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KPMG Decarbonization: The change agent helping the firm pivot toward its next chapter

The KPMG Global Decarbonization Hub supports the organization’s ESG agenda by bringing skills, partnerships, tools, and data and analytics solutions that further enhance KPMG’s advisory-led value proposition.

Innovation delivered at scale shapes the course of KPMG’s next chapter

Relying on strong governance capabilities to bridge relationships between IT and business will enable KPMG to drive new opportunities in the ESG domain

With KPMG CEO Bill Thomas kicking off the two-day Global Analyst Day it was evident that KPMG’s approach to clients’ changing business models due to COVID-19 has compelled the firm to also transform its own operations to better protect and expand client mindshare. KPMG’s internal transformation began well before COVID-19 when in 2019 the firm announced a $5 billion investment in technology, people and innovation.

Two years and a pandemic later, KPMG is accelerating this transition with the latest examples focused on expanding cloud, environmental and social capabilities, bringing the latter two under one umbrella and committing to zero emissions by 2030. With KPMG working toward establishing a bridge between business and IT stakeholders, the firm also continues to invest in its global team of data and analytics professionals, many of whom focused on translating the business value of IT using low-code and no-code technologies. The strategy — folding analytics within its core offerings — reflects strategies of the Big Four and some of its multinational peers.

But KPMG has an opportunity — and a responsibility — to carve a niche in emerging areas developing frameworks for clients that do not report against financial metrics, particularly within the environmental, social and governance (ESG) domain. With KPMG relying on its robust governance, risk and compliance legacy capabilities, the firm is now focused on the “E” and “S” parts of the three-legged framework, and its clients’ stories provided strong examples of how well the firm handles the change and expectations, from finding the right partners to introducing the most suitable solutions, among others.

Clients are eager to innovate; KPMG knows this and executes against it

With innovation — amplified through KPMG’s global network of Ignition Centers — becoming the connective tissue between the firm’s legacy and new business model, KPMG now has the opportunity to drive change at scale. Peers have often pursued acquisitions that have served as the catalyst of change (think Accenture’s purchase of Fjord and PwC’s buy of BGT that later led to the launch if PwC’s BXT framework). KPMG, however, relies on its organic investments, suggesting the firm is taking a measured but strategic approach, trusting that its own capabilities and culture are strong enough to affect change. A successful execution of this strategy requires broader buy-in across all stakeholders, especially member firm partners who are closer to retirement age and might be more resistant to change.

One group of stakeholders that is open to change is KPMG clients, especially those that are also facing pressure from their end customers that have largely been impacted by the advent of digital. According to TBR’s May 2021 Digital Transformation: Voice of the Customer Research, COVID-19 accelerated demand for services supporting both ongoing and new programs. As cloud continues to be the main technology driving digital transformation investments, buyer-vendor relationships are entering the next phase, where parties must account for new ways of engaging and delivery and opportunities are pivoting from projects to products.

In a use case discussion centered on KPMG’s work at the Johan Cruijff Arena in Amsterdam, TBR heard echoes of similar digital transformation engagements, which encompass innovation, emerging technologies and ecosystem collaboration all within a constrained environment but with implications and lessons for smart city transformations. Arenas can provide a useful test bed for emerging technologies, new business models and digital transformations given the mix of activities that take place inside, the opportunities for customer engagement — from before people arrive through to when they leave — and, of course, the opportunity to gather massive amounts of data.

KPMG’s role, as explained by Sander van Stiphout, head of innovation for the Johan Cruijff Arena, included orchestrating the ecosystem by helping the arena find suitable technology partners; ensuring compliance, particularly around the General Data Protection Regulation (GDPR); and providing staff as the arena’s innovation team grew. Most notably for TBR, van Stiphout said KPMG also helped his team create a “new value model,” to include turning the stadium into “a platform for innovation.”

In TBR’s view, shepherding a client’s innovation and digital transformation so successfully that the client becomes an innovation hub for others sets this engagement apart. Van Stiphout added that the arena and KPMG’s partnerships with the city of Amsterdam had been critical to the transformation’s success, and his team and KPMG were now helping Amsterdam officials “get the learnings in place, pave the way for scaling in other cities.” With “lots of demand for an ecosystem approach,” van Stiphout said the arena could now offer consulting to other stadiums on how to run more efficiently, create an environment, and then take transformation to scale.

Turning back to his own staff and echoing a detail provided by Red Hat in TBR’s most recent Innovation and Transformation Centers Market Landscape, van Stiphout noted that his employees now constantly interact with new technologies on a daily basis, which changes their mindset. In TBR’s view, this kind of change, coupled with new and innovative business models, serves KPMG well in describing the impacts the firm can have on clients’ digital transformations.

KPMG 2021 Global Analyst Day: In early June KPMG hosted analysts, clients and executives for two 90-minute virtual sessions during which KPMG demonstrated its evolving value proposition toward becoming a technology-enabled consultancy backed by its ability to trade on trust. KPMG used the time allocated for the presentations wisely and amplified its messaging through four client use cases that not only told the “Why KPMG?” part of the story centered on innovation but also connected to broader societal implications including ever important topics around environmental

KPMG: Fundamentally what blockchain does is digitize trust

In late 2020, KPMG’s blockchain team outlined to TBR the efforts the firm has made to evolve its blockchain practice, expanding into concrete and discrete areas in which the firm can “create an ecosystem around something that already exists, then add a layer of trust, enabled by blockchain,” as made evident by the three focus areas detailed by the KPMG team: cryptoasset custody and analytics, climate accounting infrastructure, and energy trading reconciliation. KPMG explained that the firm’s digital transformation initiatives, which underpin the entire blockchain practice, remain anchored by data, identity and ecosystem — conveniently core elements of blockchain. 

Americas Blockchain and Digital Assets Leader Arun Ghosh went one step further, saying KPMG had intentionally moved away from “leading with blockchain” to building a message around digitalization and trust: “Blockchain is digitizing the infrastructure. Fundamentally what blockchain does is digitize trust.” In TBR’s view, this business-problem-first, technology-second approach mirrors what consulting clients say they want and plays to KPMG’s strengths.

Measuring environmental commitments: Climate Accounting Infrastructure

Businesses face challenges in proving to clients, stakeholders and regulators that their efforts to address climate change have a measurable impact on the environment and meet enterprisewide goals. Stepping up to address that challenge, KPMG saw an opportunity to deploy blockchain solutions as part of a Climate Accounting Infrastructure (CAI) offering. In essence, verifiable emissions data depends on trust, which can best be built and sustained through a combination of tools, including blockchain solutions, AI, enhanced IoT sensors and cloud.

For KPMG, the journey to a blockchain-enabled climate accountability offering started with a client in the financial services sector that was seeking help to meet its sustainability goals. Operating across multiple regions, with overlapping and sometimes conflicting standards and regulations, the client wanted to invest smartly, prove value to its shareholders, and build trust with customers and regulators, all while fully understanding the costs and potential impacts, both positive and negative. Once KPMG devised a blockchain-enabled approach — which KPMG says provides “near real-time climate accounting and reporting to help clients meet their climate goals” — the firm narrowed its focus down to two core industries: real estate and oil & gas.

As Ghosh explained to TBR, these industries face increasing compliance pressures, as well as structural challenges to meeting environmental standards, making them excellent initial target clients. The specific blockchain component, according to KPMG, comes through securing the massive amounts of structured and unstructured data in a way that can be verified but not altered, leading to greater trust and transparency for all parties.

In a Dec. 29, 2020, article, The New York Times detailed the pressures facing the real estate industry in New York City, starting with the sheer volume of carbon emissions coming from the city’s buildings (close to 70% of the city’s total emissions). According to the article, a 2019 law “requires owners of structures 25,000 square feet or larger to make often sizable cuts in carbon emissions starting in 2024 or pay substantial fines” and “affects 50,000 of the city’s roughly one million buildings, including a substantial number of residential buildings.” The city’s role as a global financial hub and KPMG’s heritage in accounting and financial services present a strong opportunity for the firm to begin building a use case for its CAI offering, particularly if the firm leverages its existing NYC-based client relationships to gain introductions to commercial real estate owners.

Last fall, TBR met with KPMG’s blockchain leadership team, including Americas Blockchain and Digital Assets Leader Arun Ghosh, and discussed changes the company’s blockchain practice has undergone since the October 2019 Blockchain Analyst Day. As TBR prepares in 2021 to add a blockchain-specific component to our Digital Transformation portfolio, examining in detail how IT services vendors and consultancies have been building blockchain practices, we will publish special reports describing specific vendor offerings and how those offerings and supporting capabilities fit within the larger blockchain ecosystem.

Ecosystems and trust: What KPMG brings to blockchain

‘It’s not about the enterprise anymore; it’s about the ecosystem’

Opening the event with KPMG’s view of innovation and technology, including specifics around blockchain, National Managing Partner for Innovation and Enterprise Solutions Fiona Grandi and Global Blockchain Leader Arun Ghosh emphasized that achieving meaningful blockchain adoption requires moving beyond the enterprise to the entire ecosystem. In these remarks, particularly when KPMG stressed its role as a network provider, a “trusted layer” across a platform and an ecosystem, TBR heard echoes of the “Business of One” framework and the gradual shift within the IT services, consulting and technology space toward more robust partnering — and clients that expect more from their vendors’ ecosystems. Trust, as repeatedly invoked by KPMG, echoes the firm’s DNA as one of the Big Four, a firm trusted with clients’ financials, systems and regulatory obligations. Neatly pulling these two ideas together — the increasing need to play across an ecosystem, and KPMG’s core value around trust — Ghosh said one key question the firm helps clients answer, when considering blockchain, is quite simply, “Can I create a trusted ecosystem?” If clients can answer that question, they are prepared to move beyond what Grande described as a nonstarter position around blockchain. “When [clients] say, ‘We want it on blockchain,’ they haven’t thought it through,” Grandi said. On a more concrete level, KPMG’s leaders stressed the firm’s role in helping clients move toward smart contracts, a core use case for blockchain’s distributed ledger technology. Smart contracts, as KPMG’s U.S. blockchain program lead, Tegan Keele, summed up nicely, do not automate processes; they remove manual tasks. To remove those manual tasks, businesses comprising the ecosystem have to reach a consensus on process diagrams to establish the governance flows for the blockchain.

One specific example from the day stood out to TBR. KPMG professionals described a large-scale operations consulting engagement, including “pain and trust point mapping,” that led to a blockchain-enabled solution providing farm-to-table provenance, starting with the government agency responsible for licensing the farms. We will explore below how a government-mandated blockchain could enhance societal goals around welfare and certification, but the key characterization of KPMG’s role came from Ghosh, who said the use case highlighted the firm’s overall goal for blockchain, which is to “create [a] common, real-time, trusted source of the truth to help solve industry’s most critical issues … create an ecosystem around something that already exists, then add a layer of trust, enabled by blockchain.”

‘Those who get it want to create their own ecosystem and control it’

Understanding how KPMG defines the core values of blockchain requires also understanding how clients and technology partners see the firm itself, including what KPMG brings to innovations, engagements and solutions. Throughout the event, KPMG ceded the stage to clients and technology partners, such as IBM (NYSE: IBM) and Microsoft (Nasdaq: MSFT), that repeated a few key themes on what KPMG brings to blockchain. Most frequently, these speakers noted KPMG’s industry expertise, especially as related to specific business processes and industry-centric regulatory challenges. On this second point, one client stated that KPMG’s trusted brand and regulatory expertise were essential in the blockchain space “to drive institutional adoption.” Another client said KPMG brought a “holy trinity of expertise” around business processes, applicable technology and change management. (Note: In TBR’s view, change management remains a critical, if sometimes neglected, element of all emerging technology adoption and digital transformation. As multiple clients and consultancies have said, “The people, not the technology, are the problem.”) A technology partner said blockchain is a “team sport” and that “KPMG has deep process expertise in life sciences and supply chain,” two elements that had been critical to the partner’s joint engagement with a U.S. pharmaceutical giant. TBR also noted that multiple KPMG clients described the firm as a systems integrator (SI), fitting with KPMG’s approach to let the solution drive decisions around the technology stack, products and software.      

Blockchain in the context of digital transformation: A slow-moving, inevitable revolution

In fast-approaching fourth industrial revolution, bureaucratic labor will become as nonessential as manual labor became to the agrarian economy with the advent of the combustion engine. Blockchain technology will enable smart contracts throughout our economy and will be the red thread stitching together multi-enterprise business networks for frictionless commerce that will greatly reduce demand for bureaucratic labor. As one management consulting partner put it, “If you are not at the point of consumption or at the point of creation, then your job will disappear.”

In TBR’s latest Digital Transformation Insights Report: Emerging Technology, Senior Analyst Boz Hristov and Principal Analyst Geoff Woollacott describe in detail how blockchain technology sits firmly in the hype phase today and, in little more than a decade, has reasonably distinguished itself from cryptocurrency even as blockchain underpins that digital reality. Solving the coopetition paradox, revolving around establishing common governance and standards across competitive and cross-industry ecosystems, is the biggest challenge, yet offers the long-tail opportunity for vendors.

Additional assessments publishing this week from our analyst teams

IBM Services remains challenged by its internal portfolio and resource transformation, such as in traditional infrastructure management and technology support, and reported a fourth consecutive quarter of revenue decline in 2Q19. Pockets of revenue growth in constant currency in business and technology transformation areas, such as consulting, application management and cloud, indicate IBM Services’ portfolio transformation to higher-value services is working. While profitability will remain IBM Services’ core priority in 2H19, the company’s work with clients around advising, moving, building and managing next-generation technology solutions will continue to increase and begin to offset revenue growth pressures in 2H19. — Elitsa Bakalova, Senior Analyst

TBR’s IBM report highlights some of the recent developments in IBM’s Systems Hardware portfolio as the market awaits the newest refresh of IBM Z, which is likely to be announced at the end of 2019 and become generally available at the start of 2020. Hardware-centric investment trends are also highlighted, for both IBM’s traditions Systems Hardware portfolio and its investments in quantum computing. TBR’s financial projections in this particular iteration of the report include how TBR anticipates the Red Hat acquisition will impact corporate numbers. — Stephanie Long, Analyst

Lackluster performance in traditional IT and telecommunications continues to weigh down T-Systems’ revenue, but cloud-based services will help revenue rebound in 2Q19. Strengthening its partner network improves T-Systems’ innovation as well as drives adoption of its cloud and IoT capabilities. For example, its recent partnership with Software AG allows T-Systems to underpin its Cloud Internet of Things platform with the Cumulocity IoT platform, expanding its delivery scale in Europe and North America.
Kelly Lesiczka, Analyst

HCL Technologies (HCLT) emphasizes its engineering and R&D core services to support foundational revenues as the company balances acquisition integration with portfolio management. With the completion of its acquisition of IBM Software assets at the beginning of July, HCLT launched HCL Software, which we expect will help the firm deliver software and product solutions that bridge HCLT’s legacy services with its Mode 2 and Mode 3 emerging technologies and services, particularly for cloud, digital and analytics, and security. — Kelly Lesiczka

In our upcoming DXC Technology Initial Response, TBR will look at whether DXC has been able to overcome recent pressures stemming from completion of several large contracts without replacement and ongoing headwinds in legacy applications work. — Kevin Collupy, Analyst

Additionally, check out our recent insights into IoT and KPMG, available in our Special Reports section.  

KPMG is on the right path as the firm delivers connected, powered, trusted transformation

Connected, powered, delivered with trust: KPMG’s ambitions for its clients  

KPMG’s approach to digital transformation revolves around the firm’s concept of the “Connected Enterprise,” an organization fully embracing information technology, networking and data to take every advantage of existing and emerging technologies. In KPMG’s view, fully embracing IT requires an enterprise’s transformation efforts be sustainable and cross-functional; that is, not simply transformation to a new state, but an ongoing, ever-evolving change process, executed across an entire company, not simply within one functional area, geography, or line of business. As a comprehensive vision of digital transformation, KPMG’s Connected Enterprise serves as both an aspiration and a road map, particularly when coupled with the expertise, capabilities and experience KPMG believes it brings to clients. During the event, both formally and in sidebar conversations, KPMG professionals reiterated the firm’s commitment to delivery, from strategy and road mapping through advice on funding transformation, based on KPMG’s core expertise in finance, and through to implementation and managed services. Multiple client examples, some described in this report, brought forward that commitment and reinforced KPMG’s strategy-heavy emphasis.

When the firm shifted to emerging technologies, the Connected Enterprise became empowered: According to KPMG, the firm brings clients functional transformation advice, deep industry knowledge and expertise transitioning to the cloud. And underpinning the firm’s core strengths around strategy consulting and emerging capabilities around technology, KPMG touted the trust clients have developed with the firm and KPMG’s ability to reassure clients their digital transformations will be connected, powered and secure. In TBR’s view, KPMG’s framing around digital transformation does not differ sharply from its Big Four peers, with “connected, powered, and trusted” echoing both the structures and themes used by PwC and EY, in particular. In the near term, minimal differentiation may not matter to clients. As these firms all begin to more aggressively court new logos, KPMG may need to find a unique way of describing its digital transformation vision if it has yet to establish enough differentiation.

KPMG may find differentiation with its Ignition Centers, even as the field is increasingly crowded with these kinds of immersion, innovation and transformation spaces. As described in detail by KPMG’s leaders, the 25 globally dispersed Ignition Centers “make technology real” for clients and allow clients to “see what tech feels like” within a KPMG setting, but attuned to the client’s specific needs. For KPMG, these centers supply the engine for the firm’s innovation agenda, providing the culture and the space for an “ideas to outcomes” framework for clients’ people processes and technology. Further, the firm’s leadership described “sensory advantage capability” — the ability to look at markets and trends, anticipate what will be coming, and then draw conclusions, with specific context, for clients — as critical to both the Ignition Centers and how KPMG views innovation.

In KPMG’s view, the firm has developed expertise around reading “signals of change from an outside perspective” and relating those signals to client-specific content. All of this — the innovation, technology and future sensing — enables KPMG to translate clients’ needs into strategy for a Connected Enterprise, deliver a detailed and tech-supported road map, and then implement the digital transformation.

As with the firm’s overall framing around digital transformation, TBR cannot be certain the Ignition Centers differ substantially from PwC’s Experience Centers, EY’s wavespaces or the 20-plus other centers TBR has visited in the past three years. In discussions with KPMG professionals around client selection and preparation, staffing and talent management, and technology partner inclusion within the Ignition Centers — all concepts researched extensively by TBR — no substantial differences emerged, suggesting KPMG has at least kept pace with the evolutions to date, if not necessarily leading peers in developing new ways of leveraging these centers.

In mid-June, KPMG hosted more than 50 analysts for an extensive series of large sessions and breakouts intended to showcase KPMG’s capabilities, offerings and innovations. With multiple clients on hand for both the opening dinner and presentations across the following daylong session, TBR had the opportunity to hear why clients select KPMG and the different digital transformation challenges KPMG has addressed. TBR also met one-on-one with KPMG leaders and partners, hearing directly from them the firm’s overall strategy, internal metrics, and sense of where KPMG fits within the consulting market.

Services Weekly Preview: Nov. 11-16, 2018

As we build toward the middle of the quarter, we’re wrapping up our periodic assessments of IT services vendors. Like last week, we also have some semiannual analysis on vendors in the management consulting space.

Monday: 

  • KPMG’s risk-averse culture pressured its performance, causing the firm to drop a spot in terms of revenue size among peers in the latest assessment of the management consulting practice. A potential KPMG and Bain marriage, however, could be a way for the firm to catch up with rivals and disrupt the management consulting space.
  • Continued expansion of its onshore presence, including the recent build-out of its co-innovation center in London, improves HCLT’s value proposition by enabling it to work alongside its clients to create larger-scale transformation engagements. However, HCLT faces some challenges in recruiting talent to support new centers, spurring the implementation of employee development programs.

Tuesday: Although Atos will grow revenues at a slower rate in 2018, the expansion of the company’s Digital Transformation Factory portfolio and recently announced acquisition of SIX Payment Services, which is expected to close in 4Q18, will enable the company to accelerate revenue growth in 2019. TBR’s 3Q18 Atos report analyzes the implications from Atos’ ongoing activities, such as the Syntel acquisition and investments artificial intelligence (AI) and security solutions and capabilities.

Wednesday:

  • Senior Analyst Jen Hamel examines EY’s strategy to provide clients with technological enablement of business transformation in her profile on the firm for our Fall 2018 Management Consulting Benchmark. One key takeaway: Increasing its investment in technology-enabled services, including those involving blockchain and AI, by $1 billion over the next two years will improve EY’s competitiveness with solutions-led peers IBM and Accenture.
  • We continue looking for signs Wipro will see improved performance, as its India-centric peers have, to align with its digital transformation strategy and expanded portfolio and capabilities. In this latest assessment, we’re still searching.
  • Capgemini has made changes to its portfolio, organizational structure and sales model to address rising demand from clients’ business side, rather than their technology side. In TBR’s 3Q18 Capgemini report, we will dive deeper into topics such as AI, digital marketing, and Capgemini Invent, the new global business line Capgemini launched in September.
  • In TBR’s 3Q18 Perspecta Initial Response, we will provide an overview of Perspecta’s second quarter as an independent company. Made up of Hewlett Packard Enterprise’s former U.S. Public Sector business, Vencore and KeyPoint Government Solutions, Perspecta faces some challenging financial and resource-related issues as it works to find its footing as a stand-alone company.  

Thursday:

  • TBR’s 3Q18 Raytheon Intelligence, Information & Services (IIS) full report explores how the emerging geopolitical power struggle in space and cyberspace plays to Raytheon’s strengths in cyber hardening, computer network operations, advanced analytics and AI. The report examines how IIS was able to outgrow federal IT services competitors in 3Q18 and how its deep mission knowledge in the U.S. provides a strong foundation as it pursues riskier adjacent market opportunities in volatile markets such as the Middle East.
  • TBR’s 3Q18 Leidos full report examines the company’s first quarter of year-to-year organic revenue growth since it acquired Lockheed Martin’s IT services business in 2016. The report explains Leidos’ positioning across defense, health and civilian markets and how the company is adjusting to disruption amid the federal market’s shift from bespoke proprietary technology development to configurable commercial-off-the-shelf IT solutions.
  • In our 3Q18 results on Wednesday, TBR expects Cisco Services to continue to accelerate revenue growth during the rest of 2018 and in 2019, positively affected by Cisco’s ongoing portfolio investments in and acquisitions around next-generation and software-driven solutions that generate professional services opportunities. TBR expects Cisco’s recent acquisitions and partnerships in cloud, security and networking to generate increased professional and technical support services for Cisco Services during the coming quarters.

Friday:

  • The previous edition of TBR’s Management Consulting Benchmark Profile: PwC described the firm’s efforts to make its Business, Experience, Technology (BXT) framework a companywide endeavor. Six months later, we’ve seen signs the firm’s ambitions around BXT have evolved from aspirational to operational, with global examples of the framework becoming an on-the-ground reality in working with clients.
  • Partners enable Fujitsu to enhance its core services with cloud, software and digital capabilities, helping to ease clients’ transition into emerging areas while offsetting declines from traditional services. However, without expanding its client base outside of Japan, Fujitsu could face challenges in maintaining revenue growth.