Posts

EY’s Strategy and Transactions practice: Long-term value in the post-pandemic world

Investing more than $1B in technology, people and ecosystems  

According to EY Global Vice Chair for Strategy and Transactions Andrea Guerzoni, the firm is investing $1.5 billion in technology and people, with four specific goals. First, EY aims to improve the breadth and depth of its skills and expertise and accelerate innovation through a comprehensive learning program and acquisitions. Second, the firm seeks to prioritize reusable assets and technology tool kits across Tax, Assurance, Consulting, and its Strategy and Transactions practice. Guerzoni described this effort as focusing on “new client-facing technology” designed to help EY “get closer to and bring more value to clients.” Third, the firm works to establish strategic alliances, including a robust startup ecosystem and enhanced engagement with academia. Finally, EY spotlights the 25-plus wavespaces globally that provide an “immersive digital intense experience,” where clients can “rethink business, connect dots and look at reality differently.”

In TBR’s view, encompassing technology assets and ecosystems of people and partners as part of the $1.5 billion investment reflects the firm’s broader evolution to a more expansive player in the digital transformation space. EY also boasts a million-person alumni network that it can tap for ideas, introductions and opportunities, boosting its ability to influence the market.

Differentiating in an urgent, critical and complex space

At different points during the virtual Strategy and Transactions: Enabling CEOs to Navigate the NextWave event, members of the EY team presented their view on the firm’s differentiation in a professional services strategy consulting market, including new entrants such as investment banks, which stood out to TBR as an indication that EY views placing the transactions advisory component inside its overall consulting practice as something uniquely differentiated in the market.

Additionally, EY leaders specifically mentioned clients choosing the firm for holistic strategies with enterprisewide impact focused on long-term value and grounded in reality, sector and functional expertise, and the ability to both advise and enable change. Speaking directly about why clients seek out EY-Parthenon, EMEIA EY-Parthenon Leader Falco Weidemeyer said the firm brought experience and scale and delivered results. He cited a number of characteristics, such as outside-in sector experience and a focus on delivery, with the most significant and differentiating, in TBR’s view, being EY’s emphasis on transformational leadership “in urgent, critical, and complex situations to help [EY’s] clients create, preserve and recover value.” Combining strategy, leadership and expertise around transactions – and recognizing that long-term value will depend on optimal resource allocation – strikes TBR as an approach not frequently taken or delivered by EY’s peers.

Strategy and Transactions: Enabling CEOs to Navigate the NextWave — EY’s three-hour analyst event featured senior leaders from the firm’s Strategy and Transactions practice, including Global Vice Chair Andrea Guerzoni and Deputy Vice Chair for Strategy and Transactions Nadine Mirchandani. This assessment draws from presentations made during the event, as well as Q&A and breakout sessions between EY leaders and TBR analysts that took place immediately after the event. 

Following a year of acquisitions, VMware integrates across the technology stack to support customer transformations

TBR perspective

Gone are the days of the legacy virtualization giant that only serviced customers in their data centers. Among the key takeaways from VMworld 2020 was that VMware is rapidly evolving to meet clients wherever they wish to consume their data, whether that is across multiple clouds, in the core data center or at the edge. The slew of new or updated cloud, edge, desktop and security offerings announced at VMworld are the result of the company’s ongoing acquisition spree as well as strategic partnerships with some of the industry’s most powerful players. However, VMware cementing its “Any App, Any Cloud, Any Device” mantra was only half of the VMworld story, as the company also unveiled innovations that are completely new for the company, including full-stack automation, enterprise AI and support for graphics processing unit (GPU) technology. Specifically, VMware’s groundbreaking partnership expansion with NVIDIA and proposed acquisition of SaltStack suggest the infrastructure specialist is trying to help clients look up the technology stack, where enterprise value is ultimately created. This proposition largely aligns with VMware’s recent business model shift — in which Subscription & SaaS revenue is starting to outweigh traditional license revenues from both a volume and growth perspective — to capture enterprise mindshare. Recurring business has been led by acquisitions, and given the company’s success targeting niche players and integrating them across all layers of the technology stack, future acquisitions in areas like containers, security, automation and cloud management cannot be ruled out. As Gelsinger likes to say, “vSphere is the new VCF” and “Kubernetes is the new Java.” VMware’s ability to unify and sell an underlying cloud-ready platform with additional modern application development products and services will be key to the vendor’s positioning as a partner working alongside customers’ transformations.

As COVID-19 continues to take its toll, VMware (NYSE: VMW) hosted its annual VMworld event virtually. VMware CEO Pat Gelsinger kicked off the event with a keynote session discussing the broad role technology plays in everyday life, a theme that particularly resonates in the middle of a pandemic. The three-day event offered breakout sessions, product demos and customer success stories at each level of VMware’s digital transformation-enabling strategy.

EY and technology: Embedding AI and moving beyond trust

Taking AI further

EY’s “six habits” study provides detailed information and assessments of digital transformation leaders’ best practices as well as “actions for the boardroom,” such as “create a culture of continuous learning” and “embed innovation with corporate governance.” In previewing the study, TBR noted that the recommendations for boards to consider when accelerating AI — “assess the current state,” “integrate AI into core” and “measure AI benefits” — perfectly mirror EY’s own consulting offerings around AI. In discussing AI further, Higgins and Little explained that the firm has been applying AI when making its own financial forecasting and HR management decisions, providing additional insights into how different solutions could be rolled out to clients. Little made explicit that the firm would “build AI into every solution we have,” laying down a clear marker of the firm’s bet on emerging technologies. The firm has been trying to move away from the historical consulting and systems integration approach of putting many people on projects and would instead be adopting more agile sprint methodologies, automation and AI. A concerted effort to embed AI both internally and in every solution built for clients echoes TBR’s November 2019 Digital Transformation Insights Report: Emerging Technology, which noted that, “to capitalize on the cost savings generated by AI, vendors must shift their value proposition toward navigating clients’ technical and business change management obstacles to implement solutions, a strategy requiring continued investment in consulting expertise.”

Building better ecosystems

In discussing changes to the partnering ecosystem for all consultancies and IT services vendors, TBR has emphasized the need for re-evaluation and constant management of alliances, particularly as the technology vendors themselves change their own partnering models and go-to-market approaches. EY has stepped ahead of this change, recognizing the firm needed to evolve its traditional partner program into strategic ecosystem management.

In February EY released a new study on the “six habits of digital transformation leaders,” based on a survey of global CEOs and board members. TBR spoke with Jim Little, EY’s global Microsoft Alliance lead and EY Americas Technology Strategy lead, and Dan Higgins, EY’s global Technology Consulting leader, to gain additional insights and comments on the study, as well as to understand how the firm has shifted its internal operations and strategy around technology. TBR has attended multiple EY events in the last few years, including those geared specifically toward highlighting the firm’s technology practice. Based on those events and the March 2020 discussions with Little and Higgins, TBR believes EY has substantially changed its approach to technology consulting, from enabled to embedded and scalable, which will increasingly expand the firm’s opportunities with global clients, potentially at the expense of traditionally more technology-centric competitors, such as Accenture (NYSE: ACN) and Deloitte. Little and Higgins explained that EY fully intended to embrace a new strategy around technology, with solutions designed for reach and scale, a brand seeking to move beyond trust, and an ecosystem managed to “create real outcomes” for clients.

Sustained growth provides Accenture with the flexibility to enact internal and operational changes

In this week’s Accenture report, Senior Analyst Boz Hristov notes, “Accenture’s robust account management capabilities and diversified footprint supported continued profitable growth in FY1Q20 (CY4Q19), leading to increased market share. TBR does not expect major changes to the course of the company’s go-to-market strategy following the announced changes on Jan. 13 to its growth model, as client demand for globally supported, locally sourced services align well with Accenture’s integrated scale. TBR will provide further analysis of these changes during 1Q20.”

Additional assessments from our analyst teams

“As reported in the IT Services Vendor Benchmark, trailing 12-month IT services revenue growth decelerated year-to-year in 3Q19 as competitive pressures in traditional and emerging IT service areas, such as digital, cloud and cybersecurity, combined with unfavorable market dynamics tied to rising macroeconomic uncertainties and pockets of tight spending, slowed vendors’ revenue performance during the quarter. Average profitability for benchmarked vendors contracted year-to-year in 3Q19, and five of the top 10 operating margin leaders experienced the negative trend. Some of the vendors are finding it hard to balance addressing revenue pressures with investing in portfolio expansion, talent development and service delivery improvement such as through automation.” — Elitsa Bakalova, Senior Analyst

“In 4Q19 Wipro announced the opening of multiple centers globally. Specifically, Wipro opened a next-generation engineering and innovation center in Virginia that will focus on domain-centric use cases and add 200 jobs to its workforce of 500 in the area. Further, Wipro launched a NextGen Cyber Defense Center in Australia with plans to hire 100 cybersecurity personnel. TBR believes the new centers are aimed at diversifying Wipro’s APAC revenue base by driving traction with Australian government agencies for services like cyber resiliency and digital protection, supported by Wipro’s plans to open additional centers in Australia.” — Patrick M. Heffernan, Principal Analyst

On Wednesday Analyst Stephanie Long and Principal Analyst Geoff Woollacott will host a live webinar on the 2020 outlook of the data center market, including how data center vendors are investing in various emerging technologies to augment their portfolios and maintain relevance as legacy portfolios become commoditized. Register today for an opportunity to participate in this exclusive Q&A!

Hybrid, cloud-native and open source define Cloudera’s 3-pronged approach, post-merger

Cloud-native and open source are top of mind in Cloudera’s post-merger product portfolio

One of the key highlights of the event was the launch of Cloudera Data Platform (CDP), an open-source, hybrid cloud platform that includes Cloudera Data Warehouse, Cloudera Machine Learning and Cloudera Data Hub services. CDP is currently available on Amazon Web Services (AWS; Nasdaq: AMZN); however Cloudera hopes to provide customers with a broader range of IaaS providers as the company announced plans to bring CDP to Microsoft Azure and Google Cloud Platform (GCP) in the coming months. While Cloudera is taking a calculated risk by pushing customers to competing services, TBR believes the benefits will outweigh the costs due to the vendor’s increased exposure to a large customer base. The launch of CDP highlights the company’s cloud-native play but also aligns with Cloudera’s intent to offer customers more deployment options. TBR notes that many vendors still perceive the data center as a legacy standard; however, Cloudera is attempting to view it as a gateway to creating a hybrid instance, exemplified by its forthcoming launch of an on-premises version of CDP, dubbed CDP Data Center. This offering will be especially appealing to “lift and shift” customers who have large data sets on-premises and wish to migrate to the cloud.

Relying on security and governance for differentiation

Leveraging open-source technology to deliver solutions to customers regardless of deployment method is rapidly gaining acceptance in the market and therefore has forced Cloudera to explore new avenues for differentiation. TBR believes the vendor is attempting to achieve this through its enterprise-grade security and data governance solution, Cloudera SDX (Shared Data Experience). As a single management plane, SDX separates the data layer from the compute layer to provide automated security and compliance across platforms to help reduce costs and mitigate risk. Cloudera works its SDX offering into the rest of its portfolio, including its recently launched CDP offering, to secure data lakes and centrally manage large amounts of data. VP of Product Management Fred Koopmans and VP of Engineering Ram Venkatesh highlighted the negative effects shadow IT vendors are having on customers’ data privacy as a lack of interconnectivity between platforms hinders fraud detection and data repurposing.

Additionally, shadow IT causes dispersed data, which will inevitably require more labor resources and thus only increase the burden on customers that are likely operating on a shortage of sufficient IT skills. Findings from TBR’s 1H19 Cloud Applications Customer Research indicate that shadow IT is being eliminated while increasingly consolidated purchasing is leading lines of business to report greater autonomy when it comes to making IT decisions. As a result of these trends, we believe Cloudera is taking the right approach by strengthening SDX integrations to provide customers with greater autonomy and centralized data, making app developers, data engineers, business intelligence (BI) analysts and data scientists far more likely to adopt CDP or similar platforms.

In September Cloudera hosted its annual Cloudera Analyst Day, where analysts gained insights during breakout sessions, product demonstrations, keynotes and detailed one-on-one talks with company executives, customers and partners. Key talks included product demonstrations from Cloudera’s recently appointed CEO Marty Cole, Chief Marketing Officer Mick Hollison and Chief Product Officer Arun Murthy, along with a presentation from IBM’s General Manager of Data and AI Rob Thomas. Founded in 2008, Cloudera operates in 85 countries and has approximately 3,000 employees and over 2,000 customers.

Kick-starting innovation takes smart thinking, not just action

An innovation leader at a fast-growing Europe-centric consultancy shared with me tactics his firm uses to make its innovation engagements creative and pragmatic, with principles centered on adding real business value while capturing as much opportunity as possible for meaningful change.

First, pick one area to innovate, based largely on where you can expect value to come from. This echoes the age-old advice to search for what’s missing where it likely is, not where the lighting is best. And it echoes a recent theme we’re hearing from consulting and IT services vendors that clients need help making choices, not just understanding what choices they have.

Second, assemble the micro-learnings — the initial ideas and concepts — just to get people thinking, which I think reflects a trend of consultancies intentionally leaning away from “design thinking” as a term of art, while keeping the principles in place. Get creative, with purpose, but don’t get locked into an over-hyped and little-understood approach.

The third ingredient is multiple points of views, far wider than the perspectives of clients and their clients. If you’re considering supply chain, seek views from the HR managers at your client’s supplier. If you’re in the pharma space, talk to nurses actually distributing the meds. We’ve heard multiple stories of consultancies taking extra steps toward understanding a client’s ecosystem, but typically, this takes place when a minimum viable product is being tested, rather than early in the thinking-and-design phase.

Finally, when it comes to building something to test, focus on testing, whether you’re innovating around the right problem with the right idea, rather than the specific product or solution. Again, we’ve seen plenty of innovation engagements that move to testing and become too focused on the technology and making it work, not evaluating, continually, whether the innovation is being applied to the real problem.

Thinking on this discussion and reflecting on the last year of discussing innovation — as an offering, as an element of what consultancies and IT services vendors bring to their clients — we’re considering how to more fully capture innovation within the larger context of digital transformation. Look for specific assessments of innovation in the upcoming Digital Transformation Insights reports and the supporting vendor-specific quarterly reports, including Accenture, IBM Services and Management Consulting Benchmark Profiles for PwC, EY and McKinsey & Co.

Now. Next. Beyond.: EY’s road map for moving from current to future

TBR perspective

Norman Lonergan, EY global vice chair, Advisory, opened the EY 2019 Global Analyst Summit with an outline for a new strategy called Now. Next. Beyond. Having executed extremely well against its earlier strategy, EY needed to raise its own bar. In a way, it is adhering to a strategy that it likewise seeks to use to assist its key clients in adopting and leveraging technology to enter the digital economy as a stronger and more vibrant operating business.

Achieving these objectives does not happen overnight, nor will it occur without false starts and shelved proof of concept trials. From TBR’s perspective, Now. Next. Beyond. broadly translates into the following:

  • Now: The point in time where the heavy advisory lifting takes place to establish the foundational business rules required for further automation on the way to becoming a truly digital business.
  • Next: Obtainment of the low-hanging fruit in quick operational enhancements to cut costs (and prove value) and to enhance the overall customer experience. This phase likewise lays the foundation with anchor ecosystem participants to harden the automated or smart contract pieces necessary for the network effect at scale.
  • Beyond: The aspirational objective that in some ways could be entirely different business models made possible through atypical partnerships with business entrants from radically different business domains.

The EY construct is not necessarily groundbreaking or unique, but it is the strategic framework and corporate language the firm intends to deploy as it moves forward in the industry evangelizing its best practices and promoting the tight working relationships it has built over the past decade with enterprise technology stalwarts such as Microsoft and SAP.

Appropriately, EY hosted its annual Global Analyst Summit at a working cruise terminal at the water’s edge of Boston’s Seaport District, in a facility that served as an EY innovation hub before turning back into the assembly area for an oceangoing cruise ship. The venture-forth vibe in the physical facility amplified the sentiments expressed by EY’s leaders, particularly around making the firm more global, including global engineering across service lines and developing IP in a more industrialized way. As one EY professional explained, “When we solve a problem through applying tech, and thus creating an asset or tool, we want to productize and commercialize and globalize.” Like a ship making course corrections while still navigating toward a desired destination, EY has adjusted its business model, folded asset-based consulting and managed services into traditional consulting, and committed to emerging technology.

The IoT market has begun sorting itself out in 2019 — a vast improvement from its disorganized past

It has been a wild and chaotic ride for Internet of Things (IoT) vendors, with many placing big bets on IoT in the past and entering 2018 largely disappointed by the results. While IoT will likely never meet the expectations placed on it in 2015 and 2016 — the peak of hype — IoT’s contribution to IT vendor revenue will increase, with IoT ultimately becoming a core revenue driver. IoT, as a technique to solve business challenges through the assembly of technology to drive results, such as predictive maintenance, resource efficiency, value-added services or generally, increase insight, is not going anywhere.

The good news for vendors is IoT is getting a lot easier as the ecosystem sorts itself out. The increase in portfolio focus and partnering is making the market easier to navigate for vendors and customers. Offerings are becoming easier to implement and integrate as vendors begin to converge on architectures and standards, as well as orient go-to-market strategies toward coopetition rather than “winner takes all.” Customers are coming to market with a greater understanding of what they are looking for thanks to efforts by vendors and early adopters educating the market and cutting through the hype pays off. TBR believes 2019 marks the emergence of “go-to-market 2.0” as an evolved strategy for both IT and OT vendors seeking to better profit from IoT.

 

The 1Q19 Commercial IoT Market Landscape looks at technologies and trends of the commercial IoT market. Additionally, TBR catalogs and analyzes by vertical more than 450 customer deals, uncovering use trends, identifying opportunities, examining maturity, and discussing drivers and inhibitors.

Four by four by four equals four

Four straight weeks of traveling for work, to four different cities to meet with four different clients, brought out four thoughts about where the IT services and consulting markets stand as we move into the autumn rush of 2018.

First, the next few years will finally bring the shift in the consulting model that we’ve been anticipating for the last decade (when I worked Deloitte and the partners tasked our team with understanding the other Big Four firms’ moves back into consulting). Outcomes-based pricing won’t become the norm because clients want transparency or because consultancies readily put their own fees and reputations at risk, but because the technology around assessing, measuring and even metering outcomes has improved dramatically in the last couple of years. And asset-based consulting will become the norm because consultancies can finally fully marry their intellectual talent to repeatable, scalable, configurable solutions infused with more than just methodologies and industry knowledge.

Second, the word “maturity” has started creeping into conversations about emerging technologies such as artificial intelligence, enhanced analytics, Internet of Things and even blockchain. The smart consultancies have recognized the buzz around emerging tech has produced clients that have enough experience, both good and bad, to think of themselves as more than just novices needing consulting help to understand the emerging new-world customer and employee. These clients don’t want to be amazed by cool tech. They want their experience to be acknowledged and built upon, and they want to move faster. Recognizing maturity means talking about deeper, more lasting — and more expensive — engagements, much to the benefit of consultancies.

Third, I anticipate an era of internally splintered consultancies competing with globally managed firms, creating a weird market with nominally global players drifting toward highly localized operations, while a couple of large consultancies maintain centralized, uniform cultures and organizations. Mirroring the political, economic and demographic forces behind the recent rise of populism and nationalism, some global consultancies could see local and regional practices pressured by trends in data sovereignty and cybersecurity, combined with a spillover from political populism and accelerated by agile technologies that can be spread rapidly and customized for micro-differences more quickly than before. If this trend develops, the consultancies opting to go all-in on one approach or the other will succeed. Those slow to decide or trying to muddle through a middle-ground arrangement will see the market surpass them.

And fourth, I come back repeatedly to leadership, a topic I’ve written about extensively in our analysis and in a couple of blog posts and special reports. Leading a consulting or IT innovation or systems implementation team today requires mastering new technologies, understanding a client’s industry and their position within it, and navigating shifting centers of budget and decision making. None of that differs greatly from previous generations of IT, except that today the diversity of talent demands more capable leaders and the speed of technological change demands increased humility and adaptability, plus a greater willingness to form, manage and lead flexible teams. Companies I see that recognize the talent shift, including changes brought on by millennials, and understand the impact on their leaders — and the company’s imperative to train and equip those leaders — repeatedly stand apart from the pack.

As the 2018 finish line nears, will McKinsey continue its breakaway or slip back into the peloton?

Every six months, we review McKinsey’s performance, analyze its strategy and consider likely scenarios for the firm in the near term

Back in June, we said, “If McKinsey truly gains market permission to take digital transformation from design through execution, its peers will be pressured to emulate the firm.” In advance of the November profile, we’ve considered how the firm performed through the first part of 2018 and put together a couple quick thoughts as the end of the year nears, specifically around some McKinsey moves in France and a potentially pressing market trend.

As part of a burst in recruiting at McKinsey France, three partners with specializations in robotics and automation relocated to the firm’s Paris office, filling in portfolio gaps. McKinsey also launched a high-profile and seemingly civic-minded skills-development program to combat stubbornly high unemployment across France. Along with Bain & Co., Oliver Wyman and others, McKinsey seems to be sensing new growth in the France consulting market, likely driven by Brexit and digital transformation. Brexit’s pending implementation constrains consultants working between the U.K. and members of the European Union, making the French consulting market more congested as well as more lucrative for well-positioned and staffed consultancies. French companies have also accelerated efforts around digitization and digital transformation, driving consultancies such as McKinsey to place more emerging technology resources on the ground in Paris.

Not all will be wine and roses — or champagne and irises — as McKinsey faces a market trending toward transparency even as the firm manages the fallout from several high-profile mistakes (e.g., South Africa, Eskom)

Competitors have always complained about McKinsey’s business practices, and clients have always complained about the firm’s pricing and failure to follow through on implementations. Customers and/or markets emphasizing transparency may be far less forgiving of McKinsey’s methods, and larger consultancies with positive brand strategies and market presence — such as EY, PwC and Deloitte — may be well equipped to displace McKinsey, given the opportunities. Even as McKinsey adopts risk-sharing and outcomes-based pricing for some engagements, tech trends such as cloud, Global Data Protection Regulation compliance, analytics and SaaS, point to increased transparency and visibility into actual results, with clients potentially assessing whether McKinsey’s high consulting fees are justified.

We will be marking all these moves in our upcoming Management Consulting Benchmark, comparing McKinsey against 12 other consultancies across four service lines and countless metrics. In June we quoted a longtime partner at a Big Four firm, who said, “I don’t know what McKinsey will do next. I do know they’ve consistently been a couple steps ahead of us.” Maybe the timing is right for those competitors to catch up.