If the conflict in Ukraine remains hot, labor unions may kick into higher gear, extracting additional concessions and making it more costly for companies to exit any European market.
In the battle for talent, prepare for the long war
Recruit, retain and train. Every IT services vendor over the past couple of years has been pulling every lever to find, manage and reward talent in a chaotic market in which new competitors and newly empowered professionals have spiked attrition across the board and strained HR staffs as never seen before. The pandemic brought about a new appreciation for employee well-being while proving virtual engagements and delivery could work for IT services vendors. As 2022 starts, filling talent gaps in the near term will continue to challenge every vendor. Notably, HCL Technologies (HCLT) has begun investing in the long term with a program that is perhaps unique among IT services vendors and certainly, in TBR’s view, timely, a little risky and genuinely good for society.
On Dec. 9, TBR spoke with Ramachandran Sundararajan, HCLT’s EVP of Human Resources at HCL America, and Rohan Varghese, HCLT’s VP and global head of Analyst Relations and Customer Advisory Board, both of whom provided details on the new apprenticeship program. The following reflects that discussion and TBR’s ongoing analysis of HCLT.
Flexibility, STEM and a 5-year apprentice journey
With the company’s new apprenticeship program, announced in November, HCLT has crafted an expansive, flexible, multiyear journey for students intent on joining the IT services and science, technology, engineering and math (STEM) ecosystem. The core program begins with a year spent at HCLT as a salaried employee, including a three-month “boot camp” that introduces apprentices to various aspects of HCLT’s IT services, consulting and technology businesses. The second phase focuses on practice-based learning. Sundararajan emphasized the “practice” part, noting that apprentices would have exposure to and gain experience working across many of HCLT’s core areas, such as SaaS, cloud, security and networking services. Over the final three months of the first year, apprentices join a live project environment, supporting and providing help at an appropriate proficiency level and putting to use skills learned from working in sandbox environments.
When apprentices graduate from this last phase, they become eligible for an HCLT-funded college program and can fully appreciate the flexibility that HCLT offers. Graduated apprentices can enroll in a four-year STEM program at any university, with HCLT picking up the tuition and fees and keeping the student on the company’s payroll. Apprentices can also choose an associate degree track to move more quickly to full-time employment. Or apprentices can opt for industry-recognized certifications, moving even more rapidly into the full-time workforce. In all three journeys, HCLT pays the academic costs, allowing the apprentices to earn a degree without any student debt.
Looking beyond the usual boundaries while staying aligned to HCLT’s core
Notably, HCLT has designed the apprenticeship program to seek candidates both geographically and economically diverse from the standard STEM talent pool. HCLT wants to attract students with fewer financial advantages than the average college student and will be recruiting most heavily in cities away from the technology hubs of Silicon Valley; Austin, Texas; and Boston. Sundararajan said HCLT will work with community groups in Cary, N.C.; Hartford, Conn.; and Sacramento, Calif., among other cities, although HCLT would welcome apprentices from any part of the U.S. In addition to throwing the net wide in terms of who and from where, Sundararajan said the goals of the program centered on building skills for the future, recognizing that the technical skills, who has them, and where they live will have lasting effects across their communities.
North America client scale and longevity provides Infosys with a robust foundation for enabling trusted delivery transformation
North America is Infosys’ (Nasdaq: INFY) largest region, composing 61.9% of total revenue and growing 23.1% year-to-year in 3Q21. Accelerated growth momentum in the region — regional sales have rebounded from -0.5% on an annual basis in the peak of the pandemic in 2Q20 — is largely due to the company’s ability to balance innovation with securing foundational revenues enabled by cloud, which for Infosys means Infosys Cobalt.
Infosys’ ongoing expansion efforts in talent and capabilities in areas such as Adobe, Salesforce and product design continue to serve as a catalyst for transformation. Efforts are enabling the company to drive conversations in new areas as well as attract talent with multidisciplinary skills, evidenced by its network of innovation and design hubs in the U.S. Additionally, ongoing recruitment efforts provide a glimpse into Infosys’ culture of learning and development; hiring began in late 2020 with the goal of 25,000 additions over five years, and Infosys aims to hire 12,000 U.S.-based employees and 3,000 U.S.-based college graduates by 2022. Despite the ongoing war for talent, we expect Infosys to meet and likely exceed these targets. In 2017 the company announced its goal to hire 10,000 U.S.-based employees by 2019, then exceeded this goal by 3,000.
Retaining talent will be equally as important, especially as attrition continues to climb. Infosys reported voluntary attrition in the last 12 months for IT services was 20.1% in 3Q21 up from 13.9% a year ago. Examples of Infosys’ investments in expanding its addressable market and building trust with a new generation of workers include: a recently announced training facility in Indianapolis; virtual training platform Infosys Wingspan; recruitment outreach for nontraditional talent including high school and community college graduates and midcareer transition professionals; a dozen partnerships with U.S.-based universities; a Reskill and Restart program; and Infosys Foundation that supports K-12 teachers. Infosys is already seeing some of these investments pay off. For example, the attrition of its Community College Pathway program is about one-third lower than overall turnover. Creating personal connections with such recruits while providing a clear upward career progression sustains Infosys’ growth.
Financial Services acts as the cornerstone of Infosys’ U.S. go-to-market strategy
While Infosys’ North America client footprint is diversified, the financial services (FS) industry presents the largest opportunity. Global FS revenue was $1.3 billion growing at 21.8% year-to-year in 3Q21, and Infosys’ North America FS revenue was $802 million, increasing at 30.8% on an annual basis in 3Q21.
We attribute the impressive FS North America growth to two factors. First, Infosys is ramping up cash inflows from its mega deal with Vanguard, signed in 2020. Second, Infosys capitalizes on its established footprint and trust with nine of the 10 top U.S. banks and its ability to grow its regional banks’ roster.
Following Infosys Leadership Forum in Europe, the company hosted over 120 clients and two dozen analysts and partners for in-person and virtual sessions for the one-day Infosys Americas Leadership Forum, held at Madison Square Garden and culminating with the New York Knicks versus Orlando Magic game. While many of the themes and messages of the Americas event were consistent with the London event held in October, nuances, particularly around client stickiness and trust, stood out as the fundamental pillars of Infosys’ regional success and pivot toward becoming a platform-enabled solutions broker known for its strong execution capabilities.
Sustainability — in talent, decarbonization and emerging tech — becomes the watchword for IT services
Services is still people, even as compelling new forces like ESG and emerging technologies challenge IT services vendors
Even with a rush of emerging technologies and responses to the pandemic at the forefront of IT services vendors’ strategies and client success stories, the fundamentals of IT services remain rooted in people — in recruiting, training and deploying the right talent to solve IT-related business problems and staff enterprise IT needs. The changes TBR expects in 2022, including new competitors in the war for talent, new opportunities around decarbonization and accelerated adoption of emerging technologies, will not substantially alter IT services vendors’ business models. Differentiation among the vendors, in offerings, capabilities and financial performances, will come more through execution than strategy, at least in the near term. Vendors more adept at pivoting to new revenue streams and more patient with pressured margins will see greater success beyond 2022, provided they are able to adequately navigate talent challenges in the near term.
The vendors that were ahead of the game in 2019 in portfolio and resource expansion around next-generation technology-enabled solutions are experiencing revenue growth improvement in 2021. New growth initiatives, such as around product engineering, supply chain improvement and sustainability, along with steady investments in areas such as hybrid cloud, AI, security, IoT, blockchain and industry-specialized offerings, will continue to expand vendors’ addressable market opportunities and support revenue growth acceleration into 2022. Virtual delivery enables increased productivity but pushes employee utilization to the limits and supports a surge in attrition. Managing talent to market demand, especially as macroeconomic conditions improve and digital exhaustion continues, will be key as IT services vendors strive to ensure service quality requirements are met.
While the COVID-19 pandemic remains an external factor that can negatively affect IT services spending, subsiding pressures thanks to global vaccine rollouts indicate a potential for continued revenue growth acceleration from the 6% year-to-year revenue growth during the full year 2021 for the 30 vendors in TBR’s IT Services Vendor Benchmark. Moving into 2022, revenues will be driven by a mix of three activities: short-term projects around operational resilience and running businesses; larger transformational engagements that enable clients to improve their business models; and innovation engagements that allow clients to do something completely different — all supported through technology solutions and services.
2022 IT services predictions
- Focus on talent management, refined during the pandemic, will recede in a post-pandemic environment
- The decarbonization shift from promises to actual results opens a massive opportunity for IT services
- Blockchain winter ends and 5G & edge bloom in 2022, bringing new enhanced revenue streams to IT services
Telecom Business Research’s 2022 Predictions is a special series examining market trends and business changes in key markets. Covered segments include cloud, telecom, devices, data center, and services & digital.
‘Leaders Wanted — Masters of Change at a Moment of Truth’
Accenture’s (NYSE: ACN) recent virtual event to introduce its Accenture Technology Vision 2021 kicked off with a quick recap of the socioeconomic headwinds of 2020. These headwinds include four new concerns facing people personally and professionally: an increasing global population driving a need for new ways of interacting; the evolution of “Every business is a tech business” as technology’s role changes with the changing environment; the workforce of the future; and sustainability. Accenture Group Chief Executive – Technology and Chief Technology Officer Paul Daugherty then outlined in detail the five major trends of its 2021 vision.
Delivered under the slogan “Leaders Wanted — Masters of Change at a Moment of Truth,” the vision highlights five key areas, which we expect to drive investments not just from Accenture but also peers and enterprises, given the company’s market-making status in multiple domains.
- Stack strategically: While this trend at its core applies to architecting and redesigning organizations’ technology stacks to support the enterprise of the future, which includes attributes from the customer experience to the security layer, it also maps to Accenture’s core value proposition of joining consultants, designers, researchers, solution architects and delivery personnel, all through the umbrella of Accenture Innovation Architecture.
- Mirrored world: The resurgence of the digital twin is moving beyond experimental phases, and large enterprises are seeing an opportunity to invest in an area that, in the era of COVID-19, which has led to social distancing and reduced access to physical plants, will allow them to use IoT techniques to enable remote monitoring and control. Accenture’s ongoing investments in mobility and IoT service offerings over the past five years, along with the recent push into product engineering offerings, largely enabled through acquisitions, will enable the company to address demand and increase client stickiness.
- I, technologist: The democratization of technology, which has enabled workforces to do more with less and orient their productivity to higher-value tasks largely enabled by automation, while not a new trend, has certainly reached a pivotal point, given the changes over the past 12 months in how employees perform their work. Accenture’s rigorous approach to and ongoing investments in training — including spending $1 billion per year on reskilling and upskilling personnel, with efforts most recently focused on building cloud consulting, architecting and delivery skills — enable it to drive internal change at scale, and then sell its capabilities “as a Service” to clients.
On Feb. 17, 2021, Accenture held a one-hour virtual session introducing its Accenture Technology Vision 2021. While the format was different than in previous years, the 21st iteration of the summit had a similar goal: to portray Accenture’s technology prowess and appetite for innovation and scale. Hosted by Accenture Group Chief Executive – Technology and Chief Technology Officer Paul Daugherty, Accenture Senior Managing Director and Lead – Technology Innovation and Accenture Labs Marc Carrel-Billiard, and Managing Director – Accenture Technology Vision Michael Blitz, the virtual delivery of the content was both a sign of times and a demonstration of Accenture’s ability to coordinate, deliver and manage virtual events in collaboration with ecosystem partners — in this case, Touchcast.
SyntBots allow Atos to differentiate at points of disruption as the company gradually expands revenue share from digital services
A year ago, Atos aimed for Digital Transformation Factory (DTF) revenues to contribute 30% of the company’s total sales in 2018 and 40% in 2019. Atos hit that goal in 2018, and TBR expects Atos will reach its target for 2019 as well. TBR believes the transparency and visibility around Atos’ DTF portfolio make it a more believable use case compared to the offerings of industry peers, many of which fold digital services under a rather broad umbrella that encompasses legacy capabilities. Atos’ realistic outlook around DTF enables the company to provide guidance for digital services to grow at a CAGR of 2% to 3% through 2021, a goal that TBR believes the company will hit, especially as the recently acquired assets from Syntel, such as SyntBots, enhance Atos Codex (one of DTF’s four pillars) capabilities around AI and automation.
With SyntBots in place, Atos has certainly broadened its addressable market to better compete for digital services at scale across both IT and OT. Integrating traditional tools along with AI and machine learning, SyntBots allow Atos to reduce the complexity of clients’ IT architectures, providing the typical benefits of automation including cost reduction. TBR believes the true benefit, however, will stem from Atos’ ability to convince clients to reinvest cost savings in other areas, with Atos remaining the prime IT services vendor. According to TBR’s 4Q18 Digital Transformation Customer Research, extension remains the most natural jumping-off point to DT initiatives, as enterprises can experiment with disruptive technologies within familiar business operations, see their value in generating new business insights, and then use those insights to reimagine processes.
SyntBots’ Automated Operations and Product Engineering capabilities create additional entry points, which are needed to take advantage of with the “extension” phase of DT. Atos can engage with multiple CxOs at a single client to become aware of DT initiatives happening outside the CxOs’ current engagements and to stay top of mind when those initiatives move to the front burner — if not as the primary provider due to lack of a certain specialized capability, then as the conduit to a partner that can address the next initiative. While points of arrival to new technologies, such as AI and cloud, are rather common, we believe points of departure and points of disruption are areas where Atos has an opportunity to differentiate. Using legacy systems to build a repository of knowledge, rather than to just manage clients’ technical debt with the assistance of AI, is one way for Atos to compete at speed for DT-related opportunities.
While rivals such as Accenture (NYSE: ACN) maintain similar platforms, such as myWizard, Atos’ position as a “silent assassin within the North America market,” as Atos North America CEO Simon Walsh termed it, could certainly catch rivals by surprise and enable Atos to overdeliver in its digital services performance.
For the fourth consecutive year, Atos held its annual Global Analyst Conference in Boston, where the company continued to emphasize expansion in North America and the diversification of its global revenue base, as well as its desire to be closer to the U.S.-based IT industry analyst community. The company covered core areas of its three-year plan — codenamed ADVANCE 2021, which stands for “Atos Digital Value Advancing Customer Excellence” — and underscored its strategy to enable customers’ digital businesses by providing secure, data-driven ecosystems of multiple infrastructures, industry-specific services and technologies, and smart data platforms and services.
Notwithstanding the increased integration of artificial intelligence (AI) and process bots into government operations, the U.S. federal services sector decidedly remains a people business. At a recent Washington Technology Power Breakfast forum, industry leaders talked talent strategies and how they hope to succeed as digital transformation fundamentally changes the types of people sought for government work. A few key themes emerged as near-universal top-of-mind concerns for forum participants and audience members, such as the importance of developing a brand and messaging values that resonate with the emerging workforce; the criticality of public-private partnerships to develop talent in the greater Washington, D.C., area and beyond; and the concern and uncertainty about the human capital impact of Amazon’s (Nasdaq: AMZN) recent decision to become a much closer neighbor of Uncle Sam.
The trends and issues discussed often repeated themes TBR touches on regularly in its analysis of the IT industry, both within the federal market and across public and private sectors globally. While the perspectives shared were both validating and enlightening, there was just as much value in paying attention to what the panelists did not talk about at length. Today’s pressing HR demands leave little time for talent strategists to worry about the looming disruptive impacts of AI and robotic process automation (RPA), the fundamental changes in labor amid the rise of asset-based services, forward-thinking venture-capital-like approaches to partnerships, or the uncomfortable and growing issue of ethics conflicting with the eagerness to apply innovative IT to government missions. HR leaders and strategic decision makers at the leading services firms will need to grapple with these difficult topics today if they want to stay ahead of disruption that is just around the corner in the dynamic and rapidly changing IT industry.
Washington Technology Power Breakfast: TBR Public Sector Analyst Joey Cresta was recently invited to participate in a panel discussion on talent strategies of government contractors at a breakfast forum hosted by Washington Technology. The event provided an outlet for executives, HR experts and industry thought leaders to share how they intend to win talent in a competitive labor market while maintaining profitability and bracing for the impact of Amazon’s impending move into Crystal City.