Posts

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.


Market and competitive intelligence straight to your inbox each month, absolutely FREE

Subscribe to Insights Flight today!

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.

Hyperscalers are reimagining how networks are built, owned and operated

Hyperscaler-built networks will look very different from traditional networks

Hyperscalers are building end-to-end networks that embody all the attributes and characteristics coveted by communication service providers (CSPs) as part of their digital transformations. The most significant differences are in the software stack and the access layer, where new technologies enable hyperscalers to build dense mesh networks in unlicensed and/or shared spectrum bands and build out low Earth orbit (LEO) satellite overlays for access and backhaul. Mesh networks will likely be used to provide low-cost, wireless-fiber-like connectivity in urban and suburban environments, while satellites will primarily be leveraged to provide connectivity to rural and remote environments.

Hyperscalers are starting from scratch, completely reimagining how networks should be built and operated. Their clouds, numerous network-related experiments over the past decade, plus the raft of new network-related technologies on the road map will enable hyperscalers to build asset-light, automated networks at a fraction of the cost of traditional networks.

Hyperscaler networks will cost a fraction of traditional networks

TBR estimates hyperscaler networks cost 50% to 80% less to build than traditional networks (excludes the cost of spectrum, which would make the cost differential even more pronounced because hyperscalers will primarily leverage unlicensed and shared spectrum, which is free to use). Most of the cost savings stems from innovations, such as mesh networking, carrier aggregation, LEO satellites and integrated access-backhaul, that enable significantly less wired infrastructure to be deployed in the access layer for backhaul and last-mile connection purposes.

For example, Meta’s Terragraph mesh access point can autonomously hop signals through multiple other access points before sending the data through the nearest available backhaul conduit. In the traditional architecture, some form of backhaul would need to connect to each access point to backhaul the traffic. Mesh signals could also be backhauled through LEO satellites, further limiting the need to deploy wired infrastructure in the access layer, which is one of the most significant costs of traditional networks.

Another key area of cost savings stems from cutting out certain aspects of the traditional value chain. By open-sourcing some innovations, such as hardware designs, hyperscalers can foster a vibrant ecosystem of ODMs to manufacture white boxes to compose the physical network. The white-boxing of ICT hardware can lead to cost savings of up to 50% compared to proprietary, purpose-built appliances.

Hyperscaler disruption portends structural changes to the telecom industry through this decade

The technological and business model disruption hyperscalers are bringing into the telecom industry portends significant challenges for incumbent vendors and CSPs. TBR sees the scope of disruption becoming acute in the second half of this decade, likely prompting waves of M&A that will reshape the global landscape. CSPs will engage in M&A to stay relevant and financially sound, while incumbent vendors scramble to evolve as their primary business model (selling proprietary hardware and/or software and attached services) is increasingly marginalized and eventually becomes obsolete as hyperscaler innovations spread through the industry.

Hyperscalers do not want to become telecom operators; they want to leverage networks to obtain data and drive their other digital businesses

Hyperscalers are in the data business; providing network connectivity is a means to that end

Hyperscalers are building large-scale networks to drive forward and support their big-picture strategies, which revolve around building out their respective metaverses and supporting a wide range of new digital business models that will be enabled by new technologies such as 5G, edge computing and AI.

To that end, hyperscalers have a vested interest in ensuring the entire world is blanketed with high-speed, unencumbered, intelligent, low-cost connectivity. The economic justification to build the network is driven by the need for hyperscalers to gather and process new types of data to drive these new digital business initiatives. TBR notes that this business case is completely different from CSPs’ business case, which monetizes the network access rather than the data that comes over the network. The hyperscaler model emphasizes giving away low-cost or free connectivity and monetizing the data that comes through the network. The hyperscaler model is far more valuable than the traditional connectivity model and will likely ultimately become the predominant business model for connectivity.

CSPs sit on vast data lakes and have for many years. These data lakes contain valuable information about subscribers, endpoint devices, real-time location and tracking, and other metrics that are of critical importance for some of the digital business ideas hyperscalers want to commercialize, such as drone package delivery and autonomous vehicles. Owning more of the physical network infrastructure and the core software stack puts hyperscalers in a prime position to capture and monetize this data.

TBR notes that this strategy is already in use in the telecom industry in various places in the world. For example, Reliance Jio and Rakuten are using this strategy in India and Japan, respectively. In both cases, connectivity is given away for free or at a significantly lower cost compared to rival offers, and the data generated by the connections indirectly feeds and monetizes each company’s respective digital businesses, such as advertising, financial services and e-commerce. There is significant evidence suggesting that Alphabet, Amazon, Apple, Meta Platforms and Microsoft all have strategies that are similar but of a far greater magnitude.

Hyperscalers already own and operate the largest networks in the world; the next build-out phase is the mobile core, far edge and access domains

Over two-thirds of global internet traffic traverses hyperscaler-owned network infrastructure at some point in the data’s journey. The vast majority of that traffic travels over hyperscalers’ backbone networks, which primarily comprise optical transmission systems (submarine and terrestrial long-haul optical cables), content delivery networks, and cloud (including central, regional and metro) data centers.

The domains of the network where hyperscalers have yet to dominate at scale are the mobile core, far edge and access layers, but there is mounting evidence to suggest this is changing, thanks to technological advancement and regulatory breakthroughs (e.g., the democratization of spectrum).

TBR’s Hyperscaler Digital Ecosystem Market Landscape focuses on the five primary hyperscalers in the Western world that TBR believes will own the largest, most comprehensive end-to-end digital ecosystems in the digital era. Specifically, the five hyperscalers covered in this report are Microsoft, Alphabet, Meta Platforms, Amazon and Apple. Collectively, TBR refers to these five hyperscalers under the acronym MAMAA. TBR covers the totality of the largest hyperscalers’ businesses, with an emphasis on how they are disrupting the ICT sector. Gain access to this full report, as well as our entire Telecom research, with a 60-day free trial of TBR Insight Center™.

Understanding industry needs and accelerating tech adoption: How IT services vendors are growing in financial services

Financial services benefited from emerging technologies over the past decade, creating a highly lucrative and exceedingly competitive market for IT services

While historically, financial services has been ahead of other industries in digital technology adoption, the COVID-19 pandemic accelerated technology-enabled transformations as IT services vendors and consultancies sought to address the needs of financial services clients, including the need to interact with customers and conduct business transactions through digital channels, as well as the needs of financial services employees, who began working remotely. Such changes in operating models drove an increase in advisory, application and infrastructure managed services work and accelerated revenue growth for IT services vendors beginning in early 2020.

With increasing pressure to embrace digital banking and digital payment platforms to address demand for cashless transactions across different economies and businesses, financial services clients look to transform supply chain, data analytics, management and workflow as well as address security needs and improve overall operations. These clients need to become agile, enhance their customers’ experiences, and modernize their information and communication technologies environments. For IT services vendors, capturing market share requires a fundamental understanding of financial institutions’ technology landscapes as well as a differentiated value proposition, pushing vendors to augment industry-specific capabilities through acquisitions.

Note: Includes financial services revenues for 16 of the 30 vendors covered in TBR’s IT Services Vendor Benchmark; not representative of a total global market view

Revenue growth in the financial services segment of IT services was also driven by vendors addressing clients’ needs around data protection, regulatory compliance and governance. Supporting adoption of next-generation technology solutions like blockchain to address topics such as commission tracking and recording, asset management, and AI-enabled hybrid cloud management is also a factor for revenue growth.

Leading IT services vendors leverage acquisitions to expand industry-specific capabilities and broaden client reach, particularly in Europe

Acquisitions enable vendors with well-executed strategies to access new portfolios, cultures and client bases, largely focusing on top-of-mind areas for digital transformation budget spending such as cybersecurity, AI and digital product engineering. As enterprises move IT workloads to the cloud, vendors are compelled to invest in both talent and technology to leverage newly accessible data for analytics and AI-powered insights. But as services remains a people business, we expect most vendors will continue to manage risk by assessing cultural and portfolio fit when selecting acquisition candidates.

Understanding industry needs and accelerating tech adoption: How IT services vendors are growing in financial services

Understanding industry needs and accelerating tech adoption: How IT services vendors are growing in financial services

Key insights

The COVID-19 pandemic accelerated technology-enabled transformations as IT services vendors helped financial services clients interact with customers and conduct business transactions through digital channels.

Financial services clients need to become agile, enhance their customers’ experiences, and modernize their information and communication technologies environments.

Capturing market share requires a fundamental understanding of financial institutions’ technology landscapes as well as a differentiated value proposition, pushing IT services vendors to augment industry-specific capabilities through acquisitions.

Check out our special report Top 3 Predictions for IT Services in 2022 for additional thoughts on the IT services market in the new year.

Register for our upcoming webinar on Deep dive: Management consulting and analytics services leading trends in 2021 for an in-dpeth chat on leading trends in the IT services industry, such as vendor performance across regions, service lines and select verticals and the evolving value proposition as pent-up demand for run-the-business awards continues

Humans at the center: EY’s People Advisory Services in the post-pandemic workplace

Transforming the employee experience for EY and its clients

In late October 2021, TBR met with senior partners from EY’s People Advisory Services, including Kim Billeter, principal, Americas People Advisory Services leader; Jonathan Sears, principal, Americas Organization and People leader; Gerard Osei-Bonsu, EMEIA Integrated Mobility leader; and Agi Donnithorne, associate director of Global Analyst Relations, to discuss their firm’s ambition, investments, people and place within the broader people advisory market. The following reflects that discussion and TBR’s overall research and analysis of the current human management consulting market.

Throughout the entire discussion with TBR, EY’s People Advisory Services leaders emphasized that their whole practice revolved around placing “humans at the center,” an approach that has been embedded natively into every EY service line, including Consulting, Tax, Strategy & Transactions, and Assurance, reflecting EY’s firmwide and global approach to talent issues. EY’s leaders also emphasized deploying and testing solutions internally before introducing them to clients and continually working to “simplify complexity” across every element of the hire-to-retire people advisory spectrum.

Notably, the EY leaders said their main clients have expanded beyond the chief human resources officer to now include chief operating officers, chief financial officers, and line-of-business leaders more attuned — possibly due to the pandemic — to the vast array of human capital management challenges, including office space, productivity tools, immigration, and risk management. While human capital management consulting includes, potentially, an impossibly diverse and almost unmanageable set of capabilities, offerings and consulting services, Billeter and the rest of the EY team kept the discussion focused on two key components: prioritizing a “humans at the center” approach and transforming the employee experience, starting with a reimagining of EY’s and its clients’ workforce agendas.

In TBR’s view, every company has faced human capital management challenges during the pandemic and some lessons have spread quickly (for better or worse). As spiking attrition, return-to-workplace issues and the war for talent all heat up across professional services and the broader workforce, EY’s decision to ground humans at the center while thinking about how long-term transformation should resonate with clients while helping the firm maintain its own employee morale and culture.

EY Skills Foundry designed to meet upskilling and reskilling demands for digital transformation

In briefing TBR on the full scope of EY’s People Advisory Services Practice, the EY leaders described transformation solutions; capabilities including talent management, workforce planning, HR transactions, and digital assets such as the Learning Experience Platform and EY Mobility Pathway; and strategic alliances with IBM, Microsoft, SAP and ServiceNow. Turning to the EY Skills Foundry, the EY team reiterated that the seemingly relentless need for digital transformation (DT) among all enterprises drives upskilling and reskilling talent among professional services and technology firms. Clients’ workforces must change as well, and clients, according to EY, are not prepared and lack skills, capabilities and scale.

The EY Skills Foundry, which the firm initially deployed and refined internally, includes three components: a live heat map of skills across an organization, showing both supply and demand and allowing for more rapid decision-making around reskilling investments; a content aggregator EY described as “learning intelligence” designed to add speed and scale to training; and “a validated, secure digital record of employees’ skills and experiences,” which can help clients more rapidly deploy the right person to the right opportunity. The EY team stressed that the firm tested the foundry platform over the last couple of years, applying automation when possible and seeking input and refinements from clients.

While still nascent, with fewer than 10 live clients, TBR believes the EY Skills Foundry has two key attributes likely to separate EY’s offering from that of its competitors in the crowded human capital consulting field. First, the firm can prove the business case and almost ensure success by pointing to EY’s own internal results across a global firm with nearly 300,000 professionals. This “customer zero” use case resonates with clients, particularly for offerings blending technology and change management. Second, EY has prepared itself to sell, deploy and support the EY Skills Foundry through multiple business models, including traditional consulting engagements, SaaS and managed services.

Expanding how EY engages with clients extends the firm’s reach within clients and enlarges the potential market EY can serve. TBR’s November 2021 Digital Transformation: Voice of the Customer Research includes the following analysis: “Improving HR operations and employee efficiency slid to the bottom of the objective list in 2021 — down from No. 3 about 18 months ago, just after the pandemic began — confirming that the emphasis on employee experience was short-lived and buyers quickly reshuffled priorities to ensure shareholders’ expectations are met.

Business ecosystems must invest in massive supply chain pivots

COVID-19 supply chain impact

COVID-19 laid bare the underinvestment in contingency capabilities during the decades-long pursuit of cost optimization. In short, business leaders assumed a certain status quo in business continuity and did not leave sufficient capital tied up in unfinished inventory to provide necessary buffers in supply chain efficiency. Firms had over-rotated on optimization and perhaps assumed their trading partners were on par with them in terms of the technology “twinning” of their activities. COVID-19 exposed the need for agility, and when scale advantage only enabled top-tier firms to have the automated tool sets, working with the vital Tier 3 and Tier 4 suppliers resulted in the cascading pileups now in the news.

Future supply chains have to be embrace open contributions

Uneven technology enablement with supply chain participants certainly has created a network effect, but not the positive force multiplier discussed in third-wave economics papers. Supply chains, by definition, are a collection of ecosystem participants. For there to be a positive network effect, there has to be democratized access to technology innovations. Tier 3 and Tier 4 suppliers lack the funds and the skills to build digitally transformed supply chains on their own. In this sense all enterprises have to learn a lesson from the technology industry in terms of IP contributions to the ecosystem.

Ecosystems have to provide a common platform of nondifferentiable value-add to all participants —value-add in terms of stripping labor and labor mistakes from process flows, and nondifferentiable as it impacts neither ideation nor sales engagement. Open source is how technology has wrung cost of compute out of the model. This is how platform businesses achieve the network effect, as positively espoused in third-wave economics. 

Supply chain has the attention of the boardroom

The value of the interconnected supply chain ecosystems has been gaining boardroom attention and, as EY notes, COVID-19 only accelerates the need. The pandemic was a blindside disruptor and, as enterprises get back up from the blindside hit, the focus shifts from the diminishing return of investing in supply chain for cost optimization and turns back to the double-digit revenue hits enterprises took due to pandemic-fueled disruptions. The board focus is now on gaming out what other events could have a similar impact on business resiliency that the pandemic has had.

Does the boardroom see value in ecosystems yet?

Boards generally are populated by mature executives well versed in the current ways of working. Ecosystem business models are not a legacy best practice with which TBR would expect many board members to be familiar. They are too new. The idea of taking huge sunk investment costs and donating them to a buyer/supplier consortium will likely be anathema to many boards, but, as technology has proven time and again, open-source communities accelerate innovation. Linux/Red Hat represents just one illustration of that value creation in technology.

Advisory firms have permission to play to educate boards on ecosystem business model best practices

TBR hears a constant refrain in its discussions with services firms that people and process are the constraints and not the technology itself. This rings true with large enterprises but not necessarily with the small businesses comprising many of the Tier 3 and Tier 4 suppliers in enterprise supply chains. Outlining the value of a resilient supply chain will be an easy boardroom sell based on the current pandemic-related constraints being felt throughout the global economy. Convincing the board to contribute sunk IP investments to a consortium will be a harder sell. If any services entities can convince the boards of this efficacy, it will be the tax and audit advisory partners who have been providing business guidance to enterprises for centuries.

TBR’s recently published November 2021 Digital Transformation: Voice of the Customer Research bears out these notions. Based on survey data, respondents allocate 13% of their digital transformation services budget to business advisory services, another 16% to IT advisory services and an impressive 43% for managed services. TBR believes these managed services will more frequently flow from the advisory-led firms rather than the technology-led firms given the advisory firms’ advantage in knowing the business rules and business risks to digitization more than how to get the technology plumbing to work seamlessly.

Figure 1

From a straight technology perspective, firms invest in cloud computing, cybersecurity, IoT and analytics for digital transformation. Cloud localizes the activity where the firm wants it, cyber mitigates risk, IoT allows for more workflow automation, and analytics tells the business leaders what is important from the frictionless business flows. Cloud similarly was brought to the fore during the pandemic given the need to accommodate remote workers and reduce the amount of on-premises IT equipment requiring on-site staff.

Figure 2

Of course, all of these statements hinge on having IT platform plumbing built correctly and then transforming the business workflows that sit atop the IT platform. Figure 3 highlights the need for this gradual rollout strategy. Right now, improving IT operations management dominates the list of respondents’ digital transformation objectives. In two years, however, there will be a string of different business workflows on the customer docket. Workflows are automating business processes that often engage with other corporate entities and customers. This is where the deep knowledge of business rules and business risks come into play, and where tax and audit firms have clear market distinction.

Figure 3

Technology-led firms, hyperscale cloud companies and equipment manufacturers will certainly all play roles in moving industries further along the path of digitization. But just as business is turning to ecosystems, so too must the technology-based firms move to ecosystem offers where advisory-led firms will increasingly take the leadership role to advise boards in formulating business risk and resiliency policies that drag the tech stack participants along as the derived decision from the C-Suite aspirations.

Supply chain is the current example where tech innovations, business rules and employee training will give businesses competitive advantage providedthose ecosystems extend the IP value to the Tier 3 and Tier 4 suppliers. Like a chain only being as strong as the weakest link, ecosystem networks are only as strong as the weakest participant.

The statement stands for all business ecosystems. Other aspects of the business value chain come to the fore as different events trigger different reactions and technological choke points in need of modernization and remediation.

TOP 3 PREDICTIONS FOR DIGITAL TRANSFORMATION IN 2022

In the end it is all about business outcomes

Digital is dead; long live business transformation

Although the term “digital transformation” has served an important purpose of focusing the attention of business leaders and the IT services and consultancies working with them, it has been among the most overused phrases of the last 10 years in technology. At the start of 2022, no one will need to be reminded that technology — digital — can drive transformation. Business transformation is returning to the forefront for enterprises as a result of the pandemic, the advantages of emerging technologies, and the generational shift in the C-Suite, with newly promoted decision makers fully soaked in all the possibilities of technology.

The shift from digital transformation to business transformation will accelerate in 2022, amid the change in buyers and as digitally mature businesses are more inclined to bring technology talent in-house. These trends, along with the return to in-person workplaces and a resurgence of innovation and transformation centers, will create opportunities for leading IT services vendors and consultancies to separate from the pack by expanding managed services, returning clients to in-person creative sessions, and shifting away from technology-first mindsets.

2022 will be a pivotal year for digital transformation … perhaps its last. 

2022 digital transformation predictions

  • As clients graduate beyond digital transformation, vendors scramble to stay relevant
  • Funky chairs only matter if you can physically sit in them: The resurange of innovation and transformation centers
  • New generation of business leaders expect business transformations, not digital ones

 

Send me a free copy of TBR’s Top 3 Predictions for Digital Transformation in 2022

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.

devices, data center, and services & digital.

Acquiring digital skills enables vendors to build local resources to expand revenues in APAC

Key Insights

IT services vendors are ramping up activities around building local market resource capacity on top of locally sourced global IT services delivery resources that have existed for decades.

Revenue growth leaders are eyeing opportunities to further penetrate the APAC market by leveraging digital design and creative capabilities to drive high-value opportunities.

Hiring local market resources, appointing leadership and pursuing acquisitions will improve vendors’ ability to diversify global revenues during 2022.

Acquiring digital skills enables vendors to build local resources to expand revenues in APAC

Note: TBR is expanding the IT Services Vendor Benchmark with industry-specialized and geographic deep-dive research, which we will alternate every quarter. In this 2Q21 edition of the report, we have added analysis around strategies, key developments and performance in the APAC region for select vendors in the benchmark.

The IT Services Vendor Benchmark details and compares the initiatives of and tracks the revenue and performance of the largest global IT services vendors. The report includes information on market leaders, vendor positioning, the IT services market outlook, key deals, acquisitions, alliances, new services and solutions, and personnel developments.

TBR releases exclusive webinar content from September 2021

Technology Business Research, Inc. (TBR) announces on-demand availability of its September 2021 webinars. September webinars featured best practices developing in the cloud space and how and why webscales are disrupting the telecom industry.

How ecosystems turn cloud technology into solutions

Principal Analyst Allan Krans and Senior Analyst Evan Woollacott discuss the evolving ecosystem among cloud platforms, independent software vendors (ISVs) and professional services firms as well as the role ISVs have in platform programs and how these programs are encouraging partner buy-in.

Webscales encroach on telecom sector to realize value of digital economy

Principal Analyst Chris Antlitz sheds light on the overarching growth strategy of webscales as well as why webscales need to disrupt the telecom industry and what this means for incumbent operators and vendors in the telecom sector.

TBR webinars are typically held Wednesdays at 1 p.m. EST and include a 15-minute Q&A following the main presentation. To find out what we are discussing next month, check out the Webinars page of our website.

Interested in a one-on-one discussion with one of the above subject-matter experts or a private webinar with one or more of our teams?

Contact us today for more information on our free 60-day trial