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.

Atos is executing strategy to scale digital transformation activities

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TBR perspective

TBR expects Atos will sustain its growth momentum and achieve organic revenue growth at a CAGR of between 2% and 3% from 2017 through 2019. Over the past year, Atos has been shifting its portfolio mix to next-generation solutions, building digital skills and competencies through digital certifications of employees, and attracting digitally versed graduates from leading universities. Now the company is executing on its strategy to have 40% of its revenues in 2019 generated from its Digital Transformation Factory (DTF) solutions portfolio. Emphasizing the message around execution will resonate well with clients, especially Atos’ key accounts, as they move beyond the initial digital transformation hype to actually implementing and scaling their transformational initiatives.

Due to Atos’ less developed consulting expertise in North America compared to Europe, TBR believes the company has chosen not to follow the consulting-led digital transformation trend among peers in the region and is instead focusing on execution, something Atos does well. While leading with technology and vertical industry expertise will likely work as Atos builds relationships with key accounts and cross-sells solutions across its portfolio, TBR’s research shows that both business and IT consulting matter, especially for new clients and new solutions.

Overall, Atos is persistently keeping in line with its three-year growth ambitions for 2017 through 2019, and focusing on its strengths. This is exemplified by the company’s emphasis on the Internet of Things (IoT), as Atos combines its expertise and proven track record in IT services, security and industry solutions with the operations technology (OT) and industry expertise of its global strategic alliance partner Siemens to integrate IT and OT for clients and capture opportunities in IoT.

For the third consecutive year Atos held its annual Global Analyst Conference in Boston, underscoring its persistent emphasis on expanding in North America and diversifying its global revenue base, as well as highlighting its desire to be closer to the U.S.-based IT industry analyst community. The conference was hosted by Patrick Adiba, Atos’ new North America CEO, and featured plenary and breakout sessions as well as individual meetings with TBR analysts. During the event Atos presented its strategic direction through 2019; collaboration activities with global strategic alliance partners such as Dell EMC, Siemens and SAP (NYSE: SAP); and case studies that showed Atos in action delivering measurable business results for clients.

The Business of One era requires new business planning and management practices

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A new generation of incredibly powerful, flexible and responsive businesses is reshaping markets. Their ability to serve single customers at scale is what TBR terms the “Business of One.” The environmental forces triggering this shift are vast. Information velocity accelerates globally; digital information expands exponentially; competitive advantage windows compress rapidly; task work automates; acute labor shortages persist in new skill work; and new business risks pressure public policy. In the aggregate this confluence of technology-enabled business factors disrupts traditional business, education and public policy best practices. Technology vendor and enterprise business models must evolve, as evidenced by the market capitalizations of relatively new businesses such as Facebook, Amazon, Apple, Netflix and Google (FAANG) while more established firms have languished. In the Business of One era, success will rest upon rapid iterations rather than deliberate cadences, ecosystem participation for assembling complementary assets rather than amassing scale advantage, subscription monetization cycles rather than transactional product sales, and highly automated processes and customer access points rather than labor-intensive task work and repetitive, overlapping paper trails to establish commercial trust.

Laundering money and funding terrorism cannot withstand analytics and AI

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Despite banks’ substantial investments in technology, people and processes to meet regulations, they currently lack effective and efficient systems for tackling financial crimes such as money laundering and terrorist financing. Regulators cannot keep pace with change, and the time and investment to overhaul banks’ legacy systems are too great given the complexity of global organizations and inevitable disruption to operations. But the three elements — technology, people and process — match EY’s strengths in technology consulting, especially when paired with deep financial services industry and risk and compliance expertise. EY continues to invest and evolve its financial crime (FinCrime) practice as it listens to financial institutions’ demands for services that embed regulatory compliance expertise and technology innovation, offered at scale on an outcomes-based pricing model. EY’s FinCrime practice collaborates across the firm to combine legacy capabilities and emerging technologies to differentiate from competitors’ portfolios in the market and provide, in TBR’s current analysis, industry-leading offerings.

EY’s connected approach to disrupting financial crime: Technology disruption, industry collaboration and process innovation

Over the course of EY’s two-day Financial Crime Analyst Summit, the firm’s leaders and banking sector clients spoke with TBR about the challenges financial institutions face, including high operating costs, stifled revenue growth, and demands to undergo business transformation while maintaining compliance with evolving regulations. Many industries contend with the first two challenges, but this last one — transforming while complying — fits well with EY’s strengths: industry expertise, emerging tech capabilities, and a deep understanding of the regulators in the U.S. and globally. In applying those strengths, EY’s financial crime practice relies on three pillars — technology disruption, industry collaboration and process innovation — in other words, meet demand for services and solutions that are backed by regulation credibility, infused with technology innovation and offered with tiered pricing to successfully disrupt FinCrime.

Before getting to the specific ways that EY addresses FinCrime, one key aspect of the financial services market as a whole deserves extra attention: trust. In the consulting and technology spaces, trust has come to mean delivering on promises and securing data. In the banking space, with the additional weight of money and regulators, trust becomes the single most important factor in determining the extent of a provider-client relationship. With a heritage as a trusted auditor, a reputation for delivering consulting services, and a position between clients and regulators, EY has built up enough trust capital to take on industrywide challenges.

A wave of health IT innovations still struggling to crack entrenched industry roadblocks

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Lack of ubiquitous interoperability a lingering vexation in the healthcare sector

TBR believes the pace of health IT innovations will continue, and even accelerate, especially as value-based care takes hold of the healthcare sector. However, full realization of the benefits of new healthcare technologies will continue to be deferred until we have, according to the Centers for Medicare and Medicaid Services (CMS) Administrator Seema Verma in her conference remarks, “a healthcare ecosystem where data flows freely.” In the same forum at HIMSS18, White House Senior Advisor Jared Kushner added that “even with the most advanced military on Earth, the U.S. still struggles to exchange records between the DoD [Department of Defense] and VA [Department of Veterans Affairs].”

Dr. Jon White, deputy national coordinator for Health Information at the U.S. Department of Health and Human Services (HHS) Office of the National Coordinator (ONC), highlighted the challenges of enforcing regulatory rules designed to prevent data blocking during the HIMSS18 Compliance Symposium. While healthcare organizations that do not share patient information as required may face fiduciary penalties, White acknowledged that his agency has yet to comprehensively define what constitutes information or data blocking. He also described other complications stemming from fees associated with connecting health IT infrastructures and the proper reading of Health Insurance Portability and Accountability Act of 1996 (HIPAA) regulations. Even beyond these challenges, White noted that some healthcare organizations as “an out-and-out business practice,” still refuse to share data, despite the risks of fines or other consequences.

Also during the HIMSS18 Compliance Symposium, Ken Mortensen, data protection officer for InterSystems, made a tacit admission that healthcare organizations may continue to block data sharing with impunity, provided they can sufficiently “explain the rationale behind their actions” if and when they are accused of information blocking and subsequently audited by the Office of the Inspector General (OIG). TBR believes this sets a troubling precedent that may shift the focus of healthcare organizations in favor of governance versus care delivery, at least in terms of crafting satisfactory practices, policies and accounts of internal activities to indemnify against potential audits.

 

 

The 2018 Healthcare Information and Management Systems Society Annual Conference & Exhibition (HIMSS18) took place at The Sands Expo Convention Center in Las Vegas. The 2018 event was the largest yet, with nearly 44,000 attendees, over 300 educational sessions, and over 1,350 vendors demonstrating their healthcare IT solutions.