Ready when you are: Nokia prepared to migrate customers to 5G

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TBR perspective

At Nokia’s (NYSE: NOK) 2018 Analyst Conference, held in Tokyo in August, the company emphasized that its end-to-end portfolio, supported by a robust R&D program, is ready and able to take its customers into the 5G era. The vendor also stressed that 5G is much more than just a radio upgrade and that realizing the full potential of 5G requires a fundamental change to the architecture of the network.

Given how much disruption is facing the telecom industry, it was refreshing to see that Nokia is being proactive in aligning with where the market is trying to go, even if that means disrupting itself. Though a part of the company will remain focused on servicing the legacy platforms of the past, the other part of the company will focus on realizing the future. Given that most operators are stuck in between both worlds as well, it is fitting that Nokia will be able to support the migrations of its customers toward the network of the future.

Event overview

Nokia hosted a select group of industry analysts in a two-part event. The first part of the event was a two-day workshop about the company’s global Fixed Networks business, and the second part of the event was a two-day Asia Pacific and Japan (APJ) regional update to deep dive on specific trends occurring in those markets.

In addition to the usual market overview, strategy and portfolio updates, Nokia hosted several customers at the event, namely Infracapital, KDDI, NTT DOCOMO, SoftBank and Marubeni, to discuss their own businesses and share how Nokia is helping them achieve their goals. A representative from Japan’s Ministry of Internal Affairs and Communications was also present to provide an overview of Japan’s telecom industry and how policy is shaping that country as it transitions into the 5G era.

Hosting the event in Japan was pertinent and timely given the country’s history as an early technology adopter and its upcoming adoption of 5G. With the 2020 Summer Olympics less than two years away, Japan will showcase for the world cutting-edge use cases of telecom networks leveraging 5G technology. The country also symbolizes the monumental changes occurring in the telecom industry, namely that domestic operators are challenged to evolve into digital service providers to better compete against digital-native competitors in their home market, such as Rakuten, as well as realize new business models from the 5G era to grow.

Legacy’s last gasp: SAIC, Engility and the importance of skills over scale

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SAIC’s planned purchase of Engility combines federal contractors with business models similarly disrupted by the march of technology

Themes of consolidation continued to pervade the U.S. federal government IT and professional services market on Monday, Sept. 10, with SAIC (NYSE: SAIC) announcing it will acquire peer Engility (NYSE: EGL). The proposed deal would combine two legacy providers of systems engineering and technical assistance (SETA) and ITO services to U.S. defense, intelligence, civilian and space agencies. The combination makes strategic sense for both parties as the commoditization of labor-based services compresses margins, compelling companies to look for scale advantages to optimize cost structures and maintain competitiveness to capitalize on the federal market’s current upswing.

The proposed deal would add to the lengthy list of market-shaping acquisitions and divestitures over the past five years. SAIC can be viewed as an instigator of the trend, as the company split from its former parent company, now Leidos (NYSE: LDOS), in 2013. Engility has also played a role in the industry’s consolidation through its acquisition of TASC in 2015. In the few years since, Leidos purchased Lockheed Martin’s (NYSE: LMT) IT services business, CSRA briefly gained independence before combining with General Dynamics IT (GDIT) earlier this year, and another new company, Perspecta (NYSE: PRSP), emerged from the combination of DXC Technology (NYSE: DXC) U.S. Public Sector assets with Vencore and KeyPoint Government Solutions.

While scale motivated all of these moves to varying degrees, SAIC’s planned purchase of Engility may represent the beginning of the end of this trend. As rapid technological change disrupts legacy business models, TBR believes the importance of scale will diminish. The deal will help SAIC in the near term, but what the company does next will determine its long-term survivability in the Business of One era.

Agile-ready everything: An India-centric special scenario

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In Technology Business Research’s (TBR) April 2018 Global Delivery Benchmark, we noted that reskilling existing resources is taking precedence over aggressive hiring, resulting in decelerating headcount growth for the 14 benchmarked vendors in 4Q17. While vendors claim that digital-related revenues contribute from 25% to over 55% of their total services sales, existing engagements continue to require nondigital skills as well. Recruitment initiatives help vendors fill skills gaps in areas such as artificial intelligence (AI), Internet of Things (IoT) and analytics. At the same time, vendors continue to build local presence by opening innovation hubs to support agile-based service delivery. The return on these investments has yet to be quantified, but TBR will continue to monitor this trend as these facilities become ubiquitous to how vendors conduct business.

Workforce, workplace, offerings, partnerships

Based on previous forays by India-centric vendors into consulting-intensive offerings, TBR remains skeptical that a trend toward agile will radically change these vendors, but the exception could be TCS. As the largest, TCS will be the biggest battleship to turn around, but the public, deliberate, and staged approach may create the kind of permanence necessary for significant organizational change. TBR has witnessed an emphasis in recent years by consultancies prioritizing recruiting, retaining and reskilling of their talent, especially in emerging tech areas and the consulting offerings tied to those technologies. By leading with two people-centric initiatives, TCS may have charted the proper course. Now, will the company follow it? And will its peers chase its wake?

Creating innovation; creating clients

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A New Thing: BearingPoint ‘At the Heart of Innovation’

“I came in with absolute clarity about what my challenge was, and now I don’t know.” After two days of large-group discussions on the fundamentals of innovation and small-group challenges putting those fundamentals to the test, one participant at a recent BearingPoint innovation event seemingly lamented having gone backward and away from solutions. However, the participant quickly followed up that “I don’t know” comment by explaining how examining her company’s and her own individual challenges revealed an incredible complexity — but the presence and guidance of an established consultancy provided reassurance that complexity could be managed and innovation started, if not guaranteed to bring success. Every consulting client should be so thoroughly uncertain about their problems while comforted knowing they’ve got help at the ready.

TBR perspective: Diversity, subtlety and the art of consulting

The entire event accentuated uncertainty, but with a sense that innovation challenges can be solved, creating an ideal hunting ground for consulting opportunities. BearingPoint strengthened advocates for innovation while consistently and subtly reminding those advocates that they would need help. By building toward a workable solution to a real-world innovation challenge, BearingPoint used a velvet hammer to reinforce that “you can change, you must change, and change requires consulting.”

TBR includes coverage of BearingPoint in our Management Consulting Benchmark, and the most recent profile, published in April, noted that “as a business and technology consulting firm [positioned] for predominantly EMEA clients, BearingPoint will continue to attract clients with holistic consult-build-run solutions across its three business pillars — Consulting, Solutions and Ventures — to enable clients’ business transformations through advanced technologies. BearingPoint’s agile offerings in its three primary business units and local market expertise will resonate well in the EMEA market and support the company’s growth over the next two years.” This innovation event reinforced TBR’s assessment of BearingPoint’s ability to see its approach and offerings resonate well with existing clients and very likely continue to lure new clients away from traditional European and global consulting competitors. BearingPoint has not built its own innovation/collaboration/experience center and the firm’s overall approach at the innovation event remained subtle throughout the two and a half days — but BearingPoint’s effort was effective and highly replicable, and the lasting impact will likely be measurable by the firm’s 2019 growth.

BFSI: An India-centric special scenario

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Two up, two down

Four of the India-centric vendors share similar assessments of IT investments, predicting they will improve behind spend from larger-enterprise banking clients, with growth in digital implementations, mobility, and modernization of legacy IT infrastructures and applications portfolios. The divergence in performance in 2Q18 likely reflects one-time or short-term changes at large clients and not a strategic shift for any single vendor. From TBR’s quarterly analysis:

  • Infosys’ (NYSE: INFY) revenue expanded 6.8% in USD year-to-year to $2.83 billion during the quarter but was flat sequentially due to softness in its largest vertical, Financial Services. With 40% of large-scale deals in 2Q18 stemming from Financial Services clients, we expect vertical performance to rebound and bolster Infosys’ overall performance. While Infosys experienced softness among a few key accounts within Financial Services, the vertical continued to generate the largest percentage of sales, at 31.8% in 2Q18, as the company benefits from its platform-centric portfolio and “as a Service” solutions portfolio. In addition to Finacle-related deals, an uptick in demand among insurance clients, similar to the deal win with John Hancock, is driving McCamish platform adoption.
  • In recent quarters, Cognizant (Nasdaq: CTSH) has noted some acceleration in initial projects to map out blockchain implementations for banking and financial services clients. In fact, Cognizant has described the banking industry as the most mature sector regarding blockchain implementation, while insurers and retail companies are somewhat behind their banking counterparts and other industries are still in trial phases. Financial Services sales rose 4.5% year-to-year in 2Q18 as Cognizant’s slowly expanding pipeline of new business with banks and financial services clients began to translate into new revenue streams.
  • Banking, Financial Services and Insurance growth slowed for Tata Consultancy Services (TCS) to 5.3% year-to-year in 2Q18, from 6.9% in 1Q18, though TCS executives noted improving IT investment trends among U.S.-based financial institutions, saying they believe the recent slowdown in IT spend has “bottomed out.” TBR believes TCS’ open-based banking API framework enabling banking, financial services and insurance (BFSI) clients to expedite digital transformations is resonating increasingly well. TCS’ massive, $2 billion digital transformation award with Transamerica (won in January) continues to spool up while growth among banking institutions in Europe and APAC remains strong.

Dell Technologies and Draper: Helping IT help business

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“Focusing on business outcomes” has become a very shopworn phrase for industry pundits. However, nothing crystalizes the power and importance of the concept more than detailed discussions with IT departments of flagship enterprises followed by tours of the business units they support. Seeing both affords insight into how these IT and line-of-business (LOB) entities view their interactions.

Draper shared its transformation story with a coterie of industry analysts at Dell Technologies’ (NYSE: DVMT) request on July 31 at Draper’s main facility in Cambridge, Mass. The company proved refreshing in its candor as well as in its use of business language to talk about IT rather than using IT language to feign knowledge of business outcomes. Staying focused on business objectives is the way forward for IT vendors and enterprise IT employees alike, and Dell Technologies and Draper are speaking the right language.

Digital transformation starts with executive sponsorship, as cultural change must precede technological change

A recent TBR special report examines the fundamental shift in IT consumption in the public sector “from wallet to will.” In general, this discussion contends that the increased consumerization of IT and the move to virtualization, standardization and automation enable more customer-focused interactions between IT and the LOBs they support. Presently, this concept is slowly working its way into the public sector, and it is no shock to TBR that Draper now has to embark on this transformation, given how much of its activity focuses on government-sponsored projects.

Draper CIO Michael Crones provided an overview of Draper’s history and the recent organizational changes. With Moore’s Law economics driving lower entry price points for adjacent use cases, Draper is currently reviewing its archives of curated IP to determine how, with this newer, lower-cost compute infrastructure, the IP can be repurposed for broader commercial use cases.

Capitalizing on this IP inventory initiative, however, requires a major cultural shift in how IT is viewed, managed and deployed. Many firms fail to have executive management signal the importance of change by stressing the need for, and adherence to, shifting operating practices.

Hustlers, hackers and heroes: EY’s technology consultants of a transformative age

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Recognizing the value in data nerated by professional cyclists, captured but not monetized, EY worked with a startup consortium and upended the business model for cycling teams, creating a new revenue stream and changing the riders from captive to tour organizers to data and experience providers. This client study echoed throughout EY’s Technology Summit as the firm repeatedly showcased its ability to lead clients through digital transformations. Critical to the company’s approach has been balancing separation and connectivity ? separation to create change, such as cyclists building a consortium to own their data, and connectivity to ensure technology changes meet security and compliance needs — enabling transformation that is both seamless and disruptive. The firm convincingly brought forward the message they can be hustlers (in a good, hard-working, get-it-done sense), hackers (making emerging tech work for them) and heroes (driving lasting business change).

Event Overview

At its Toronto wavespace, EY hosted TBR and around 30 analysts for two days of executive-level discussions, client briefings, and product and solution demonstrations by EY technology consulting professionals. The clients came from various industries, from banking to biking to consumer goods to energy, and participated in both the executive sessions and informal discussions, allowing TBR opportunities to gain deeper insights into the client-EY relationships. The company also included technology partners, such as Microsoft (Nasdaq: MSFT) and SAS, demonstrating the close cooperation EY believes it brings to its clients.

TBR Perspective

Behind EY’s digital transformation offerings, the firm has both assets and accelerators. In some engagements, the firm collects licensing fees on the former while deploying the latter to enhance efficiency and time to value. Looking at the company with a long-view lens, TBR sees a firm that has developed technology capabilities across core and emerging technologies to a point at which EY can alter its business model, taking advantage of legacy consulting skill and carefully honed managed services offerings, layered with the full scope of digital transformation. On top of this, EY consistently puts forward a practical, get-it-done message, reinforcing that the firm knows its clients’ business, knows technology, and can deliver immediate value beyond strategy and even beyond consulting.

SAP Digital Business Services enables customers to create their own intelligent enterprise

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After SAPPHIRE NOW in June, a burning question remained: How does SAP’s professional services organization fit into the company’s new intelligent enterprise vision? SAP’s Digital Business Services (DBS) Analyst Day provided the answer: DBS is the enabler to the intelligent enterprise, which is a system of SAP and non-SAP applications, underpinned by a digital platform and made intelligent by the SAP Leonardo technologies.

As the enabler, DBS will have several responsibilities including helping to create business cases, and road map, architect and implement the customers’ version of the intelligent enterprise. SAP certainly has the technical expertise in-house to architect and implement the intelligent enterprise and has reskilled and hired over the last few years to bolster its advisory capabilities, particularly as it relates to emerging technologies such as artificial intelligence. Critically, SAP’s partners have ample opportunity around the necessary change management responsibilities that are undoubtedly needed to ensure successful business process transformations.

Repeatedly during the two-day event SAP leaders emphasized that DBS helps the company accelerate clients’ time to value and reduces risk for all involved — the client, SAP, and any consultancy or SI partners. By being close to software-related services, not necessarily project-related, such as change management, SAP DBS plays to its core strengths and competencies and brings the value clients expect. More broadly, DBS assures clients that a large partner-led engagement meets SAP standards, often through a separate SAP Value Assurance contract between SAP and the client apart from the partner or project arrangements. This clear vision of what DBS does well, why, and how built on last year’s DBS Analyst Day, particularly when reinforced consistently by the DBS leadership team.

IBM Z Software: Refinancing rather than retiring technical debt increases Z relevance

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Tying into a recent IBM Institute for Business Value thought leadership booklet entitled, “Incumbents Strike Back,” IBM (NYSE: IBM) has invested considerable time and effort into reminding analysts of the dominant install base IBM mainframes enjoy in large enterprises, where they transact 68% of the world’s economic activity. IBM categorizes its existing customers into three camps: those that have yet to embark on an IT modernization initiative, those that went for wholesale rip and replace at great economic cost, and those that seek to modernize ― or refinance ― their existing investment in legacy mainframe assets to prepare them for the digital business era as outlined by TBR in its recent special report The Business of One.

Wholesale rip-and-replace initiatives come at a great upfront expense that is difficult, IBM asserted, for corporate boards to justify from an ROI perspective. Rather than retire that technical debt, large enterprises seeking to migrate to digital business streams are finding a more prudent alternative to be refinancing the technical debt through application modernization. IBM hinges future mainframe revenue growth and ongoing relevance on this point, netting out the IBM Z value proposition as bringing pervasive encryption, analytics infusion across the business stack, and simple and secure connections into multiple cloud environments.

Artificial intelligence needs human design

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Artificial intelligence (AI) technologies continue to progress, with vendors increasingly embedding machine learning capabilities into enterprise applications and consumers coming to expect a level of personalized, yet automated, interaction that only AI can deliver at scale. Discussions around the potential hazards of AI to brand reputations, personal data protection, constitutional freedoms and society at large have become commonplace, but this has not slowed the pace of technological advancement. While AI technology vendors continue to lead and engage in these discussions (especially when their own reputations and research investments are at risk), ultimately, organizations that incorporate AI tools into business decisions and automated processes will be responsible for the impacts of those technologies.

If the 2018 O’Reilly Artificial Intelligence Conference made anything clear, it was that as AI adoption grows, so does the technology’s complexity, particularly at the intersection points between humans and machines and between regulatory policy and technological innovation. This should sustain professional services opportunities for vendors that can stay on top of AI technology developments while maintaining a broader perspective on the impact of AI on clients’ business processes and HR strategies. Still, many questions remain unanswered, including how to manage security and governance over the massive autonomous systems that will be coming online in the next several years; whether the approach taken by the European Union with its General Data Protection Regulation (GDPR) will become the global standard; and what the long-term impact on human intelligence and skills will be as machines take over more tasks. It is unlikely these issues will be resolved by the 2019, or even 2020, O’Reilly Artificial Intelligence Conference, but vendors can start to address some of these questions with clients through consulting and solution design engagements tied to broader digital transformation initiatives.

Event overview

TBR attended business and technology learning content company O’Reilly Media’s third O’Reilly Artificial Intelligence Conference, an event centered on a variety of AI topics, including enterprise use cases, implementation, business and societal impacts, product design, and machine learning methodologies, over two days in New York. The conference’s theme, “Putting AI to Work,” mirrored that of last year, but sessions and discussions reflected growing maturity in how enterprises and researchers approach, develop and apply AI technologies. Keynote speakers represented AI technology vendors such as Intel AI (the conference’s co-presenter, as announced last year), Google, IBM Watson, Microsoft (Nasdaq: MSFT), Amazon Web Services, SAS, Digitate and Uber, as well as research institutions such as MIT, Princeton and Carnegie Mellon. In addition to tactical sessions around specific AI use cases designed for data scientists and software engineers that were abundant last year, new in 2018 was the AI Business Summit track tailored for executives, business leaders and strategists (and for TBR’s lead analyst covering professional services related to AI, analytics and digital transformation). TBR also interacted one-on-one with founders, product leads and marketing executives from AI-related startups such as Alegion, Kinetica, Clusterone and Dataiku throughout the conference.