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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

Hybrid engagements will become necessary and valuable in 2021

Here comes hybrid

Hybrid engagements, in which IT services vendors and consultancies deliver both virtually and face-to-face, did not first arrive in 2020, but there has been one dramatic change from pre-pandemic days: universal acceptance that hybrid engagements will be necessary and can be a valuable way to conduct business. In 2021 vendors and consultancies with the perfect hybrid engagement model will outperform peers and accelerate consolidation across the IT ecosystem.

We always come back to the idea that services is fundamentally about people delivering value to other people. And for years, we have heard IT services vendors and consultancies extol the values of connecting humans and machines, expanding human experiences with artificial intelligence, and improving human work with robotic process automation. The human + machine future is here now, and it is hybrid. For many IT services vendors and consultancies, accelerating that digital transformation journey to hybrid engagements will require retraining talent, reconvincing clients of value and partnering differently across the ecosystem.

Maybe the best example of the hybrid engagement model for IT services vendors and consultancies is the application of hybrid in American schools as a reaction to COVID-19. U.S. elementary school teachers — whose average age is over 40 — have become more technologically adept and better at delivering lessons to both a camera and a classroom. Teachers have learned to manage virtual breakout pods and gauge virtual interactions. Students know the social benefits of being in the classroom but now understand that remote learning can include more depth and detail and a more concentrated learning process. (Of course, this is not true for all students and teachers, just as hybrid IT services and consulting engagements have not been perfect for all IT services vendors and consultants.) IT services professionals and consultants can now become far more adept at delivering both in person and remotely and have made collaborative technologies a natural extension of the job. Clients now receive services and adapt to different ways of working, recognizing the value, cadence and duration of services relationships can be sustained without face-to-face encounters. And just as everyone wants students back in the classroom full time, everyone also realizes on some level that some things have changed forever. No more snow days, ever. Business travel will never be the same. Digital transformations will accelerate and emerging technologies will increasingly permeate every aspect of IT services and consulting, bringing newfound speed and adoption both virtually and in person.

The following predictions examine how hybrid engagements might develop further in 2021, the potential impact of hybrid engagements on IT services vendors’ and consultancies’ technology partner ecosystems, and the revival of industry clouds across the entire IT market.

2021 Predictions

  • Hybrid selling and delivery replaces face-to-face as the standard and preferred engagement model
  • Emerging technologies necessitate more complex ecosystems, pressuring all players in IT services to partner differently
  • Industry clouds return, with competitive consequences for it services vendors and consultancies 

Register for TBR’s 2021 Services & Digital Predictions webinar, Hybrid engagements will become necessary and valuable in 2021, Jan. 20, 2022.

Technology Business Research 2021 Predictions is a special series examining market trends and business changes in key markets. Covered segments include cloud, telecom, devices & commercial IoT, data center, and services & digital.

PwC Products: Not your father’s PwC

“Us disrupting ourselves” — PwC Digital’s journey to 2020

“In contrast to peers such as EY, which held an entire analyst conference focused on, and organized around, its technology consulting capabilities, PwC structured each of its client stories around the central business challenge, with the technology solution presented as only part of the successful outcome. PwC placed considerably more emphasis on how it worked with clients’ C-Suite and line employees to identify and resolve key pain points and organizational issues, rather than leading with silver-bullet technology solutions that addressed clients’ specific RFPs.” TBR analysis, October 2018

While PwC Products fully coalesced into being over the last 12 to 18 months, the firm’s technology evolution started at least 10 years ago, with the Hallandale Experience Center perhaps the most critical catalyst in changing the firm’s overall approach to embedding technology into every engagement. Importantly, embedding technology did not mean, as noted above, focusing first on technology, even as the firm developed fully formed solutions. As PwC leaders reminded TBR, the firm developed the DoubleJump Health platform more than three years ago, building experience with a subscription-based software business model. In the last year, PwC enhanced collaboration among the eight digital factories and labs across the firm and took careful stock of the assets the firm had already developed and deployed with clients.

While previously PwC developed bespoke solutions within an industry or service line, with little collaboration across the firm, the recent shift included consolidation of the independent assets that had potential and a scrubbing of these old assets through a digital process pipeline. By putting the solutions through a rigorous vetting process with the goal, as explained by PwC, of determining which assets would meet consistency and quality standards as well as “make an impact,” the firm created a model for product innovation that could be implemented across all of PwC. As one PwC leader noted, “The assets were there. PwC Digital’s job was to put them together.” In addition to process, the firm also needed creativity and a willingness to disrupt itself, something TBR commented on in April 2019: “A PwC leader once challenged TBR to explain why the consulting business model seemed immune to the disruptions changing every other industry. The answer, and the disruption, are within his own building, and consultancies and IT services vendors not seeing it risk falling substantially behind.”

PwC Products: The $500M business built on BXT

“Is PwC now a software company or a technology-enabled consultancy with a global distribution channel for assets and managed services? We’re watching and waiting to see.” TBR analysis, October 2018

We have our answer. PwC is a business solution provider, and some of those solutions include products — tangible, defined assets that allow the firm to be, as the PwC leaders noted, “better, faster, and cheaper for clients.” Some of those assets will remain within the firm, scalable but deployed only to increase speed or efficiency in certain engagements. Some assets will remain with the client, paid for in full, through licensing or by subscription.

Separating the tricks from the treats in the emerging technology sector

An overview of ICT trends, business models and best practices

As TBR separates which emerging technologies are tricks from those that are business strategy and financial performance treats, we will also provide insights on how to be the house with the best candy in town.

Technology disruption and innovation are constants across all segments of the ICT industry, and the pace of change is always accelerating. Established vendors are racing to launch new business segments and portfolio offerings to capitalize on emerging trends, as well as jumping into markets they previously had avoided or not considered addressable. “Born digital” players are sprouting up across all markets and threatening to take the share of established players.

In this environment, there is more customer choice than ever before, and more confusion about which technology trends have translated into currently viable business models, offerings and customer solutions, and which trends are purely marketing talk, backed by slick PowerPoint collateral, that promise outcomes that will only be delivered to customers years in the future. It is critical that vendors help customers separate the talk from the reality, as well as articulate where they have business models and solutions capable of addressing tangible current customer needs.

Don’t miss:

  • TBR’s views on the current business model and financial realities of emerging technology trends such as IoT, digital transformation, edge computing, quantum computing and others
  • Best practices that leading vendors are utilizing in commercial model, portfolio and go-to-market execution to establish real business models around each of these trends
  • TBR’s recommendations for how vendors can best message business models and offerings tied to emerging technologies to customers

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 anytime on TBR’s Webinar Portal.

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

Key findings from TBR’s Quantum Computing Market Landscape

While quantum computing continues to make strides, market limitations and technology exploitation are ongoing concerns

Quantum computing vendors continue to make major strides in the technology. Decoherence and qubit quality remain ongoing challenges for which vendors continue to research enterprise-grade workarounds. However, there are challenges facing the quantum computing market landscape that even the smartest physicists and engineers cannot counteract. The first is the looming skills gap that will exist when quantum computing becomes more mainstream. Many customers and vendors alike do not see quantum computing taking off in the near term, despite evidence to the contrary. As such, a majority of organizations are not investing in quantum capabilities, which will lead to a massive influx of demand for quantum-skilled workers once these organizations all begin to rapidly adopt quantum after an adequate number of proofs of concept have convinced the skeptics. Some skills can be retooled from existing capabilities, but others need to be taught through years of schooling. TBR believes this is an opportunity for professional services vendors such as Accenture and Atos, but also for quantum-centric vendors, to invest in the education of future generations. IBM recently announced education-centric investments in Africa, suggesting vendors are recognizing the skills gap that looms and the opportunity that will emerge by investing ahead of the curve.

Determining how to secure both quantum and classical compute instances against bad actors remains a persistent challenge. There are ways to mitigate this persistent threat by adapting cybersecurity capabilities, but the challenge is that, as with other skills shortages, many organizations do not believe this threat is close enough to worry about. Given that TBR research has shown it can take three or more years to adapt current security measures to be quantum safe, organizations, especially those with highly sensitive information in their possession, should begin to monitor this challenge.

The quantum computing market will achieve economic advantage in the next two to five years, one algorithm at a time. Once this is initially achieved, developments will be swift as customers are likely to find ways to repurpose existing algorithms for new uses. While quantum computing brings with it the promise of great, positive change, it also brings the threat of malicious players leveraging this technology for negative purposes, increasing a focus on quantum-safe security developments in line with quantum computing developments. The swift impact of quantum computing will be a key factor in determining who wins and who loses in this technological transformation.

Consulting’s robot army: How RPA changes the consulting business model

Insights from TBR’s 2019 Professional Services Predictions

Join Principal Analyst Patrick M. Heffernan for a roundtable discussion with TBR’s Professional Services analysts as they review their market predictions for 2019 and beyond, diving deep into the role robotics process automation (RPA) will have on the consulting business model. Using case studies and details from specific IT services vendors and consultancies, the team will put RPA in context of other emerging technologies and IT services as a whole.

Don’t miss:

  • How RPA changes staffing models across IT services
  • Smaller digital transformation engagements’ impact on the traditional consulting business model
  • How emerging technologies and emerging trends, such as asset-based consulting, will impact IT services vendors in 2019 and 2020

 

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].

Specialized industry expertise and agile service delivery position NIIT Technologies to disrupt incumbents

The rising tide of digital transformation demand continues to lift all boats, particularly small, intensely industry-focused IT services players, such as NIIT Technologies, that aggressively and tactically align their portfolio offerings and go-to-market strategies with the evolving needs of their clients and target markets. Though the long-term sustainability of NIIT Technologies’ rapid revenue growth and margin expansion remains to be seen, its strong performance in a services arena nearing saturation deserves the attention of global technology and IT services peers.

Strong financial performance highlights the success of NIIT Technologies’ pivot toward digital

CEO Sudhir Singh kicked off the event with a summary of NIIT Technologies’ recently reported FY2Q19 earnings results:

  • Revenue for the quarter ending Sept. 30, 2018, grew 23.1% year-to-year and 10% sequentially, in local currency, to Rs. 907.4 crores ($129.5 million U.S. dollars [USD]).
  • Operating margin expanded 186 basis points year-to-year to 18%.
  • Fresh order intake increased for the sixth consecutive quarter to $160 million USD, including 10 new logos.
  • Digital revenue reached 28% of total revenue, expanding 11.6% sequentially in local currency.
  • Headcount crossed the 10,000 mark, with 261 additions during the quarter. During 2018 NIIT Technologies has added 1,000 employees, with 499 in digital areas. Despite double-digit headcount expansion, utilization has also increased (80.4% in FY2Q19) while attrition has stayed well below that of Tier 1 India-centric peers, hovering between 10% and 11%.

Though relatively smaller in scale compared to Tier 1 India-centric peers, NIIT Technologies prided itself on its relatively balanced geographical mix for a company its size (e.g., only about 49% of revenue comes from the U.S., about 34% from Europe and the remainder from Rest of World), on par with Tata Consultancy Services [TCS]). The company also touted its culture, built upon a heritage of learning and research, that empowers employees with both technology skills and design thinking expertise to create business-relevant solutions for clients.

 

 

TBR attended NIIT Technologies’ U.S. Analyst & Advisor Forum in Boston, where the company’s executive leadership team presented on the company’s recent financial performance, strategy and portfolio offerings with an overarching theme of “Engage with the Emerging.” The event’s agenda was organized in line with NIIT Technologies’ recent restructuring around three core verticals ― travel and transportation (T&T), banking and financial services (BFS), and insurance ― and five service lines ― Intelligent Automation, Digital, Data and Analytics, Cloud, and Cybersecurity ― which the company brings together in matrixed offerings. Leaders from each of the three industry verticals and several of the service lines presented individual sessions on their areas, in some cases with clients. TBR also interacted one-on-one with executives throughout the event.