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Atos: Verticalization Key to New 3-Year Plan

Atos’ global analyst event in Boston in April came just a few weeks after its launch of a new 3-year plan ‘Advance 2021’ (Atos Digital Value Advancing Customer Excellence) about which we have written here.

Key to Atos’ mid-term and longer-term growth is the effectiveness of its drive to align its operating model to be more industry and client focused. As such, we were keen to know a little more about recent developments and current plans to verticalize the go-to-market. It became evident to us that a lot has been achieved in the last few months; equally, there is an interesting journey ahead for Atos for it to convincingly position as a trusted partner with a coherent end-to-end services and solutions portfolio of business outcome-based, industry-based offers for enterprises in each of its target sectors and across all its target geographies. 

In his opening address, Atos’ Group Chief Commercial Officer Robert Vassoyan highlighted that his was a number of new/newish faces in the Atos exec line-up, and in various conversations with execs we noted a recurring emphasis on ‘reinvention’ at Atos.

Atos’ Business & Platform Solutions (B&PS) division, expanded and enhanced with the capabilities of Atos-Syntel, is critical to the increased focus in the Advance 2021 plan on verticalizing the go-to-market. And B&PS is already changing how it does business with clients.

Syntel was already organized into five vertical P&Ls (shown here together with the percentage of overall revenue in 2017):

  • Banking & Financial Services (45%)
  • Retail, Logistics & Telecoms (18%)
  • Healthcare & Life Sciences (18%)
  • Insurance (15%)
  • Manufacturing (4%).

The B&PS division, in which Atos-Syntel now sits, is essentially now organized along these five verticals plus two more – Public Sector, and Energy & Utilities – where Syntel was not present and where Atos has significant capabilities outside North America. The largest accounts have been moved into this structure, with smaller legacy Atos regional clients remaining outside this scope.

As well as its “Customers for Life” ethos, Syntel positioned quite strongly on its industry domain knowledge of its main target sectors. And this is clearly something that Atos is looking to leverage.

Around 200 partners from Atos Consulting (out of a total of ~1,500 personnel in the unit) have now been aligned with these seven vertical units and attached to specific accounts.

The B&PS division has heads running each of the seven verticals, plus delivery leads for each.

So, what about the B&PS portfolio? Here too, there is some element of verticalization taking place. Practice heads with responsibility for vertically-aligned products and solutions are being appointed.

And of the four former horizontal consulting practices, there is now just one that remains horizontal: digital transformation.

But this is the B&PS division. A complete realignment of the operating model would probably involve a more radical level of reorganization across the company – there will not be a change to the current organizational structure this year, but we would be surprised if it stays in place over the next three years.

The messaging is clear that there will be an increased investment on verticalization across the portfolio, even in IDM. There are some obvious areas where Atos could potentially go to market with industry-specific propositions that leverage its capabilities across infrastructure, applications, analytics and even BPS – these include propositions in healthcare, in L&P insurance, and in manufacturing, to name just three. But our observation is that this is still some way off. The thinking tends to start with the technology rather than on business outcome-based value propositions.

To take IoT as an example, where Atos is advantaged by its relationship with Siemens AG, the value proposition appears to be focused on management of infrastructures and cost reduction therein. The real opportunity for Atos is to develop a business value-based proposition, leveraging Codex, that centers on the value to clients of being able to make sense of the information coming from sensors. This requires an offering that leverages capabilities from the IDM, B&PS and BDS divisions – and we think there is some way to go here. Syntel brings in industry expertise primarily in B2C environments and it is more likely that we will see strong industry plays that leverage capabilities from across Atos (and that also have an underlying platform component) coming first in sectors such as insurance or healthcare.

In cybersecurity, Atos is adding more industry expertise into its sales teams, and is developing more verticalized case studies, with an initial focus on North America. With its cyber offerings, Atos is following a Pareto model, with ~80% standardized and ~20% adapted for, or developed specifically for, target verticals. Atos’ growth in cybersecurity in recent years has been mainly from providing some form of cyber-related service as part of a wider digital transformation project. While its 'cybersecurity everywhere' approach remains an important element in all IDM deals, Atos is also seeing very strong growth from providing standalone security services. A major win is that with Virginia Information Technology Agency (VITA) – a $120m contract signed in May 2018 which went live in January 2019 is Atos’ largest standalone cybersecurity contract for three years, and represents headway in the U.S.

While there will not be any further large-scale M&A activity for a while, we do expect to see some tuck-ins for B&PS, most probably in these areas:

  • Design and creative agencies. Atos is also starting to move and rebrand some of its Labs as Digital Studios, focusing on areas such as AI, analytics, and CX where it can showcase relevant assets such as Codex and Syntbots. Will a few agency tuck-ins be enough to improve Atos’ ease of access to the CXO suite?
  • Software engineering, where there is some ground to be made, for example in Agile
  • Specific SaaS capabilities, possibly, given Atos’ relationship with SAP, in the SAP ecosystem
  • Specific areas of cyber.

Strategic focus areas for IDM include:

  • Extending the cloud portfolio with offerings for native cloud developers. A recent development has been a partnership with CloudBees (like Atos, a Google Cloud partner) to integrate the CloudBees DevOps platform with Google Cloud in a managed service for enterprise software development
  • Significant expansion of its insurance BPO business, which, in our opinion, needs to be closer to B&PS if Atos is to be able to leverage platform-based opportunities in Europe or North America.

A lot has been happening at Atos since it acquired Syntel and began to get to grips with some specific challenges in North America. We do not doubt that the company will achieve the financial targets it has shared in Advance 2021: they are not audacious. But we also expect over the next few years to see quite a radical overhaul of the vertical-specific offerings portfolio with a concomitant stronger emphasis on specific business benefits that clients can expect to achieve.

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