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Capgemini aims for growth in digital marketing services

Building regional capabilities through acquisitions to disrupt the APAC market

In TBR’s most recent Digital Transformation: Digital Marketing Services Benchmark, my colleague Boz Hristov examined trends across different regions and wrote, “While regional nuances … compel vendors to build local resources to ensure they can tailor culturally aligned campaigns, the evolving nature of the DMS [digital marketing services] market is also creating country-specific openings. For example, the last three Olympic Games including PyeongChang (South Korea), Tokyo (Japan) and Beijing (China) have been driving investments and opportunities within Southeast Asia.” In covering Capgemini for more than a dozen years, I’ve seen how the company has been able to combine internal capabilities development and highly strategic acquisitions to stay on the leading edge of trends across the IT services space, including digital marketing services. At the same time, acquisitions enable Capgemini to diversify its geographic reach outside its home market of Europe, namely in North America and APAC.

 

Overall, APAC is becoming a region of acquisition focus as Capgemini strives to diversify global revenues and expand work with local clients in the region. APAC is a major global service delivery location, but activities with local clients are limited outside of Australia and New Zealand. Recent acquisitions in APAC that build on Capgemini’s local market reach include those of Empired in Australia, around digital and cloud; Acclimation in Australia, around SAP consulting and systems integration; Multibook’s SAP global services line in Japan; RXP Services in Australia, around digital, data and cloud; and WhiteSky Labs in Australia around MuleSoft consulting.

 

Capgemini’s innovation, design and transformation brand, Capgemini Invent, is rolling out its capabilities across APAC. Capgemini is establishing a new network around frog, the brand experience design consulting arm of Altran. During 2020 frog scaled from about 500 people in the U.S. and Europe to about 2,000 by absorbing Capgemini Invent’s customer experience team and employees from Capgemini’s acquisitions of global design studio Idean, innovation firm Fahrenheit 212, agency June 21 and customer engagement marketing firm LiquidHub. Frog initially had one studio in Shanghai but has expanded in APAC with studios in Singapore; Hong Kong; Sydney and Melbourne, Australia; and India. Frog’s APAC business emphasizes industrial and special design, tied with the new Capgemini Engineering brand experience and design-led transformation.

 

In some ways, this is a natural outcome of making related tuck-in acquisitions: Eventually, Capgemini creates scale to establish a new business unit or service line. Additionally, it is a way of retaining acquired talent by showing that employees will be part of a special group assembled from similar acquisitions.

Tuck-in acquisitions supported digital services establishment in North America, providing use cases and lessons learned

In 2016, 2017 and 2018, Capgemini made several acquisitions in North America to initially build out its digital services capabilities, some of which now reside in frog. Fahrenheit 212, which Capgemini acquired in February 2016, enhanced Capgemini’s business transformation consulting and digital customer experience solutions portfolio. Lyons Consulting Group, which Capgemini acquired in September 2017, strengthened the company’s position in digital commerce, specifically around integrating Salesforce Commerce Cloud solutions. Idean, which Capgemini acquired in February 2017, expanded Capgemini’s digital transformation consulting capabilities and added seven digital design studios worldwide.

 

The acquisition of LiquidHub in February 2018 further expanded Capgemini’s digital services, notably digital consulting capabilities in North America. With LiquidHub, Capgemini gained customer experience capabilities and improved its ability to capture digital opportunities with clients in the U.S. LiquidHub augmented Capgemini’s client base by adding logos, such as Wells Fargo, Chase, Godiva, Subaru, Microsoft and Amgen, and improved Capgemini’s relationships with clients’ CXOs.

APAC will become a larger revenue contributor in the long term

By making acquisitions, expanding its portfolio, keeping up with trends around digital marketing services, and even leaning on its core strengths around engineering services, Capgemini could become more disruptive in the APAC market in the very near term. The vendor’s combined revenue from APAC and LATAM accounted for 7.8% of total revenue in 2021 and increased 26.2% year-to-year as reported in euros, outpacing revenue growth in other regions.

 

TBR’s most recent report on Capgemini was published on March 7 and provides a detailed analysis of the company’s performance and investments in 4Q21 and 2021. Recent deals such as with Volvo Cars to enable digital transformation of the client’s operations in the Asia-Pacific Economic Cooperation by implementing Salesforce solutions such as Sales Cloud, Service Cloud, Marketing Cloud, Experience Cloud and Configure Price Quote software exemplify Capgemini’s activities that are supported through investments in digital and cloud capabilities. APAC provides opportunities for Capgemini and might be even better suited to pave the way to growth now that the company’s home market of Europe might be disrupted by the war in Ukraine. The deal with Volvo Cars provides Capgemini with a good opportunity to expand into the emerging China market, as Volvo is a well-known European brand but is now managed out of China.

As COVID-19 pressures DMS opportunities, vendors seek alternative channels to increase brand stickiness

Key insights

While marketing and advertising initiatives take a back seat, at least temporarily, digital transformation programs continue to mature as enterprises explore new connection points made possible by emerging technologies that help them embark on initiatives beyond discrete process areas.

The 19 vendors benchmarked by TBR in our Digital Transformation: Digital Marketing Services report felt the impact of the pandemic as their average digital marketing services (DMS) revenues grew just 3.3% year-to-year in 2Q20, a drastic decline from 20.1%  five years ago.

Buyers’ patience seems to be wearing thin as vendors have failed to deliver on the promise of digital on their marketing campaigns and respective ROI.

TBR’s Digital Transformation: Digital Marketing Services Benchmark addresses changes in leading digital transformation vendors’ strategies and performances as well as their investments and go-to-market positions within marketing and advertising segments. The report includes use cases; analysis of agencies’, IT services’ and consultancies’ management of their technology partnerships and acquisitions; and a forward-looking view around key market trends, implications to customers and vendors, vendor performance, and associated technologies enabling digital transformation opportunities. Region-specific market trends are also highlighted in the report.

HCLT improves position in DMS with portfolio investments, but must leverage its niche expertise to capitalize

Digital marketing services provide HCLT with an entry point for transformation opportunities

As clients look to transform CX and pursue omnichannel projects using technology solutions, the DMS space provides growth opportunities for vendors that can generate engagements by bridging together CX offerings with digital platforms to drive clients’ marketing campaigns. Bringing data to the center of the engagement, collected from sources throughout clients’ organizations and combined with analytics, will lead to future initiatives for both the client and vendor.

While HCLT has traditionally avoided large-scale investments around its DMS portfolio, the company has recognized demand for services and growth opportunities within the DMS space, which we believe guided the company’s March 2019 launch of a digital marketing platform, HCL ADvantage Experience. Based in Adobe Experience Cloud, the platform works with multiple marketing sources to collect and store customer data that supports clients’ user experience and enables HCLT to quickly scale clients’ marketing campaigns, including compatibility with legacy systems, through improved user integration on a DevOps framework. The platform will support HCLT’s position to capture application services opportunities, but the company will face pressure from other vendors that have developed similar platforms, limiting its ability to differentiate and compete for growth opportunities outside of existing clients.

Where HCLT’s partnership with Adobe does not necessarily provide an enhanced position for a vertical play, integrating HCLT’s engineering and R&D services capabilities and legacy data from its manufacturing and automotive expertise would enable HCLT to leverage a vertical strategy and better connect with vertical industry clients as well as begin to create separation from competitors.

Additionally, HCLT used its April 2019 acquisition of Strong-Bridge Envision, a U.S.-based digital consultancy, to expand the strength of its Mode 2 services and solutions to support business outcomes for clients through data insights. Strong-Bridge Envision joined HCLT’s Digital & Analytics portfolio, which bolsters HCLT’s position within the DMS space in the U.S. and supplements existing offerings, allowing HCLT to pursue consulting-led engagements with more specialized expertise on digital strategy, business transformation, CX and organizational change management. We expect HCLT will look to expand wallet share and mindshare from existing clients as well as generate consulting-led opportunities, but may face challenges in gaining permission around C-Suite-level conversations. Focusing on its mature verticals, such as financial services, technology and services, and manufacturing, which collectively contributed 57.3% of total revenue for HCLT in 1Q19, may be an easier path for the company to follow as it holds stronger client relationships and market share. While HCLT is able to pursue opportunities within other verticals, we believe financial services, technology and services, and manufacturing serve as a starting point from which HCLT can begin to build its brand around DMS and DT-related consulting before expanding into other areas.

Customer-centric digital transformation: What’s up with that?

An exclusive review of TBR’s Digital Transformation Customer Research and Digital Marketing Services Customer Research

Customer experience (CX) optimization remains a natural first channel for digital transformation, providing test cases for data synthesis across the organization and new methods of engagement that can inspire future initiatives. Join us Dec. 19 to discover what vendors need to know to compete effectively for CX-related opportunities in the fast-evolving digital transformation market.

Join Jen Hamel and Boz Hristov as they dig into how enterprise adoption of digital transformation solutions is evolving, with a specific focus on the CX function. Based on enterprise adoption research, TBR will give a snapshot on today’s digital transformation and digital marketing services marketplaces.

Don’t miss:

  • The state of adoption for digital transformation technology and services
  • Insights into CX as a starting point for digital transformation, including who buys or influences solutions
  • Market maturity and opportunity, as well as winning vendor strategies, in CX

 

TBR webinars are held typically on Wednesdays at 1 p.m. ET and include a 15-minute Q&A session following the main presentation. Previous webinars can be viewed at anytime on TBR’s Webinar Portal.

For additional information or to arrange a briefing with our analysts, please contact TBR at [email protected].

Engaging with clients’ business side to address mission-critical challenges

TBR perspective

“Capgemini is overall in a good shape relative to the market,” said Capgemini CEO Paul Hermelin during the opening keynote session at the company’s Global Analyst and Advisor Day 2018. Over the past six quarters, Capgemini has accelerated its revenue growth, reaching 8% year-to-year in constant currency in 1H18, and improved its profitability, aiming for an operating margin before other expenses of between 12% and 12.2% in 2018, owing to growth in scale of digital projects, automation, low-cost leverage and cost management. However, there is always room for improvement, and Hermelin pushes Capgemini’s management team to do more. Over the past several quarters, Capgemini has made changes to its portfolio, organizational structure and sales model to address rising demand coming from clients’ business side instead of their technology side. TBR believes Capgemini has a competitive portfolio and global services capabilities that will continue to move the company in the right direction. Capgemini is notably well established in India, not only for outsourcing but also for digital and cloud, and is able to provide fast-growing and emerging solutions at scale while continuing to address clients’ outsourcing needs with revitalized core offerings.

Transforming portfolio, organization and sales will drive revenue growth in the coming quarters

Following a disciplined portfolio management approach, Capgemini is reshaping its offerings to provide solutions, such as digital, cloud and cybersecurity, that enable clients to build their digital models. The company revitalized its core infrastructure, application and business services offerings, such as through launching next-generation ERP solutions to reimagine enterprise core systems to fit in the digital world, and infusing automation and AI across the portfolio to increase value for the client. Partnerships with technology vendors, startups and academic institutions are a key lever for expanding Capgemini’s portfolio and filling in capability gaps instead of always developing its own intellectual property, which can lead to increased costs and slow down the company’s digital and cloud portfolio expansion. From an organizational standpoint, Capgemini has shifted to a unified go-to-market approach that presents one face to the client and sells the entire Capgemini portfolio. From a sales perspective, the company has been pushing initiatives to foster strategic client relationships by deepening the engagement and offering all dimensions of Capgemini’s portfolio. The objective is to have an established group of strategic relationships in which Capgemini ranks among the leading IT services vendors for those clients to address their mission-critical challenges. This relationship approach in which Capgemini is the strategic supplier somewhat resembles Accenture’s (NYSE: ACN) Diamond Client structure.

TBR attended Capgemini’s annual Global Analyst and Advisor Day, held at the company’s combined Applied Innovation Exchange (AIE) and Accelerated Solutions Environment facility in New York City. The facility opened in October 2017 and is part of a global network of 16 locations that enables clients to explore, discover and test new solutions in collaboration with Capgemini and an ecosystem of technology partners, startups, academic institutions and venture capitalists. The event featured plenary and breakout sessions on topics such as portfolio strategy and management; Capgemini’s artificial intelligence (AI) ambition and portfolio; Capgemini Invent, the company’s newest global business line; digital; cloud; and North America. Client cases and demos on AI Insurance, AI Digital Ops, AI Manufacturing and economic Application Portfolio Management (eAPM) exemplified Capgemini’s activities with clients and provided insights into delivered results.