In mid-May, TBR met with senior leaders from Atos to discuss sustainability and Atos’ role as an ecosystem orchestrator, a services vendor and a role model for decarbonization. Jason Warren, VP head of Atos’ NetZero Transformation portfolio, and Miriam Hanckmann, head of Atos’ Digital Net Zero Portfolio, walked through a detailed presentation, including alliance partnerships, case studies and Atos’ overall strategy around sustainability. The following reflects both that discussion and TBR’s ongoing analysis of Atos.

3 characteristics of Atos’ approach may not be unique, but the combination is

Atos’ Warren and Hanckmann highlighted characteristics of their company’s approach to sustainability, which collectively may separate Atos from peers, even if other IT services vendors can claim one or two similar characteristics.

First, Atos knows it must work within an ecosystem and cannot provide services or advance sustainability goals alone, an approach that reflects the company’s overall ethos of addressing climate change. Second, even with that understanding, Atos has become practiced at being customer zero, demonstrating the value of the company’s sustainability efforts as blueprints for others. Lastly, and perhaps truly unique among peers, Atos relies on and boasts of a science-based approach that resonates with CIOs and other enterprise decision makers responsible for technology and sustainability. Atos leads with science, not just good ideas.

While these characteristics potentially separate Atos, some of the company’s offerings could be replicated by firms better positioned to deliver value around government, risk and compliance, particularly the Big Four. In addition, Atos’ sustainability engagements to date have been heavily weighted toward Europe, which may limit the company’s global appeal and ability to deliver to clients worldwide. Even with these cautions, TBR’s overall assessment remains that Atos has built substantial credibility, experience and expertise around sustainability that should keep it among the leaders in the space, even in the event of a company split.

Building an ecosystem sometimes requires establishing a star for the system to revolve around

Within the consulting and IT services space, many vendors claim to possess end-to-end capabilities, a description only applicable when the vendor defines the ends of the spectrum. In reality, every client engagement includes ecosystem partners as every consulting or IT services business problem cuts across more technologies and business challenges than any single vendor can handle.

Sustainability takes that reality and stretches it beyond imagination. Among an enterprise’s strategies, the operations and responsibilities potentially implicated in meeting sustainability goals include — at the bare minimum — fleet and real estate management, procurement, supply chain, on-premises and cloud computing, emissions, and employee business travel. If no single IT services vendor or consultancy can address an enterprise’s full range of sustainability needs, partnering across a well-curated and constantly tended ecosystem becomes essential. On this, Atos may stand apart from peers.

During the discussion with Atos’ leaders, Hanckmann described the 330+-person EcoAct consultancy, acquired by Atos in 2020, as being staffed primarily with “climate PhDs.” She added that Atos’ technology capabilities, combined with EcoAct’s consultants, would help the combined companies’ clients use “digital to accelerate advisory … measuring emissions, gathering data, accelerating consultancy solutions.” Hanckmann also noted that the Atos-EcoAct combination creates a “green network for cultural alignment, learning from each other what digital and climate mean and how they interact, so clients get the full spectrum and maturity of conversations.”

In TBR’s view, Atos could potentially leverage its independence from traditional governance, risk and compliance work as added value to enterprises looking to ensure financial performance metrics are not unduly influencing sustainability metrics.

The last 24 months have been marked by an uptick in large consultancies and IT services vendors acquiring sustainability or decarbonization boutiques, so what makes EcoAct special is the ecosystem Atos folded it into, one that includes Atos’ long-standing relationships with Siemens, which is also one of Atos’ key accounts, and Johnson Controls, as well as EcoAct’s role in the Atos Climate Innovation and Knowledge Center (CLICK).

The special client relationships give Atos deep insight into sustainability challenges facing manufacturing companies, including, as described by Warren, “how to integrate products and provide real-time data.” Warren added, “Tech partners like Johnson Controls develop and deploy building management systems,” which Atos then aligns with hyperscalers and industry consortia to create a full package of data, analytics and decision making around decarbonization. Atos orchestrates others’ efforts to bring clearly defined value to shared clients. Within the CLICK, EcoAct consultants works with “academic, institutional, public, and private partners” to “develop methodologies, analytics tools, tap key areas of expertise, and support customers … driving standardization and normalization in reports and publications,” according to Warren.

While Atos’ ecosystem strategy may not be unique among IT services vendors, the company’s emphasis on partnering across a wide spectrum of sustainability stakeholders and actors, rather than touting stand-alone capabilities and offerings, demonstrates a maturity in thinking about decarbonization, reflecting Atos’ relatively long-standing commitment to climate change efforts.

‘Show me what you did, don’t tell me what you know’

The customer-zero approach — selling to clients based on strategies, initiatives and technology-based solutions deployed by the vendor within its own operations — has been widely adopted in recent years, becoming a resonant use case, when applicable. In TBR’s experience, Atos has rarely presented itself as customer zero, but with sustainability the vendor has been showing its own standards to clients and the internal lessons learned on adoption, measurement and change management. Clients, according to Warren, have been interested in not only the solutions but also what Atos did with its e-car fleet, remanufactured laptops and even its branding around carbon reduction.

Additionally, Atos built a carbon data platform internally, which the vendor now offers to clients as a tool, branded as MyCO2Compass, within a sustainability engagement or as a single offering within a subscription base. Perhaps the best summation of Atos’ approach to selling its own record as a means of selling its services comes from the vendor’s list of company credentials, which begins with: “Net zero is key to Atos’ raison d’être.”

According to TBR’s March 2022 Digital Transformation: Cross-Vendor Analysis:

“As most enterprises consider sustainability to be part of broader DT programs rather than stand-alone initiatives, it is not surprising that buyers rank working knowledge of sustainability services-related compliance risk and privacy issues as the most critical attribute for vendor selection as they want to minimize business disruption.

“Vendors’ market awareness backed by ongoing industry knowledge and investments in their own sustainability programs also rank among the most critical attributes, as vendors that can demonstrate business outcomes through industry-aligned use cases typically alleviate buyer concerns around new investments.

“Becoming customer zero is a well-known approach, particularly around sustainability, as it can accelerate vendors’ opportunities in the space and supports them in two ways: first, as a PR vehicle and second, in building the necessary use case for conducting workshops. Price was among the important, but least critical, attributes for vendor selection, suggesting buyers are mostly in the exploratory stages and competition on the vendors’ side has yet to intensify.”

One last point on customer zero: As noted above, Atos’ sustainability engagements have mostly been in Europe, which could potentially be played as a strength in two ways. First, Atos’ efforts to meet European standards and regulations should resonate well with a predominantly European client base. Second, if Europe turns out to be a test bed for environmental regulation, as countries in other regions begin adopting similar legislation and monitoring and reporting structures, Atos will be able to demonstrate its own successful adaption to clients in those non-European jurisdictions.

Appealing to technologists through science

Finally, Atos leads with science, in a manner perhaps unique in the IT services space. Of course, all IT services vendors lead with and lean on technology, but Atos’ approach comes across as more foundationally rooted in a scientific approach to solving business, technology, operational and — in this case — global problems.

The Atos Scientific and Expert communities provide research and promote Atos’ approach to solving technology-related problems. And throughout the sustainability discussion and in countless briefings over the last dozen years, Atos has consistently placed the scienced-based core of its offerings at the forefront. Warren and Hanckmann mentioned science-based net-zero target setting, cooperation with universities around climate research, and 160 patents relating to decarbonization and energy efficiency.

Warren noted, “Decarbonization is embedded in everything Atos does, and we’re working with R&D teams to devise reliable and tangible actions to deliver on carbon commitments in deals,” further cementing the scientific emphasis. In TBR’s view, Atos would benefit from leaning even more heavily into a science-based brand. Atos’ capabilities are rooted in science, not just ideas. While every IT services buyer prioritizes differently — and perhaps European buyers, especially around sustainability, are bit more technology-oriented in contrast to U.S. buyers looking for consulting — most CIOs and CTOs, Atos’ core buyer personas, appreciate the emphasis on science and data.

According to the same TBR digital transformation research as cited above, “Regional differences in vendor selection criteria underscore the importance of employing a localized go-to-market approach. For example, the top vendor attribute in North America was price, while in Europe respondents ranked vendors’ sustainability services scope as No. 1. In APAC, working knowledge of sustainability services-related compliance risk and privacy issues was the top factor. We see European buyers as the most mature in both road mapping and executing around their sustainability initiatives as regional legislation requires compliance in certain areas, thus creating broader opportunities for vendors with comprehensive portfolio offerings that can also rely on and manage partner ecosystems.”

Can Atos’ approach maintain sustainability?

In TBR’s view, Atos’ current leadership around sustainability stems in part from the combination in full of these three characteristics: willingness to play across a wide ecosystem, dedication to implementing internally first and then rolling out solutions to clients, and leading with a science-based approach.

Atos’ continuing leadership role in the sustainability space may also depend on these characteristics, as a potential global recession, continued high inflation, and an overall weariness of climate change challenges diminish buyers’ willingness to spend on decarbonization efforts. By being able to tap into a wide range of solutions through partners and the continued ability to demonstrate decarbonization and financial success, all underpinned by relentless science, Atos may be part of the overall effort to keep up the necessary pressure to maintain corporate interest around sustainability. A tall order, but no doubt a welcome challenge for a company that has made net zero integral to its overall mission.

Atos’ sustainability capabilities extend beyond what we have described above, and in the coming months, TBR will examine Atos’ and other IT services vendors’ and consultancies’ decarbonization efforts and offerings in greater detail, in both the individual vendor reports and the upcoming Decarbonization Market Landscape.

From annual and manual to an automated, measured, and sustainable reporting

In early May, TBR met with PwC’s Casey Herman, the firm’s US ESG Leader and a longtime PwC Partner, to discuss PwC’s views regarding developments around sustainability and decarbonization. Herman explained that PwC’s clients increasingly understand the need to apply enterprisewide accountability to sustainability efforts, including bringing investments, measuring and reporting of standardized metrics up to par with financial disclosures and responsible corporate governance.

Unlike traditional accounting systems and processes IT, which have benefited from decades of development around ERP systems and recent advances in automation, sustainability reporting often remains “annual and manual,” in Herman’s colorful turn of phrase. For enterprises, he added, quantifying the impact of moving to sustainable operations, either through self-imposed changes or legal and regulatory compliance, will be key to change and success. And just as IT and financial decision-making benefits from consistent, reliable, and frequent metrics, sustainability will also need to move to a more frequent basis, with more standardized inputs and outcomes.

What clients need and what the SEC wants

Helping to accelerate that change — potentially — the Securities and Exchange Commission’s (SEC) March 21, 2022, release of proposed rules around climate change disclosures gave U.S. companies and consultancies, like PwC, a clear and defined rallying point for understanding near-term climate change strategies and goals. Road maps, data orchestration, change management and, of course, governance, risk and compliance can now all circle back to these proposed rules, expected changes and likely timelines. When TBR asked Herman what, other than the weight of the SEC, might compel companies to fully embrace these changes, he suggested that compensation metrics tied specifically to hitting sustainability goals will likely be the most compelling force. He noted that the market’s two greatest needs at present — automation and quantifiable results from shifting to sustainable operations — remained unmet, but the SEC’s proposed requirements could accelerate progress on both.

According to Herman, the proposed SEC guidance asks companies to do three things:

1. Disclose climate-related risks that may have a material impact on assets and the business.
2. Disclose, and subject to third-party assurance, Scope 1 and Scope 2 emissions, and disclose Scope 3 emissions if they are material or if the company’s sustainability goals include Scope 3. Herman added that Scope 3 is “an estimate, not a measurement,” which may be why the SEC has not added an attest requirement for Scope 3.
3. Include a footnote in financial statements describing any historical costs and investments directly related to the impact and remediation of severe weather events and mitigating risks related to climate change — essentially, what has the company already spent on these efforts. Notably, because the SEC proposes this requirement be in a footnote, it too would be audited.

Herman speculated the timeline for adopting these requirements could be pushed beyond the presently proposed 2023 start date (reported in 2024) and that the phasing of the audit requirements may evolve through the public comment period and subsequent SEC revisions.

What PwC can do for clients: enable measurement, plan for success and implement change

After detailing PwC’s views on the SEC’s proposed rules, Herman circled back to how PwC helps their clients, outlining four essential services:

1. Assisting clients with their reporting, valuation, and measurement of key metrics and KPI aspects related to sustainability — Based on the firm’s heritage and current capabilities, Herman noted, “we do this quite well.”
2. Technology enablement of reporting, valuation, and measurement — Herman explained that most clients use non-enterprise grade technology for their valuation and measurement (the “annual and manual”), which lack automation, AI and dynamic decision-making tools. PwC, in TBR’s view, has invested heavily in recent years to accelerate and amplify the firm’s technology capabilities, including around automation, low-code, and AI platforms, positioning it well for the next technology evolution in sustainability.
3. Net zero strategies and sustainable business strategies — Similar to valuation and measurement, strategic planning and governance are firmly within PwC’s wheelhouse.
4. Implementation (of all the above) — Including organizational culture and change management, tax strategy consulting, and other related ESG services and solutions associated with sustainability and decarbonization.

In TBR’s view, PwC’s range of services reflect the firm’s evolution toward a technology-forward company still rooted in its core competencies and legacy values.

Regulatory pressures and consulting capabilities sustain sustainability

Sustainability trended before, and already the signs of a global recession, lingering supply chain challenges, and an ongoing war in Europe threaten to return sustainability and decarbonization to the back burner. TBR pressed Herman on what might compel change this time. Why will companies invest in new technologies and adopt new reporting requirements, other than to do the minimum to meet regulations? Herman suggested TBR follow the money. When metrics around decarbonization drive investor, lender and customers decisions, as well as potentially compensation, particularly within the C-Suite, enterprises will adjust accordingly and put meaningful investments into measuring and sustaining their sustainability goals.

In TBR’s view, two other intertwined forces may likely be accelerants to adoption: political pressures to meaningfully enact and then enforce the SEC’s proposed rules combined with consultancies and technology vendors leveraging those pressures to move their clients to act. Sarbanes-Oxley and Dodd-Frank come to mind when considering how regulatory pressures may create a favorable climate for consulting services around sustainability.

We believe, if the SEC’s rules reach adoption and credible, consistent enforcement, PwC may increasingly become a necessary sustainability collaborator for the firm’s clients. Even uncertainty around the regulations, timeline, scope and enforcement plays to PwC’s strengths in being positioned to provide clients with essential advice in staying on the right side of climate change while securing growth and reducing risk.

In July TBR will publish a Decarbonization Market Landscape examining the commitments, investments and actions to date around decarbonization by a select group of IT services vendors and consultancies. We will also detail the offerings those vendors bring to their clients to help with reaching decarbonization outcomes. Access this new report as soon as it publishes with a 60-day free trial of TBR Insight Center™.

PwC’s ambitious Industry Cloud strategy aims directly at heart of current trends

After spending an afternoon at PwC’s Boston Seaport offices in late March, TBR came away with a clearer picture of how the firm is centralizing its capabilities into solutions to be utilized in client engagements. It is a strategy that has been developed cautiously and thoughtfully over time, mirroring the firm’s overall evolution of the last few years, which has been both methodical and ambitious. The new Industry Cloud strategy is firmly in line with the company’s DNA but is also aligned with the most current trends in the cloud market, namely services, collaboration with partners, and industry alliances and preconfigured ecosystems.

The importance of services in cloud adoption and utilization has only increased over the last two years. The migration of mission-critical workloads and skills shortages have stoked demand for third-party firms to help implement and manage cloud solutions. PwC is tightly integrating services with all the cloud assets being deployed for the firm’s customers, which is an evolution of the long-standing Integrated Solutions program, incorporating the best of PwC’s consulting business across all platforms.

PwC’s Alliance strategy is integral to the Industry Cloud strategy, and through these collaborations, PwC is selecting well accepted and widely adopted cloud technologies to include in the firm’s recommended cloud solution frameworks, then filling the gaps between those individual technologies. The key is not trying to recreate the wheel with technology that already exists but using alliances to bring the leading solutions together across multiple vendors. It ties into broader PwC strategies to use automation, scale and commonalities to reduce deployments times by as much as half in some cases.

A key tenet of PwC’s strategy is also to build common cloud services that bring industry and sector-specific practices and prebuilt configurations to accelerate adoption timelines and reduce custom work. For a variety of reasons, customers are looking for diversity in their IT and cloud vendor landscapes, and PwC’s open solution frameworks cater to that desire. Lastly, industry specificity is an emergent trend in cloud. PwC is addressing the industry specialization void in the market by bringing together industry-leading technologies, tying them together with an integration fabric, and filling any gaps with its own services and innovation based on PwC’s deep experience and investments. These solutions can then enable customer business transformation spanning the front, middle and back office.

Industry customization ties the solutions together, as it as it reduces the need for custom services and is done in tight collaboration with cloud vendors’ technology. In this special report we detail these trends and PwC’s cloud strategy. However, in short, we see PwC’s strategy as being well developed and aligned not only to its core DNA but also to some of the most current trends and developments occurring in the market.

Industry cloud is moving from a nice-to-have to a must-have

Enterprise maturity around horizontal cloud capabilities has resulted in a growing appetite for solution customization built around highly nuanced, industry-centric needs. This rising need will be addressed by both cloud vendors and services firms like PwC. Vendors have traditionally leveraged partnerships to add vertical functionality and go-to-market support to their solution sets, but that strategy has become even more aggressive recently, with multiple acquisitions being announced.

Oracle’s (NYSE: ORCL) intended acquisition of Cerner, Microsoft’s (Nasdaq: MFST) purchase of Nuance, and Salesforce’s (NYSE: CRM) strong alliance with Veeva (NYSE: VEEV) are all examples of how vendors are investing to offer more industry functionality to customers. Cloud vendors are also supporting industry-based go-to-market ambitions by augmenting their approach with an increased reliance on ecosystem partners across the IT continuum.

While tech partnerships have accelerated industry-based solution design and development, evidenced by Microsoft’s partnerships with both Rockwell (NYSE: ROK) and Honeywell (Nasdaq: HON), engagement with IT services entities will be just as critical to facilitating adoption among customers with industry-fluent advisory, road-mapping and implementation support services.

Specifically, in venues like industrial manufacturing, client DNA is rooted in hardware legacy organizational models and waterfall innovation and many clients lack not only the knowledge to support software-driven business models but also an understanding around the outcomes emerging technology — be it cloud, IoT or AI — can bring to their operations. This knowledge gap plays to the strengths of the professional services side of the IT spectrum, where innovation centers pair educational resources with business cases to provide prospective clients with an understanding as to what their own digital transformation (DT) could look like.

Not only has vendor activity with industry cloud picked up, so too have financial results as end customers increase adoption of these solutions. As shown above, customers see industry cloud capabilities as value-add elements of their cloud technologies, notably with the ability to free up resources being the least cited benefit. The ability of industry cloud offerings to first meet regulatory requirements and then also match the unique business and IT workflows within certain industries are the most compelling benefits, according to TBR’s 2H21 Cloud Applications Customer Research.

TBR’s perspective on PwC’s alignment with industry cloud trends: ‘Micro alliance activation’

• • • PwC is not “boiling the ocean” with its approach to Industry Cloud, instead focusing on heavily regulated industries as the firm looks for ways to not only meet regulatory requirements but also leverage investments to competitively differentiate itself with enhanced time to market and ongoing operational excellence, While many vendors on the technology side have taken an even more focused approach to industries, we believe PwC’s strategy is appropriate for the firm, given its partner-driven engagement focus and existing presence within the industries.
    • PwC’s approach aligns to the third most selected benefit of industry cloud: “We are in the early phase of cloud adoption and are pursuing industry cloud services as a preliminary step in the process.” Many companies are still in an early stage of their cloud adoption. Regulations are more stringent in these industries, creating real and perceived barriers to adoption. In many ways, industry cloud is the ramp these customers need to get started using cloud in more significant ways as part of their IT strategy.

Cloud partnerships are moving from important to critical

The shift to partner-led growth is not a new trend but is being further legitimized in 2022. Growth from indirect, partner-led revenue streams have been outpacing direct go-to-market efforts for several years, but indirect revenue is reaching a new level of scale and significance in the market.

TBR estimates indirect cloud revenue is approaching 25% of the total cloud market opportunity, which is a significant milestone. For reference, in traditional IT and software, indirect revenue represents somewhere between 30% and 40% of revenue streams. We expect the indirect portion of the cloud segment to surpass that level within five years, approaching half of the market opportunity within the next decade. For all cloud vendors, the combination of short-term growth and long-term scale makes partnerships an increasingly critical element of their business strategy.

Partner ecosystems have been a core part of the IT business model for decades, but the developments around cloud will be different for various reasons, primarily because the labor-based, logistical tasks of traditional IT are largely unnecessary in the cloud model.

For cloud vendors and their partners to succeed in growing the cloud market, they both need to be focused on enabling business value for the end customer. Traditional custom development becomes cloud solution integration. Outsourcing and hosting are less valuable, while managed services are far more variable for cloud solutions. To capture this growing and sizeable opportunity in 2022, we expect companies will adapt their partner business models and vendor program structures to align with vibrant cloud ecosystems.

TBR’s perspective on PwC’s partner strategy

• • • PwC is being proactive in how it leverages alliances, recognizing that winners in industry cloud rely on alliances and that the industry data model is only as good as the ISV solutions that run on top. Within PwC, these relationships are supported by joint business relationships and alliance groups with front-office, middle-office and back-office players, as well as the cloud service providers (CSPs) that go to market with PwC as part of the Journeys model. PwC is being selective about the vendors and technologies it recommends, focusing on leading providers like Amazon Web Services (AWS) (Nasdaq: AMZN) and Microsoft to both offer the most widely used solutions and simplify its alliances.
    • By combining the IaaS and SaaS capabilities of alliances with its own products and accelerators, PwC enables integration points in a platform-like approach. While not a PaaS offering in itself, PwC’s Common Cloud Services Platform, which targets custom Journeys for a specific industry in an end-to-end fashion, should create a high degree of stickiness.
    • PwC is emulating some best practices of its alliances, including the leading cloud service providers (CSPs) and ERP vendors. Further, some of ServiceNow’s success stems from selective innovation and deciding early on where it wishes to develop versus leveraging partners. PwC takes a similar approach, focusing custom development investments on whitespace markets while layering the capabilities of its partners on top of new solutions.
    • One of the most notable obstacles facing PwC is a degree of competitive overlap between PwC and cloud vendors it has collaborated with that are similarly working with industry consortiums to stitch together end-to-end systems. Where PwC stands to benefit in this regard is through its roots as a services firm; unlike some of the product-first competitors overlapping with the Industry Cloud strategy, PwC is going to market first with tech-enabled services that can then get clients exposed to products.

Traditional designations are morphing as value moves to IP development and managed services

In the traditional IT partner model, the business models of partners — such as reseller, systems integrator and ISV — were used to segment partner programs. Cloud has disrupted the traditional model, with born-in-the-cloud partners competing in various activities to optimize their revenue streams and traditional partners expanding their business models to sustain their financials.

As a result, resellers can develop their own solutions and IP, while systems integrators sell and resell their own software solutions and ISVs offer their own managed services. It is common for partners to have multiple business models, making the traditional designations too restrictive.

The other area of strong demand from customers, driving enhanced focus from cloud vendors, is in managed services. Increased cloud adoption has led to higher cloud complexity for many customers, leading to more challenging tasks to provide ongoing administration, integration and operations of the environment. This increasing complexity coincides with a historic shortage of personnel with cloud expertise, driving demand for managed service offerings from third-party providers to fill the gap. As a result, we expect managed services to be the fastest-growing segment of the cloud professional services market, reaching $75 billion by 2026.

Cloud vendors like AWS, Google (Nasdaq: GOOGL) and Microsoft have a vested interest in nurturing their managed service ecosystems to facilitate new investments from their cloud customers. Considering these trends and the likely erosion of legacy services lines by software and managed services, it is critical for consulting-led firms to diversify with serviceable assets that go beyond the underlying modules. While some of its Big Four competitors are similarly recognizing this trend, PwC appears to have caught on to the fact that software and services require vastly different sales models and dedicated teams for successful execution.

With Industry Cloud, PwC serves as consultant, ISV and managed service provider

Using the term Journeys is an apt description of how PwC intends to engage with customers around these solutions. It is not just a cloud technology implementation; there is upfront design and consulting, implementation of both off-the-shelf cloud technology and custom PwC IP to align solutions to industry, and finally provision of managed services to simplify ongoing operations. That is a lot of activity, but it reflects what customers need and want from these types of implementations. It is taking PwC beyond traditional services and value propositions with clients, but it aligns with where customers and the market are heading.

While the framework for Industry Cloud is compelling, it will no doubt be a challenge to execute on the vision. Expanding beyond traditional consulting business roles and activities and maintaining cohesiveness can be challenging, but as we have seen in recent years, PwC has been quite adept at reinventing itself, so we expect the firm to overcome these challenges. Alliance management, cloud service development, packaging and pricing are all competencies being developed within PwC to execute on more Industry Cloud opportunities.

TBR attended IBM Think in a virtual format for the third consecutive year, and this time around we sensed a new IBM. No longer beholden to its low-margin managed infrastructure services business, IBM is emerging a more agile, streamlined and focused organization, especially as it looks to lead the digital revolution through two overarching areas: getting customers to embrace a hybrid architecture and helping them unlock data-driven insights through AI.

This strategic pivot was driven home not only by high-level executives, including CEO Arvind Krishna himself in an exclusive Q&A session with the analyst community, but also through the various partnership announcements, service launches and upskilling programs unveiled over the course of the interactive, two-day event.

Through Red Hat, Software and Consulting, IBM has created an end-to-end approach to unlocking hybrid cloud’s value

Closing in on the three-year anniversary of its acquisition of Red Hat, IBM (NYSE: IBM) continues to execute on its hybrid cloud vision, offering the services and software needed to integrate and orchestrate enterprise workloads across multiple environments. With the exception of some mono cloud and data center-only customers, enterprises are largely heterogenous in how they consume IT, drawing on multiple architectures, vendors and environments.

Considering IBM’s large legacy software install base and ties to the mainframe, this trend bodes well for the company as it can leverage Red Hat OpenShift — which now has roughly four times the number of customers it had prior to the acquisition — to unlock siloed data and extend it to any public cloud. The challenge, however, as articulated by Roger Premo, general manager, corporate development and strategy, is that getting greenfield applications to the cloud is only Step 1 in achieving a scalable hybrid cloud framework, yet the amount of time, level of skills needed and executive-level pushback are some of the factors that keep enterprises from expanding on their lift-and-shift investments.

Hoping to advance customers through the containerization, operational change and replatforming phases of hybrid cloud adoption, IBM is revamping its go-to-market model, closely aligning the Software and Consulting business units to address customer needs end to end. For instance, IBM Consulting is invested in the technology behind IBM’s hybrid cloud and AI vision, providing clients the tools needed to provision their own hybrid environments, which, as phases of adoption become more complicated, will naturally pull in more automation, observability and AI assets, as well as additional advisory assistance to help determine which clouds are best suited to which workloads.

Specifically, Premo highlighted the data fabric, which has grown synonymous with IBM Cloud Pak for Data, as one of the technology pieces underpinning IBM Consulting’s value proposition for building and modernizing applications in a hybrid cloud environment. While IBM is still committed to supporting legacy data warehouses and on-premises databases, the company is likely encouraging customers to adopt the data fabric for integrated capabilities that help simplify data management, such as cataloging and automated governance. Essentially an ecosystem of data powered by active metadata, IBM’s data fabric allows various AI offerings, from decision intelligence to machine learning, to run in any environment, while maintaining a common, governed framework.

IBM’s partner strategy continues to evolve post-Red Hat

IBM has always prided itself on having a broad partner ecosystem but appears to be taking a page out of Red Hat’s playbook by creating a more open position in how it goes to market. For instance, as a full-stack vendor specializing in infrastructure, platform software and professional services, IBM naturally runs up against competition in many areas but appears more willing to risk coopetition to do what is in the best interests of the customer.

TBR notes this is a stark contrast from the SoftLayer days, when IBM seemed more concerned with protecting its direct business interests. Today, Big Blue is absorbing more of Red Hat’s operational best practices and is investing in dedicated teams across the ecosystem, including niche ISVs, hyperscalers, global systems integrators (GSIs), advisory firms and monolithic SaaS companies. At the same time, preserving Red Hat’s independence remains equally important, and as Premo indicates, the relationship between IBM and Red Hat is asymmetrical in that IBM is biased toward Red Hat but Red Hat is not biased toward IBM.

IBM inks strategic partner agreement with AWS to scale ‘as a Service’ software

In one of the more newsworthy announcements at IBM Think Digital 2022, IBM unveiled it is working with Amazon Web Services (AWS) (Nasdaq: AMZN) as part of a multiyear agreement that brings the IBM Software portfolio, delivered “as a Service,” to AWS’ cloud infrastructure. Customers can now take advantage of the popular click-to-buy experience on the AWS Marketplace to run IBM data and automation assets, including Db2, API Connect and Watson Orchestrate, among others, in an AWS environment. This partnership announcement is a testament to the major strategy shift IBM made three years ago when it acquired Red Hat and standardized on the OpenShift platform, which, being based on Linux and containers, makes the platform and subsequent IBM software applicable on any infrastructure, including AWS.

This platform approach is also providing IBM the flexibility to adapt alongside changing customer buying habits, including a shift toward cloud managed services, which is the fastest-growing usage of OpenShift and prompted the launch of Red Hat OpenShift on AWS (ROSA) at last year’s Red Hat Summit. Customers looking to offload operations to site reliability engineers (SREs) will be able to deploy IBM SaaS offerings integrated with ROSA as a managed service, although IBM is continuing to support customers looking to protect their capex investments as there are over 30 IBM licensed software offerings available on the AWS Marketplace. Expanding service availability is only one part of the partner agreement as IBM indicates it will work with AWS in other areas, including co-selling and co-marketing initiatives that could engage AWS sales teams and help IBM further tap into AWS’ expansive customer base.

Strategically, IBM is staying the course with its strategy, leveraging Red Hat’s neutral status and integrations with hyperscalers to sell more software and attached services. Offering IBM SaaS on AWS is a strategic move as it will allow IBM to address customers that have years of experience running IBM software but want the scale of AWS’ cloud infrastructure, which TBR interprets as IBM prioritizing partner clouds at the expense of its own so it can focus solely on OpenShift and Software. Further, as IBM looks to grow its software business, particularly through the monetization of “as a Service” models built on OpenShift, leveraging partner marketplaces will be key, especially considering IBM lacks marketplace capabilities at scale and IT procurement continues to rally around the digital catalogs of AWS, Microsoft (Nasdaq: MSFT) and Google Cloud (Nasdaq: GOOGL).

Use of RISE with SAP internally aligns with IBM’s vision to bring legacy ERP to the hybrid cloud

IBM joined the roster of 1,000-plus RISE with SAP customers, announcing it is migrating to SAP Business Suite 4 HANA (S/4HANA) to streamline business operations across its Software, Infrastructure and Consulting units. This announcement comes just months after IBM unveiled a new supplier option via the BREAKTHROUGH with IBM for RISE with SAP program, which enables customers to bundle professional services with IBM IaaS offerings as part of a unified contract and set of service-level agreements (SLAs).

IBM’s new migration project will leverage the premium supplier option and bring over 375 terabytes of on-premises data to IBM Power on Red Hat Enterprise Linux (RHEL) on IBM Cloud. While IBM is partnering with GSIs in many areas, SAP (NYSE: SAP) implementations is likely one of the areas where competition is fiercer between IBM and its peers, especially as the end-of-life deadline for legacy SAP R3 approaches. However, the premium supplier option paired with IBM’s over 38,000 trained SAP consultants could help the company better tap into SAP’s base of over 30,000 on-premises ERP customers and challenge the likes of Accenture (NYSE: ACN) and Deloitte.

Gathering in person again for the first time since 2019, EY hosted around 200 blockchain enthusiasts for a full day of presentations, panel discussions and deep dives into the technologies, business use cases and ongoing challenges around the entire blockchain ecosystem, from cryptocurrencies to decentralized autonomous organizations (DAOs) to smart contracts. TBR attended EY Blockchain Summit both in person and virtually and spoke with EY leaders, EY clients, and entrepreneurs using the event to better understand blockchain. Following the in-person event, EY held virtual sessions for three additional days, tailored to practitioners and focused on specific use cases and technologies.

Evolving public blockchain for the masses to enterprise-ready solutions positions EY among the key ecosystem enablers

At every EY Blockchain Summit, TBR has been bowled over by the vision, clarity and passion EY brings and the diverse perspectives and commercial opportunities discussed both freely and critically. No good idea goes unspoken, and no questionable idea passes unscathed. In all these aspects, the May 17 summit in New York City — a welcome return to in-person gatherings — echoed previous summits, including an opening presentation by Paul Brody, EY’s unique blockchain proselytizer (and the firm’s global blockchain leader).

The overarching theme, in contrast to past events, centered on unlocking enterprise use cases, with EY facilitating adoption and adequately addressing privacy on the public blockchain. While last year’s summit featured extensive examinations of cryptocurrencies, central bank digital currencies and decentralized finance (DeFi), Brody and EY kept this year’s focus on getting to scaled adoption of blockchain such that blockchains do for business ecosystems what ERP did for the enterprise.

Numerous presenters and panelists took the discussion far afield, into questions such as the future of the dollar and the value of decentralized autonomous organizations, but Brody and his EY colleagues consistently presented a firm with the right strategy, investments, tool sets, alliances and leadership to act as a good shepherd for blockchain, advising clients on adoption and helping to shape a sustained push to Ethereum as the dominant ecosystem platform.

In TBR’s view, unrestrained passion for blockchain, bolstered by R&D investments (see below) and combined with a Big Four mentality around risk, compliance and consulting for large-scale enterprises, will continue to differentiate EY from peers, a separation that will become financially significant should Brody’s optimistic projections for blockchain’s revenue potential play out.

EY plus Polygon Nightfall makes Ethereum enterprise ready

Brody’s opening monologue covered the vast blockchain space, including three “killer apps,” cryptocurrencies, DeFi and DAOs, and predicted exponential growth for blockchain over the next 15 years. He hammered home the dominance of the Ethereum platform, which he described as “demonstrating all the process maturity you would expect from essential infrastructure.” And he described non-fungible tokens (NFTs) as one of the “most mature use cases” and heading for “mainstream adoption.” In this constantly changing space, Brody centered EY’s value on helping enterprises build, run and manage secure business processes on the Ethereum blockchain. To explain EY’s case, Brody helpfully provided his firm’s “secret plan for world domination” and its four component parts — essentially, advise, build, enable, and manage (tax included).

Circling back to a theme that has surfaced repeatedly at these blockchain summits, Brody said that EY understands enterprises will move to public blockchains when they are assured of privacy — not anonymity — and that the firm has worked to make that privacy possible through a partnership with Polygon Nightfall, a “privacy-centric Layer 2 network built on technology developed by EY teams and placed in the public domain.” TBR cannot assess the technological aspects of Polygon Nightfall, but two critical elements stand out from Brody’s presentation of it: First, EY dedicated people and money toward developing the technology, likely included as part of the firm’s planned $200 million in blockchain R&D spend in 2021, up from $100 million in 2021. Second, the firm released the technology into the public domain, demonstrably committing to public blockchains and EY’s role as a positive force in the ecosystem. Critically, Polygon Nightfall neatly complements EY’s existing blockchain solutions EY OpsChain and EY Blockchain Analyzer, which Brody explained the firm had expanded in the last year.

• • EY OpsChain, which notarizes documents, tokenizes assets, mints NFTs, traces raw materials and manages procurement, had a full production launch for traceability and a beta launch for application programming interface (API) services and inventory management. The latter two are critical to connecting networks and enabling the shift to smart supply chains, tying back to Brody’s suggestion that blockchain will be the ERP equivalent change agent for business networks.
  • EY Blockchain Analyzer, previously only available to EY audit clients, has been opened to non-audit clients, broadening the reach of EY blockchain software with an eye toward the 35x investment yield Brody stressed happens as emerging technologies move into early and later majority adoption over a 15-year period. The product, which reconciles transactions, tests smart contracts and calculates capital gains, has added functionality for reviewing and more options for testing smart contracts (see below). Users can now create, save and share custom tests.

Brody netted out the two suites as covering the essentials of every asset, business process and industry, with every transaction consisting, in his words, of “money, stuff, swap, subject to agreement.”

Vision, execution, results: EY’s track record in blockchain has yet to be challenged

Brody’s opening tour d’horizon highlighted the biggest blockchain trends and EY’s latest developments while also, in TBR’s view, subtly understating EY’s core value to its blockchain clients and the blockchain ecosystem. The firm’s investments include R&D and people — not just the techies capable of developing solutions like Blockchain Analyzer and the rest but also the consultants who can explain the business value and the tax, audit and risk experts who can help clients understand the effects of blockchain on their enterprise. The tool sets, which may be the most underrated but critical aspect of EY’s approach, demonstrate EY goes beyond just hyping, advising and implementing others’ technologies and into developing its own solutions and putting the EY brand — trusted, humans at the center — behind those solutions. A yearslong effort, these tools, along with the people, institutional knowledge and stress-tested capabilities, cannot be easily replicated by competitors. In essence, EY brings consulting and trusted technology into a space littered with hype and opportunities.

We cannot help but repeat what we said one year ago: “But trust, along with translating government intentions to trackable compliance checks, will remain the last bastion of business value in an otherwise commoditized state of the technology industry as we will come to know it as more legacy players fall victim to creative destruction and Moore’s Law Economics. EY, and more specifically, Brody, has a more clear line of sight on how public blockchain networks will evolve on par with the way the public internet evolved than anyone in the technology industry today. It would be foolish to bet against them and wise to partner with them.”

TBR did note the seeming absence of at least one of EY’s traditional blockchain partners, indicating the firm’s maturity in this space may be outpacing previously strategic partners, a development TBR will watch closely over the remainder of 2022. After Brody’s opening, the next round of presentations and panels dove deeper into specific themes and challenges in the blockchain space. Everyone — academics, bitcoin bros, bankers and solarpunks — buys into Brody’s assertion that $1 in blockchain revenue today will be $36 to $40 in blockchain revenue in 15 years.

Smart contracts are proven use cases, helping EY scale up its blockchain portfolio

In addition to the morning plenary, TBR attended an afternoon session on testing the functionality of smart contracts on EY’s Blockchain Analyzer. The presentation and demonstration, led by Sam Davies, EY global blockchain platform lead and engineering manager, and Karin Flieswasser, product owner of EY Blockchain Analyzer: Smart Contract & Token Review, helped participants understand EY’s tools, beginning with the strategies and philosophies behind specific capabilities, restrictions and attributes. (Note: TBR has listened to countless product demonstrations and has rarely heard a description of the mindset going into improving a product and the very basic “why” a solution could and should be changed. This was a welcome change from the assumption everyone would know the thinking behind the technology.)

Over the course of the hour, Davies and Flieswasser demonstrated various permutations of a use case that undoubtedly resonates with administrators of smart contracts wondering, “How can I be sure this thing will work the right way?” Davies began the discussion by detailing a few smart contracts gone wrong, and Flieswasser then described how EY’s Blockchain Analyzer Smart Contract Testing and Review system could have forestalled those issues.

In recent years, blockchain clients (and potential adopters) have consistently told TBR that reluctance to adopting smart contracts begins with uncertainty about the human element, not the technology. With that in mind, two elements of Davies and Flieswasser’s presentation stood out for TBR. First, the tool itself appeared to be intuitive and user-friendly, with every option, drop-down, task and function self-explanatory — a welcome respite from the usual hyper-tech talk around blockchain. Considering people tasked with administering smart contracts may more likely reside in procurement, supply chain management or even human resources, keeping the tech simple to use will likely accelerate adoption. Second, all of the testing and review perfectly mimic on-chain realities without actually using, compromising or changing any on-chain data.

While that should be an obvious characteristic, Flieswasser repeatedly emphasized the point — and took clarifying questions on it — leading TBR to believe this feature figures prominently in the risk management concerns of enterprise smart contract administrators. Lastly, the two presenters themselves, hailing from the U.K. and Israel, reinforced the global nature of EY’s blockchain Practice, and during a post-session discussion, Flieswasser noted the Blockchain Analyzer team is relatively small and geographically diverse. In TBR’s view, smart contracts can be a readily understood blockchain use case and may be one of the quiet catalysts for enterprise ecosystems’ blockchain adoption. Making smart contracts less risky by deploying easy-to-use test and review systems will likely be a critical element to accelerating adoption.

Crypto’s hope and hype are dashed by the history of money, bolstering EY’s role as the community shepherd

If the past is also the prologue for EY innovation, then EY’s foray into smart money tied to smart contracts will likely start in the consumer space. Just as EY’s first scaled blockchain use case was assisting Microsoft with tracking developer royalty payments, this concept has test cases starting with loyalty rewards programs and consumer gaming. In this manner, smart money use cases with small-dollar impacts will not roil capital markets. If the technology works, then it can be applied to higher-value situations in both wholesale and retail financial settings.

In his talk Brody made clear a distinction between privacy and anonymity. One blockchain camp stresses anonymity, and Brody and EY are in the privacy camp. To audit and attest business transactions to regulatory agencies, there cannot be anonymity. Privacy, however, protects the information on a need-to-know basis, leaving competitors unable to garner valuable business information regarding private matters such as unit pricing and discount structures.

When it comes to the overall merit of and need for cryptocurrencies, University of Southern California (USC) professor and former U.S. Federal Reserve executive Rodney Ramcharan’s keynote provided a history lesson on the U.S. dollar, offering ample evidence of lessons learned from not having a reserve bank to backstop against runs on a currency. In this regard, fiat currencies and stablecoins tied to fiat currencies rather than to algorithms appear to provide the kind risk mitigation that will be necessary for commerce. Crypto as a wealth store on par with gold is a different application area where risk is unquestionably higher.

In the past two iterations of TBR’s Digital Transformation Blockchain Market Landscape, we have provided some initial analysis on central bank digital currencies (CBDCs) and DeFi with a few developments worth noting, including the recently published paper by the Federal Reserve Board focused on CBDCs, in particular the digital dollar; the U.S. Security and Exchange Commission’s approval of a Boston-based exchange — BOX Exchange — that will use blockchain for faster settlements and potentially enable exchange tokenized securities; and lastly President Joe Biden’s executive order ensuring the responsible development of digital assets, including CBDCs.

The U.S. government’s awareness of and initial interest in CBDCs are steps in the right direction toward recognizing the implications of digital assets for the economy and everyday consumers. However, given the complexity, particularly around reaching consensus among community participants on the governance side, we believe it will be a while before a digital U.S. dollar will be deployed at scale for everyday merchant transactions and trade. The implications between wholesale and retail CBDCs carry risks, scale, speed and rewards. Connecting Main Street and Wall Street economies through blockchain is a necessary step that we believe will have a bigger, broader impact on enterprise buyers’ digital transformation (DT) initiatives. One might see such a framework as a bit of a long shot, but historically, financial services institutions have paved the way in new tech adoption.

Below is a direct quote from a CTO and a blockchain executive we recently spoke to that perfectly summarizes the implications around CBDCs.

“First, you have to differentiate between wholesale and retail. So if I’m talking about wholesale, then I’m probably talking about cross-border transactions between central banks or Tier 1 banks, for example. And so those are low transaction volume but high-value transactions. So that’s very important to get that right, more than anything else. And I can’t afford to have that hack because we’re talking billions of dollars. So, again, the experiments have proven that it can be done cross-protocol. I know I’ve seen some standards proposed in this space, mostly by some folks at Bank for International Settlements.

So they’ve done a lot of CBDC work. There’s a gentleman in Singapore who has proposed that, if you peel back the covers, he’s basically proposing everything should be on Quorum, everything should be on JPM Coin, which I don’t think that’s going to happen. But nice try, buddy. But you could maybe argue, OK, somebody like SWIFT could say, ‘OK, for international banking, at the wholesale level delivery versus payment kinds of scenarios or end up day netting between multiple banks, we can help you come up with a standard between the banks.’ Again, the technology will have to evolve to meet that because if you’re doing integration between the two different protocols, that’s a weak spot. That’s an attack vector for a hack right off the bat. So if I’m a hacker, I’d be looking at that kind of cross-border protocol switching, or integration play.

“Now at the retail level, let’s say we’re talking about replacing U.S. dollars, for example, with digital dollars, whatever. First of all, I’ll believe it when I see it, because the technology has to scale up to those, that level of transaction. But same thing, it could be, ‘OK, I’ve got my digital dollar, I’ve got an app on my iPhone, now I traveled to Japan, should there be an app, or should there be some bridge between the digital yen and the digital dollar?’ I think that’s decades off. If I’m a central bank in Japan, I’m going to be really, really careful about letting people plug into my letting travelers, for example, plug into my network or do conversions of a digital dollar to a digital yen, just again, for fear of the hacks, the fear of attacks. That loss of control, perhaps over the circulation of that digital yen, the only place where that might work. And now we’re really getting political here.

But you could probably argue that the whole reason that China’s doing its digital yuan, for example, is really about social control. So they have the social scoring in China, where, OK, if [someone] talks negatively about the Communist Party, then he gets points added to this, or points deducted from a social score, however it works. But it prevents you from getting credit, for example, prevents you from getting a plane ticket, things like that.

So they’re really trying to control behavior, social behavior with this point scoring system. And forcing everybody to use digital money really plays into that, because OK, now that [someone] has a negative score, I can block his account, I can prevent him from spending money, I can deduct money from his account, that sort of thing. To me, it seems like the digital currency in China really is just an extension of control of the population. And so maybe in that sense, like, if I go visit China, they really would want me to convert to their digital currency, because they could control it. They could see what I do, they could see where I spend it. And they could block me from accessing it if they want to. So yeah, that’s the negative side of that integration that you were talking about. OK. They would let me use their digital currency because they have ulterior motives for doing so.”

Conclusion

In-person events provide opportunities to gather insights and information not shared on a screen or on the plenary stage. Perhaps the two-year absence from being live in New York City helped make the participants more eager to talk. From conversations with blockchain entrepreneurs, crypto-enthusiasts and EY professionals, TBR heard two common themes.

First, the skepticism around cryptocurrencies has not been skeptical enough for what is out there and what is coming. The current split on crypto falls along the lines of regulation versus total anonymity, with regulated, stable currencies having greater potential than the unregulated coins that have roiled capital markets of late. Further, bad actors, present in any ecosystem, would be shaken out if governments regulate the new instruments (history as prologue), provided total anonymity does not win out.

Second, enterprises and the blockchain providers servicing them increasingly see smart contracts as the use case most likely to scale and accelerate blockchain adoption across the enterprise ecosystem. A final nugget specific to EY made the (persuasive) argument that EY’s most successful blockchain-related engagements to date reside in the firm’s Tax and Risk practices. In TBR’s view, the fact that EY is doubling its R&D spend in blockchain yet earning the most blockchain-related revenue in its legacy practices may be the most compelling evidence of the firm’s all-in bet on blockchain.