscale investment drove strong growth in deployment and professional services

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5G spend was pulled forward in key markets, supporting deployment and professional services markets

According to Technology Business Research, Inc.’s (TBR) 4Q18 Telecom Infrastructure Services Benchmark, operators in lead markets (U.S., China, Japan and South Korea) as well as a growing list of key operators in other developed markets have accelerated their 5G deployment timetables over the past year, primarily because 5G is a significantly more cost-effective solution to handle rising data traffic in their traditional connectivity businesses but also to remain competitive in their respective markets.

Vendor telecom infrastructure services (TIS) revenue benefited in 2H18 as operators pulled forward their 5G-related investment timelines, with increased spend on deployment and professional services to support 5G-readiness initiatives. The deployment services market is rebounding as operators densify their networks with small cells, bring new macro sites online and deploy fiber for backhaul in anticipation of 5G, particularly in the U.S. 5G is also a growth driver in the professional services market as operators leverage consulting services to develop implementation and business plans and vendors perform network infrastructure integration for the mass deployments of deep fiber, small cells and antennas that 5G requires. These trends supported revenue growth for Nokia, Huawei and Samsung and enabled Ericsson to mitigate the effects of restructuring in its Managed Services and Digital Services businesses.

Exposure to software-related services and webscales drives growth for select vendors, including Accenture and Ciena

Accenture and Ciena, among others, have strong traction in telecom operator and webscale customer segments. Among webscales, Accenture is providing outsourcing to manage back offices and integrating software. Accenture is also providing business, security and technical consulting to webscales.

Ciena capitalizes on growing demand for next-generation optical from communications service providers (CSPs) and webscales through its focus on optical R&D, which helps the company take share from more diversified vendors. Ciena also gains incremental software-related TIS revenue from its Blue Planet MANO (management and orchestration) and OSS offerings.

TBR’s Telecom Infrastructure Services Benchmark provides quarterly analysis of the deployment, maintenance, professional services and managed services markets for network and IT suppliers.

Atos in the spotlight with digitally enabled vertical use cases

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SyntBots allow Atos to differentiate at points of disruption as the company gradually expands revenue share from digital services

A year ago, Atos aimed for Digital Transformation Factory (DTF) revenues to contribute 30% of the company’s total sales in 2018 and 40% in 2019. Atos hit that goal in 2018, and TBR expects Atos will reach its target for 2019 as well. TBR believes the transparency and visibility around Atos’ DTF portfolio make it a more believable use case compared to the offerings of industry peers, many of which fold digital services under a rather broad umbrella that encompasses legacy capabilities. Atos’ realistic outlook around DTF enables the company to provide guidance for digital services to grow at a CAGR of 2% to 3% through 2021, a goal that TBR believes the company will hit, especially as the recently acquired assets from Syntel, such as SyntBots, enhance Atos Codex (one of DTF’s four pillars) capabilities around AI and automation.

With SyntBots in place, Atos has certainly broadened its addressable market to better compete for digital services at scale across both IT and OT. Integrating traditional tools along with AI and machine learning, SyntBots allow Atos to reduce the complexity of clients’ IT architectures, providing the typical benefits of automation including cost reduction. TBR believes the true benefit, however, will stem from Atos’ ability to convince clients to reinvest cost savings in other areas, with Atos remaining the prime IT services vendor. According to TBR’s 4Q18 Digital Transformation Customer Research, extension remains the most natural jumping-off point to DT initiatives, as enterprises can experiment with disruptive technologies within familiar business operations, see their value in generating new business insights, and then use those insights to reimagine processes.

SyntBots’ Automated Operations and Product Engineering capabilities create additional entry points, which are needed to take advantage of with the “extension” phase of DT. Atos can engage with multiple CxOs at a single client to become aware of DT initiatives happening outside the CxOs’ current engagements and to stay top of mind when those initiatives move to the front burner — if not as the primary provider due to lack of a certain specialized capability, then as the conduit to a partner that can address the next initiative. While points of arrival to new technologies, such as AI and cloud, are rather common, we believe points of departure and points of disruption are areas where Atos has an opportunity to differentiate. Using legacy systems to build a repository of knowledge, rather than to just manage clients’ technical debt with the assistance of AI, is one way for Atos to compete at speed for DT-related opportunities.

While rivals such as Accenture (NYSE: ACN) maintain similar platforms, such as myWizard, Atos’ position as a “silent assassin within the North America market,” as Atos North America CEO Simon Walsh termed it, could certainly catch rivals by surprise and enable Atos to overdeliver in its digital services performance.

For the fourth consecutive year, Atos held its annual Global Analyst Conference in Boston, where the company continued to emphasize expansion in North America and the diversification of its global revenue base, as well as its desire to be closer to the U.S.-based IT industry analyst community. The company covered core areas of its three-year plan — codenamed ADVANCE 2021, which stands for “Atos Digital Value Advancing Customer Excellence” — and underscored its strategy to enable customers’ digital businesses by providing secure, data-driven ecosystems of multiple infrastructures, industry-specific services and technologies, and smart data platforms and services.

5G will push CSPs to accelerate and broaden their NFV/SDN-related initiatives

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According to TBR’s 1Q19 NFV/SDN Telecom Market Landscape, leading operators will accelerate and broaden their network transformations en route to deploying 5G and becoming digital service providers (DSPs). Softwarization, virtualization and cloudification are foundational aspects of a DSP’s network.

5G is greatly enhanced when using virtualization, especially when enabling and maximizing the benefits of network slicing and achieving better radio access network (RAN) economics. Though most operators intend to initially deploy the non-stand-alone (NSA) standard of 5G, which tethers 5G radio with evolved packet core (EPC), an eventual upgrade to the stand-alone (SA) standard, which tethers 5G radio to a 5G core, will become a reality in the early 2020s.

5G core is inherently virtualized, and communication service providers (CSPs) will be keen to prepare their networks to maximize the benefits of utilizing a fully virtualized network architecture, which includes, but is not limited to, increasing agility, flexibility, visibility and cost efficiency.

In 2019 Rakuten will become the first fully virtualized DSP in the world. Should the company’s approach to network architecture work, it will legitimize and embolden other CSPs to double down on their network transformations and hasten their migration to white-box hardware and cloud-native architectures.

CSPs are under pressure to invest in NFV/SDN to reduce total capex and opex spend as well as introduce new services and stay competitive in the data-driven digital economy, which is increasingly dominated by webscale and over-the-top players. This pressure will prompt more CSPs to spend on NFV/SDN during the forecast period. TBR expects 27.5% of total CSP capex and external opex spend will be allocated to NFV/SDN by the end of 2022.

Commercial IoT: Maturation solves some problems but also creates challenges

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The evolving IoT partner ecosystem

Because IoT solutions integrate the physical and informational aspects of business, almost all IoT solutions include diverse components from multiple vendors. TBR uses the term “component” to include all contributions: hardware, software, and professional and cloud services. When IoT started receiving a lot of attention more than three years ago, vendors attempted to gain first-mover advantage in the IoT market by vying for customer attention with claims of providing end-to-end IoT solutions, even though almost all of those solutions incorporated components from several vendors. Many vendors claimed all of IoT as their turf, leading to market confusion, channel conflict, and vendors’ failure to communicate their differentiating advantages.

The past year has seen many vendors dial back their claims of IoT dominance, while an increasing number of component vendors, including OT vendors, have more clearly communicated their specialized contributions to effective IoT solutions. As vendors have increasingly focused on their strengths, reducing the overlap of claimed expertise, it has become easier for them to partner to create complete solutions. At the same time, as vendors have gained experience and devoted resources to researching and cultivating their individual partner ecosystems, they have become more knowledgeable.

In delivering multiple-vendor solutions, component vendors are challenged to be recognized and compensated for their contributions. This is leading to an increase in “ingredient marketing,” where component vendors communicate to customers the value that their components contribute to solutions. Systems integrators, usually the vendors with the greatest exposure to customers, are facing a conflict between their claims of differentiating IoT intellectual property and the increasing visibility of components. Increasingly, solutions are delivered as bundles, sold by value-added resellers, ISVs and independent hardware vendors (IHVs), posing the same challenge to component vendors.

In 2Q19 TBR’s Commercial IoT Practice will be expanding its research into how the maturation of the IoT market is playing out for customers and vendors and how vendors can refine their go-to-market (GTM) strategies and tactics in light of the evolving market. The diversity of IoT solutions, the involvement of operations technology (OT) in both the purchase and delivery of solutions, and the enormous IoT ecosystems all pose challenges to predominately IT-oriented vendors.

Commoditization economics and emerging workloads disrupt the data center landscape

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Commoditization mitigation strategies require business model shifts and an ever-watchful eye on exascale cloud entrants

Volume or value?

Toward the end of 2018 in the data center market, two distinct vendor strategies emerged: Vendors began either increasing sales volume or selling lower-volume but higher-value solutions. TBR believes that in 1H19, now that vendors have determined their camps, they will begin to craft competitive strategies directly targeting specific peers. For example, Dell EMC has publicly stated its intent to increase its market share in both servers and storage, and we believe the vendor will target key competitors to gain this share. Similarly, Lenovo’s large-scale data center investments imply significant competitive goals.

In February Lenovo unveiled TruScale Infrastructure Services. This directly competes with Hewlett Packard Enterprise’s (HPE) GreenLake and Dell EMC’s Cloud Flex. It also addresses customer demand for private cloud infrastructure that is financed like a public cloud offering. TruScale is available for Lenovo’s entire stack of data center infrastructure solutions. In April Lenovo unveiled a server portfolio refresh, which likely reinforces its TruScale solutions and increases its competitive edge against Dell EMC and HPE.

TBR believes that during the next few months, Dell EMC and HPE will fight back against Lenovo’s marketing tactics to preserve market share. HPE has an advantage in that it is pursuing value-centric data center sales, so it is likely willing to concede less-profitable sales to Lenovo or Dell EMC. Dell EMC’s stated objective to increase market share in servers and storage will increase competition between the company and Lenovo as both aim to scoop up HPE’s lower-margin customers.

ODM participation heats up as commoditization drives provisioning simplicity

Because data center hardware becomes increasingly commoditized as software capabilities become more advanced, we believe data center vendors will increasingly find themselves competing against ODMs, especially for larger deals. Smaller customers will still show a preference for OEMs as they need the additional software and services provided with OEM data center solutions. Lenovo’s manufacturing capabilities give the company an advantage in the hyperscale space, where Lenovo’s past financials illustrated some successes, and enable the vendor to differentiate from its OEM peers.

On the hyperscale front, ODMs are rising to dominance, but OEMs such as Lenovo remain a force to be reckoned with in the space. As cloud becomes an increasingly central piece of IT environments, public cloud providers seek ways to expand their environments as cost-effectively as possible to preserve profits. TBR believes very large enterprises are likely to explore leveraging hyperscale vendors as well for their on-premises environments if it is cost-effective.

Consumption-based pricing models tie to the commoditization march

TBR’s Hyperconverged Platforms Customer Research continues to highlight the correlation between private cloud installments and HCI. Most recent findings indicated that 80% of respondents leveraged their HCI purchase for a private or hybrid cloud environment. Since customers are already turning to HCI for cloud, it is a logical next step for vendors to price HCI like a public cloud solution to deepen the competition.

With their channel partners also engaged, Dell EMC, HPE and Lenovo are the three main players in the consumption-based pricing space. Their solutions are not limited to just HCI, but HCI is one of the solutions that can be purchased in this manner. The key value proposition of consumption-based pricing for data center vendors is the ability to bundle software and services into hardware consumption-based deals. This is likely to boost the margin on the solutions. Further, it guarantees larger deals, as in many cases, these consumption-based pricing deals lock customers in for a predetermined duration that has early termination penalties.