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Deconstructing COVID-19’s impact on IT services and manufacturing

For IT services vendors working with manufacturers, resiliency, business continuity, security and digitalization spark new revenue growth

During 2020 the COVID-19 pandemic negatively affected IT services vendors’ revenue growth in industrial solutions, manufacturing and automotive due to country lockdowns across the globe that caused major supply chain and production disruptions. Enterprises in the sector weathered the worst of the pandemic at the beginning of 2020 and made the necessary run-the-business changes to improve operational efficiency and reduce costs. As such, IT services vendors evolved their relationships and are now working with clients to ensure their IT and workforces are modernized, secure and digitally enabled and their operations are resilient.

Uncertainty around the pandemic can continue to create disruptions like the supply chain challenges faced at the onset of the crisis. IT services vendors are capitalizing on their advise-build-run expertise to support clients during challenging times and capture growth opportunities, indicated by the revenue growth acceleration that began in 4Q20. Vendors are investing in digital twins to enhance their supply chain, digital sales and marketing as well as in AI and machine learning capabilities to offset pressure.

According to TBR’s special report Digital twins, innovation and Godzilla: 3 IT services trends for the rest of 2021, published in April, digital twins are becoming more synonymous within the supply chain of manufacturing firms as they present a hedge against unique macroeconomic factors, such as the pandemic. Larger technology vendors are finding partnerships, bringing cloud-enabled analytics to shipping, and opening opportunities for IT services vendors and consultancies. These openings allow for interoperability across supply chains, orchestration of technologies and data, and change management.

With COVID-19 disrupting global supply chains and forcing participants to seek alternative channels to either reduce transaction costs enabled by blockchain or transform IT infrastructure by migrating applications to cloud to offset technical debt and diminish financials pressure, some vendors have had the opportunity to gain a prime position. Six of the top 10 revenue leaders in industrial solutions, manufacturing and automotive accelerated revenue growth year-to-year in 1Q21 compared to 1Q20.

Accenture is gaining traction with manufacturing clients by helping them improve operational technology security and discrete manufacturing processes to optimize efficiencies. Accenture is also investing in developing, integrating and connecting smart devices that help Accenture drive Industry X-centric sales and extensions into C&SI services around analytics and AI. SAP implementation opportunities enabling agile IT infrastructure through SAP Business Suite 4 HANA and improving customer experience through SAP Fiori, illustrated by the deal expansions with Siemens Gamesa Renewable Energy and Johnson Controls, helped Infosys grow vertical sales 7.4% on an annual basis in 1Q21.

Acquisitions contribute to IT services vendors’ expansion in engineering and R&D services

The acquisition of Altran in April 2020 expanded Capgemini’s capabilities and revenues in the sector. On Jan. 1 the company established Capgemini Engineering, a new global business line and brand. Capgemini Engineering includes 52,000 engineers and scientists and provides R&D and engineering capabilities in three domains: product and systems engineering, digital and software engineering, and industrial operations.

In March Cognizant announced plans to acquire ESG Mobility, a Germany-based provider of engineering R&D servicers for autonomous and electric vehicles. The acquisition will provide Cognizant with advanced technologies to complement its existing automotive capabilities, giving the company an opportunity to upsell existing clients that are targeting growth in autonomous or connected vehicles.

Recent acquisitions, such as Eximius Design and International TechneGroup Incorporated, bolstered Wipro’s capabilities around digital engineering services and product lifecycle management, which will strengthen the company’s ability to provide client-specific outcomes in areas like industrial manufacturing, a vertical that cloud platforms are targeting for growth given the IaaS opportunity related to IoT data.

DXC’s acquisition of Luxoft in 2019 continues to enable DXC to move up the value chain as it expanded the company’s presence in Europe, deepened its expertise within the manufacturing industry and added high-value digital engineering capabilities. During 1Q21 DXC Luxoft launched a joint venture, ALLUTO, with LG around vehicle customer experience and will focus on the commercialization of digital automotive technologies, such as in-vehicle entertainment and infotainment as well as ride-hailing systems.

The 1Q21 IT Services Vendor Benchmark, which published on June 30, extends the analysis above to include how pairing technology and engineering skills and low-cost presence positions India-centric vendors for growth in manufacturing in the coming quarters and further adoption of technology partners’ solutions to advance Industrial IoT initiatives.

Note: This blog has been adapted from TBR’s 1Q21 IT Services Vendor Benchmark, which provides a quarterly assessment of leading IT services vendors’ performances and an assessment of their strategies. A newly launched Industry Views section within the benchmark provides analysis that focuses on one industry sector. In 1Q21 TBR began with a deep dive on the industrial solutions, manufacturing and automotive sector. Every quarter we will alternate industry deep dives with geo deep dives.

Rackspace Technology: Becoming elastic as the ‘un-GSI’

Rackspace Technology unveils new high-touch services framework, strengthening its play in managed public cloud

In April 2021, to assert itself in the managed public cloud space, Rackspace Technology unveiled its Rackspace Elastic Engineering framework, which promises a more scalable approach to the multicloud engagement life cycle compared to standard managed services contracts. The framework provides on-demand access to pools of cloud engineers, architects and engagement managers, dubbed “pods,” that will support customers from the advisory and consulting stage to system provisioning and management. Aligned to nine dedicated specialists, each pod acts as a landing spot for customers that they will constantly engage with to achieve goals post-migration.

Rackspace Technology supports its Rackspace Elastic Engineering offering with the message: “It’s no longer enough to just be in the cloud.” While many customers will initially leverage Rackspace Technology for its vendor-neutral approach to address cloud migration requests, the pod framework is designed to support customers’ cloud-native projects, which has the potential to improve Rackspace Technology’s value-add with support for emerging technologies such as serverless functions, automation and Infrastructure as Code.

The new Rackspace Technology offering supports AWS, Microsoft Azure and Google Cloud, which addresses the growing trend of customers adopting multiple cloud platforms to support specific workloads. TBR notes many cloud service providers (CSPs) are looking to address multicloud management pain points, either with professional services or self-service solutions. TBR expects that the Rackspace Technology platform-neutral approach, combined with a customer-centric approach to cloud transformation, will help the company assert itself in the managed cloud space to increasingly capture more market share away from its technology to services-centric competitors.

With both managed services and dedicated hosting capabilities, Rackspace Technology strives to become the ‘best place to run VMware’

While Rackspace Technology has been a longtime partner of VMware, offering hosting and managed services support for core virtualization offerings, VMware’s rapid shift to the cloud has presented new opportunities for IaaS players and global systems integrators (GSIs). To make it easier for customers to move VMware outside the data center, hyperscalers are allying with VMware to deliver the VMware Cloud Foundation (VCF) platform — which comprises vSphere, NSX and vSAN — on dedicated or multitenant cloud infrastructure. TBR notes VMware has traditionally been less reliant on SI partners, but we expect the company to outsource VMware Cloud management tasks more heavily through 2021 as the portfolio continues to grow, due in part to its recent multiyear, multimillion-dollar partnership agreement with Accenture.

As a result of these dynamics, Rackspace Technology’s private cloud strategy was one of the main highlights conveyed with its launch of Rackspace Services for VMware Cloud. In addition to supporting various hosting methods, including on premises via consumption-based pricing, in Rackspace Technology data centers or through a colocation provider, the addition of Rackspace Services for VMware Cloud supports VMware clients from the services angle. As complexity and lack of in-house resources are among the leading customer concerns surrounding VMware migrations, Rackspace Technology is applying its Rackspace Elastic Engineering framework to support a number of use cases, from lift and shift to application refactoring.

Prior to going public again in August 2020, Rackspace Technology (Nasdaq: RXT) underwent a major strategic pivot, placing less emphasis on the capital-intensive data-hosting model it has been historically known for and shifting its investments to build a resource base within cloud professional services. With the announcements of Rackspace Elastic Engineering and Rackspace Services for VMware Cloud in April and May 2021, the company is competing in the managed cloud space with a new high-touch services framework designed to support enterprise clients at all layers of the cloud stack, from infrastructure management to application modernization. Rackspace Technology’s long-standing technology alliances with Amazon Web Services (AWS) (Nasdaq: AMZN), Microsoft (Nasdaq: MSFT), Google Cloud (Nasdaq: GOOGL) and VMware (NYSE: VMW); ability to host clients’ enterprise workloads in a dedicated cloud; and well-established Fanatical Experience brand are among the ways the company will not only seek differentiation and position itself as an alternative to peers but also establish itself as an “un-GSI.”

Rooted and stable yet innovative, HCLT relies on core strengths to drive profitable growth

TBR assessment

HCL Technologies’ (HCLT) Mode 1-2-3 strategy remains a core pillar in the company’s efforts to navigate the dynamics of the ever-evolving IT services market, and positions it to transition its portfolio and address client needs now and post-pandemic. At the 2020 Analyst and Advisor Day, HCLT President and CEO C Vijayakumar noted, “The strategy is applicable to any business or enterprise.” Executing successfully on the strategy requires equal commitment from leadership and employees.

HCLT’s leadership is “strong and stable,” according to C Vijayakumar, with 30 top executives with an average of 26 years of experience with HCLT — a striking contrast to some of the company’s peers that have experienced a slew of executive departures and changes at the helm in recent years, such as Wipro’s (NYSE: WIT) May appointment of former Capgemini executive Thierry Delaporte as CEO. As such, HCLT is able to stay the course of its strategy — to utilize engineering and infrastructure services as a core enabler to drive digital transformation engagements and profitable growth — without deviating too far into unchartered domains. Its leadership also acts as a talent magnet, as a charismatic and consistent vision often trumps micromanagement tactics.

Services remains a people business, and HCLT knows it. While the company continues to embed automation to augment services, it relies heavily on its greatest asset, its employees, to extract the most value from its investments. With engineering services at its core, HCLT can execute on what the client wants — provided the client knows what they want — and the company is not shy about challenging its clients as it seeks to not simply solicit new business but to introduce innovative ideas. All of this would not be possible if HCLT did not stay true to its talent strategy.

Just like with its portfolio offerings, HCLT relies on staff with core capabilities. Consulting engineers, not consultants, are what differentiates HCLT from many of its peers, which often lose sight and aspire to be something for which they are not known. Just as talent carries a significant weight in HCLT’s differentiation, the way the company manages its partner network also has an impact on value proposition. As services and software relationships evolve to account for changing buyer expectations, HCLT must remain vigilant in not just how it partners but also with whom it partners. With COVID-19 shifting buyers’ digital transformation priorities and forcing clients to consolidate budgets, maintaining trusted relationships with business leaders will be key, compelling HCLT to forge exclusive relationships with technology-inclined business consultancies to ensure long-term success.

“A simple strategy and relentless focus on execution” fueled HCLT’s ability to accelerate revenue growth while maintaining margin performance over the past two years. During the HCL Analyst and Advisory Day, company executives, along with regional and segment leaders including the CEO, walked through HCLT’s business performance and growth areas, identifying bright spots within industry and service segments that align with the company’s business investments. While HCLT’s areas of investment, such as security, cloud, IoT and digital, do not vary significantly from those of its peers, the company has differentiated itself with its Mode 3-specific investments and leans on its talent and culture, ongoing innovation, and business outcomes achieved for clients to capture new opportunities around these growth areas.