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Past is prologue for EY and the blockchain ecosystem

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.


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Blockchain, sustainability and IT services

Join Practice Manager Patrick Heffernan and TBR’s Professional Services team as they connect evolutions in blockchain-enabled digital transformations and acceleration in adoption of sustainability actions and commitments, all in the context of the fast-changing market for IT services. TBR’s analysts will discuss which vendors will most likely benefit from increased demand around decarbonization and managed services and which vendors are best leveraging their alliances within the wider technology ecosystem..

 

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  3. Atos: Digital twin enables decarbonization

 

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TBR releases exclusive webinar content from 2022 Prediction series

Technology Business Research, Inc. (TBR) announces on-demand availability of all of our 2022 Predictions webinars. Predictions is an annual special series examining market trends and business changes in key markets, such as cloud, IT services, digital transformation and telecom.

TBR releases exclusive webinar content from December 2021

HAMPTON, N.H. (Dec. 29, 2021) — Technology Business Research, Inc. (TBR) announces on-demand availability of its December 2021 webinars, featuring discusses on expectations for innovation and transformation centers in 2022, 5G over the next five years, hardware subscription services growth, and more.

The silver lining of downward pressures that innovation and transformation centers are facing

Members of TBR’s Professional Services team take an in-depth look at how innovation and transformation centers have evolved through the pandemic and what is expected from them in 2022

With IT services again enabling digital transformation, DeFi shifts blockchain into a higher gear

Members of TBR’s Professional Services and Digital teams deep dive into IT services vendors’ investments and activities in APAC as well as discuss beyond the hype of cryptocurrency and what’s next for decentralized finance

How hardware vendors are ramping up subscription services to drive growth

Principal Analyst and Practice Manager Angela Lambert and Senior Analyst Eric Costa discusses trends emerging among hardware subscription services, drivers and inhibitors expected to impact market expansion, TBR’s forecasted market growth, and more

5G market update: Entering the ramp phase of the global build cycle

Principal Analyst Chris Antlitz gives an in-depth, exclusive review of TBR’s 5G Telecom Market Landscape and 5G Telecom Market Forecast, including major developments in the 5G market and an assessment of where the 5G market is trending over the next five years

2022 expectations: Insights from TBR’s Professional Services team

TBR’s Professional Services team looks at which key metrics and markets to look for in early 2022 as indictors for leaders and laggards, how IT services vendors, consultancies and cloud vendors responded to changing customer demands in 2021, and more

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Top 3 Predictions for IT Services in 2022

Sustainability in talent, decarbonization and emerging tech becomes the watchword for IT services

Services is still people, even as compelling new forces like ESG and emerging technologies challenge IT services vendors

Even with a rush of emerging technologies and responses to the pandemic at the forefront of IT services vendors’ strategies and client success stories, the fundamentals of IT services remain rooted in people — in recruiting, training and deploying the right talent to solve IT-related business problems and staff enterprise IT needs. The changes TBR expects in 2022, including new competitors in the war for talent, new opportunities around decarbonization and accelerated adoption of emerging technologies, will not substantially alter IT services vendors’ business models. Differentiation among the vendors, in offerings, capabilities and financial performances, will come more through execution than strategy, at least in the near term. Vendors more adept at pivoting to new revenue streams and more patient with pressured margins will see greater success beyond 2022, provided they are able to adequately navigate talent challenges in the near term.      ​

The vendors that were ahead of the game in 2019 in portfolio and resource expansion around next-generation technology-enabled solutions are experiencing revenue growth improvement in 2021. New growth initiatives, such as around product engineering, supply chain improvement and sustainability, along with steady investments in areas such as hybrid cloud, AI, security, IoT, blockchain and industry-specialized offerings, will continue to expand vendors’ addressable market opportunities and support revenue growth acceleration into 2022. Virtual delivery enables increased productivity but pushes employee utilization to the limits and supports a surge in attrition. Managing talent to market demand, especially as macroeconomic conditions improve and digital exhaustion continues, will be key as IT services vendors strive to ensure service quality requirements are met.​

While the COVID-19 pandemic remains an external factor that can negatively affect IT services spending, subsiding pressures thanks to global vaccine rollouts indicate a potential for continued revenue growth acceleration from the 6% year-to-year revenue growth during the full year 2021 for the 30 vendors in TBR’s IT Services Vendor Benchmark. Moving into 2022, revenues will be driven by a mix of three activities: short-term projects around operational resilience and running businesses; larger transformational engagements that enable clients to improve their business models; and innovation engagements that allow clients to do something completely different — all supported through technology solutions and services.​

2022 IT services predictions

  • Focus on talent management, refined during the pandemic, will recede in a post-pandemic environment
  • The decarbonization shift from promises to actual results opens a massive opportunity for IT services
  • Blockchain winter ends and 5G & edge bloom in 2022, bringing new enhanced revenue streams to IT services

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Telecom Business Research’s 2022 Predictions is a special series examining market trends and business changes in key markets. Covered segments include cloud, telecom, devices, data center, and services & digital.

Accountability comes for decarbonization: KPMG’s Climate Accounting Infrastructure

Are you really cutting carbon emissions?

Not a day goes by without a new sustainability announcement, whether an offering or an acquisition or a commitment to becoming carbon neutral by 202X. Last month McKinsey & Co. announced a new sustainability practice built on an early 2021 acquisition (of U.K.-based Vivid Economics), and earlier this month PwC made a splashy $12 billion commitment to bolster its environmental, social, governance (ESG) practice. As TBR begins assessing IT services vendors and consultancies on both their internal decarbonization commitments and the success or failure of their efforts to draw revenue from clients seeking their advice and solutions implementations around the same, one key focus will be demonstrable, provable, reliably reported and transparent metrics. In short, can you prove you’re as green as you say?

To that end, we’ve been intrigued by KPMG’s Climate Accounting Infrastructure (CAI) offering (detailed in TBR special reports KPMG: Fundamentally what blockchain does is digitize trust and Innovation delivered at scale shapes the course of KPMG’s next chapter as well as our Digital Transformation Blockchain Market Landscape). During the most recent KPMG analyst event, the firm provided further details about CAI, raising new questions for TBR, specifically around CAI adoption and broader climate and sustainability issues. At its core, the blockchain-enabled CAI offering enables clients in the real estate sector and in oil and gas to accurately measure and report their greenhouse emissions. CAI addresses numerous high-priority issues for companies, their employees, regulators and investors, such as transparency, clear and trackable metrics, and has the brand-backing of a Big Four firm, KPMG. So, why haven’t clients jumped onboard quickly?

According to KPMG, most clients’ relative immaturity with respect to ESG generally, and accounting for ESG commitments more specifically, has hindered faster adoption. “Many clients are still in the nascent stages of either formulating or integrating their strategies across the various climate imperatives: decarbonization, energy transition, climate risk, reporting, accounting for Scope 3 (value chain) emissions, etc. Many of our largest, and generally most sophisticated clients, are still putting their ESG infrastructure and processes in place — installing Chief Sustainability officers and their teams, understanding how to operationalize enterprise commitments like net zero, and publishing their first ESG report.” As every aspect of ESG matures, KPMG believes its clients will “understand the value of putting those operational strategies in the context of demonstrating progress toward the enterprise goals with reliable reporting.” We believe this boils down to simply being able to prove you’re as green as you say you are.

Compounding client immaturity, according to KPMG, is regulatory immaturity, which may improve during 2021 if the SEC announces climate disclosure requirements. TBR notes that for the real estate sector in New York City, which is no small sector, regulatory certainty already exists, likely providing some of the early CAI wins for KPMG.

An ecosystem play, from blockchain to data to OT

On broader climate issues, TBR’s recent focus on industrial IoT raised the question for KPMG about its efforts to partner with OEM and OT vendors on filling out the ecosystem around climate accountability. As KPMG is collaborating with physical instrumentation providers, the firm recognizes that “there is a complex, bidirectional road map from policy to data collection and then back. Right now, we’re focusing our efforts within CAI on the ‘data engine’ — the ability to take the physical data, extend/supplement it with enterprise and 3rd party (paid or public) data, and feed that into a robust calculation engine that translates that data into the metrics required for voluntary or compliance disclosures.”

KPMG’s sentiments echo what we heard in the research for our recently published Digital Transformation: IIoT Market Landscape, including this quote from an industrial solutions provider executive: “The other big one, and I want you to put a big red circle on your radar for this, is compliance … there’s a lot of compliance-related activity happening in automotive. There’s a lot of compliance-related activity happening in even your typical industries, from your fresh produce to all the way to lumber.” And we all understand that compliance equals data (or, maybe more accurately, bad data equals bad compliance).

TBR has been seeing increased activity from technology providers, key partners to KPMG, and others in the IT services and consulting ecosystem. Earlier this year, Microsoft updated its January 2020 Moonshot decarbonization initiative with plans to use 100% renewable energy in all data centers by 2025. As TBR said in its 1Q21 Microsoft report, “As part of a 1Q20 update to Microsoft’s Supplier Code of Conduct, entities must disclose their greenhouse gas emissions, which Microsoft uses to assign a tiered carbon tax.”

Similarly, TBR noted in its 1Q21 Salesforce report, “Salesforce launched Sustainability Cloud Scope 3 Hub, a platform that enables businesses to input data on supply chain emissions to better understand how to decarbonize. The platform allows clients to track historical and real-time ESG data. The inclusion of data like ESG will be critical for businesses, especially if government mandates related to carbon emissions are enacted.” While the decarbonization opportunities remain nascent, in TBR’s view these kinds of initiatives benefit consultancies like KPMG, which have accounting expertise and insight on tax policy implications that should resonate with enterprises, particularly those supplying technology companies demanding carbon reporting.

In TBR’s view, KPMG’s CAI stands out as a concrete, easily understandable and likely readily applicable solution to an accelerating issue in ESG — transparently and repeatedly proving to clients, employees and investors that decarbonization promises are being met. As we continue researching vendors’ internal commitments and solutions for clients, we will track the success of KPMG’s CAI and similar offerings, separating the greenwashing from the real results.

EY maintains track record of accurately forecasting and then delivering on the future of blockchain

Paul Brody reiterates past predictions and paints the picture of what he sees on the horizon

It is difficult not to come away from a Paul Brody dissertation on blockchain more excited and optimistic about the transformative power of the technology than when you went in. Compounding the difficulty with taking a contrarian view of Brody’s assertions is the simple fact that he has been right in his predictions from prior years much more often than he has been wrong. The EY partnership seemingly shares this view based on Brody announcing the firm had committed to investing $100 million into his operation to facilitate making his vision a reality.

Highlights from his highly engaging 45-minute opening discussion at EY Global Blockchain Summit 2021:

  • EY made the right bet on public blockchains, which explains why those who embraced private chains earlier on had more highly publicized use cases and why those use cases have seemingly led to the trough of disillusionment.
  • Ecosystem business models are the future. Hub-and-spoke market actions to accelerate adoption do anything but that.
  • Disruption is coming to finance and regulation, and it is coming hard.
  • Programmable money, with Ethereum as the clearing mechanism, will enable the merging of supply chain blockchains with financial transaction chains.
  • Privacy remains a hot-button issue, particularly among the extreme advocates who are not necessarily considering the enterprise requirement for on-chain, permissioned information sharing.
  • Progress will be made; cost optimizing innovations simply cannot be thwarted; they have to be embraced, and blockchain strips cost out of numerous elements of legacy commercial activities across the three pillars of consumers, businesses and governments.

EY’s future-back approach to innovation aligns better to technology adoption than executing against the increasingly anachronistic enterprise-first mentality

“Underneath the business value of blockchain, however, is a rather significant bet to be placed on either deploying public (Ethereum) or private (Hyperledger) blockchains. At the core of this debate rests two issues: the speed of innovation, and the level of security and trust that can be ensured. Innovation, EY argues, happens faster on public networks even if that innovation ameliorates what bad actors inject into the network. In theory at least, even bad actors have a role to play in accelerating innovation by essentially forcing the issues and speeding the time to resolution.” EY blockchain strategy: Betting on public chains with EY advisory for risk mitigation, April 2018

Recent TBR research focusing on blockchain-based supply chain applications indicates blockchain in this context is in the middle of a trough of disillusionment. Brody outlined this idea by way of explaining what EY chose not to do in the past several years. The enterprise-first mentality was a legacy industry success factor when the cost of compute was the limiting factor on digitizing business activity. Continued commoditization and software abstraction increasingly tilts business purchase criteria from infrastructure to productivity gains that software adoption can bring.

Going for large enterprise operating cost improvements led early large-scale initiatives to bet on private chains such as Hyperledger. It followed, in many respects, the Electronic Document Interchange (EDI) playbook of the 1980s and 1990s, called hub-and-spoke, which netted out that the hub could set the standards and the spokes would have no recourse but to follow suit.

EY cited market survey data it believes indicates that private chain had 0.5 participants excluding the founding entity. Additional survey questions stated that 63% of respondents had concern about getting locked into private chains, while 54% believed their existing supplier and service networks were not sufficiently competitive.

Compare and contrast the rollout and now quiet periods for consortiums such as the IBM-Maersk joint venture called TradeLens that took on the monolithic set of interconnected processes that is global trade, and the EY and Microsoft Joint Venture around Royalty Payments that started small, hardened the technology layer, and now provides tangible reference points as they seek to apply this royalty payment shell to multiple use cases. EY states this tracking system for developer royalty payments for games sold through multiple channels has reduced administration costs by 40% and provided a 99% improvement in traceability, from 45 days to less than four minutes, which has enhanced overall community satisfaction.

EY Global Blockchain Summit 2021: TBR has watched the EY Blockchain events blossom in five years from a small coterie of the curious to an army of the passionate. This year’s event had the usual fascinating presentation by EY Blockchain Leader Paul Brody on the current and future state of blockchain’s market maturity that was then reinforced with detailed, technically nuanced breakout sessions that were repurposing of the internal EY Blockchain education modules.

Maritime ports serve as a natural test bed for blockchain ecosystems

Testing smart city concepts, technologies and operations in a semi-confined setting

As detailed in TBR’s most recent Digital Transformation: Blockchain Market Landscape, maritime ports present an intriguing test bed for blockchain technology, given three intertwined elements essential to successful blockchain adoption. First, ports rest at the center of a diverse ecosystem, with players engaging directly on varying cadences, with different technologies and IT infrastructures and collaborative as well as competing needs — in short, a place messy and competitive enough to warrant a comprehensive solution to restrain complexity and digitize trust. (And if you do not believe ports can be messy, corrupt places, watch the second season of HBO’s “The Wire.”) Second, governments typically have a strong interest in port operations, either running them as quasi-governmental entities or regulating and overseeing them to advance national security and local and/or regional economic interests. For blockchain, as has been made clear in this report, government involvement can accelerate adoption. And third, with their diverse landscape of actors — shipping companies, trucking companies, freight forwarders, inspectors, stevedores, even local fire and rescue units — maritime ports are self-contained mini-universes, like small cities, a characteristic that pulls together the diverse ecosystem and government interest into a useful whole, for the purposes of blockchain.

As TBR noted previously, “The Port of Oulu has taken an approach shared by most municipalities looking to become a smart city — start small, but with a large, long, deep vision, and build incrementally … a port like Oulu’s, which is both small enough to be manageable through a disruptive digital transformation and large enough to be replicative of a larger port’s ecosystem and challenges, could be an ideal place for connectivity and emerging technology vendors to experiment and prove out the use case for bringing one of the most fundamental infrastructure environments fully into the digital age.”

Some blockchain consultancies have been experimenting with these ideas, as we noted here: “For EY, a firmwide approach to addressing every element of trade — including supply chain, tax and regulatory compliance, blockchain solutions, in-port IoT, connectivity to inland regions, and real-time shipping data — comes together under its NextWave Global Trade Initiative, a white space for EY to build cross-border, cross-service-line and cross-industry solutions.”

As is clear from both the Oulu and EY examples, blockchain can only be part of a port’s digital transformation, not the entirety of it. In line with the concept that a “rising tide lifts all ships,” connectivity, IoT and analytics round out the picture (cloud and cybersecurity should already be there), making blockchain an essential component, if not the most easily adopted or most transformational (arguably IoT sensors on every element of a port — with supporting analytics and insights — would more rapidly lead to streamlined operations, even if blockchain-enabled tracking and trade-based financing would lead to longer-term value).

Even recognizing the limitations, for blockchain services vendors, maritime ports may provide an essential opportunity to test solutions in diverse, yet manageable, ecosystems while partnering with governments or quasi-governmental institutions that will be critical to wider blockchain adoption. If the use case appears limited, consider the more than 50 ports that exist between Duluth, Minn., and the Atlantic Ocean. Blockchain-enabling that supply chain archipelago could be a massive use case and spark wider adoption across the enterprises interacting with every one of those ports.

For further details about blockchain in the context of digital transformation, IT services and consulting, see TBR’s most recent Digital Transformation: Blockchain Market Landscape, which includes use cases, vendor insights, and client pain points and needs.

EY’s Strategy and Transactions practice: Long-term value in the post-pandemic world

Investing more than $1B in technology, people and ecosystems  

According to EY Global Vice Chair for Strategy and Transactions Andrea Guerzoni, the firm is investing $1.5 billion in technology and people, with four specific goals. First, EY aims to improve the breadth and depth of its skills and expertise and accelerate innovation through a comprehensive learning program and acquisitions. Second, the firm seeks to prioritize reusable assets and technology tool kits across Tax, Assurance, Consulting, and its Strategy and Transactions practice. Guerzoni described this effort as focusing on “new client-facing technology” designed to help EY “get closer to and bring more value to clients.” Third, the firm works to establish strategic alliances, including a robust startup ecosystem and enhanced engagement with academia. Finally, EY spotlights the 25-plus wavespaces globally that provide an “immersive digital intense experience,” where clients can “rethink business, connect dots and look at reality differently.”

In TBR’s view, encompassing technology assets and ecosystems of people and partners as part of the $1.5 billion investment reflects the firm’s broader evolution to a more expansive player in the digital transformation space. EY also boasts a million-person alumni network that it can tap for ideas, introductions and opportunities, boosting its ability to influence the market.

Differentiating in an urgent, critical and complex space

At different points during the virtual Strategy and Transactions: Enabling CEOs to Navigate the NextWave event, members of the EY team presented their view on the firm’s differentiation in a professional services strategy consulting market, including new entrants such as investment banks, which stood out to TBR as an indication that EY views placing the transactions advisory component inside its overall consulting practice as something uniquely differentiated in the market.

Additionally, EY leaders specifically mentioned clients choosing the firm for holistic strategies with enterprisewide impact focused on long-term value and grounded in reality, sector and functional expertise, and the ability to both advise and enable change. Speaking directly about why clients seek out EY-Parthenon, EMEIA EY-Parthenon Leader Falco Weidemeyer said the firm brought experience and scale and delivered results. He cited a number of characteristics, such as outside-in sector experience and a focus on delivery, with the most significant and differentiating, in TBR’s view, being EY’s emphasis on transformational leadership “in urgent, critical, and complex situations to help [EY’s] clients create, preserve and recover value.” Combining strategy, leadership and expertise around transactions – and recognizing that long-term value will depend on optimal resource allocation – strikes TBR as an approach not frequently taken or delivered by EY’s peers.

Strategy and Transactions: Enabling CEOs to Navigate the NextWave — EY’s three-hour analyst event featured senior leaders from the firm’s Strategy and Transactions practice, including Global Vice Chair Andrea Guerzoni and Deputy Vice Chair for Strategy and Transactions Nadine Mirchandani. This assessment draws from presentations made during the event, as well as Q&A and breakout sessions between EY leaders and TBR analysts that took place immediately after the event. 

Demand for digitization to support European economies drives IT services vendor investment

Dramatic need to shift to contactless payments

Prior to the pandemic, demand for digitization services and deals in the European financial, public and retail verticals grew at a generous rate. Europe-focused vendors covered by TBR, including Accenture (NYSE: ACN), Atos (Nasdaq: ATOS), Capgemini, Deloitte and T-Systems, consistently expanded services and contracts surrounding related capabilities, such as cloud, blockchain and automation, feeding these healthy verticals. However, vendors and clients faced numerous challenges as the pandemic hit, such as the need to shift to remote work environments and the need for digital, e-commerce and contactless solutions. In 1H20 most vendors focused on client retention and headcount management, rather than entertaining expansionary strategies. Europe, which felt the impacts of the pandemic in its early months, was among the first to experience a need for digital alternatives, evidenced by accelerated demand for digital infrastructure, banking and payment solutions, benefiting IT service vendors and the struggling European economy.

As consumers faced pressures to go cashless, demand for contactless payment alternatives increased dramatically. While the financial and public sectors had been prioritized in 2020, as they typically make up a large percentage of IT service vendors’ revenues, the retail vertical contracted drastically as lockdowns and supply chain challenges impacted inventory levels. So, while tailoring contracts and generating solutions to attract clients in the financial and public sectors was imperative in the thick of the lockdowns, addressing challenges in retail will complement vendors’ efforts in other verticals as well. From an influx of credit card and debit card usage to increased demand for Apple Pay and other tap-to-pay capabilities, retail clients of IT service vendors were transitioning their client-facing solutions to meet the demand to go digital.

For example, in 4Q20 Atos announced it will use the Atos Codex Internet of Things solution to develop and run nutrition company Goli’s cashless and contactless vending machines, which will be deployed in numerous environments such as shopping malls and airports. The solution also leverages cloud technology to connect cashless payment alternatives and digital wallets to the network. Additionally, Atos holds shares in Worldline, a payment and transaction services company that offers a strong digital payments and contactless solutions portfolio, along with a collaborative partner network. In December Worldline partnered with P3 Financial Group to bolster the real-time digital commerce and e-payments ecosystem in much of Europe.

Other vendors have taken similar action; T-Systems Hungary drove real-time payments on a single platform for ACI Worldwide (Nasdaq: SCIW) in September, strengthening regional initiatives to meet expectations for safer and more secure vertical operations, and Capgemini partnered with SharpEnd and The Drum to develop CornerShop, a retail innovation store that is helping brands, retailers and shoppers utilize technologies to transform their shopping and customer engagements in preparation for the post-pandemic world. Further detail and analysis on the store are available in TBR’s 4Q20 Capgemini report.

Previous investments in emerging tech like blockchain paved the way

Going back about 10 years, digitization drew consumer attention in the mid-2000s, when in-house cloud computing caught fire and distributed ledger technologies emerged. Leveraging blockchain, cryptocurrency entered the market as a private payment alternative that offered greater security and cut out banks altogether. Bitcoin, arguably the poster child of cryptocurrency, quickly became an investment tool for many users, though its position as a go-to currency in the black market and, more importantly, its price volatility made its use an unpopular choice for the average consumer.

Changing regulations related to IT technologies, such as blockchain and digital assets, have challenged Europe-centric vendors despite the opportunity to capitalize as consumer preference shifts to digital. IT services vendors covered by TBR will likely face new contract and deployment challenges in the region, alongside pre-existing obstacles related to the COVID-19 pandemic. TBR believes a greater focus on digital and contactless payments, e-commerce, and digital banking and currencies from vendors will be an important aspect of economic regrowth in Europe and lead to adjustments in financial, public and retail verticals to better complement one another.