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Atos: North America a Work-in-Progress

NelsonHall recently attended the Atos global analyst event in Boston, where we were keen to get an update on topics including:

  • Atos’ strategy for growth in North America, which has new leadership following a rather disappointing 2017
  • Recent developments and short-term priorities for offerings in the Digital Transformation Factory.

It appears to us that, nearly three years after its acquisition of Xerox ITO, Atos’ strategy for North America is a work-in-progress.

Recent developments in North America

As a reminder, in 2017, the first year of its Ambition 2019 three-year plan, Atos’ 2.3% organic topline growth and adjusted operating margin(up 140 bps y/y) were both in line with guidance. The major weakness was North America (which for Atos is essentially the U.S.), which started 2017 as its largest geo), where Atos has been challenged with scope reduction in some IT infrastructure outsourcing contracts, also by ongoing declines at Unify. The appointment of Patrick Adiba, formerly Atos Group Chief Commercial Officer, as CEO North America (he has been based in Dallas since last fall) reflects a drive to invigorate the sales organization in the region, as does the hires of several sector leads.

In the last 18 months, Atos has acquired B&PS capabilities in the U.S. in the healthcare sector: Anthelio, followed by three consulting practices (two of which from Conduent/Xerox). There still appears work to be done to integrate these operations and develop a coherent integrated portfolio that leverages the managed services capabilities brought in with Anthelio (Anthelio’s former CEO, who was meant to head Atos’ healthcare practice in North America, is not around) together with provider consulting capabilities, also to win more Digital Transformation Factory (DTF)-based deals

Opportunities for growth in North America

The short-term opportunities in the U.S. are cross-selling DTF offerings into the legacy IT infrastructure services client base acquired with Xerox ITO, rather than winning new logo business – and there have been expansions with some longstanding clients such as McDonalds and with Texas DIR. The immediate large-scale cross- and up-sell opportunities for Atos would appear to be in cloud migration services. Atos’ alliance with Dell Technologies should be significant in its attempts to expand in Dell’s U.S. homeland, though, perhaps by oversight, a presentation by Dell’s head of corporate strategy about the alliance did not refer to this! 

In order to grow its North American business in orchestrated hybrid cloud, Atos acknowledges that improving CSAT is a priority. To improve delivery management, Atos has introduced a ‘two-in-a-box’ model with its larger accounts, with a delivery lead (who has oversight of all delivery into an account) incentivized by CSAT rather than SLA performance or revenue. Also, Atos did not inherit an account-based sales organization from Xerox ITO - implementing one has taken several years. Since January, the North American sales force has been aligned by vertical. In terms of cross-sell opportunities, the obvious sectors are healthcare (payer and provider) and retail/CG (which was Xerox ITO’s largest vertical).

Although the major emphasis is on account mining, we also expect to see a push in North America for new logo clients in manufacturing, given Atos’ relationship with Siemens – the week before the event Siemens and Atos had announced an extension of their strategic partnership to 2020 with the level of joint investment in their innovation program increasing to €330m. This is an alliance that has legs: the partners claim to have achieved a joint order intake of €2.5bn since the alliance started in 2011. One focus area is IoT, leveraging Siemens MindSphere from its Digital Factor division, and Atos Codex. Atos, one of the first SI partners for MindsSphere, has developed a range of Mindpshere apps, and Siemens is increasing its focus for MindSphere on the North American market – of the initial group of 19 companies in the MindSphere world user group, not one is a U.S. headquartered organization.

Atos North American business remains heavily dependent (>92%) on its I&DM offerings: the Business & Platform Solutions (B&PS) activity remains nascent in the region. Our view is that Atos needs to scale its B&PS offerings in North America, and this requires further acquisition.

We have written before about Atos’ capabilities as an acquirer and integrator. But the pattern has been one of opportunistic acquisitions. Most of the large systems integrators have been/are increasing their industry domain expertise to improve their ability/positioning for supporting clients in the digital transformation of their businesses and business models. Positioning on business value outcomes typically demands a sector-specific articulation, even in digital workplace services. However, Atos will probably continue to be opportunistic, and rather than acquirinh to expand a vertical presence in North America, a large transaction that adds further scale in one of its heartland geographies would not surprise us.

Digital Transformation Factory: two of the pillars growing well​

Atos claims DTF offers accounted for 23% of group revenue in 2017, with growth in line with Ambition 2019 targets, and particularly strong growth in Canopy Orchestrated Hybrid Cloud and Digital Workplace services (with the latter, revenues were boosted by the addition of Circuit) and the securing of several large deals indicates continuing strong growth in 2018. Both of these are areas where Atos is building on a strong heritage of providing more traditional services.

Our takeaways about newer areas in the DTF (and where we are conducting specific market analyses) were more mixed:

Codex

This is the Atos brand for advanced analytics, IoT and cognitive solutions, where key takeaways were:

  • With IoT, Atos clearly benefits from its relationship with Siemens. Obvious opportunities include managed services for IoT, cybersecurity for OT/IT and industrial networks. We were given a range of use cases, including one that was new to us: connected rodent traps enabling its client to offer “pest-free warehouses as a service (an interesting example of a new business model!). Another use case is with Bouygyes Telecom, where Atos is one of the bigger partners in the Objenious alliance for the LoRa network. Atos’ partnership with Dell EMC is also relevant here, e.g. in building an IoT service management framework
  • With blockchain, Atos appears perhaps less advanced than some competitors: it has a small unit residing in Worldline but working across the Atos group. It currently has 15 use cases, not all of which are in production. In one example, Worldline is currently trialling the use of blockchain with payment terminals.

SAP HANA 

This pillar, that was initially called after a specific product, has been quietly renamed "Atos Business Accelerators"–  the other end of the spectrum of precision in branding terms. Again, this appears to be still a work-in-progress. We will look at this separately.

What we did not hear mentioned (that surprised us):

  • The new BTIC in Dallas
  •  Priorities for Unify; ambitions with UCC and penetrating the NG 911 market
  • Atos’ latest acquisition, Siemens VC
  • Achievements (and there have been!) in the deployment of automation technology in I&DM, including in leveraging partner ecosystem technologies
  • Priorities in accelerating the use of automation and industrialization in B&PS, which has new leadership.

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