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2022 Expectations: Insights from TBR’s Professional Services team

2021 featured accelerated changes in digital transformation, IT services and consulting markets that led TBR to reevaluate its coverage of these spaces. Going into 2022, we will be diving deep into new research streams and established areas. Join Practice Manager and Principal Analyst Patrick Heffernan and TBR’s entire Professional Services team for a free-wheeling discussion of all things professional services and expectations for the coming years.

Register today to reserve your space

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].

WEBINAR FAQS

How ecosystems turn cloud technology into solutions

As enterprise customers’ cloud deployments mature, they are exploring a greater variety of technology-enabled business processes. This trend presents a substantiative opportunity for cloud platform contenders but demands new ways of working with ecosystem partners. While independent software vendors (ISVs) add depth and breadth to portfolios, bringing solutions to market requires greater involvement from SI and consulting entities that understand the processes customers are aiming to modernize, particularly considering the resurgence of industry-led solutions and services.

In this exclusive TBR webinar, Principal Analyst Allan Krans and Senior Analyst Evan Woollacott will discuss the evolving ecosystem among cloud platforms, ISVs and professional services firms as well as best practices developing in the cloud space.

Don’t miss:

  • Review of cloud platform latest portfolio initiatives
  • The role of ISVs in platform programs, and how these programs are encouraging partner buy-in
  • Professional services and consulting firms acting as the tip of the spear to vendor go to market

Register today to reserve your space

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].

Blockchain: 2Q21 insights from TBR’s Digital and Services teams

Transforming the economic engine one block at a time

Join Patrick Heffernan, Boz Hristov, Evan Woollacott and Geoff Woollacott for a webinar examining the state of adoption for blockchain as well as the impact on buyer’s digital transformation initiatives. The need for a community approach will require frenemies to collaborate but only if enabled by public-private frameworks. TBR will discuss blockchain-specific use cases through the lens of a multienterprise business network (MEBN) framework and unpack insights around the impact of blockchain on business models of technology and services vendors.

Don’t miss:

  • Key trends driving the evolution and adoption of blockchain, as well as the current state of the market
  • Use cases for blockchain through the lens of an MEBN framework
  • Overview of the ecosystem including implications to vendors’ business models and the role of blockchain as it relates to digital transformation  

Register today to reserve your space

The end of ‘digital’

Insights from TBR’s 2020 Services Predictions

A potential global economic slowdown has management consultancies and IT services vendors considering how they must reshape their strategies if and when clients backpedal on spending for digital transformation. Reassessing partnerships and seeking acquisitions will be one approach. Selling products, integrated solutions and software more aggressively will be another. And in 2020, at least one IT services vendor or management consultancy will declare the death of the term digital, arguing that everything every enterprise does has become digital.

Join Patrick Heffernan, Boz Hristov, Kevin Collupy and Kelly Lesiczka as they review developments in the IT services and professional services market from 2019 and expectations for 2020.

Don’t miss:

  • IT services vendors’ reactions and strategic shifts as enterprises slow spending
  • The acceleration around products, platforms and SaaS delivered by consultancies
  • The disappearance of “digital” as a marketing term and the rise of post-digital services

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].

TBR 2020 Services Predictions: Everything is up for grabs

With or without chaos, 2020 will be a turning point

TBR’s 2020 predictions for the IT services vendors and management consultancies we cover center on a potential external disruptive force, ongoing internal changes, and a market shift that will happen regardless. If a global economic slowdown occurs in 2020, changes to the consulting business model will accelerate. Either way, the term digital as we know it will disappear.

While TBR is not forecasting a recession, either globally or in specific markets, like the U.S., we have had extensive discussions with leaders at IT services vendors and consultancies who have been preparing their teams and their clients for that possibility. As a result, these firms are at an advantage and have been cementing their relationships with clients worried about funding what they’ve been told are necessary digital transformations. In contrast, other IT services vendors have been projecting growth without preparing their own people or finances for a substantial slowdown in IT buying.

At the same time, consultancies have been struggling with significant shifts in how they build capabilities along with selecting services and how to deliver them. As we move into 2020, a well-established resistance to selling software — or be in the products business, in general — will give way to the inevitable rise of software licensing and “as a Service” models, as well as solutions bundling and clearly defined product sets that consultancies now package and deliver. While these products are not completely stand-alone and remain subject to internal debate over the specifics of commercial arrangements, the clear result will be a shift in the consulting model from people to people-enhanced-by-products. And a global economic slowdown would force consultancies and IT services vendors to automate themselves further and adopt new business models, accelerating these changes.

Whether a recession strikes or consultancies evolve quickly or more slowly, TBR expects 2020 will mark the first time an IT services vendor or consultancy declares “digital” has outlived its usefulness as a delineation between various elements of technology and business. Everything will be digital, making a digital designation obsolete. For TBR’s purpose — understanding professional services vendors’ strategies and how they make money — the shift from digital as a label will impact how vendors report their earnings, how they describe their investments, and what kinds of alliances they create across the broader technology ecosystem. In the short term, most vendors will continue reporting, marketing, investing in and adhering to digital. In the longer term, the term is dead.

2020 Predictions:

  • A correction or recession will stall digital transformations and slow growth for IT services vendors and consultancies
  • Consultancies will sell more products and will emphasize and invest more in that part of their business
  • ‘Digital’ will disappear

Register for TBR’s 2020 Services Predictions webinar, The end of ‘digital,’ Jan. 22, 2020.

Technology Business Research 2020 Predictions is a special series examining market trends and business changes in key markets. Covered segments include telecom, cloud & software, devices & commercial IoT, data center, and services.

Investments in acquisitions and startups enrich Capgemini’s next-generation solutions portfolio and improve its competitive position

Capgemini has taken multiple steps to enhance its portfolio to drive transformations through next-generation technologies and create business value for clients. The acquisition of Altran to deliver digital transformation in the industrial sector, enhanced relationships with Microsoft around Microsoft Azure solutions and with SAP around certification of industry innovation accelerators in manufacturing and retail, and investment in startups and joint commercial activities exemplify Capgemini’s recent activities to advance its competitive position,” said Senior Analyst Elitsa Bakalova. “Offering deep industry expertise improves Capgemini’s ability to address clients’ business-specific challenges. The company will continue to experience momentum in cloud services, with cloud revenue driven by offerings in the Capgemini Cloud Platform portfolio that support clients when building, migrating and managing applications and infrastructures in cloud environments. Offering each client its entire portfolio of solutions enables Capgemini to provide holistic transformational solutions and effectively compete with peers. The expanded partnership with Microsoft around Microsoft Azure solutions will enable Capgemini to increase cloud professional services activities, especially around cloud application development and maintenance.”

Additional assessments publishing this week from our analyst teams

Apple continues to pursue both service and hardware initiatives to maintain growth. The company is leveraging services and its wide install base to grow continuous revenue streams as device refresh activity wanes amid lengthening device life cycles and slowing hardware advances. While services are growing as a cornerstone strategy for Apple, the company also remains focused on maintaining its market perception as the most advanced smartphone producer. TBR expects the iPhone 11, which is slated to be released later in 2019, to have steady sales, but Apple will likely not see breakout sales like that of the iPhone X until the release of the 2020 model, which will deliver larger hardware upgrades such as 5G enablement. — Dan Callahan, Analyst

Google doubled its revenue over the past six quarters, surpassing $2 billion in 2Q19 as the vendor migrates customers to Google Cloud Platform (GCP) and attains particularly strong revenue growth from selling analytics. Google’s PaaS business will continue to drive revenue growth as enterprises integrate their hybrid environment with Anthos and leverage Google’s analytics, AI and machine learning offerings. In addition, Google supplements growth with G Suite as the company’s growing sales base brings industry-specific versions of the collaboration suite to market and cross-sells G Suite into GCP-oriented customer engagements. — Jack McElwee, Research Analyst

Cognizant has reworked its corporate strategy to emphasize the criticality of digital technologies to its growth plans. Pursuing acquisitions, such as that of Meritsoft, enables Cognizant to diversify its revenue mix, fostering new sources of digital revenues within key verticals. We expect Cognizant will maintain steady revenue growth year-to-year, largely led by demand around its digital operations capabilities.    — Kelly Lesiczka, Analyst

An integrated sales structure, paired with investments in price-competitive AI solutions and on-site presence, will help Infosys transform its brand identity. At the same time as Infosys builds a healthy pipeline, the company may need to calibrate stakeholders’ expectations around margins to sustain trust. — Boz Hristov, Senior Analyst

Reinforcing Verizon’s reputation as a premium wireless service provider will be essential for the operator to sustain revenue growth in the 5G era, as competitive pressures from T-Mobile will intensify, especially given the pending Sprint merger. Though Verizon will continue to trail T-Mobile in postpaid phone net additions over the next several years, Verizon will be able to sustain revenue growth by attracting customers willing to pay a higher price for the operator’s network coverage and premium unlimited data plans. Steve Vachon, Analyst

Sprint continues to undercut its rivals as the operator remains reliant on competitive pricing to attract subscribers given its subpar network coverage, though the company is moving away from more aggressive promotions, such as its previous Cut Your Bill in Half offer, to improve average revenue per user (ARPU). Sprint will continue to struggle to balance ARPU and subscriber growth, however, as many customers are unwilling to pay higher prices for the company’s network quality and Sprint is experiencing high churn rates from customers rolling off promotional pricing offers. — Steve Vachon

Public sector IT services spotlight: The U.S. federal earnings season continues the week of July 29 with three services-led defense contractors — Booz Allen Hamilton (BAH), Leidos and ManTech — releasing their fiscal results for the second calendar quarter of 2019.

As reported on Monday, July 29, Booz Allen Hamilton delivered 10.8% year-to-year growth during 2Q19, the first quarter of its fiscal 2020, and 100% of BAH’s growth was organic as the company continues to eschew acquisitions. BAH’s strong performance in 2Q19 reflects how ideally positioned the company is to serve its federal clientele, as well as a growing number of commercial entities, with a high-value, differentiated solutions suite spanning the strategy, mission and critical IT needs of public and private sector clients alike. As a result of its strong 2Q19 year-to-year growth, BAH is also likely to be the top-performing organic growth vendor in TBR’s upcoming 2Q19 Public Sector IT Services Benchmark (publishing in early October). BAH’s growth and margin performance (operating margin of 9.8%) in 2Q19 mostly outstripped that of the trio of federal competitors that released 2Q19 earnings and fiscal performance last week: Raytheon (YTY growth of 5.3%; operating margin of 9.1%); General Dynamics Information Technology (YTY contraction of 11.6%; operating margin of 7.1%); and Northrop Grumman Technology Services (YTY contraction of 0.4%; operating margin of 10.8%). We believe BAH’s performance relates directly to its solution set, which sits at the juncture of federal agency IT and mission objectives with a differentiating blend of consulting, technology and emerging solutions.           John Caucis, Senior Analyst  

Leidos will release its earnings on Tuesday, July 30, and is expected to post top-line, year-to-year growth of between 5% and 7% to reach about $2.7 billion in 2Q19 revenue. Growth will derive from Leidos’ continued strong pace of new awards, net increases in volume across several high-profile programs, and improving win rates, which are accelerating the conversion of pipeline opportunities into bookings and revenue. Leidos should also be able to offset the wind-down of existing programs and some limited currency headwinds from unfavorable swings in the U.S. dollar. The company has guided for 2019 revenue of between $10.5 billion and $10.9 billion, implying a median 5% growth rate, and record backlog levels achieved in prior quarters positions Leidos well to achieve its projections. — John Caucis  

Finally, ManTech will release its 2Q19 fiscal performance and earnings after business hours on Wednesday, July 31. ManTech’s latest strategic acquisition (Kforce Government Solutions, or KGS) will add roughly $100 million in new revenue and expand ManTech’s opportunity set in the federal civilian segment, augmenting robust Department of Defense (DOD) and intelligence growth while inorganically boosting ManTech’s top-line growth (projected to be between 6% and 8% in 2Q19). ManTech’s top-line growth in 2Q19 should be significantly augmented by the KGS acquisition, as the purchase closed in April and immediately began to contribute inorganic revenue to ManTech’s top line. On an organic basis, classified customers continue to accelerate spend with ManTech, while spending on behalf of ManTech’s principal DOD and Intelligence Community clients continues trending upward. Prior to the KGS acquisition, ManTech tendered a 2019 outlook for full-year 2019 revenue of between $2.05 billion and $2.15 billion, implying growth of between 4.7% and 9.8% over FY18 revenue of $1.96 billion. KGS is expected to contribute between $60 million and $80 million in inorganic revenue during the latter nine months of FY19; this compelled ManTech to elevate its prior guidance for FY19 revenue to instead reach between $2.13 billion and $2.21 billion, implying growth of between 8.8% and 12.8% over FY18. — John Caucis  

Understanding an acquisition: Capgemini snaps up Germany’s energy-centric KONEXUS

Capgemini’s acquisition of KONEXUS, a 30-person Germany-based energy strategy and management consultancy, triggered a reaction at TBR, as earlier this year we had looked at consulting for the energy sector and had been surprised at the relatively small number of acquisitions across the firms we track. Thirty management consultants will be a fractional addition to a company of Capgemini’s size with headcount of roughly 215,000, and the revenue increase will likely be marginal, but the decision speaks to Capgemini’s strategy to build capacity in both emerging areas and areas where the firm has established strengths. Perhaps Germany’s politically charged Energiewende will limit the impact of KONEXUS on Capgemini as a whole, as the strategic advice for companies working in Germany’s energy sector may not easily translate to other countries and regions. More likely, though, energy companies globally will face ever-increasing political pressures to reform and will seek strategic guidance — maybe ever-increasingly from Capgemini.

In our May 2019 full report on Capgemini, we noted that the company’s Energy, Utilities, and Chemicals practice earned the smallest share of revenue by industry (11.3%, but was leading in growth compared to other verticals) and predicted the company would seek acquisitions that will “bolster its services expertise around digital and cloud, such as in automation, analytics, cloud, digital services, AI and IoT, in addition to expanding its onshore presence.” With that context, acquiring KONEXUS appears to be a small move tangential to the company’s broader strategy. Folding KONEXUS into Capgemini Invent could be a way to use experienced management consultants to guide innovation and transformation engagements with a broader set of clients. Some of Capgemini’s peers have similarly made acquisitions expected to provide traditional benefits — enhanced offerings, new clients, additive revenue — while also changing go-to-market strategies, operational approaches to engagements, and overall brand. That may be too much to expect from KONEXUS, but this may indicate where Capgemini is headed.

Look for our initial assessment of Capgemini’s earnings this week.   

TIS market returns to positive growth as key operators accelerate and broaden 5G build-out plans

TIS market returns to growth …

According to Technology Business Research, Inc.’s (TBR) Telecom Infrastructure Services Global Market Forecast 2018-2023, the telecom infrastructure services (TIS) market has returned to a positive growth trajectory through the forecast period after several years of declines, now that the 5G cycle is underway and webscales continue to increase their spend on network technologies to drive their strategic initiatives. Leading operators globally have accelerated their 5G timelines by up to two years, and this has correspondingly pulled forward the TIS market growth curve by two years. 2018 was a key year where leading operators invested to prepare their networks for 5G and, in some cases, began deploying 5G technology. This trend will play out over at least the next five years as operators build out their 5G networks and continue their transformational journeys toward becoming digital service providers.

… but growth rate suppressed by offsetting factors

Offsetting factors that will constrain the rate of TIS market growth include the shift to more efficient network architectures (NFV/SDN and cloud); the decommissioning of legacy infrastructure; the increasing use of network resource pooling, such as network sharing; and operator consolidation.

Graph showing TIS market forecast and growth 2018-2023

Professional services will be the fastest-growing services segment through the forecast period

Increasing technology and business model complexity will drive demand for a broad range of professional services through the forecast period. Leading operators will continue their journeys toward evolving into digital service providers, and this will require the full spectrum of professional services, from consulting to systems integration. Operators will increasingly rely on the vendor community for assistance, requiring expertise, staff augmentation and access to intellectual property, or a combination off all three, as they pursue digital transformation.

TBR’s Telecom Infrastructure Services Global Market Forecast provides annual analysis and forecasting of the deployment, maintenance, professional services and managed services markets for network and IT suppliers.

5G-readiness spend and webscale investment drove strong growth in deployment and professional services

5G spend was pulled forward in key markets, supporting deployment and professional services markets

According to Technology Business Research, Inc.’s (TBR) 4Q18 Telecom Infrastructure Services Benchmark, operators in lead markets (U.S., China, Japan and South Korea) as well as a growing list of key operators in other developed markets have accelerated their 5G deployment timetables over the past year, primarily because 5G is a significantly more cost-effective solution to handle rising data traffic in their traditional connectivity businesses but also to remain competitive in their respective markets.

Vendor telecom infrastructure services (TIS) revenue benefited in 2H18 as operators pulled forward their 5G-related investment timelines, with increased spend on deployment and professional services to support 5G-readiness initiatives. The deployment services market is rebounding as operators densify their networks with small cells, bring new macro sites online and deploy fiber for backhaul in anticipation of 5G, particularly in the U.S. 5G is also a growth driver in the professional services market as operators leverage consulting services to develop implementation and business plans and vendors perform network infrastructure integration for the mass deployments of deep fiber, small cells and antennas that 5G requires. These trends supported revenue growth for Nokia, Huawei and Samsung and enabled Ericsson to mitigate the effects of restructuring in its Managed Services and Digital Services businesses.

Graph showing the ten largest TIS suppliers' 4Q18 revenue

Exposure to software-related services and webscales drives growth for select vendors, including Accenture and Ciena

Accenture and Ciena, among others, have strong traction in telecom operator and webscale customer segments. Among webscales, Accenture is providing outsourcing to manage back offices and integrating software. Accenture is also providing business, security and technical consulting to webscales.

Ciena capitalizes on growing demand for next-generation optical from communications service providers (CSPs) and webscales through its focus on optical R&D, which helps the company take share from more diversified vendors. Ciena also gains incremental software-related TIS revenue from its Blue Planet MANO (management and orchestration) and OSS offerings.

TBR’s Telecom Infrastructure Services Benchmark provides quarterly analysis of the deployment, maintenance, professional services and managed services markets for network and IT suppliers.

Pivoting to industry offerings and managing disruption: Not everyone can keep pace

Over the last two weeks, TBR has spent time with three leading IT services and consulting vendors, discussing their strategies for evolving digital transformation and hearing from their clients about what has worked and where frustrations remain. Two common themes came out of these discussions: industry-specific offerings and market disruption.

While we’ve frequently commented on the industry-centric culture and mindset of some leading IT services vendors and consultancies, we’ve typically seen their partnerships with technology vendors revolve more around horizontal solutions and emerging tech capabilities. One substantial shift of late has been a new focus on coinnovating, developing, and taking to market offerings and solutions designed specifically for industries, or even subverticals within an industry. This isn’t completely new, although the emphasis may be, and a sustained investment would solidify this trend. But the real implications, we think, will come for the IT services vendors amid their pivot to an industry focus. One of the leading vendors, a company as deeply ingrained with industry expertise as any of the Big Four firms, discussed its plans to roll out new industry-specific offerings with a leading software provider, noting that the companies together chose industries best suited to match their combined strengths. In contrast, we understand other large IT services vendors continue to struggle in pivoting to an industry-centric organization (never mind an industry-expertise culture). If these large vendors cannot identify their strengths and opportunities as well as their best-match software partners, they’ll fail to differentiate as the market moves to industry-centric digital transformations.

The second theme, disruption, is something that everyone is talking about. No analyst event, client meeting, or tour of an innovation, immersion or experience center passes without the discussion turning to how disruption in the market forces quicker decision making and faster actions. What emerged during my discussions with all three vendors these past two weeks was the clear distinction between internal and external disruption and the role an IT services vendor or consultancy can play in assuaging one and stoking the other. Clients spoke at length about the role their IT adviser played in ensuring core systems and operations would not be disrupted, even as the enterprise itself, including IT, went through a digital transformation. The three companies we met with described their role in providing trust, assurance, hyper-care attention to issues and problems, and everything from the road map to the running-at-speed implementation for clients both ready to change and nervous about the risks involved. Clients also expressed their fears of external disruption from traditional and nontraditional competitors, technology partners unable to deliver, and market forces moving faster than their systems can manage. While IT services vendors and consultancies haven’t created these fears, TBR can appreciate that a little uncertainty isn’t such a bad thing.

We will explore both issues in greater detail in our upcoming Management Consulting Benchmark as well as in the monthly deliverables in our Digital Transformation Insights portfolio. Stayed tuned.