As we have previously written, cloud services overall are poised to be the fastest growing area of IT services in 2021. The changing nature of cloud adoption, from non-production and non-critical applications to core business applications means that SAP environments will be no exception.

In our recently published SAP Cloud Migration Services market analysis, NelsonHall estimates demand for these services will grow by 12% in 2021, compared to 5% growth for SAP services overall. This growth is driven by the need for tangible cost reductions in an uncertain economic environment as well as a goal of modernizing IT landscapes to position for the expanded adoption of new and emerging technologies.

The adoption of S/4HANA to date has been restrained in part due to business case challenges for migrating from legacy landscapes. Migrating to the cloud helps address this, as the pivot from on-premise managed infrastructure to the cloud reduces IT operating costs and allows for adjusting cloud sizing as requirements change. And IT service vendors and cloud vendors are building capabilities and offerings to reduce the migration cost itself.

But migrating enterprise core SAP systems to cloud environments presents a three-headed challenge in the form of coordination between the three different service providers involved: the ISV (SAP), the hyperscaler cloud provider, and the systems integrator responsible for executing the migration and overlaying both business process and functional extensions. Collaborative relationships between the providers and coordination in service delivery are a necessity.

We recently spoke with Infosys and Microsoft to understand where they have invested to build complementary capabilities and how they integrate them to gain insights into how these challenges are addressed in supporting client SAP migrations to Microsoft Azure.

Investing in foundational SAP cloud migration capabilities

Microsoft’s investments in supporting SAP migration to Azure include project Embrace, launched in 2019, and a suite of tools and assets it has developed. Infosys, one of SAP’s Global Strategic Service Partners, looks to act as a bridge to facilitate the migration of legacy SAP workloads to Azure and add incremental capabilities on top of the foundational ERP system.

In 2020, Infosys introduced Infosys Cobalt to enable its clients’ cloud journeys. Infosys Cobalt offers ~14k cloud assets and ~200 industry cloud solution blueprints. Within Infosys Cobalt there are methodologies, solutions, tools, templates and accelerators to facilitate the migration of client workloads to cloud environments. Its SAP practice is working within this corporate initiative on a portfolio focusing on client SAP workloads. While migrating a full client application landscape to the cloud is broader than an ERP alone, Infosys estimates that of clients that have SAP environments, 90% of cloud migrations involve some element of their ERP as the core of a broader digital transformation.

Infosys and Microsoft have developed joint go-to-market plans aligned to client business objectives such as reducing cost through cloud adoption versus expanded capabilities through digital transformation.

Building complementary capabilities to support a variety of client journeys

Infosys has worked with Azure to refine its Safe Passage SAP migration approach to be applicable for migrating SAP to Azure environments, regardless of path chosen: migrating legacy ERP to Azure, converting the database or OS, or transforming from a legacy system to S/4HANA. Within Safe Passage to Azure, Infosys has four key assessment offerings, the first two offered free of charge, delivered with Microsoft Azure team support:

• Lift & Shift Starter Kit: this assessment allows clients to understand how their existing system would operate in Azure without any major database or application changes
• Landscape Conversion: leverages its S/4Assist asset to aid a client in understanding the value, effort and risks required to convert to S/4HANA
• Business Value Assessment: based on adoption of Infosys’ pre-configured industry-tailored solution housed in Azure, Infosys Catalyst, this illustrates for the client’s business units the value that could be realized through migration
• SAP on Cloud with Innov8 solution: migrating or converting the client’s ERP landscape on cloud and implementing Infosys’ ‘above the cloud’ solutions developed using AI/ML, IoT and blockchain technologies to apply intelligence to the business operations.

These offerings are supported by a mix of complementary Infosys and Azure assets. For example, while Azure offers assets to facilitate data migration and provisioning for new environments, Infosys has developed S/4Assist to assess legacy landscapes to understand the fit-gap to S/4HANA on Azure and CMO, which provides identification and remediation of custom code.

In addition to assets that span the breadth of migration approaches, Infosys offers Catalyst, a bundled S/4HANA offering tailored to the specific requirements of an industry, hosted on Azure. Catalyst offerings on Azure are available for 15 industries including CPG/retail/fashion, life sciences, oil & field services, automotive, utilities & resources, and high tech clients.

As part of its innovation offering, Innov8, Infosys has developed intelligent industry solutions hosted on Azure that can provide clients with increased intelligence in their systems while remaining on their legacy ERP systems or migrating to S/4HANA. Examples of Innov8 solutions on Azure include Smart Warehouse and intelligent cycle counting, Intelligent order management, predictive revenue assurance services, and on-time in-full delivery performance. Infosys has published these solutions on Microsoft Azure marketplace and they are ready for client consumption. The entire suite of Catalyst solutions and Innov8 solutions is now part of the Live Enterprise offering.

An example of a joint client project is one for a European automotive OEM. The client began its journey as a business imperative to migrate one of its lines of business from a legacy ECC instance. As part of the modernization and migration to S/4HANA, Infosys is also embedding predictive analytics and IoT within both warehouses and trucks. It is then using this as a spearhead to migrate the broader corporate SAP landscape to S/4HANA on Azure.

Positioning to maximize client value

The transformation of a legacy SAP ERP is a complex and risky endeavor for organizations. After decades of investment to customize a monolithic on-premise ERP to specific needs, transforming to a cloud environment and more standardized ERP can be a daunting undertaking. However, as the end of life for legacy SAP support comes closer, companies are faced with increasingly pressing needs to transform their legacy SAP systems to S/4HANA.

The simultaneous journey to cloud can accelerate the value to be realized but also increases the challenge. In order to help clients in this journey, IT service providers must demonstrate how they partner with both SAP and hyperscalers and have integrated their complementary capabilities to de-risk the journey and maximize the value realized.

As the rapid rise of the pandemic demonstrated in early 2020, a company’s ability to react and respond to the changing business environment is a critical capability. Even prior to the pandemic, a NelsonHall survey of ~1k IT service buyers showed ~60% placing high importance on increasing the agility of existing core productions applications. Companies are looking for agility in not just their technical foundation that lets them pivot to, for example, a distributed work model overnight or launch new products and services rapidly, but they are also looking for agility in their IT service cost models. Applying the variable cost structures of cloud to other services enables greater alignment of IT service costs to the business environment.

Coforge is positioning on its ability to deliver this agility to clients with a set of offerings being launched in 2021 that aim to simplify enterprise architecture. An umbrella offering it calls Architecture as a Service is comprised of three pre-packaged, composable offerings that become the foundation for a client to build an Office of Enterprise Architecture. Building this centralized business function ensures that decisions are made which align to overall business objectives and in a structured manner that ensures that individual decisions are consistent with the broader technical landscape strategy.

Coforge has developed three offerings which support this approach:

• Office of Enterprise Architecture (EAO): Coforge provides clients with a set of tools and processes for governance, including architecture review boards, and a dedicated staff to execute project reviews. The model is intended to be flexible to align the Coforge team to the specifics of the team required; for example, bringing niche specialists in blockchain or quantum computing to help facilitate specific proof of concept projects
• EAO + Enterprise Strategy Planning platform (ESP): Coforge’s EAO offering is supplemented by its enterprise strategy planning platform which provides a centralized management platform that aligns technology and business capabilities with business unit strategic objectives. See below for more details on ESP
• EAO + ESP + Digital Foundry: Coforge has a network of Digital Foundry studios, which offer a portfolio of assets and accelerators across areas including data, integration, AI and automation within a dedicated space that clients can leverage for design thinking, ideation sessions and hackathons. In essence, Coforge can provide an innovation center on demand for clients as well as point specialist talent. Coforge currently has physical studios in New Jersey, London and Noida, India and can provide access to assets in a virtual studio environment as necessary.

Coforge is looking to enable clients to build a customizable set of services based on their unique requirements. With a foundation of EAO services, clients can add recurring subscription services such as strategic planning, KPI management and reporting, as well as on-demand point capabilities including program architects, innovation pilots and design thinking delivery.

Coforge has a defined three-month initiation phase to kick off these engagements, starting with a startup and discovery phase to analyze existing processes, the technical landscape, business objectives, and gather KPIs and documents. It then works with the client in a collaborative model to develop the to-be model encompassing communication protocols, the architecture review board, operational cadence, decision methodology, and deployment roadmap.

In part, value is driven by structuring the enterprise architecture office to better align it to the objectives of individual business groups through the engagement of all stakeholders in the implementation process. This allows stakeholders to both provide their input as the future model is defined but also get better visibility into how the office operates.

ESP

Implementing ESP in addition to the EAO provides clients with a technical cockpit to provide common visibility and alignment across the organization. In particular, ESP provides visibility to enterprise strategy and its alignment to business units, processes and enabling technologies.   

The cloud-based proprietary offering captures details of the existing landscape as well as proposed initiatives for assessment. Once the current state is modeled, the enterprise model can be replicated and used to model transformational initiatives, revealing dependencies and how these changes will impact the enterprise.

It will ultimately encompass capabilities to capture and manage four key areas of data for use in assessing the alignment of initiatives:

• Architecture models: designs, business processes, data and orchestration workflows as well as CMDB and helpdesk data
• Project execution data: project execution metrics, testing and rework and SDLC throughput as well as the associated budget, ROI and timeline
• Strategic planning: capturing objectives, priorities and target delivery dates
• Operations: alignment to business functions including finance, sales, GRC as well as comparison to the broader market.

In phase two of a client deployment, after the completion of the implementation and stabilization phase, ESP enables the automated capture and reporting of KPIs by pulling data from ERP or CRM systems. Coforge uses this data to develop industry-specific KPIs based on their experience and broader market perspective.

It is also proactively developing integrators to common packaged software products. Its first connectors to ServiceNow have been developed.

Coforge is also looking to minimize client lock-in. ESP is hosted on Azure, and Coforge has defined the services to be left behind at a logical transition point back to client personnel, if necessary.

Rollout and Roadmap

The rollout plan in 2021 for the components of ESP includes:

• Q1, launch of the strategy and planning components. Industry-specific accelerators and KPIs for insurance
• Q2, integration capabilities for other systems (such as ServiceNow) and embedding the use of market data in defining KPIs. Expansion of target sectors to BFS
• Q3, augmenting core cockpit capabilities with collaboration and AI capabilities. Addition of healthcare as a target sector
• Q4, adding adaptors to enable integration with ERP platforms. Expansion of target sectors to travel, transportation & hospitality.

Once rollout is complete, Coforge is looking for its EAO and EPS to be a fundamental capability in driving clients’ digital transformation initiatives, minimizing the risk of failure in achieving their objectives through the active management and tracking of such initiatives relative to their strategic intent, and also embedding agility into the foundation of the organization.

Maintaining alignment between the IT function and business units has become increasingly imperative. Coforge highlights EAO and EPS as a connective tissue ensuring that technology and architecture plans act as enablers, not inhibitors, for realizing business objectives.

As financial results that reflect a full quarter in the shadow of the COVID-19 pandemic are being released by IT service vendors, one of the key themes is that while discretionary budgets are being hard hit, clients’ investment in migrating to the cloud is not slowing. For vendors, clients’ cloud adoption has acted as a mitigator of other areas where clients have delayed new programs or delivery has been slowed by the move to remote working. Some specific examples:

• While IBM saw revenue decline across its other services, it reported strong growth in its cloud business (in part driven by its acquisition of Red Hat)
• TCS highlighted cloud as a growth driver, with its pipeline reflecting accelerated enterprise-wide adoption of cloud
• Wipro highlighted demand being driven by 3 Cs – cloud, collaboration and cybersecurity.

The reason for this is clear: companies are focusing on reducing operating costs in the face of uncertain revenues and an unknown economic recovery timeline. They are also looking at a significantly more distributed workforce for the foreseeable future.

Cloud migration is rising even in sectors that have historically been slow to adopt cloud. Financial services has long been a laggard in cloud adoption due to the myriad regulatory and security challenges, but this month has seen large cloud engagements announced by HSBC (with AWS) and Deutsche Bank (with GCP).

Cloud has long been one of the fastest growing, and most hyped, areas of IT services. But NelsonHall research shows that despite the ubiquity of cloud in discussions of IT services, it still has a long runway of adoption among large enterprises. And the approach to cloud migration is seeing changes that impact how IT service vendors shape their cloud offerings and capabilities.

Hybrid Cloud Penetration Still Has Room to Grow

NelsonHall research into the priorities and focus areas of over 1,000 IT service buyers globally conducted earlier this year revealed that while cloud has been a focus area, there is still considerable growth remaining.

Globally, our survey shows that just over a third of large enterprise infrastructure landscapes are housed in the cloud today, very much in line with the planned adoption rate identified in previous NelsonHall surveys. But our most recent survey indicates that buyers are now expecting to house 42% of their landscapes in the cloud by 2022.

And hybrid cloud will remain the dominant cloud adoption strategy going forward.

Vendors Need to Evolve Cloud Capabilities

While cloud adoption shows no signs of slowing, it is important to realize that how cloud is being adopted is changing. Whereas early cloud adopters focused on lifting and shifting existing applications, standing up non-critical or non-production workloads or adopting common SaaS-based enterprise applications, clients are increasingly focusing on more tailored cloud adoption to drive higher return on investment.

The first major shift is the increasing importance of cloud-native. In 2018, NelsonHall estimated 23% of cloud migration work focused on cloud native development and projected this would rise to 32% by 2020. In our more recent survey, the most commonly prioritized characteristic that buyers seek in their vendors is cloud-native development capabilities. This is highly important to 81% of buyers globally and is the highest prioritized capability in nearly all of the 18 sectors we analyzed.

The other major priority shift is the greater specialization or tailoring that buyers are looking for in SaaS-platforms. Adoption of SaaS-based applications has been a consistent priority for IT service buyers for some years now and this continues to be the case, with 66% of buyers placing high importance on implementing new SaaS solutions. But clients are now looking for SaaS products tailored specifically to function or sector requirements. After cloud-native development, prioritized vendor capabilities include vendors that bring their own digital application offerings and have in-depth knowledge of sector-specific digital offerings.

In short, buyers increasingly aren’t lifting and shifting to the cloud just to realize some level of infrastructure cost reduction; they are looking to leverage the cloud to improve their application landscapes through more tailored adoption strategies. They need vendors that can develop a customized cloud adoption roadmap which combines commercially available SaaS products that address specific needs and, when those aren’t adequate, the replacement of on-premise applications with custom cloud-native developed ones.

Vendors Need to Continue Cloud Investment

All of these trends provide a blueprint for IT service vendor investments to ensure maximum relevance for their clients. IT service vendors need to be building a bench of resources with cloud-native development capabilities as well as cloud consulting capabilities. They also need to be investing in an understanding of SaaS offerings that are tailored to specific sector or business functions as well as exploring developing their own niche applications for areas where they possess strong capabilities and client relationships. Cloud adoption may be maturing but it still has a long way to go, and this is one area where the pandemic has only increased demand.

Digital experience consulting has been a critical focus area for IT services clients over the last several years. NelsonHall estimates that digital experience consulting services revenues grew by 15.8% globally in 2019, and projects a CAGR of around 12% from 2021 through 2024, after the COVID-19 pandemic eases.

However, with COVID-19 still spreading, digital transformation projects with lengthy delivery timescales and indeterminate business value are currently vulnerable to deferment or cancellation. In a NelsonHall survey of over 1,000 CFOs globally, conducted in the early stages of the COVID-19 outbreak, they projected an average decline of ~2% in their companies’ spending on digital transformation initiatives in 2021.

Nevertheless, in an environment where their customers, employees and partners are forced to remain socially distant, connected to the outside world via digital channels, it is imperative for companies to continue to make investments in digital.

We recently spoke with everis, an NTT DATA consultancy focused on Europe and Latin America, to discuss its structured offerings for addressing customer relationships and internal service operations both during the lock-down and in the new world as we come out of it.

Customer Interactions Become Digital-First

everis highlights four offerings leveraging digital technologies where it can help clients quickly adapt their customer-facing operations in the current changed environment:

• Customer support: B2C organizations in many sectors are challenged with increasing inbound calls in their customer service operations; to help clients expand their use of virtual assistants in these operations, everis is offering a conversational platform called eVA that can boost the adoption of this channel and simplify its management
• Collections process:  with the economic disruption being caused by COVID-19, there are going to be customers unable to pay monies owed. For a company, the cost and effort of chasing after collections that will never be paid is sunk cost. The everis offering here is based on applying analytics and AI to collections data to help clients prioritize their collections effort
• New business sales platform: offerings that use COTS products include Sales Commercial Cycle Optimizer solutions based on Salesforce and Microsoft, leveraging pre-built tools, including CPQ configurations and templates
• E-commerce: everis has a number of offerings, including ones leveraging products from the likes of Adobe and Salesforce to support the expansion and modernization of clients’ e-commerce offerings, including ones to optimize the conversion rate.

Adapting Service Delivery for a Fluid Workplace

COVID-19 is also having a major impact on organizations’ internal operations; in the great shift to work-from-home, employee experience is evolving even faster than customer experience. everis has two tools to support employees operating in a work-from-home environment:

• everis Knowler, which can be implemented with Office 365 and Azure, helps employees access the institutional knowledge required for them to do their job
• TOGO, digital workplace offering to boost Microsoft Office365 and Teams adoption and improve collaboration and communication.

everis is also looking to help clients transform their service delivery in response to COVID-19 disruptions by:

• Reducing the workload of remote workers through the expanded use of automation in business processes, leveraging its Clonika RPA PaaS offering and commercial RPA solutions such as Automation Anywhere that can be implemented based on the highest value use cases defined as part of a consulting and assessment phase
• Working with clients to re-assess their digital properties and identify opportunities to transform these properties through standardization and integration on to a common digital platform. Developing a broader, cohesive approach across digital properties improves the ability to rapidly roll out new products in response to changing customer requirements. everis has developed a proprietary analysis tool, everis winder, that evaluates a digital platform to identify opportunities for transformation.

Digital Transformation as Response to a Crisis, Not a Victim of It

COVID-19 has caused global disruption. One of the ancillary impacts on enterprises has been a widespread re-assessment of investments to determine what is mission-critical in a time of economic uncertainty and what can be delayed until later. Digital transformation initiatives are often viewed as a discretionary budget item, to be undertaken only as time and money allow. However, with lock-downs temporarily pausing nearly all in-person and physical transactions, digital transformation initiatives should be viewed as a response to these challenges rather than budgetary line items that are victims of those challenges.  

everis appreciates that to help its clients weather this disruption, it needs to focus on offerings that address their most pressing needs, and that by tailoring digital transformation initiatives, it can enable clients to improve how they meet customer needs and how they perform their internal operations.

NelsonHall was recently invited to present at NASSCOM Technology & Leadership Forum 2020, one of my last foreign trips for some time, I suspect. While in India, in addition to presenting, participating on panels and conducting interviews, we had an opportunity to sit down with leaders from across the IT services landscape as well as venture beyond the Grand Hyatt Mumbai to delivery locations in Pune and Bangalore. And in all our interactions, innovation was a key theme.

In this blog, we look at several examples of ways in which leading IT services providers are enhancing their offerings through innovation.

Expanding the remote delivery services offered

In its 50-building campus in Bengaluru, Infosys has stood up their Experience Design Studio to support the delivery of experience design services globally. In addition to its acquisitions of WONGDOODY and Brilliant Basics to expand its client-proximate creative design capabilities, Infosys has created this dedicated studio to deliver design services housing ~160 designers (other locations that house the Infosys XD studios, WONGDOODY and Brilliant Basics bring the total Experience Design team globally to ~600). Capturing all of the necessities of design space, including open meeting spaces, client collaboration areas and plentiful white boards covered in the most artistic notes you will ever see, this dedicated space is co-located with the broader Infosys global delivery capability while also being set apart in a standalone space.  The studio houses multi-disciplinary teams which aim to apply skills of traditional design to broad systemic challenges; questioning, reframing and addressing issues through the combination of design, technology, and industry skills.

Significantly, the Infosys XD studio does not necessarily play a supporting role to designers located at client sites. It has its own client relationships, in particular for long-term engagements, such as with a U.S.-based logistics company that in 2017 engaged Infosys to help reimagine its business model. Another example is the work done for a tennis governing body, designing and shaping a new understanding of the sport that benefits fans, players and the media. The group is also working with the Indian Income Tax with the aim of simplifying the filing of tax returns.

These design capabilities provide Infosys with the ability to deliver end-to-end services to clients rather than ceding up-front strategic and creative services to consultancies and agencies; particularly at clients where it already possesses strong relationships.

Narrowing the focus

Wipro, with several years of S/4HANA services under its belt, has centered its SAP offerings around enabling an enterprise’s digital transformation journey, at the same time prioritizing SAP services in industries where it can be a top-two provider. These include:

• Leveraging its recent digital/design acquisitions, process and business consulting capabilities to facilitate clients on design-led transformation projects
• SAP products: S/4HANA, in particular hosted on hyperscale cloud, provides AWS, Azure and GCP and SAP SaaS products SuccessFactors, Ariba and Cloud for Customer (C4C)
• Industries: energy & natural resources, manufacturing, consumer industries, and retail. These are areas where it already possesses strong capabilities: it acted as SAP’s solution partner on SAP Model Company for Utilities and is now partnering with SAP on its food and beverage model company offering based, in part, on Wipro’s work with a large U.S. food manufacturer. Wipro is also a co-development partner for fashion & retail with SAP and the newly developed solutions will offer a range of functionality from fashion manufacturing to in-store merchandising
• Geographic markets: Wipro is narrowing its focus to mature markets where large historic SAP clients have yet to migrate. In addition to the broader North American and continental European markets, primary focus areas include Germany (where Wipro acquisition Cellent provides a strong local capability), Japan and Saudi Arabia. 

This allows Wipro to continue focus on large transformation engagements while targeting its innovation, partnership ecosystem, and offering development where it feels is best positioned competitively.

Developing assets to enhance service delivery

Another approach, and one demonstrated by two other services providers we visited, is to apply innovative technical assets to enhance well-established service offerings.

LTI has developed a platform called METIS to improve the efficiency and effectiveness of the software development and testing process. METIS connects with underlying SDLC tools to automatically create a knowledge fabric across the IT landscape. METIS then applies machine learning to create relationships between business functions, actions taken, the calls to associated applications and APIs, defects, production tickets and performance logs.

This mapping allows for better visibility on how changes to business functions impact the IT and business landscape. This improved visibility improves the efficiency of test execution and the coverage available for automated testing while reducing defects by identifying related defects. METIS also helps in improving developer productivity by providing architects and developers with analytics on running code. In addition to using METIS to improve its own application development services, LTI is also offering it as licensed software to provide a parallel revenue stream.

A similar approach is being taken by CSS Corp. Its largest business segment focuses on customer experience and enterprise support and it is applying intelligence to enhance these labor intensive services. Positioned as the first touchpoint with customers has enabled it to capture significant data which it is looking to leverage to better align IT and business and improve its service delivery. As an example, CSS Corp is creating an integrated digital service management and support ecosystem for a networking company where it delivers customer support services. For this company’s healthcare clients, CSS Corp was able to use automated tools to streamline the process of assessing and replacing equipment that has failed, accelerating delivery and reducing ticket resolution.

Further aligning IT offerings with business value

Leading services providers are also looking to be innovative in directly aligning their IT services with the client achieving its business objectives.

As part of its ADMNext offerings, Capgemini has developed a model which aligns the delivery of its application development and maintenance services to specific technology transformation and business objectives. The approach places these services as the foundation of a client’s transformation, freeing up client resources (budget and employee time) through the application of automation to allow for greater focus on transformation initiatives that evolve the client landscape. This transformation is positioned across three levels of internal change: technological transformation from modernizing the IT landscape; business transformation through transforming service delivery processes; and disruptive services by applying new and innovative technologies to fundamentally change business models.

Innovative offerings

TCS has had a dedicated innovation facility located in Pune, housing ~300 dedicated researchers separate from its broad service delivery campuses (further details on TCS’ research and innovation function is described here). This center looks both at building assets directly applicable to service delivery and broader research topics. Examples of current research topics include:

• Developing a digital twin for an enterprise that leverages machine learning to model how to optimize enterprise operations
• Machine learning targeting workforce management, fraud and money laundering detection and information and knowledge extraction
• Developing digital twins of human organs to eliminate animal testing
• Real-time recipe analysis of steel content to ensure optimal strength
• Cybersecurity for both cloud workloads and IoT
• Applying cognitive capabilities to tailor media to customer needs.

Summary

In our visits to the India campuses of these IT services firms, we were impressed with the level of investment they are all placing on innovation, both in developing new offerings and in transforming their core services.

Leading IT services providers are taking a range of approaches; all have a clear sense of direction as to how they are building differentiation and also gaining credibility in positioning as thought leaders with their clients.

User experience and user interface (UX/UI) consulting and design has traditionally been focused primarily on external, customer-facing web properties. However, the scope and focus of experience design services has expanded as companies realize design thinking and experience-centric design has greater applicability than solely in interfacing with users. In this vlog, David McIntire presents at NASSCOM 2020 on the changing focus of user experience services.

In a recent NelsonHall survey of IT services buyers, the most highly-sought benefit of digital transformation engagements was improving customer experience and customer satisfaction (highly important to ~68% of buyers globally). This focus has driven IT services vendors to invest heavily over the last several years in expanding their experience consulting and design capabilities. In the same survey, ~75% of buyers identified an ability to provide UX consulting and design as a highly important trait sought in vendors.

A major shift in client attitudes

These findings underpin a major shift in IT service client attitudes toward experience consulting and design: it is no longer an optional or standalone activity; it is now a core component of IT. Historically, digital experience consulting and design services were focused on a sub-set of a client’s IT landscape –primarily customer-facing digital properties such as e-commerce sites and client portals. Experience design projects became one-off initiatives to drive the redesign and development of these external-facing applications.

Now, experience is a factor in all application development work. Clients are as likely to seek experience consulting and design services for employee applications as they are for external applications. It is increasingly recognized that employee satisfaction correlates to the applications utilized in their day-to-day jobs; employees don’t forget the ease-of-use of the Uber app or Amazon website just because they are sitting at their work desk.

Experience focus is expanding

The focus of experience is also expanding. Experience is no longer limited to the interface of an application; it now spans the entire service delivery lifecycle; a customer’s experience is as much defined by how quickly they receive an e-commerce order as the interface used to place that order.

Clients are also recognizing the iterative, ongoing nature of experience design. Developing a user-centric application is not a one-time process; it is ongoing and must constantly evolve as customer demands evolve. Building processes and tools that allow for the capture of user feedback to drive iterative application enhancements is as important, or more, as the research required at the onset of a digital experience design program.

All of these factors make experience pervasive in nearly all IT-focused work, and this is resulting in a change in the services clients are looking for from IT service vendors. Rather than solely looking to vendors for consulting, clients will increasingly look for vendors to inculcate these experience design skills in the client organization itself. The expectations of vendors will not just be to deliver a design thinking session and quickly develop wireframes and lo-fi prototypes to be tested, but also build the capabilities to do this within the client organization itself.

Vendor experience capabilities need to evolve

For vendors, this means that the digital experience capabilities they develop must also evolve. Having designers and design thinking specialists capable of driving client engagements is only half of the requisite offering. Vendors must also be able to build these capabilities in their clients while helping them understand the level of transformation required to maximize the value of building an internal experience design capability. The use of design thinking and rapid prototyping across the organization requires fundamental changes, including greater cross-functional collaboration, changing roles both inside and outside of IT, and expanded change management.

To facilitate this, vendors must be able to provide broad consulting that spans several components, including:

• Training client personnel to conduct design thinking sessions and design experiences
• Defining and implementing design libraries for use within the client
• Delivering organization, culture change, and change management services.

In parallel, there will continue to be specific activities where clients won’t realize the value of building in-house capabilities. Conducting dedicated user research or assessing the applicability of emerging technologies (such as chatbots and AR/VR) may remain specialized functions that clients look for vendors to provide. But with the ongoing, iterative nature of digital experience design, vendors will be tasked with evolving offerings to more cost-effective delivery; for example, offering these through an as-a-service capability.

Experience design is evolving from a niche function to becoming a foundational aspect of nearly all application work. Client demands are evolving in parallel, and successful vendors will expand their capabilities and transform their offerings to focus on enabling their clients in addition to delivering outcomes.

In NelsonHall’s 2019 survey of IT service buyers, when asked about the key capabilities sought in vendors, a significant majority cited a range of digital consulting capabilities. More than 65% of respondents placed high priority on capabilities such as the ability to take a business perspective to apply digital, provide a roadmap for adoption of digital, and undertake a digital maturity assessment. In parallel, clients are looking for vendors that understand the specific needs of their industry, including sector-specific applications or their digital platforms tailored to industry needs.

For IT service vendors delivering increasingly commoditized services using standard delivery tools, demonstrating these capabilities to clients can be a challenge.

In late 2018, TCS introduced a new brand and integrated service capability, TCS Pace, as part of a corporate thrust to differentiate its digital innovation capabilities from its core legacy services. To support the delivery of these capabilities, TCS has also begun rolling out specialized hubs called Pace Ports.

NelsonHall recently had the opportunity to visit TCS’ Pace Port New York and discuss the vision for the Pace organization and the Pace Port network.

TCS Pace

The TCS Pace brand was introduced in November 2018 as a consolidator of disparate capabilities: a brand identity encompassing its research, innovation and digital transformation capabilities, applied within a business framework. Beyond the brand, TCS is also integrating its delivery capabilities to offer a more seamless service for digital transformation engagements that span multiple offering areas. In a full-service play, TCS is also building close integration for capabilities that have not formally been brought under the Pace umbrella. And there are specialized CoEs dedicated to specific emerging technologies such as blockchain and IoT as well as TCS Interactive, where TCS’ core experience and design capabilities reside.

To ensure that it integrates a full suite of capabilities, stakeholders across TCS were engaged, including its CMO and CTO units, Business & Transformation Services delivery units, geography leadership teams, and vertical business units.

With a broad set of stakeholders, the performance measurement framework for Pace is primarily focused on outputs rather than financial results.

TCS Pace Ports

The Pace Port network has evolved from TCS’ innovation and co-creation location strategy. TCS’ first purpose-built space for client innovation discussions was its Executive Briefing Center in Mumbai, opened over a decade ago, followed by a customer collaboration center in Santa Clara, CA in 2012 which has since evolved into the TCS Digital Reimagination Studio.

TCS opened its first Pace Port in Tokyo in the fall of 2018. Why Tokyo? While Japan is relatively small in terms of revenue contribution, it is a priority country for TCS from a growth perspective, and one with unique market demands. The second Pace Port, opened earlier this year in New York, is clearly a major location.

Pace Ports are purpose-built facilities. These are dedicated spaces, co-located with one of two complementary functions:

• With an existing TCS office to enable collaboration between the Pace Port employees and the broader organization. The Tokyo Pace Port is housed in the same building as the TCS Tokyo office, on a new floor
• With academic partners to facilitate close collaboration with both academics and students in pursuit of specifically defined objectives. Pace Port New York is housed on the Cornell Tech campus on Roosevelt Island. While the Pace Port occupies a portion of a floor in the Tata Innovation Center, the remainder of the floor is populated with Cornell Tech graduate students, Ph.D. candidates, and teachers.

Pace Ports are a result of a collaboration across TCS. The local geographic unit acts as the owner of each location but partners with a lead vertical (manufacturing in Tokyo, retail in New York); however, Pace Ports are not exclusive to a single vertical. On the day of our visit to the Pace Port New York, they were preparing for a Life Sciences client event. It has an interactive display for identifying specific solutions based on business needs. Innovations that it showcases for the retail industry include ones for managing inventory and improving the shopping experience through the integration of digital and in-store capabilities.

In addition to the geography and vertical organizations, Pace Ports are also incorporating other capabilities. For example, they will have a rotating team from TCS Interactive for conducting design thinking and deliver experience design services.

Pace Ports are designed to be modular with movable walls that can be used to cordon off work areas, be opened up for a collaborative design thinking session, or removed for presenting to clients. There is also an informal area with couches, and in New York, chairs facing floor-to-ceiling windows overlooking the Manhattan skyline.

TCS has identified seven components that comprise the Pace Port network, with each location housing at least four. These are:

• TCS Digital Library: an interactive digital display that enables accessing knowledge captured globally
• TCS Rapid Labs: an innovation factory for quick turnaround proofs of concepts and MVPs
• TCS Think Space: design thinking space aligned to TCS Interactive
• TCS Agile workspace: modular, agile development working space
• TCS COIN Accelerator: processes and tools for collaborating with start-ups and partners
• TCS academic research lab: collaboration with local academics
• TCS innovation showcase: space for demonstrating TCS IP to clients.

Each Pace Port will have a mix of these features tailored to the local market; not many will have all. Features in the New York Pace Port include the innovation showcase, agile workspace, academic research lab, COIN accelerator, and conference space.

The Pace Port Tokyo was designed to be a physical manifestation of client innovation processes. Clients begin in an executive briefing room to enable problem definition, then move into the innovation showcase and IoT lab to see TCS offerings. This is followed by a TCS Think Space for design thinking sessions to develop solution ideas. The outcomes of these sessions are addressed by the development of PoCs leveraging the COIN accelerator before being handed over for MVP development in the agile workspace.

With Tokyo and New York up and running, TCS will continue to expand the network in 2020. Openings will include:

• Amsterdam, TCS’ first European Pace Port will be based on a new floor in the TCS offices and is envisioned to become the Digital Innovation hub for the region
• Toronto will be the largest Pace Port opened to date and will include all seven components, including collaborations with the Universities of Toronto and Waterloo
• Pittsburgh, located on the campus of Carnegie Mellon University in TCS Hall, a building built with an endowment from the Tata organization. The primary focus is research.

Other future locations include London, Sydney, Paris and others. Ultimately, we expect TCS to open Pace Ports in all its major markets.

Rapid Labs in Pace Ports act as innovation factories that deliver PoCs or initial MVPs using emerging technologies in an accelerated timeframe. A unique feature of the labs is their focus on leveraging new joiners on a rotational basis, thus enabling them to gain practical experience. Pace Ports’ collaboration with academic partners provides a strong pipeline of talent including, for example, the ~65 Ph.D. candidates and ~300 graduate students located literally across the hall from the TCS Pace Port New York at Cornell Tech which can be tapped for expertise in addressing client needs. Rapid Labs at Pace Ports follow the TCS Incubation Rapid process that has been used to produce innovations for several years.

Summary

IT service vendors with a large legacy services footprint have been investing heavily in recent years to develop their capabilities in digital offerings and demonstrate their innovation capabilities. Accordingly, many have been opening facilities that often have the words ‘innovation’ or ‘digital’ in the nomenclature, and most have used small acquisitions in this drive. In a few cases, the approach has looked somewhat piecemeal. TCS’ approach has been slightly different: it has taken a considered and organic approach in developing a full-service play, including strengthening its positioning around innovation with Pace and in setting up Pace Ports: 2020 will see an acceleration in the opening of these facilities. With the Pace initiative and its concept of ‘Business 4.0’, TCS has clear ambitions to be seen by its major clients as a full-service partner capable of supporting them in their digital transformation journeys.

Infosys is undergoing an internal transformation to become what it calls a Live Enterprise with the objective of accelerating its service delivery and adaptability to changing client needs. The core of Live Enterprise entails the expanded use of data and automation to support an evolving workforce. Infosys has introduced a number of tools and accelerators to orchestrate its services and facilitate these changes both internally and for clients, while in parallel, it has placed equal focus on transforming its workforce and workspaces.

In May 2017, Infosys announced plans to hire 10k American workers by the end of 2020 through the establishment of U.S. development centers/innovation hubs. And since then, Infosys has moved fast, opening five centers and announcing a sixth in Phoenix, Arizona. The centers (in Indianapolis, IN; Raleigh, NC; Hartford, CT; Providence, RI and Richardson, TX) are located outside the largest U.S. tech hubs (e.g. New York, Silicon Valley) in moderate cost states with strong educational institutions. And last month, Infosys says it achieved its 10k hiring target well ahead of schedule.

These facilities reflect growing demand for IT service vendors to have showcase facilities within their client’s geographies. For Infosys, these centers serve a dual function: providing a rural shore delivery option and acting as innovation hubs where Infosys can conduct collaborative sessions with clients. This does not change the offshore/onshore delivery mix of 70%/30% (publicly reported onshore-offshore effort mix has remained flat over the last year) but it changes the onshore delivery model from being totally on-site to 50% onsite/50% in local hubs (resulting in a 15%/15%/70% mix).

NelsonHall visited two of these locations, in Indianapolis and Raleigh, to gain a better understanding of how these centers fit into Infosys’ strategy, specifically:

• Providing U.S. hubs to grow local service delivery talent while maintaining cost competitiveness and offsetting any visa restrictions
• Bringing innovation thinking and delivery to client-proximate locations to extend the ability to collaborate directly with clients on shaping digital transformation initiatives.

Localized Talent

Having achieved its milestone of 10k hires, Infosys is continuing to hire locally. It is taking three paths to do so: lateral hires, new graduates, and rebadging of client employees.

To build a talent pipeline of new grads, Infosys is partnering with academia to develop curricula for relevant skillsets. For example, the Indianapolis innovation center is partnering with Purdue University to develop 8 to 12 week cybersecurity courses with the goal of producing 400 cybersecurity skilled resources by the end of the 2020 fiscal year. Infosys has similar programs with Trinity College, to develop business analysis skills for Liberal Arts majors; with North Carolina State, for building data science skills; and with Cornell for building IoT skills.

Once hired, Infosys is also localizing the initial training. Rather than initially sending all employees to its training center in Mysore, India, Infosys is partnering with Udacity to develop online courses that can augment centralized training for new hires. It is also looking to replicate its centralized training facility in the U.S., building a campus outside Indianapolis, to be opened by the end of 2020.

In addition to working with universities, Infosys is partnering with local community colleges, which it views as a relatively untapped resource, recognizing that a four-year degree isn’t necessarily required for every role. It is also an area in need of investment, as just 1% of total endowment dollars in the U.S. are for community colleges, despite ~45% of college students attending those colleges. The roles Infosys envisages being filled by community college graduates include CX and creative; BI and data support; BPM and helpdesk; network administration; and application support. Rather than a specific capability, the overall objective is to develop ‘Z-shaped skills’, where employees have the ability to learn one skill and then pivot to another skill area.

These initiatives are bearing fruit, attracting local clients as well as talent: for example, Infosys claims that the Indianapolis center is serving 50 local clients.

Localized Plus Globalized Innovation

These centers are acting as hubs in Infosys’ global innovation network and a sub-set of the innovation center houses Living Labs, facilities for direct client interactions, including collaborative brainstorming sessions, prototyping and showcases for innovations already built. These modular spaces can be adjusted to pod structures or open spaces for design thinking. They have 3-D printers and can house mock-ups of a client environment (e.g. a retail space or bank). The Living Lab teams focus solely on prototypes and non-production products rather than managing a product all the way through production. By leveraging this core group, Infosys is able to better industrialize the innovation process from idea to prototype.

For client collaboration, Infosys provides structured innovation models, including governance and templatized assets to help clients drive innovation through idea generation sessions. Infosys offers innovation sessions with clients as a value-add to broader engagements. It can also mirror its living lab set-ups at client sites. It has engaged in innovation programs with clients including a large aerospace manufacturer where the companies have jointly developed 40 PoCs with twelve of these going into production.

Infosys takes a dual approach to identify potential innovations to pursue: using Living Labs to jointly develop innovations with its client base and the Infosys Center for Emerging Technology Solutions (iCETS), an internal R&D function based in India focused on identifying applications of broader, longer-term technical advancements.  

iCETS identifies Horizon Three innovations where it should be investing. As an example, blockchain was identified as a key area for innovation exploration in 2017. Since then, Infosys has developed around 50 PoCs and use cases and conducted around 65 client workshops to explore how blockchain could be applied to their business problems. Infosys estimates its innovation function has to date produced around 25 IPs that it offers commercially.

The innovation practice across both internal R&D and client-facing Living Labs has around 500 employees globally, of whom around 400 are based in India and 50 in the U.S. This group can work with other internal groups as necessary for specific skill needs it may not possess. For example, the Living Labs team in the Providence Innovation Center worked with WongDoody, a design agency acquired by Infosys in 2018, to innovate with a Rhode Island bank on a Bank of the Future concept.

Infosys also has a $500m ventures fund for working with start-ups, and to date has invested in nearly 15 start-ups. Beyond financial support for start-ups, Infosys can provide scale to more quickly produce PoCs and can provide access to clients looking for specific emerging technologies.

Infosys has made a significant investment in its innovation center network, and the initiative is expanding from the U.S. hubs to other key markets, including Bucharest, Berlin, London and Romania.

Innovation centers have been a key focus area of investment for Infosys. Over the last two years, it has been able to achieve its local hiring targets while building broad relationships across government, education and industry in their chosen locations. These hubs are key to Infosys’ ongoing evolution, helping in local resourcing and client proximity, and in demonstrating capabilities as a technology and innovation thought leader, both critical attributes in positioning Infosys as a partner across the spectrum of digital transformation initiatives being pursued by its clients.

NelsonHall has recently completed compiling and analyzing data from a survey of over 1k IT services buyers globally. This research is being published in a series of sector reports (all are available to subscribers here), spanning the 18 sectors analyzed, with geographic breakdowns incorporated within each.

While completing these individual reports we noted several themes that were fairly consistent regardless of sector or geography represented. In this blog, I look at four key trends pulled from this data that IT service vendors can use to better position their offerings to these buyers.

Digital Initiatives Get Specific

Finding: Sixty-nine percent of respondents globally identified digital initiatives as highly important to their future IT strategies. As a data point this may not be surprising, given the ubiquity of ‘digital’ and ‘digital transformation’ in business today, but in the previous round of this research, completed ~18 months ago, that proportion was 82%. Is digital really less important today to a significant proportion of IT service buyers?

NelsonHall’s perspective is that the overall aims and initiatives falling under the digital transformation umbrella have only increased in importance to buyers, but that there are two key take-aways from this change:

• Buyers have frequently not seen the intended business value from early digital transformation initiatives. Broadly defined initiatives with indirect business cases may not have achieved the desired outcomes, particularly given the frequent investments required in foundational activities (such as data clean-up and digital core migration), thus leading to doubt as to the value of these initiatives
• Buyers are more sophisticated and are focusing on specific digital initiatives and technologies rather than broadly defined ‘digital transformation’. As an example, manufacturing companies may not place as much priority on ‘digital transformation’ but they do place high priority on implementing IoT on the shop floor to enable predictive maintenance.

Vendor response: When communicating with clients and potential clients about digital initiatives, vendors should focus on specifics. This includes clearly defining the roadmap of initiatives to be pursued and quantifiable value that can be achieved.

Clouds Are Still Gathering

Finding: While ‘cloud’ is nearly as ubiquitous as ‘digital’ in today’s business lexicon, we estimate that only ~30% of large enterprise workloads reside in cloud environments. Despite the rapid growth of leading public cloud providers such as AWS, Azure, and Google, we further estimate that only 12% of large enterprise workloads reside in public cloud environments. When it comes to large enterprises, cloud adoption still has a long way to go.

This low adoption to date also translates into significant plans for investments in cloud adoption going forward. By 2020, companies globally are looking to increase the proportion of their workloads in clouds to ~35%. This will be primarily accomplished through greater public cloud adoption, projected to rise to ~17% of workloads in parallel. To fuel this rise, IT service buyers project their spending on cloud infrastructure to rise by more than 6% on average globally.

Vendor response: Vendors should not only recognize that their client base may be slower on the cloud adoption journey than expected (and tailor messaging to reflect this) but should also focus on helping clients understand the breadth of options for expanding adoption of cloud. This includes focusing on accelerators to simplify and de-risk cloud migration as well as building capabilities to support alternative paths to expanded cloud footprints: a majority of buyers place high priority on a vendor’s cloud-native development capabilities, and increasing use of SaaS was the most commonly identified sourcing change planned.

The Need for Speed

Finding: While digital transformation initiatives have a breadth of benefits highly important to companies, including reducing service delivery cost, increasing revenues, improving customer experience or improving competitiveness, the most commonly cited high priority benefit focuses on accelerating delivery of services. For the business side of companies this includes launching new products and services, a high priority for more than 80% of companies, and achieving levels of straight through processing and turnaround times, a high priority for ~60% of companies.

IT departments are also looking to accelerate services, with reducing new application time to market identified as a high priority by more than 90% of companies globally. To achieve this, companies are also prioritizing increased digitalization of operations and adoption or increased use of DevOps.

Vendor response: When defining the business case benefits for new initiatives, vendors should focus on speed, and how it fuels other benefits such as improved customer experience and competitiveness to drive incremental revenues. Initiatives and investments should also reflect this priority, such as focusing on end-to-end service design and expanding use of agile development and DevOps for both customer and internal-facing digital initiatives.

Know Me – or No You

Finding: When IT service buyers were asked what characteristics they most prioritize in vendors with whom they work, the answer was industry knowledge, a high priority to more than 75% of companies. Given the benefits being sought from digital initiatives, including improved customer experience and increased competitiveness, an understanding of the key service features unique to that industry is imperative. This prioritized knowledge extends to an understanding of sector-specific applications that can be applied to address particular needs.

Secondarily, buyers are looking to work with vendors who not only understand them but can also help them to understand their own customers. The next most commonly prioritized characteristic was UX consulting and design, reflecting the priority companies are placing on tailoring their offerings to the unique and changing demands of their customer base.

Vendor response: Vendors need to demonstrate their deep understanding of a client’s industry, including their business challenges and potential applications designed to address its unique requirements. Having a workforce that understands and can speak to client needs is important. Additionally, vendors need a dedicated UX capability to drive the process of understanding customer expectations and experiences and then tailoring offerings to those needs.

Summary

The priorities of IT service buyers are evolving, and vendors need to ensure their offerings and messaging align with these priorities. The clear take-away from our research is that vendors need to focus client messaging on the specific digital initiatives to be pursued; help clients in adopting cloud through a variety of avenues; focus on speed as a key benefit of digital initiatives; and ensure that they possess an understanding of industry imperatives.

At the recent TCS Innovation Day held in New York, NelsonHall had an opportunity to talk to TCS about how it approaches its research and innovation function, balancing longer-term open-ended research and more immediately applicable innovations to evolve how it delivers services. (For more on the event itself, see the blog by Andy Efstathiou here).

TCS has developed an overall approach that balances research into cutting edge areas, innovations to its services, and applying learnings from its innovation network of academics and start-ups.

Research: Focusing on Broad Themes & Long Term

TCS has been conducting its own internal research for ~38 years. However, over time, its focus has evolved. Initially, the research was primarily focused on technologies directly applicable to the delivery of application services, for example, code generation; TCS used its research capabilities to play an advisory role to the application development and testing tool maker Rational throughout the ’90s.

Today, however, the focus of TCS research has broadened into nine areas that impact both its business but also the core businesses of its clients. These research areas are:

• Physical sciences
• Software systems and services
• Life sciences
• Embedded systems & robotics
• Cybersecurity & privacy computing systems
• Behavioral, social & business sciences
• Data & decision sciences
• Deep learning & AI
• Media & advertising, computing foundations.

This work is conducted by a dedicated research team of ~1k employees, including 200 employees with PhDs and 400 with advanced degrees. This research is funded through a dedicated annual spend of ~1.5% of revenues. In 2019, that totaled ~$300m.

As an example of one of these areas of research, TCS has a dedicated team of ~100 employees working on genomics across several labs in India. The primary focus of this team is currently next generation diagnostic techniques. Areas of focus recently have been identifying early indicators for babies at risk of premature birth (which kills 1 baby every 30 seconds globally), as well as early screening for other rare genetic disorders.

These research areas may not have a direct impact on TCS offerings, but they could be applicable to client offerings; genomics is not only applicable for the pharmaceutical, life sciences and healthcare provider sectors, but even insurance. TCS is developing non-invasive diagnostic procedures for diseases such as diabetes, Parkinson’s and certain cancers as well as measures for wellness to enable early risk detection and better alignment of premiums with individual lifestyles.

In addition to being applicable to client business, this type of research helps position TCS as a thought leader in these industries, and NelsonHall research shows that 78% of IT service buyers globally place high importance on industry knowledge when selecting a vendor to work with.

For this research, TCS takes a three to four-year time horizon on research projects and prioritizes outputs such as patents and published research rather than the monetization of outputs. Any monetization is accomplished when research is moved into the innovation pipeline.

Innovation: Focusing on Short-Term Service Evolution

Whereas research takes the long-term view, TCS’s innovation practice seeks to convert research into innovations that can be applied directly to the services offered to its clients.

To identify the opportunities with the highest value potential, TCS has focused on building out a governance process to provide a detailed structure for determining which research can be converted into innovation programs. The innovation governance process comprises nine stages to develop, review, and approve new innovations. Within this process, there are three separate review stage gates to determine whether an innovation initiative should continue. This review process includes a stage in which new innovations are pitched to senior corporate leadership, including a roadmap to production readiness and a projected ROI.

TCS estimates that on an annual basis, of ~200 innovation ideas which begin the funnel process, 10-20% of them will make it through all nine stages. TCS is focusing its innovation on assets to support the delivery of services rather than products to be sold to clients, such as its BaNCS line of banking products. Given the amount of ongoing maintenance and handling required to keep software products relevant, the return on these is viewed as lower.

Assets that have been produced by TCS innovation programs include ignio, its cognitive platform, and Mastercraft, its delivery automation platform supporting agile development, DevOps, data quality, and application modernization.

COIN: Tapping External Innovation

In addition to its internal research and innovation efforts, TCS taps into its Co-Innovation Network (COIN), consisting of academics, venture capitalists and start-ups, to identify new opportunities. Academic institutions with which TCS partners include:

• University of California, Berkeley
• MIT Media Lab
• University of Toronto
• Carnegie Mellon
• Cornell Tech     
• The University of Tokyo
• Indian Institute of Science.

To facilitate collaboration, TCS is even co-locating portions of its research within academic spaces. As an example, the soon to be opened PACE Port Innovation center in New York is located in Cornell Tech space on Roosevelt Island.

TCS has a dedicated team working with venture capitalists and start-ups to identify new capabilities, though it doesn’t take equity positions in the start-ups with which it partners. TCS maintains the objective of always working with best-of-breed partners, so it doesn’t want to be invested in one company if it feels another product is superior.

TCS works with start-ups in three ways. It supports start-ups developing a broader path to the market – partnering on engagements and helping with go to market. It also uses start-ups within the delivery of its services, filling gaps, or expanding its own capabilities. Finally, it uses start-ups to build out its own offerings. TCS is identifying sector-specific processes for which to build offerings and then acting as an orchestrator, stitching together individual start-up products into a cohesive end-to-end offering.

As an example, TCS was engaged by a client to build a mobile banking process in 12 weeks. It took four weeks to identify the component start-up products and eight weeks to integrate them into a cohesive, end-to-end offering.

Summary

TCS places significant priority on research and innovation with a dedicated budget and a team of specialists looking at possibilities in both long-term research and innovation directly applicable to its services.

Understanding that a research function can be applied to both its own offerings and client situations provides TCS with a broader perspective and positions it with clients as thought leaders in their industries in addition to evolving its services.

In late 2018, TCS launched its TCS Pace brand as a way to differentiate its innovative offerings and capabilities from some of its legacy core offerings for which it has long been known (such as application and infrastructure management). TCS has long focused internally on building a research and innovation engine, and now Pace gives those innovations a name.

In recent years, many IT services firms have been aggressively acquiring new capabilities in creative areas such as design.

One of the key challenges they face in acquiring such firms is managing what can be a significant culture gap between the flexibility of small creative firms and the regimented, industrialized nature of a global IT services firm. Successful acquisitions strike a balance between maintaining the autonomy of the acquired firm, keeping the talent engaged, and integrating capabilities into the broader company to realize the value being sought through the acquisition. Rather than allowing an acquired firm to continue running fully autonomously or being fully subsumed into the broader organization, acquirers are looking at a blend: combining a common foundation, direction and values while maintaining a level of autonomy in how services are delivered.

Based on our conversations with a number of IT services firms and representatives of acquired firms, this blog looks at some of the more effective approaches being adopted to balance autonomy and integration when assimilating newly acquired capabilities.

Maintaining Autonomy

Leveraging Existing Brands

Maintaining autonomy in branding of newly acquired capabilities signals to both employees and the market that this is a unique capability within the broader IT services firm’s delivery portfolio. This is a common approach for design agencies that have developed their own brand awareness. Examples where IT services firms have maintained the brands after acquisition include Infosys’ WONGDOODY and Brilliant Basics, TCS’ W12 Studios, Tech Mahindra’s BIO Agency, and Wipro’s Designit.

Acquiring firms are also frequently allowing acquired design firms to maintain their own go-to-market initiatives. While leveraging the acquired capabilities to support existing engagements, broaden relationships with existing clients, and reach new clients are the main drivers of these acquisitions, global IT services firms are recognizing that design agencies have relationships and visibility of opportunities they lack. In these instances, the design agency leads the client relationship while leveraging the broader IT services firm to offer a much broader portfolio of offerings.

Maintaining separate branding is particularly important for acquiring firms that lack a strong consulting heritage. While the companies above all come from an IT outsourcing heritage, competitors with a more consulting-led heritage have built distinct branded design business units integrated with their consulting capabilities rather than continuing stand-alone brands after acquisition. Examples include Capgemini Invent and IBM iX. Accenture’s Fjord sits somewhere in the middle: a part of Accenture Interactive with a number of design agency acquisitions rolled under the brand of its first major design agency acquisition, Fjord.

Maintaining Dedicated Delivery Locations

In M&A situations, the opportunity for cost synergies from consolidating real estate is a common cost saving measure. However, IT services firms are instead frequently maintaining dedicated design agency space to minimize the disruption to the existing employee base and help demonstrate the acquiring firm’s commitment to the acquired firm’s culture. When TCS bought London-based W12 studios last year it was already in the process of building out a creative design thinking space in London. Even with the space complete, the W12 team has so far remained in its small home-like Camden offices a few miles away. Infosys is building a design studio network, including a Design and Innovation Hub in Providence, Rhode Island, while WONGDOODY (Los Angeles, San Francisco, New York and Seattle) and Brilliant Basics (London, Dublin, Berlin and Amsterdam) has maintained its own studio locations.

Maintaining Career Trajectories and Expanding Opportunities

In order to retain their new creative employees, acquiring IT services firms are also often maintaining many of their former employer’s career development structures. Smart acquirers are actively seeking to minimize the impact on the processes and procedures that directly impact the career growth of their newly acquired talent.

Furthermore, they are leveraging their scale to emphasize to their new employees the range of new career development opportunities available in a global organization. These can include working in new geographies and/or new industries and adding adjacent skills. Allowing employees to see new opportunities to apply their expertise in new ways can provide an incentive to remain, post-acquisition.

Pursuing Integration

Building a Common Toolset

One of the key challenges of acquiring a niche firm is the application of its capabilities to a broader, global client base. This is a particular challenge when a large firm makes a series of acquisitions. Different groups across different markets, deploying different tools, processes and methodologies can mean inconsistent outcomes. Acquiring firms need to build a global toolset of common templates, assets and methodologies to act as a common denominator across geographies and delivery units.

Accenture has rapidly expanded its creative capabilities since its acquisition of Fjord in 2013. To ensure consistency of delivery across these geographically diverse units it has developed its product design kit (PDK), a bundled set of proprietary assets including style guides, front-end development accelerators, accessibility standards, design templates, code snippets, pattern libraries, and usage and content guidelines to support design engagements.

Leveraging the Best of Both Parties

As part of building that common foundation, it is important to identify and keep the best of what each organization brings. Imposing rigid structures onto an acquired firm may reduce the value that can be realized, and applying the processes of a small, nimble boutique in a global context may not work.

Successful integration requires taking the core capabilities from the acquired firm, industrializing them and then training the broader workforce of the acquirer on these new approaches. Following Tech Mahindra’s acquisition of the BIO Agency in 2016, it launched ‘BIO University’, with BIO employees delivering training to employees based in Tech Mahindra delivery centers on the skills, processes, and methods derived from those used by the core BIO team but tailored to a global organization. This initiative expanded the design-skilled resource pool from 150 employees based in London and New York to 650, including ~400 in India.

Accenture and Fjord undertook a similar global training program: Fjord estimates that, in addition to its ~1.1k dedicated design specialists, another ~50k Accenture employees have undertaken some training on design principles about which they can speak knowledgeably with their clients.

Building an Organization within an Organization

For serial acquirers, it may not make sense to let each newly acquired creative firm maintain its autonomy in branding and approach as described above. Rather, the acquirer can build a dedicated business unit to house each of these organizations together. This business unit balances global commonalities in delivery methodologies, tools and skills without imposing the greater standardization that comes with integrating creative groups into non-creative business units. IBM iX, Wipro’s Designit and Accenture’s Fjord all play this role as a landing spot for each new creative acquisition.

When Wipro acquired Designit in 2015, the design firm had ~300 employees based across seven countries. By 2018, Designit, now Wipro’s strategic design unit, had grown its headcount to ~500 employees across thirteen countries thanks to both organic and inorganic growth.

Summary

As IT services firms have looked to expand the breadth of services offered to their clients, they have frequently looked to grow through acquisition of niche capabilities, particularly creative firms. To make these acquisitions successful, firms must be mindful of cultural differences and understand how to balance integrating capabilities and allowing the acquired firms to maintain a level of autonomy.

Yesterday morning, DXC announced its intended acquisition of Luxoft in an all cash transaction of $59 per share, around $2bn. This represents a 48% premium over Luxoft’s average closing share price over the previous ninety days (and ~86% premium on Friday’s closing price). The deal is expected to close by end June 2019.

In recent years DXC (including as CSC) has made a number of acquisitions that have expanded its ServiceNow, Microsoft Dynamics, and recently Salesforce capabilities and formed the bedrock of its Enterprise & Cloud Apps (ECA) practices. This is different: the Luxoft transaction is closer in feel to its 2016 acquisition of Xchanging, which brought in Insurance sector capabilities, or the more recent acquisition in the U.S. of Molina Medicaid Solutions. In all three cases, DXC is acquiring a company that has specific issues and challenges but that also expands DXC’s own industry capabilities; Luxoft will in addition expand DXC’s capabilities around Agile/DevOps.

Luxoft is a company in transformation

With revenues of $907m in FY18 (the year ended March 31, 2018) and nearly 13k personnel, Luxoft is a mid-sized firm. DXC is presenting Luxoft as a “digital innovator”, but it is a company that is grappling with significant client-specific and market challenges. Until FY17, it was highly successful, enjoying revenue growth in the range of 20% to 30%. FY18 saw a slowdown, still to a very solid level of 15.4% (of which we estimate ~7% organic), but FY19 has seen flat growth.

In particular, Luxoft has been hit hard by its dependency on the investment banking/capital markets sector, in particular on two clients: UBS and Deutsche Bank. Back in FY15 they accounted for over 56% of Luxoft’s total revenues (~$294m). Since then, Luxoft has been growing its share of wallet in other key accounts, and the combined revenues from clients 3 to 10 have increased from $123m in FT15 to ~$208m in FY18, a CAGR of ~19%, with clients 5 to 10 growing at nearly 30%. In FY19 Luxoft is expecting around 13% revenue growth from these accounts (to, we estimate, ~$235m).

But while it has been very strong growth in its other top 10 accounts, Luxoft has since FY18 been impacted by declining revenues at both UBS and Deutsche Bank (the later by 13.4%). H1 FY19 saw a 11% y/y decline and these two accounts now account for just over 30% of total revenues. Both have been insourcing some talent. While Luxoft believes that the UBS account is now stabilizing, Deutsche Bank is more challenged, and the account remains an issue: revenues are likely to decline by ~44% in FY19 to ~$90m, or <10% of total revenue, with a further contraction in FY20.

Outside these two, Credit Suisse is also a major client and Luxoft is clearly exposed to the slowdown in the European capital markets/investment banking sector. But elsewhere in financial services, there are much stronger opportunities in the near-term in the wealth and asset management sector, particularly in the U.S. and there is the potential for DXC to help Luxoft expand its presence in the Australian banking sector.

Luxoft has been looking to diversify its sector capabilities in recent years, in particular beefing up its offerings to the automotive sector, developing relationships, mostly in Europe, with tier-one OEMs and suppliers such as Daimler, Continental, and Valeo. Automotive & Transport is a hyper growth business for Luxoft, delivering nearly 43% growth in FY18, but for a company the size of DXC, this is a small business it is picking up: FY18 revenues were $158m. (FY19 revenues are likely be ~$220m, boosted by Luxoft’s acquisition of embedded software specialist Objective Software, which has brought in some U.S. client relationships. Some of these are large accounts (four of the top 10 accounts are in the automotive sector.  And one is a common account to both DXC and Luxoft.

In its Digital Enterprise unit, which is servicing all other verticals, Luxoft has been driving its offerings to more digital offerings, at the same time looking to reduce its exposure to low-margin work. Revenue performance in the Digital Enterprise Unit has been erratic with a strong performance in FY18 followed by a 13% decline in H1 FY19 though Luxoft claims to be confident that it has completed the transformation of the unit.

In brief, among the capabilities that Luxoft will bring to DXC we see:

• Significant agile development capabilities, enhancing DXC’s application services business.
• Some analytics capabilities
• Some product engineering services capabilities in the automotive sector, plus some experience in IoT-centric projects
• Offerings around UX design (in June 2018, Luxoft acquired Seattle-based design agency Smashing Ideas from Penguin Random House).

Luxoft has also been developing its capabilities in blockchain, an area where we suspect DXC has little experience, with pilots in the healthcare, government (evolving in Switzerland) and automotive sectors.

And, of course, Luxoft has a sizeable nearshore delivery capability in Eastern Europe. Luxoft’s delivery network has its roots in Ukraine and Russia. In reaction to the 2014 Ukraine-Russia crisis, the company initiated its Global Upgrade program with the intent of de-risking its profile and increasing its presence in other nearshore locations, in particular in Romania and Poland. Since FY14, Luxoft has decreased its headcount in Ukraine from 3.6k to 3.1k and in Russia headcount from 2.3k to 1.9k.  In parallel, Luxoft has significantly increased its presence onshore with now 1k personnel in North America and made its delivery network far less risky for clients. DXC highlights that it will be able to help Luxoft scale its delivery footprint in The Americas and India.

DXC is betting Luxoft will help accelerate its topline growth

While Luxoft has been grappling with declining margins – partly, but not solely due to the declines at Deutsche Bank and pricing pressures in other accounts – DXC is emphasizing the topline opportunities, rather than cost synergies. Given DXC’s track record in stripping out costs, we imagine Luxoft employees will be glad to hear this.

DXC is targeting revenue growth from:

• Luxoft achieving 15% revenue growth over the next three years
• Revenue synergies of $300 to $400m over this period, representing 1% to 2% of additional revenue growth for DXC

To achieve this, DXC is looking to cross-sell, for example, the:

• Product engineering capabilities of Luxoft to North American and Asian automotive clients and other sectors, e.g., high-tech, manufacturing and healthcare in priority
• Digital capabilities of Luxoft into DXC’s client base. DXC claims that all of Luxoft’s business is, by its definition, digital, thus adding nearly $1bn in revenues to DXC's own $4bn digital business, and expects to grow this $5bn business by another 20% annually
• Managed cloud and digital workplace capabilities of DXC into the Luxoft base (where, however, there are typically well entrenched incumbents).

DXC is also looking to broaden the use of Luxoft assets, taking FS and automotive capabilities and applying these to industries where Luxoft has not historically had a large presence. As an example, Luxoft has developed data visualization assets for FS clients, capabilities it believes that could be applied to other sectors.

How will DXC and Luxoft Integrate?

One key question is how DXC will manage the integration. In the short term at least, Luxoft will remain an independent company, retaining its brand and senior leadership (DXC intends to have retention plans in place for key Luxoft execs). For DXC to ultimately position as an end-to-end and global IT services organization, able to offer clients a full spectrum of services ranging from digital transformation advisory and concept testing through to IT modernization in all its key geographies and target markets, there will need to at least appear to be an integrated go-to-market and also a standardized global delivery operation that leverage this newly acquired assets.

David McIntire, Dominique Raviart, Rachael Stormonth

David McIntire, IT Services Research Director, talks about NelsonHall's recently completed market analysis project on Cloud Advisory, Assessment, and Migration Services. In this vlog, he touches on the changing nature and scope of large enterprise cloud adoption, market size and growth, and where IT services vendors are focusing their investments.

Over the last several years, the public IaaS market has grown rapidly, with major public IaaS providers growing at 45% or more annually, as estimated by NelsonHall. However, large enterprises are only moving a small portion of their application landscapes to public cloud, maintaining larger application footprints in private cloud or on-premise environments.

This hybrid approach reflects an unwillingness to treat all workloads across their application landscape alike. The applications being migrated to public IaaS providers have frequently been non-production, disaster recovery, or non-critical workloads, as well as external-facing applications with significant fluctuations in demand.

However, as public cloud offerings mature, the migration of enterprise workloads to public IaaS has grown, both in quantity and business criticality. And, similar to the overall public IaaS market, the largest target for enterprise application migrations supported by IT service vendors has been AWS.

NelsonHall estimates that, in 2017, client migrations by IT service vendors to public cloud providers were in the following proportions:

While AWS maintains a dominant position in the overall public IaaS market, when it comes to large enterprises migrating their existing application landscapes to public IaaS, AWS is potentially vulnerable to losing market share to competitors. Much of this is driven by competitors’ growing capabilities, but another factor is AWS’s parent, Amazon.

Competitive threats

A tougher competitive environment could reduce AWS’ position as the default option for public IaaS. Some specific competitive threats include:

• Microsoft Azure, the second largest public IaaS provider, launched its Azure Stack offering in mid-2017. Azure Stack targets clients looking for a hybrid cloud, as most large enterprises are. Azure Stack offers paired public and private IaaS and PaaS offerings so that workloads can be moved between public and private environments with minimal modifications, and a common set of tools can manage applications across both
• Google Cloud Platform, which has undergone a major drive to grow its public cloud presence. Recent wins at Shopify, Williams-Sonoma and Home Depot reflect Google’s increasing clout in enterprise public IaaS
• Oracle, which was also slow to offer IaaS but is expanding its focus in this area. With a large footprint of clients with Oracle business applications that can be addressed, Oracle has an opportunity to grow rapidly.

However, these challenges might not impact AWS nearly as much as AWS’ parent itself.

Amazon’s impact

With Amazon’s dominant presence in retail and publishing, and its growing presence in media and entertainment, other companies in these industries don’t want to help fund their own competition – and these companies are increasingly looking to alternative cloud service providers (CSPs). IT service vendors are seeing a rise in companies either looking to migrate to other CSPs as alternatives to AWS, or even moving early-migrated workloads off AWS due to the competitive position of Amazon. As noted above, three of Google’s highest profile recent wins are all retail organizations.

This interest in alternatives to AWS by their clients is driving IT service vendors to expand their relationships with other public IaaS providers. For example:

• Oracle: Infosys has developed end-to-end Oracle Cloud offerings spanning SaaS, IaaS, PaaS and lift-and-shift for on-premise legacy applications. Also, LTI is focusing on building out a suite of offerings for Oracle Cloud
• Google: While nearly all IT service providers possess a strategic partnership with Google, TCS has a strategic relationship with Google driven by CEO-level engagement, and estimates it has delivered services on Google Cloud platform for ~35 clients. Also, EPAM has used its relationship as service provider to Google itself to develop Google Cloud offerings.

Summary

AWS appears poised to continue to dominate the overall public IaaS cloud market. However, when it comes to large enterprise application migrations, AWS is facing increasing threats, including those driven by its own broad business footprint.

As a follow-up to our research project focused on SAP HANA and S/4HANA services that was completed last fall, NelsonHall recently had a briefing with Infosys to take an in-depth look at components of their migration toolset and understand how it is automating the activities of existing SAP clients migrating to HANA or S/4HANA.

SAP is focused on speed and agility in HANA and S/4HANA as a key benefit of adoption, and in parallel, Infosys is looking at ways to improve the speed of the migration itself. It uses tools to automate as much of the migration process as it can to further augment the business case for migration. Its toolset combines tools from SAP itself with home-built tools, and spans the lifecycle of a migration including discovery, migration preparation, deployment roadmapping, architecting, migrating, and deploying.

These toolsets are deployed regardless of whether the HANA database is being adopted to support an existing ECC suite or the entire application stack is migrating to S/4HANA. While SAP tools address migration and adaptation of standard code, SAP doesn’t offer tools to address custom code and configuration. To address this, Infosys has developed two core tools to accelerate the migration of HANA and S/4HANA conversions:

• Infosys HANA Code Migration & Optimization (CMO)
• Infosys S/4 Assist

HANA CMO

Built on a foundation of SAP tools and augmented by proprietary IP, CMO analyzes the impact of migration to HANA database or S/4HANA simplifications on custom code and recommends remediation for any errors identified; it displays a tabular list of all identified errors, and also highlights errors that the tool can remediate automatically and those that require manual remediation. For those identified as candidates for automatic remediation, the tool can correct the code automatically based on a built-in rule engine. CMO has intelligence to scan the code and perform appropriate code changes based on issue type.

As a part of the remediation, CMO adds inline documentation to code, with an audit trail for the code changes performed. Once the code is remediated it can then raise an automatic request (SAP Transport) to schedule the code to be deployed to higher environments. In addition to remediation, CMO also has capability to optimize performance of the custom code to ensure it leverages the full benefits of HANA DB and S/4HANA.

Infosys HANA CMO also has a dashboard capability that provides real-time visibility to stakeholders on the progress of the migration.

CMO can be used to migrate existing SAP environments to either SAP HANA (Suite on HANA) or directly to S/4HANA. It is also applicable for migrations to cloud-based Suite on HANA or S/4HANA environments. The tool is configured at the onset of an engagement to factor in the target environment in its assessment and remediation recommendations.

Infosys has used CMO across ~20 clients to date and says that clients have realized the following:

• > 80% of custom code compliance errors have been automatically remediated
• > 50% of custom code optimizations done automatically
• > 70% reduction in custom code remediation effort
• > 70% reduction in the duration of code migration effort.

For one large American beverage and snack company, the initial analysis of the impact of migration to HANA showed ~4.5k custom code line items impacted, which would require ~500 man-days of effort to remediate. Using CMO, Infosys was able to complete the custom code remediation in ~72 man-days, with the automated code remediation completed in ~4 days.

S/4 Assist

For clients that are converting directly to S/4HANA, Infosys has developed S/4 Assist to accelerate the assessment and conversion. As the business case for adoption of S/4HANA has been challenging to date, Infosys is seeing clients with little appetite to even undertake an assessment of their existing environment in preparation for conversion. S/4 Assist was developed to accelerate developing a detailed understanding of the current landscape, effort for migration and business case, reducing the typical technical assessment effort from 2-8 weeks to 4-6 days.

To reduce the cost of an assessment further, S/4 Assist is designed to be used for analysis by a team located in an Infosys delivery center rather than being on the client site. The application consists of two components:

• Infosys extractor program: an agent deployed locally to a client environment, where it is able to extract business process, custom code, security, infrastructure, functional and UI details without extracting sensitive data
• Infosys S/4HANA Impact Analyzer: a cloud-based system where the extraction is uploaded and analyzed. The output includes a dashboard view of the impacts of a migration, including:
  • Summary: the potential functions of S/4HANA that can be implemented for the client – recommendations tailored to business processes and functionalities which are used by the client
  • Conversion readiness: potential errors and warnings resulting from migration along with their cause and remediation
  • Business process impact: how defined business processes are impacted by the migration, including opportunities to improve processes through adoption of innovations
  • Functional and UI check: the business functions and transactions impacted by the migration, including the impact of using Fiori for UI
  • Technical analysis: custom objects and interfaces impacted and requiring remediation
  • Security analysis: users and roles impacted by migration.
  • Infra analysis: add-ons impacted and sizing report for S/4HANA.

These outputs are provided in a number of formats, including as a dashboard, in a table, or via charts, all supported by detailed Excel spreadsheets. Infosys sees S/4 Assist’s key value drivers, relative to other assessment tools such as SAP Readiness Check, as:

• The ability to look in more detail at technical and functional impacts of conversion
• The ability to analyze interfaces and impacts on other systems
• User impacts (whether relative to security or UI)
• The opportunity to identify innovations that will further increase value in adopting S/4HANA.

Infosys has used S/4 Assist with ~8 clients to date. Typically, it has seen the overall duration of S/4HANA migration assessments drop from 4-8 weeks to 1-2 weeks.

Summary

While HANA and S/4HANA represent a small proportion of the overall SAP landscape today, it is growing rapidly. NelsonHall estimates that the global market for HANA and S/4HANA services was ~$7.2bn in 2017 but is projected to rise to $14.1bn by 2021, representing a CAAGR of 18%. It is also going to increasingly see existing large enterprise SAP clients migrating to HANA and S/4HANA rather than the greenfield and SMB clients making up a disproportionate segment of the market today.

By developing a suite of assets that provides clients with visibility to the impact of migrating, and also reduces the migration effort, Infosys is positioning itself to support these large enterprise clients as the value of migrating becomes clearer and the end-of-support deadline for legacy SAP environments in 2025 creeps closer.

To date, many digital transformation initiatives have been primarily focused on customer-facing technologies. Changing customer preferences and the rise of new digitally native competitors have driven incumbent firms to see customer experience as a source of competitive advantage or as table stakes to maintain relevance. In NelsonHall’s recent survey of IT service buyers across 18 sectors, 61% identified both improved customer experience and increasing average revenues per customer as highly important business priorities.

These business priorities are primarily being addressed through digital initiatives, and 73% of buyers identified improving customer experience and customer service as a highly important benefit of digital.

But companies are also increasingly looking beyond the customer experience for digital initiatives. It should be no surprise that other business priorities identified as highly important by a significant portion of IT services buyers include increasing rate of automation (72%) and digitalizing their operations (67%).

These initiatives are increasingly looking at digital as an end-to-end operational transformation which enables the realization of other key benefits, including reducing operating costs and improving service fulfillment and turnaround time (each highly important to 73% of buyers).

While this has always been a focus area for sectors such as manufacturing and energy, it is also being prioritized increasingly in consumer-facing sectors. Companies are recognizing that the customer experience goes beyond the digital channel and spans the entire customer lifecycle, hence the importance placed on service fulfillment. Objectives being sought by consumer-facing sectors reflect this focus, expanding beyond customer experience to end-to-end digital transformation. Specific objectives cited by consumer-facing sectors include:

• Increasing rate of automation in operations. This is being prioritized by more than 70% of organizations across retail, healthcare provider, travel & transport, retail & commercial banks, and media
• Digitalizing operations, cited by ~78% of organizations across travel & transport, retail & commercial banks and media
• Reducing service turn-around time, cited by 53% of organizations across healthcare provider, media, travel & transport, retail & commercial banking, and retail.

To achieve these defined objectives, consumer-facing organizations are targeting digital initiatives in non-customer-facing functions. Specific industries that have highlighted digitalization of end-to-end functions as a priority include:

• Travel & transport: transforming supply chain and improving real-time asset tracking are the two most commonly identified digital initiatives by travel and transport companies. IoT/sensor-based applications is the most commonly cited digital technology and acts as the primary avenue for addressing these initiatives, a high priority area for nearly one in three organizations
• Healthcare providers: while primary focus has been on patient care, including patient self-service, the second highest priority area is revenue cycle management, the end-to-end process from scheduling to payment, highlighted by 55% of organizations as being pursued currently. This primary internal focus is on the financial processes that support the end of the payment cycle
• CPG: with 64% placing priority on the order management function, CPG companies, which sit at the intersection of manufacturing and consumers, are looking at optimizing the supply chain through broader integration and cloud-based applications. CPG companies also identified IoT/sensor-based applications as the most commonly implemented digital technology, with a primary focus on using IoT in manufacturing, procurement/supply chain, and warehouse management
• Retail: improving and expanding integration across the supply chain is a key focus area for retail. Implementing IoT/sensor-based applications is the most common avenue for addressing this, a high priority for more than 40% of retail companies. IoT/sensor-based applications initiatives are primarily focused on addressing these supply chain improvements through improving warehouse management and logistics.

Consumer-facing industries have been undergoing significant digital disruption and are looking to transform interactions with their customers. While that continues, companies are increasingly focusing on how operations beyond the customer interface impact the customer experience. In 2018, this focus on improving end-to-end operations to improve customer service will continue apace. 

David McIntire, IT Services Research Director, talks about NelsonHall's recently completed project looking at the attitudes and intentions of IT services buyers. Based on interviews with ~1,000 buyers across 17 industry sectors, the project analyses buyers' key business and IT priorities, digital initiatives, IT spending projections, and the characteristics they look for in IT services vendor partners.  

NelsonHall is conducting an analysis of the needs of IT services clients to understand their IT and business priorities and how the growth of digital is impacting their business. In a survey of ~1,000 IT services clients across 17 industries and every region of the world, NelsonHall has identified distinct patterns of user intentions, both in terms of how clients plan to change their external IT spending, and how they assess the capabilities of their IT services vendors. Here, I examine how IT service buyers project their IT spend patterns to evolve in the coming year.

2018 IT spend to remain relatively flat

The most commonly cited projection by IT services buyers is for overall IT spend to remain relatively flat. Fifty-two percent of companies project 2018 IT spend to be within 1% of their 2017 spend. This spend correlates closely to expectations of revenues. Fifty-three percent of companies project the level of IT spend relative to revenues to remain flat.

Thirty-four percent of companies project overall IT spend to grow in 2018 by >1%. However, the average growth of these companies is 2.3%, with only 1% of companies projecting growth greater than five percent. While all regions and industries contain some companies projecting growth, there are areas where growth is concentrating.

Geographically, the U.S. and APAC possess the highest proportion of companies projecting growth. Approximately 38% of companies in each region project IT spend growth. The U.K. has 33% projecting growth, while 29% of continental European companies project growth.

Looking across the seventeen industry sectors, only three have a majority of companies projecting growth:

• Media (70% of companies project IT budget growth >1%)
• Retail (58%)
• High tech (53%).

Five other industries have >40% of companies projecting growth in 2018 IT budgets: life insurance, retail property and casualty insurance, logistics, pharmaceuticals, and retail and commercial banking.

Each of these industries is tasked with responding to disruptive competitive threats as well as the growing use of digital in delivering customer services. Given these dual imperatives, it makes sense to see greater allocation of operating costs to IT budgets.

External IT spend is concentrated on applications and consulting

While overall IT spend is primarily flat or growing slightly, external spend is projected to see significantly less growth. Only 5% of organizations project overall external IT spend to expand across 2017 and 2018 by more than 1%, while 55% project it to change less than 1%, and 37% project it to fall between 1% and 2%.

However, this doesn’t apply to every type of IT service. Three IT service lines are projected to experience growth of >1% in spending by >30% of companies:

• Application services (34% project growth >1%)
• Application testing and requirements assurance (31%)
• Consulting (30%).

The overweighting of spend toward these IT service lines correlates directly to the IT priorities that companies have articulated.

Companies are looking to reduce IT costs and shift budgets to value-add digital initiatives

Among the business and IT priorities identified by companies, a clear pattern emerges of a focus on expanding the use of digital and automation. The objectives of these initiatives are to both reduce internal operating costs and respond to evolving external requirements including changing customer, competitive, and regulatory compliance demands.

Business objectives identified as high in importance by a significant proportion of companies include:

• 72% are looking to increase the rate of automation in operations
• 68% are looking to reduce the cost of operations
• 67% are looking to digitalize operations.

These business objectives align with commonly pursued IT objectives:

• 89% are looking to introduce AI and cognitive technologies
• 69% are looking to increase the use of SaaS in support of new initiatives
• 67% are looking to increase the proportion spent on new initiatives rather than maintaining and running existing systems.

With these objectives, it is no wonder that external spend is being targeted at application services and consulting. Companies are looking to vendors to help implement solutions (such as SaaS and cognitive applications) that can reduce operating costs and shift the constrained IT budget dollars to initiatives with direct business value such as improving digital customer engagement platforms.

As discussed in a previous blog post, these IT budget constraints and targeted priorities are driving specific capabilities that vendors need to demonstrate – namely industry acumen, digital consulting, and SaaS implementation capabilities. 

As part of NelsonHall’s series of reports focusing on the business priorities and digital initiatives of IT services buyers, we found that buyers in the transportation industry have a significant focus on improving the customer experience. Eighty-five percent of transportation companies are pursuing an operational objective of increasing average revenue per customer to a high extent, while 75% are pursuing enhancing customer experience to a high extent.

These companies are primarily looking to achieve these objectives through the adoption of digital technologies, with 82% of transportation companies believing that improving customer experience and customer satisfaction is a highly important benefit of digital. This focus also correlates with the most pursued areas for digital initiatives: customer service and online commerce & CRM, each cited as being pursued to a high extent by more than 60% of transportation companies.

To address these needs, NIIT Technologies has introduced a new framework that enables travel and hospitality companies to improve customer service and drive revenues through greater tailoring of services to individual customer needs. With years of stagnant revenues and the rise of low-cost competitors, NIIT Tech sees an opportunity for travel and hospitality companies to use personalization to change what can be a commoditized product (a plane seat or hotel room). NIIT Tech is positioned to understand and address these needs, as NelsonHall estimates ~55% of its digital transformation consulting revenues are associated with travel and hospitality clients.

NIIT Tech’s PACE framework (Personalization for enhanced Ancillary revenue and Customer Experience) uses an assessment of the maturity of current operations to plot current capabilities, determine the target level of maturity, and map the process for achieving it. PACE considers capabilities across two dimensions: personalization maturity and engineering proficiency:

• Personalization maturity spans from a 1:many model to a 1:1 model. It analyzes three elements to assess the use of data to tailor user experiences: system of insight, integration and channel enablement, and system of engagement
• Engineering proficiency uses NIIT Tech’s DONE framework to assess the internal technical delivery capabilities to plot companies from ‘predictable’ (with eight mature disciplines) to ‘lean startup’ (with 23 mature disciplines). Disciplines measured span areas including business value, solution, continuous delivery, agile practices, and support.

Delivered through a 4-week assessment project, the outputs are plotted to illustrate where a company’s maturity falls within one of four quadrants: naivete, contender, thinker, nirvana.

Based on the current positioning and the company’s objectives, a project plan is then developed for the company. These projects are planned to address the three layers that comprise the customer experience mentioned above:

• Systems of insight: the systems that capture customer data
• Integration and channel enablement: the systems that enable the use of captured data through the dissemination of the data to inform business operations
• System of engagement: the customer-facing user experience, informed by captured data fed through integrated environment.

These projects span all three layers as necessary. Though the entire project can require an 18 to 24-month commitment, NIIT Tech develops a project plan that includes delivering quick wins to demonstrate value, while the more challenging, lower direct ROI effort of building the foundational elements of the data capture and integration necessary to feed a tailored customer experience are completed.

PACE projects are supported by NIIT Tech’s ecosystem of partners, to align with the specific needs and preferences of clients, including UiPath, Appian, Sitecore, Salesforce, Adobe, Pega, Oracle, Tableau and others.

NIIT Tech’s experience to date has shown most travel and hospitality companies are low on the maturity cycle. But to achieve internal objectives, projects have had different types of focus, examples being:

• Transforming a website for a large airline to better use customer data
• Micro-services implementation to enable greater integration and channel enablement for a loyalty program
• Managed service for business intelligence services for an Asia-Pacific airline
• Implementation of a data lake for a large airline to expand analytics capability
• Transforming an e-commerce platform for an Asia-Pacific airline. This included both process and technology changes, with a significant focus on increased use of automation, that enabled the time to market for changes to fall from three weeks to less than three days. With further transformation, this is expected to fall to under four hours.

In travel and hospitality industries increasingly focused on a self-defeating cycle of lower and lower prices, personalization of experiences offers an opportunity to use digital to differentiate from competitors. NIIT Tech’s PACE offering has been developed to help these clients meet or exceed their customer needs. 

NelsonHall is conducting an analysis of the needs of IT services clients to understand their IT and business priorities and how the growth of digital is impacting their business. In a survey of ~1,000 IT services clients across 17 industries and every region of the world, NelsonHall has identified distinct patterns of user intentions, both in terms of how clients plan to change their external IT spending, and how they assess the capabilities of their IT services vendors. Here, I examine the key characteristics clients are looking for in vendors providing IT and digital services.

Even in the face of digital disruption, industry-specific knowledge is the key determinant of success

IT services clients overwhelmingly recognize that digital technologies will impact their business. Globally, 82% of respondents view digital as highly relevant to their future IT strategy. In contrast, less than 1% view it as being of low relevance.

Globally, the most highly sought characteristic by IT services clients when engaging a vendor is industry-specific knowledge, identified as highly important by 67% of clients. The value of undertaking digital transformation derives from addressing industry-specific business objectives, rather than solely reducing IT operating cost through automation and industrialization. This broader business case increases the need for IT services vendors to demonstrate strong industry understanding in a digital transformation context. 

Five other characteristics were identified as highly important by between 40% and 50% of clients:

• Ability to provide digital consulting services (48%)
• Ability to take a business perspective to the application of digital to the business (47%)
• Ability to provide a roadmap for adoption of digital (45%)
• Ability to undertake digital maturity assessments (44%)
• Use of agile development methodology (46%).

The first four of these characteristics reflect a need for IT services vendors to provide guidance in how to tailor investments in digital to maximize the value to be realized within the context of a particular client’s industry. They require vendors to possess a consulting capability that delivers a combination of digital technology and industry knowledge and to be able to assist client organizations in developing clear digital roadmaps. The fifth characteristic, the use of agile development methodology, reflects the need to react quickly in the face of disruption caused by emerging digital technologies and new competitors.

There were two characteristics identified by fewer than 30% of IT services clients as highly important:

• Cloud-native development capability (29%)
• Ability to bring own digital application platforms and tools (28%).

Many IT services vendors are investing in developing portfolios of proprietary digital solutions to either be delivered as a stand-alone software product or as complementary to other software (such as functional extensions for SAP S/4HANA) as well as skills in implementing key SaaS products. These are clearly viewed by IT services vendors as important differentiators, particularly in an industry-specific context, but are insufficient without the wider digital roadmapping capability required by clients.

IT services clients are shifting their spend focus to SaaS & niche digital consulting capabilities

Within a menu of six options for how they expect their IT vendor spend to change, only two options were identified by more than 30% of IT services clients as being undertaken to a large extent:

• Increasing use of SaaS software (47%)
• Increasingly using niche specialists in support of implementation of digital initiatives (45%).

IT services clients are looking for vendors who can deliver specific niche skills that enable expanded use of digital. And they are looking for these digital solutions to focus primarily on SaaS applications, helping to reduce application management and infrastructure costs going forward, as well as reducing time-to-market.

Early mover IT services vendors are investing in SaaS implementation capability and focused digital & industry skills

Acquisitions of niche consulting firms focused on a specific industry, SaaS technology, or geography have been a frequent announcement over the course of 2016 and 2017. Some specific examples include:

• Accenture has made over 20 acquisitions since the start of 2017, all of which provide a specific niche capability. Examples include:
  • solid-serVision, a Germany-based ServiceNow implementation specialist
  • Davies Consulting, a U.S. specialist in utility operational risk management, asset investment, and emergency preparedness and response
  • Phase One Consulting Group, Inc., a U.S. Salesforce specialist focusing on the federal sector
  • InvestTech Systems Consulting, a technology consulting and systems integration firm specializing in the capital markets sector
• Accenture was also active in 2016, acquiring DayNine, a Workday consulting and deployment services provider
• Capgemini acquired Itelios in March 2017, a provider of services around the SaaS applications of Demandware, now called Salesforce Commerce Cloud
• Cognizant acquired KBACE Technologies in 2016, a specialist in Oracle cloud applications implementation, in particular HCM applications
• IBM acquired Bluewolf Group LLC in 2016, a Salesforce consulting and implementation services partner (with 12 global offices and ~500 employees in the U.S., Europe, and Australia) and Promontory Financial Group, a global risk management and regulatory compliance consulting firm targeting the financial services industry
• NTT DATA acquired Carlisle & Gallagher Consulting Group (CG) a business and technology consulting group servicing consumer and commercial banking, wealth management, and capital markets clients
• NTT DATA’s itelligence unit acquired Symphony Management Consulting, an SAP and SuccessFactors partner in North America specializing in human capital management (HCM) consulting services.

While this is just a snapshot of IT services vendor acquisition activity, these examples demonstrate how IT services vendors are recognizing and addressing the demands of their client base for SaaS capabilities and targeted industry skills. 

In this video, NelsonHall’s David McIntire reports from day one of the 2017 SAP Sapphire Now user conference with his thoughts on how SAP is expanding its core business footprint.

NelsonHall recently completed an analysis of the digital transformation capabilities and offerings of selected IT services vendors. While all vendors are investing in offerings under the ‘digital transformation’ umbrella, their investments range from industry-focused offerings using proprietary IP, to packaged solutions, to digital strategy consulting.

One area of focus seems counter-intuitive to growth of digital: where clients are pushing more of their business to be digital, IT service vendors, positioning themselves as ‘digital transformation partners’ are investing in growing their non-technical capabilities.

User Experience

A major focus in early digital transformation initiatives was on transforming the customer experience and many service providers made significant investment accordingly in these capabilities, some acquiring UX specialists, and many building out dedicated spaces, usually location proximate to clients, used for collaborative design thinking workshops.

Examples of vendors who have acquired digital specialists include:

• Accenture: has been on an acquisition trail for four years now. Investing billions of dollars. Recent acquisitions have included three specialists in Europe: MOBGEN in the Netherlands, Tecnilógica in Spain, and dgroup in Germany
• Capgemini: acquired two U.S. consultancies, Fahrenheit 212 in early 2016, Idean in February 2017
• Tech Mahindra: acquired U.K. digital marketing agency BIO in June 2016
• IBM: in 2015 and 2016, acquired expand digital consulting capabilities, including two digital agencies in Germany ( Aperto, headquartered in Berlin and ecx.io, based in Dusseldorf) and Resource/Ammirati, a U.S. digital marketing and creative agency.

Others are primarily building organically. For example, HCL has built its Digital Process Experience & Consulting organization by hiring individuals from a variety of consultancies and agencies. It now has a ~150 FTE organization in which under 5% were internal transfers.

Digital-Physical Convergence

Organizations are moving up the value chain of digital transformation, from digitizing existing processes to completely reimagining business processes and customer interactions. In some early adopter industries such as travel and retail, this has included the convergence of digital and physical, for example, an airline’s mobile app interacting with beacons located within an airport to customize the information presented to a user based on their current step within the journey. This expands the scope of transformation to frequently include how people interact with physical objects, not just a screen. This has been another driver in some recent acquisitions: some design agencies possess skills in designing for the physical realm that IT service vendors lack. A smart vending machine requires the design of not just the underlying digital interaction but also how the machine operates.

For some vendors with a product engineering heritage, this has meant a priority on acquiring human-machine interaction capabilities. For example, Luxoft made two acquisitions (Populus in 2014 and Pelagicore in 2016) targeted at expanding human-machine interaction capabilities for its automotive sector clients.

Business and Process Change

Where the success of traditional IT services is primarily quantified in reduced IT operating costs, the business case of digital transformation often relies on broader benefits such as increased revenue or improved customer satisfaction. Identifying and achieving these benefits requires skills and expertise beyond a technical offering, including industry specific knowledge and business process capabilities.

As the scope of digital transformation initiatives increasingly expand beyond customer interactions to transforming internal processes or even an entire product/service lifecycle, these business and process skills will grow in importance. Adding new digital technologies to a client’s business process has limited impact alone; the value is maximized by adapting business processes to better leverage the digital capabilities.

While not yet seeing the level of investment that UX has, vendors are starting to build out these capabilities. Accenture acquired Kurt Salmon for its retail sector digital consulting capabilities. Sopra Steria has organized so that its digital transformation spans three distinct capability areas: technology champions, industry digital champions and UX champions.

Change Management

The greater the impact of a transformation, the greater the need to manage how that change is rolled out to the impacted population. Clearly planned and targeted communication help minimize that resistance to change. As digital transformations expand across an organization, and various groups are impacted differently, the structured management of that change grows in importance. The collaborative, design thinking sessions that shape these transformations are going to increasingly require greater focus on how the change is rolled out.

While the traditional IT consultancies typically have well established change management capabilities, for those vendors coming from outsourcing services or product engineering backgrounds to be positioned as an end to end digital transformation partner, change management will need to be an area of investment.

As their major clients focus increasingly on transforming more of their operations through the application of digital technologies, large multi-service IT service providers should also look to be able to support them deal with the human impact of digital transformation.

NelsonHall’s market analysis of digital transformation services, is available to subscribers here. 

CSS Corp. is a privately held Milpitas, CA-headquartered IT services and tech support vendor that NelsonHall estimates had revenues approaching $200m in FY16. The company has a new leadership team, many of whom are ex-Infosys, and it is now looking to expand beyond its core technical support offerings into the growing digital transformation and cloud migration market. 

CSS Corp primarily works with consumer-facing industries, with NelsonHall estimating that ~95% of its revenue derives from clients in retail, CPG, media/entertainment, telecom and high tech sectors. This is a client base that is aggressively pursuing digital transformation and cloud adoption, with an appetite for migrating existing production workloads, including core applications to cloud environments. These initiatives are also frequently originating outside of the CIO’s office on the business side where primary objectives are focused on customer satisfaction and revenue growth rather than operating cost reduction. CSS Corp is being aggressive in developing assets to support this workload migration.

To support clients’ adoption of public and private cloud environments, CSS Corp has developed a suite of tools to automate activities supporting cloud adoption, including:

• Assessment and planning: CloudMAP
• Migrating to the cloud: CloudPATH
• Management of hybrid cloud ecosystems: CloudDRIVE

CloudMAP

CloudMAP is used to help support decision making to determine how, where and when to migrate workloads. It is the evolved version of the CRAFT tool that CSS Corp has been using for ~3 years. Through an analysis of business processes, information flows, application dependencies, and technical architecture, CSS Corp uses CloudMAP to develop a migration plan. This plan includes:

• Optimal hosting strategy for different workloads
• Activities necessary to make each workload cloud-ready, whether it is rehosting with minimal changes, refactoring for scaling and performance, or replatforming to cloud native platforms
• Timing and effort of each workload’s migration.

CSS Corp says the CloudMAP approach has enabled clients to realize ~40% cost reduction in the assessment and planning and ~30% reduced time to market. 

CloudPATH

CSS Corp employs its CloudPATH playbook to support the migration of workloads to the cloud. CloudPATH is a suite of templates, tools and artifacts that are pre-built to support specific types of migrations, including:

• Windows and Linux workloads
• VMware workloads
• Oracle workloads
• Storage and DR
• Analytics as a service
• Full-stack, business service solutions such as e-commerce or digital marketing stack and content delivery on the cloud.

CSS Corp has partnered with cloud native providers such as CloudEndure, CloudHealth Technologies, SoftNAS, PlateSpin Migrate and Dome9 Security. CSS Corp says its clients are realizing 30-50% reduction in the migration effort through the employment of these assets.

CloudDRIVE

CSS Corp’s CloudDRIVE leverages ServiceNow and technologies such as Nagios and Solar Winds for monitoring and alerting,  and CSS Corp’s automation platform and analytics engine Active Insights.

CloudDRIVE automates hybrid cloud management functions including:

• Health and performance checks
• State and change monitoring
• Event processing and analysis
• Process management
• Orchestration, provisioning and brokering
• ITSM
• Predictive analytics.

CSS Corp estimates CloudDRIVE drives 30-40% operational efficiency improvements.

These offerings are the core from which CSS Corp is looking to evolve its client relationships from pure technical support to being a digital transformation partner. 

Accenture recently held a two-day symposium for the clients of its testing services to look at how testing services are changing, showcase its latest offerings, and allow successful engagements to discuss the keys to their success and lessons learned.

Testing services are at a crossroads, as agile and DevOps have increased expectations around speed of delivery and driven convergence across the software development lifecycle. (NelsonHall’s Dominique Raviart has written and spoken about this on numerous occasions). This is necessitating a pivot in Accenture’s focus from testing to a more holistic view of quality.

The offerings and capabilities presented by Accenture indicated its views on the future of testing and IT services in general: a focus on user experience (UX) and highly automated delivery, which is necessitating changes in the capabilities of its personnel.

Expanding Universe of Testing Factors

Rather than being isolated as a single component of the SDLC, Accenture sees testing permeate across the lifecycle. That includes factoring quality as part of a focus on design thinking and UX; UX should now be a core focus of any IT initiative, internal and external to an organization. This shift has a direct impact on quality, with Accenture advocating an increased need to focus on the following key attributes:

• Experience: ensure seamless experiences regardless of channel and reflecting the voice of the customer
• Performance: ensure predictable behavior and gather user data in real-time
• Insights: optimize applications across the breadth of channels and devices for backward compatibility and future proofing
• Security: balance ease of use and privacy while reducing vulnerabilities.

Increasing Automation

Automation has become core to delivering test execution but its scope is now expanding, including applying AI concepts in testing as well as looking at how to actually test AI capabilities themselves. The use of AI and cognitive capabilities in testing can range from the management and generation of test data to the rationalization of test cases to optimize coverage.

In addition to exploring how AI can be applied, Accenture is rolling out platforms to drive automation in the delivery of testing services. These platforms include:

• Touchless Testing Platform: to manage the test process. Beyond running scripted, rule-based tests, it also orchestrates the testing process, incorporates analytics to optimize test coverage, and provides cognitive bots to assist the testing team and visualization tools. The platform includes technologies from Splunk, Saffron, Jenkins, GIT, HP ALM, Selenium and Tableau
• Omni-channel Testing Platform: for testing digital solutions across a breadth of channels, including reporting and analytics visualization capabilities. This platform includes capabilities from Perfecto Mobile, Applause for crowdsourced testing, and SOASTA for performance monitoring.

Accenture’s broad machine learning, automation and AI platform, myWizard, also offers a Testing Expert capability to provide analytics and cognitive capabilities.

These platforms are still in their infancy and the number of use cases of each will increase. Their use requires Accenture and other IT service vendors to revisit their personnel approach for delivering testing, from headcount to pyramid, to location, to skills.

Changing Workforce Needs

While these platforms are intended to reduce the cost of quality as well as improve the effectiveness of quality activities, they raise a bigger question regarding their impact on the broad personnel base performing much of these functions today.

Jeff Wilkinson, Accenture Test Lead for North America, says that while ~80% of the testing completed today is done manually, he expects this to have dropped to under 60% within three years. And not only will the overall quality organization shrink with this reduced workload, the role of the quality professional will also need to evolve.

One of Accenture’s clients, a large U.S.-based financial institution, has already begun evolving its delivery workforce to focus on quality engineering rather than on testing. This approach requires permeating quality concepts across the entire development lifecycle and necessitates resources to possess domain, analytics, data management, and tools knowledge.

This client team has re-organized its quality resources to a hybrid team of dedicated lines of business (LoBs) resources to embed these skills directly with developers and business analysts, as well as creating a centralized automation team acting across LoBs.

Another resource challenge is driven by the rise in devices employed by end-users. In part, this is being addressed by the omni-channel platform referenced above; however, no platform can address all permeations of devices. This has led to a rise in the need for crowdsourced testing, which Accenture predicts will be used on ~80% of digital engagements by 2018. This is a bold prediction; while it may be a little overstated, the rapid growth taking place in crowdsourced testing is undeniable. Crowdsourced testing from organizations such as Applause provide access to approved personnel available to test on-demand, who bring experience of a wide variety of devices and platforms helping identify specific defects without a long-term commitment by Accenture.

With examples from early adopters, as well as the maturing of its automation platforms, Accenture has begun to modify its delivery models, including for new opportunities, with modified organizations and skillsets. Accenture is also planning for increased productivity over the life of an arrangement, with these improvements spanning both direct testing efforts as well as upstream or downstream efforts such as requirements definition and deployment.

Next Steps

Testing models have evolved considerably in recent years, and Accenture sees further changes are on the horizon. Greater integration of testing with other software lifecycle activities, such as agile development teams, is still growing. Accenture is still offering Testing CoEs as a stand-alone service, though tighter integration into agile teams is expected to expand, as long as segregation of duties concerns can be clearly addressed. The increased use of cloud environments for testing workloads will also drive closer coordination between application testers and infrastructure providers.

While significant effort and investment are being spent on designing digital solutions that meet customer needs, one area that has not received the same level of focus is internal systems and internal IT. For example, while airlines are leveraging new age digital technologies to improve the passenger experience, less attention is being paid to the experiences of employees when they require IT assistance in order to serve passengers better.

NIIT Technologies (NIIT Tech) is looking to address this gap with a focus on what it calls empathetic experiences. The core of empathetic service is tailoring both services and application environments to align more closely with specific client needs. There are two core components to this service:

• Focus on service culture and measuring experiences
• Customization of services.

Service culture & measuring experiences

To align its services with the evolving expectations of its clients, NIIT Tech has implemented a broad based program to mature the culture of its delivery resources and shift the team’s focus from just meeting SLAs to building quality client experiences in addition. Entitled the Hi-5 Program, it has five components:

• Think customer
• Challenge status quo
• Unleash ideas
• Improve continuously
• Take ownership.

To measure its ability to meet client needs, NIIT Tech has revamped its approach to gathering feedback from clients receiving support from its help desk and application management delivery teams. Rather than standard CSAT processes that gather feedback using a regular, pre-defined schedule, NIIT Tech uses its Voice of the Customer offering to instantly rate service when it is freshest in the user’s mind.

When a ticket is closed within the ITSM tool, an automated process kicks off, resulting in an email being sent to the client who has just received service. A link to an online survey tool is provided, but rather than a long survey, the user is offered just one question about their experience with three possible answers: negative, neutral, or positive. For negative responses, further follow-up is done to understand what specific aspects of the service failed to meet expectations.

At a media regulator, where NIIT Tech has implemented this process, it is now receiving feedback on 12% of tickets, and has seen an 87%-90% monthly approval rate. The response rate is right in the middle of the target of 10-15%, and is up from an initial 5% response rate.

Customization of services

In addition to evolving its culture and how it measures satisfaction, NIIT Tech is also looking to ensure that its services target the higher priorities of its client base. It has tailored IT infrastructure services and solutions to address the key drivers of internal user-centricity across each of its five core industry verticals, including:

• Travel: focused on digital and mobile experience, NIIT Tech offers Wi-Fi enablement, application performance management, and mobile device management
• Insurance: focused on customer acquisition, retention and services, NIIT Tech focuses on PEGA landscape management, data management, and analytics
• Banking: focused on employee/customer engagement and time to market, NIIT Tech offers release automation, tailored ServiceNow ITSM offering, and development/test environment management
• Manufacturing: focused on operational efficiency, NIIT Tech offers vehicle and asset tracking as well as SAP landscape management
• Media: focused on content management, NIIT Tech offers data archiving as well as identity and access management.

NIIT Tech is also employing a process through which it mutually agrees with the client to service levels for each in-scope application based on that application’s criticality. These service levels include:

• Platinum support for applications that can impact the client’s brand
• Gold for applications that are revenue impacting
• Silver for customer facing applications
• Bronze for applications impacting the efficiency of business delivery.

This designation defines how services are delivered, including support hours, location mix of support, and service levels to ensure that both parties are aligned on the expectations for each application and they are customized to the client’s needs and priorities. NIIT Tech can also institute variability in an application designation depending on cyclical requirements, such as financial close periods.

In addition to tailored application support, NIIT Tech also customizes its application support to the user requesting it based on role, level and other custom factors that enable it to initiate tighter SLAs for critical users.

Beyond tailored reactive support, NIIT Tech is looking to proactively reduce ticket volumes and client requests with customized business process monitoring and management. This service embeds monitoring into NIIT Tech’s services, leveraging automated monitoring tools, that allow it to proactively identify disruptions to key back-office functions (such as finance or HR) or end customer facing business functions.

As an example of this business process monitoring, for a travel company, NIIT Tech developed a series of dashboards for monitoring processes within the ticket booking function. Monitoring included booking and payment processing within the website, subscription management across various channels, and end-to-end processes within the mobile app. Proactive monitoring enables NIIT Tech to identify and resolve incidents without waiting for an end user to raise a ticket, aligning support to business priorities, increasing process availability, and improving end customer experiences.

While NIIT Tech is focused on delivering empathetic experiences to clients’ customers across the application lifecycle and its IT infrastructure offerings, it is also looking to embed user centricity from the internal IT application user perspective into its services. 

At a recent analyst and advisor event held by Luxoft at its Kiev, Ukraine delivery center, the agenda went beyond the standard set of executive briefings and client case studies. It also included meetings with Ukrainian economic development organizations and a Member of Parliament. From these interactions, it was clear that Ukraine sees IT delivery as a key opportunity for growth, and is intent on demonstrating its commitment to growing this sector (which currently accounts for ~$2.5bn and ~3% of GDP) with a goal of surpassing ~$5bn by 2020. 

However, while Ukraine has strengths that could enable it to take on India and the Philippines as IT delivery hubs, it also faces a number of challenges that must be addressed if it is to succeed. Here I take a look at the outlook for Ukraine as an IT services delivery hub.

Key Strengths: Education, Location & Government Commitment

Among Ukraine’s strengths as a remote IT services delivery hub is its educated population. Its heritage as a former member of the Soviet Union has driven a strong mathematics and science education system capable of turning out graduates with the base knowledge to deliver IT services. Luxoft estimates that 60% of the population is university educated and that every year ~16k students graduate from Ukrainian universities with an IT-related degree.

Ukraine’s proximity to central Europe is another important strength. Only one time zone east of central Europe, and less than two hours away by airplane, Ukraine has a significant advantage over Asian countries for interacting with Europe-based clients. Its location also provides greater overlap with the entire U.S., as it is nine hours ahead of the Pacific time zone.

Possibly its greatest strength, though, is a commitment to creating IT capabilities. It is increasing funding for IT-based education, targeted for 3% growth in 2016 and potentially as much as 15% in 2017. This compares with a 7% reduction in education spending overall. Universities are also expanding IT-focused offerings including introducing targeted programs such as IoT, big data and FinTech.

Additionally, in parliament, there are efforts underway to introduce legislation targeted at supporting IT and communications firms, including a public trust initiative to standardize eSignature and bank ID standards with the EU. It is also looking at the potential to identify tax incentives for IT companies.

In part to demonstrate the country’s commitment, Member of Parliament Oleksandr Danchenko now heads a Committee for Information and Communications. Danchenko is a former CEO of telecoms firm Data Group, and he had two meetings with the visiting analysts to discuss Ukraine’s plans, and to take advice on how to develop Ukraine’s position as an IT services hub.

Key Challenges: Geo-political Instability & Corruption

Ukraine’s greatest weakness is the real and perceived geo-political issues it faces. While the ongoing conflict with Russia in the eastern part of the country doesn’t impact the major cities such as Kiev and Odessa, that nuance can get lost the further west one travels. It is worth noting that, upon my arrival back in the U.S., the first question from the Customs agent at the airport was about the ‘war with Russia’. Beyond the question of conflict, Ukraine also faces a reputation for corruption, with Transparency International ranking it 130th in the world (of 168 countries) in its 2015 Corruption Perceptions Index. While these should have little or no impact on the delivery of IT services (as demonstrated by the success of firms such as Luxoft, EPAM, and SoftServe), negative perceptions are hard to counteract.

A further weakness is the relatively high cost of resources. Ukraine’s delivery cost levels sit somewhere between onshore European locations and remote locations such as India. The country seeks to offset this cost difference with better educated and experienced resources, driving higher productivity. However, on a straight comparison of hourly rates, it lags behind the competition in remote offshore regions.

Similar to many other nascent delivery locations, Ukraine also lacks key business acumen. This is a common weakness of countries that have focused on building strong technical capabilities. However, as local companies concentrate on specific industries, the ability to enhance these industry and business function skills will grow.

Opportunities & Threats

Going forward, Ukraine’s greatest opportunities lie in its technical and engineering capabilities. As clients move from traditional labor arbitrage-focused application outsourcing to digital transformation, the need for key technical skills will outweigh the need for the lowest hourly rate. Ukraine is well situated to deliver these higher-value skills at costs lower than onshore.

The threat that most concerns the Ukrainian leadership is other central and eastern European countries (who are also vying to build IT services capability) poaching the home-grown talent it has invested in. In particular, concern was voiced about Poland building in incentives to lure Ukrainian IT-skilled workers.

However, rather than building in as many mechanisms as possible to keep young, IT-skilled resources from traveling out of the country, IT firms would be wise to follow Luxoft’s example in allowing its employees temporary relocation (in Luxoft’s case, to Poland and Bulgaria).

By instituting a structured program that allows workers to work for an agreed period of time out of the country, companies would benefit more than if they had stayed. Not only does this reward employees seeking a different environment for a period of time, it builds employee loyalty and also expands the skills and experiences of the domestic resource pool. As an example, this could potentially help improve the current lack of vertical and business function skills.

Summary

While the Ukraine is laying the foundation to become an IT hub through investments in education and the technology industry, it currently sits at a crossroads. Among much larger consequences, how it addresses the perceptions of pervasive corruption and conflict, as well as its relationships with Russia and Europe, will go a long way towards determining its future as an IT services delivery market. 

Unisys recently held an analyst and advisor day in New York, entitled UnisysNOW. However, with a relatively new leadership team in place and a broad corporate transformation underway, the focus of the event was not so much on the current shape of Unisys’ business but on the company’s aspirations and plans for achieving them, encapsulated in a new tagline: Securing Your Tomorrow. Here I take a look at the key components of Unisys’ transformation strategy, covering clients, services, and the central role of security in the firm’s transformation.

Reinvigorating client relationships

CEO Peter Altabef joined the firm in January 2015 and has built a leadership team around him that is new to the firm and brings in outside experience. This team is intent on not just evolving Unisys’ services and offerings but also its culture. In the last year, the firm has seen ~26% turnover of its client executives as part of its drive to re-boot its client relationships, with an increasing focus on proactive proposals. Unisys is looking to this proactive approach to demonstrate initiative and innovation that can reinvigorate long-term relationships that may be growing stale. In the year that these programs have been in place, Unisys has delivered 1,242 proactive proposals and claims a 98% client retention rate.

Increased consulting focus

A key part of the firm’s evolution is an increasing focus on consultative capabilities and positioning more as a business advisor. Unisys has set a target of deriving 25% of its revenues from project-based work (from 12% last year) and has also seeded its leadership ranks with 54 domain experts. Additionally, as part of being a business advisor, it is also putting significant focus on change management capabilities to assist clients to adapt as new technologies and workforces disrupt their business, a departure from many vendors who maintain a focus on delivering technology-centric solutions.

Leading with security

As a company that declares itself a ‘software-led services company’, Unisys is also expanding its targeted technology solutions in addition to evolving its people. Unisys has launched four industry offerings supported by 36 vertically tailored solutions and services such as Digital Investigator in the public sector, AirCore for commercial (travel), and Elevate by Unisys for financial services.

While vertical offerings are planned for investment and growth, it is the core horizontal offerings (in particular the Stealth micro-segmentation security platform and ClearPath Forward operating system) that Unisys sees as its foundation going forward.

Unisys has placed heavy emphasis on Stealth and security as a differentiator (and hence is the first word of the new tagline). It is natural positioning given a client base heavily weighted toward U.S. federal, public sector, and financial services (accounting for a combined ~68% of Q3 FY16 revenues).

Since its initial debut in 2013, Unisys has invested to evolve Stealth from initially requiring dedicated on-premise hardware to being available virtually, and now to being available within both AWS and Azure marketplaces as a standalone security solution.

Unisys has also expanded the suite of functionality delivered by Stealth, including Stealth(cloud), Stealth(identity), Stealth(analytics), Stealth(mobile). In Q4 2016, Unisys is launching Stealth(aware), focused on simplifying the implementation of Stealth. Stealth(aware) includes a new GUI as well as capabilities to discover the existing application environment, configure Stealth to the applications, and then deploy.

It is also investing to evolve its ClearPath Forward secure operating environment. Unisys has developed a roadmap to be able to fully deploy ClearPath Forward in hybrid cloud environments by 2020.

While it is investing to mature its technology solutions, services are still the key driver for Unisys, accounting for ~88% revenues in the most recent quarter (Q3 FY16). Beyond the deployment of Stealth and ClearPath Forward, Unisys is focusing on the use of automation and analytics in delivering services.

Cloud and infrastructure services

Cloud and infrastructure services (~50% of Q3 FY16 services revenues) are focused on hybrid cloud management, leveraging the automated Cloud Management Platform to play a role across public, private and legacy environments. Unisys cites a study that, on average, a company leveraging the cloud has four cloud providers, and 27% of these have more than ten. Hybrid cloud management, and by extension, a broader service integration and management (SIAM) role will be key to managing this growing complexity, and Unisys is looking to position itself in that role, with Stealth providing the security across these disparate environments.

Application services

For its application services (31% of Q3 FY16 services revenues), Unisys is focused on the growth of transformational consulting skills, seeing this as an avenue to facilitate downstream development and maintenance activities. For application services delivery it is looking to grow the use of automation (in particular, around application lifecycle management and test automation), as well as build application platform as a service (APaaS) offerings. Within application maintenance activities Unisys is focused on using analytics to impact delivery, including visualizing ticket populations to identify key repetitive problems that drive the highest volumes of incidents.

Summary

Unisys is in the midst of an internal transformation, both for its people as well as for its services and client engagement. It has laid security as the foundation for this transformation, which positions it well with its current target client base. How it leverages its security and infrastructure services foundation to grow into its desired role as business advisor and SIAM provider will be the real indicator of the transformation’s success. 

Offering Diversification

Focusing on transformation and digital more than traditional application management and legacy technologies, Luxoft has been expanding its offerings in recent years with an eye on 'next generation' services. It has done this primarily through acquisitions, including:

• Populus in July 2014 to obtain a software platform for human-machine interaction (HMI)
• Radius in October 2014 to expand its IoT and big data capabilities
• Excelian in Feburary 2015 to add packaged solutions and consulting capabilities targeted at financial services.

These incremental capabilities as well as in-house developed solutions enable Luxoft to build on a heritage of product engineering services dating back to its earliest days as a spin-out of Russia-based IBS Group. This product engineering heritage has evolved over time, e.g. to embedded software development services for telecoms providers and ISVs.

Client Diversification

BFSI is still, by far, the biggest industry focus for Luxoft. It accounts for ~69% of revenues, with Luxoft’s two largest clients, Deutsche Bank and UBS, together accounting for ~52% of revenues. DB named Luxoft as named a Strategic Technology Services Provider in 2015: Luxoft has yet to see DB's current woes impact on revenues. Luxoft has sough in recent years to diversify  its client base; it has signed other large banks, also more disruptive industry entrants such as a European digital-only bank.

This expansion in BFSI has been fueled by new offerings. One is Horizon, a data visualization tool initially developed as part of the Deutsche Bank engagement, which was acquired as IP by Luxoft and is now its own offering. The acquisition of Excelian has also enabled this growth, as its services for trading platforms including Murex and Calypso have expanded Luxoft’s capabilities.

Luxoft is also investing to diversify out of its reliance on BFSI. Automotive is its second largest vertical, contributing ~$79m (~12% of revenues) revenues in FY16.. Luxoft is targeting significant growth in automotive, with an internal objective of $300m in revenues from the sector by FY20. Luxoft has made acquisitions to expand its automotive capabilities, and expects to continue to do so, with ~20% of its FY 2020 target being realized through further inorganic growth. In 2016 alone it has made two acquisitions: in February, it acquired Symtavision, which expanded its offerings to include under the hood areas such as the chassis and powertrain. In September, it acquired Pelagicore, which expanded its in-vehicle infotainment and HMI capabilities further.

During the visit to Kiev, Luxoft showcased how these acquisitions augment its product engineering capabilities in an automotive lab working on developing in-dash touch screen systems. 

Luxoft's in-dash touch screen systems at its automotive lab in Kiev

Luxoft is also targeting growth in other verticals, including:

• Manufacturing – in particular around the agriculture and food industry where large companies are expanding their focus on digital and software to increase production and address a rapidly growing population. Luxoft estimates that where agriculture companies previously allocated 0.5% of their total budget to core IT, it is now increasing those budgets to 1-5%. It sees its automotive, IoT and embedded software capabilities as being key to targeting this market
• Healthcare & Pharma – primarily through the acquisition of North American consulting firm, Insys, Luxoft sees this as a new target vertical
• Travel – Luxoft already has relationships with three of the top 10 U.S. airlines, one of top three European airlines, and a total of 20 airlines globally. Travel is an industry where it is targeting extension of the data visualization solutions originally developed for the BFSI industry as well as increasing the use of digital in customer service.

Delivery Diversification

While the Ukraine remains Luxoft’s core delivery location, it is in the process of expanding its delivery footprint away from its eastern European heartland.

Luxoft estimates that in 2003, 80% of its headcount was located in Urkaine. By 2013, when the firm underwent an IPO, it was down to 50%. At the end of FY 2016, Luxoft reported that the Ukraine represented just ~31% of its workforce.

This global expansion has been driven by the shifting of specific skill groups to new locations and the addition of new delivery locations to further expand its footprint. Expansion is a necessity as the firm grows and it seeks to maintain a differentiator in its primary use of experienced resources. Where companies using India as a delivery hub frequently fuel growth by filling in the bottom of the pyramid with inexperienced resources, Luxoft’s delivery model emphasizes experience. It claims that 76% of its workforce has more than 5 years’ experience and 79% possess a master’s degree. Maintaining this level of experience requires a level of geographic diversity as any individual market has only so many experienced resources.

Locations targeted for growth by Luxoft include:

• Poland – Luxoft is in the process of building out a core of BFSI skills in Poland where, since 2010, it has built delivery centers in three locations, Warsaw, Krakow and Tricity, and has shifted portions of its largest BFSI client teams there. Poland now accounts for ~18% of Luxoft’s workforce (2,170 FTEs)
• Germany – Luxoft is growing its German presence to support its growing automotive capability, opening centers near clients in Stuttgart, Braunschweig, and Munich. It is aiming to double its German headcount in the next two years
• U.S. – Its acquisition of Insys and its 400 consultants in addition to the 150 acquired in the Radius acquisition has helped drive the growth of Luxoft in the U.S., a key planned initiative for 2016. It now has ~1k resources located in North America and sees this as an avenue for growing its client base through consulting practice expansion.

Luxoft’s concentration in Ukraine has coincided with engagements heavily leveraging remote delivery. Across three days in Kiev, the lowest offshore-onshore ratio on an engagement that was discussed was 90% offshore / 10% onshore, with others ranging from 95-100% remote delivery. Given Ukraine’s closer time zone proximity to Europe and the U.S., Luxoft has been able to develop a delivery model almost totally remote – which is in part a necessity to maintain cost competitiveness with lower cost delivery locations. But this has also limited its ability to play a business advisor role through an on-site consulting workforce (now ~500 FTEs) that can then pull through additional work going forward. The growing U.S. presence is intended to help address this limitation and has already helped shift the firm’s overall onshore resource percentage from 4% to 14%.

Geographically, Luxoft is also expanding into new locations, opening a delivery center in Penang, Malaysia to help address APAC markets. This center is targeted to reach 550 resources in five years.

Luxoft has found a differentiated place within the IT services market with its eastern European delivery and distinctive transformation focus. However, to achieve its ambitious growth plans, it needs to move beyond the services, clients and geographies that have taken it this far. Luxoft seems to recognize this and is diversifying across the board as it zones in on its $1bn revenue target. 

Unsurprisingly, given its investment in, and focus on, Watson, IBM declared at a recent Alliances Analyst Day that 2016 is 'the year of cognitive'.

The intent of the meeting was to look broadly at how IBM is working with its key alliance partners, including SAP, Oracle, and Microsoft, and it is clear that IBM’s focus is on incorporating cognitive capabilities and broadening the suite of industry-targeted offerings with each of its alliance partners. Here I take a look at how this is taking shape.

SAP

SAP is IBM’s largest and most mature alliance, with ~36k IBM resources focused on SAP. IBM perceived that its SAP offerings, and in particular SAP HANA S/4, were behind the market a year ago and has invested in improving its capabilities. In pursuit of this, IBM is working with SAP to expand and mature its offerings, particularly in digital transformation. Investments include:

• 40 resources from IBM and SAP collaborating on building out offerings
• $1m in marketing
• Two digital transformation centers (Palo Alto and Waldorf).

To demonstrate commitment, the boards of both companies have been receiving regular updates on the progress of these offerings. With a target for CY 2016 set at 50 new S/4 HANA engagements, as of June, the companies had already signed 52 new engagements.

IBM is positioning against its end-to-end capabilities, in particular its capabilities in digital and enterprise application services, and especially large, complex engagements spanning multiple offerings requiring flexibility of financial approach. One of the case studies presented was an engagement in which IBM was brought in to complete an SAP migration that had hit problems.

But its biggest focus area and differentiator is its ability to integrate cognitive capabilities on top of SAP functionality tailored to specific industry requirements. Given IBM’s focus on cognitive solutions and the relative maturity of Watson capabilities, layering cognitive directly on EA solutions can act as a differentiator versus other IT service vendors, focusing their machine learning capabilities internally to improve processes such as application development and incident management. An example is the integration of its MetroPulse product with S/4 HANA Retail, to leverage cognitive capabilities (including data from the Weather Company) that enable retail companies to identify hyper-local demand and adjust inventories appropriately.

Oracle

IBM’s Oracle practice represents its second largest EA alliance. It has certified ~1500 resources in Oracle Cloud applications, with a target of 2k certified resources by end of the year. Over 5k resources have received training virtually from the Oracle University.

IBM is working with Oracle to develop horizontal Cloud Enablement offerings and has so far developed the following:

• Budgeting and Planning Cloud
• CX Sales Cloud
• CX Service Cloud
• ERP Financials Cloud
• HCM Cloud
• Innovation Management Cloud
• Procure to Pay Cloud
• Procurement Cloud
• Source to Contract Cloud
• Transportation Management Cloud.

This investment in resource skills and offerings has begun achieving results, with IBM realizing a 275% increase in Oracle cloud services YoY. It has 50+ Oracle Cloud engagements across 30 clients currently active, and cloud engagements represent 20% of its total Oracle EA revenues in H1 2016.

As with its SAP offerings, IBM is focusing on embedding cognitive capabilities and developing industry-specific digital transformation offerings with Oracle. It is building out 30+ offerings across ten industries such as Oracle Banking Digital Experience, Cognitive Electronics, Digital Retail, and Insurance on the Cloud. Additionally, it is looking at integrating Watson and Oracle to create new offerings to be formally launched in the coming weeks, including:

• Watson Procurement Intelligence
• Field Tech Services
• Talent Advisor
• Financial Smarter Advisor.

IBM is targeting 7% revenue growth across Oracle EA offerings through the end of the year, as well as growing to a total of 45 Oracle cloud clients.

Microsoft

IBM’s newest EA alliance is with Microsoft, a partnership that is ~2 years old. IBM views its Microsoft offerings as providing, unlike Oracle and SAP, a means to target smaller and mid-sized companies. IBM’s Microsoft practice has ~4,400 resources, and 75% have received Microsoft certification.

An example of IBM’s commitment to growing its Microsoft practice is its recently announced acquisition of Optevia, a small U.K.-based consultancy (~40 FTEs) focused on helping public sector clients implement Microsoft capabilities. While Optevia’s footprint is primarily U.K. and Europe today, it is expanding with an engagement in the healthcare space in the Middle East as well as pursuing work in North America, Spain, and Southeast Asia.

IBM’s Microsoft group spans Microsoft offerings across big data and analytics (Power BI), enterprise applications (Dynamics, AX, CRM), mobile enterprise and collaboration (Office 365, Lync Server, Skype for Business) and application development and cloud (SQL Server, .Net, Visual Studio, Azure).

IBM’s Microsoft offerings leverage cognitive capabilities across a number of industry verticals, including:

• Banking CRM
• Insurance CRM
• Constituent Engagement (Local government essentials)
• Auto Retailer
• Next Generation Field Services.

One particular area of focus beyond the expanded integration of cognitive capabilities is Surface Business Transformation, an initiative to leverage Surfaces and develop enterprise applications for them based on Windows 10. An example of this is what IBM refers to as a ‘Meet and Greet’ app. For example, rather than a bank waiting to interact with customers once they reach the teller window of a bank, an associate armed with an enabled Surface can meet them at the door, pull up their information (as the Surface connects to a CRM server in the back) and provide immediate guidance and support. IBM is the exclusive Microsoft partner for the banking, retail, and consumer packaged goods industries.

IBM is also looking at building out its cloud and application management capabilities in support of these offerings.

Cloud

With cloud hosting and management a strategic priority for IBM in addition to cognitive, IBM is looking to integrate its cloud services with its alliance partners. One facet of this is IBM’s introduction of Cloud Management Services for SAP and Cloud Management Services for Oracle. These services integrate IBM’s cloud managed services, including support and uptime service levels, with SAP and Oracle software.

IBM is trying to move cloud discussions beyond the IT department. It is slowly seeing business executives engage on cloud projects and it sees the presence of a change agent as a key driver for realizing the value of cloud investments. Case studies discussed included new senior leadership coming in and divestitures as examples of drivers that resulted in the transfer of workloads to cloud environments.

Application Management

While IBM’s traditional application management business may not be trumpeted as frequently as its strategic imperatives, application management still accounted for ~19% of revenues in Q2 2016 and those services are evolving to take advantage of the new capabilities offered by cognitive.

IBM introduced its Agent Assist around a year ago to its support teams or us in to diagnosing and resolving incidents. EA is a key target area for Agent Assist, and IBM has built a standard knowledge base across SAP that can be implemented at the onset of an engagement and then expanded over time with client-specific information. Agent Assist is being deployed across 500 application management services accounts with over 5k resources are being trained on it. The next step will be a fully cognitive automation platform that not only identifies the resolution to an incident but is also capable of resolving incidents without human intervention.

For application development work, IBM is introducing Coding Assist, to facilitate developing common code blocks for ABAP, BI, and HANA.

These technologies are not intended for IBM consumption alone, though; as their maturity increases, IBM is looking to turn these into client-facing as a service products.

In line with these requirements, Capgemini has introduced Digital Fabric, an application development delivery solution supported by my3D, a virtual visual management toolset.

The core of Digital Fabric is design thinking, agile development, smart testing and DevOps and is intended to address the inherent friction that arises in each phase of the delivery lifecycle by weaving a common thread across disparate groups, including:

• Requirements & Design: between IT and business groups in understanding the business value while defining requirements and creating designs
• Build & Test: across a distributed development team, as well as test and operations, including around ensuring test coverage of all critical functionality.

Requirements & Design with RDV

Rapid Design and Visualization (RDV) is a methodology to accelerate the discovery, definition, and validation of requirements through applying design thinking principles, scenario and persona development and rapid prototyping. The methodology includes:

• Defining scenarios: based on analysis of existing personas and usage requirements, critical scenarios define the core requirements for the new or modified system
• Creating and validating screen layouts: using market leading tools such as iRise to quickly develop wireframes and screen layouts as well as define user interactions
• Functional simulations: conduct simulations to test that prototypes meet requirements
• Generating documentation: used as inputs to both the development team as well as the test team, reducing the effort to kick off each subsequent lifecycle stage.

The core of RDV is quickly defining and prototyping products through the building of wireframes and screen layouts. Tools such as iRise enable requirements to be documented directly in the tool, to maintain traceability and form the basis for test scenarios. These tools also enable the exporting of the defined specifications of the prototypes to provide documentation.

In addition to feeding into developing test cases, RDV will develop a sprint plan, mapping user stories to sprint cycles. These maps are then used during development to measure and report progress against the plan.

Development with ADC

To support the development phase, Capgemini uses its Accelerated Delivery Centers (ADC), based in the U.S., U.K., France, Poland and in Pune, India.  In these centers, Sprint teams (or pods) that range from 5 to 7 resources are stood up and work in Java and .Net, with scrum masters providing guidance across a number of teams.

The ADC’s pods of cross-functional resources work in agile 2-3 week sprints, employing test-driven design and behavior-driven design principles. Technical environments can be rapidly provisioned leveraging Docker for workload containerization. Additionally, the ADC leverages a number of tools and accelerators, including:

• BDD Swift, which automatically enables requirements to be translated into executable test specifications based on behavior driven design principles
• Jira, for issue and bug tracking
• App Swift, which generates application code based on the UX requirements outputs developed in RDV
• App Builder, to create user interfaces automatically
• Git, for version control
• RoboQ, for inspecting code quality in Java and reducing technical debt
• Cloud Swift, for deploying code into cloud environments such as AWS or Azure.

As depicted below, Capgemini uses its Continuous Delivery Orchestration Engine (CDOE) to manage these tools and other development and DevOps tools across the development and test process. Built on Jenkins, CDOE interfaces to a variety of tools via APIs. CDOE provides a single interface for managing the workflow across the development lifecycle, leveraging Docker technologies to migrate developed code from initial compilation to production readiness.

Testing with SmartQA

Capgemini uses its SmartQA platform to support testing work, encompassing the management of test data, test automation, and test environments. SmartQA manages the test process through its Command Center, taking inputs from a variety of tools including Jira, ServiceNow and Clarity as well as embedding analytics to both predict and measure the breadth of coverage, and the effectiveness and efficiency of the test process.

SmartQA automates governance and handshakes across the test process as well as providing support for each of:

• Planning
• Data creation, obfuscation
• Environment spin-ups
• Workflow, build train and job train
• UAT execution
• SIT execution
• System test execution.

Dominique Raviart will be looking at the SmartAQ product suite in more detail in an upcoming blog.

Distributed Delivery with my3D

To improve cohesion among globally distributed teams, Capgemini has developed the my3D (distributed digital delivery) toolset. My3D covers the following functionality:

• Skills management: a repository of skills across the team to enable the quick assignment of work to the most appropriate team member as well as the identification of skill gaps to meet client demand
• Virtual visual management: a set of virtual white boards to manage tasks across a globally distributed team. My3D can connect to ticketing tools and visualizes data in 80 different ways. Individual project teams can customize the information connected and shared, becoming the fabric across teams and a common dashboard for use in daily standup meetings
• Innovation and crowdsourcing platform: started initially to gather feedback and requirements for the My3D toolset itself, this component of my3D allows for collaboration and crowdsourcing across project teams to drive innovations, creating a virtual continuous improvement list
• MyKPI Dashboard: to provide visibility across the project team of current project metrics and status. myKPI leverages integration to ITSM tools such as ServiceNow and Capgemini is in the process of developing integrations with Jira for project tracking, enabling my3D to act as a single project status dashboard once completed later this year
• Maturity matrix assessment: measures and visualizes the maturity of individual agile teams within the project.

In addition to these core capabilities, my3D also offers an app store that enables self-service procurement of DevOps tools by teams. Rather than tying in all development teams to a preferred set of tools, my3D enables Capgemini to offer flexibility in toolsets while also minimizing the time to initiate the use of those tools.

Capgemini has trained over 45,000 employees and client team members on the use of my3D and rolled it out to centers around the globe. Capgemini is also using it for internal staffing and metrics tracking in addition to the client engagements it supports.

One example of a client engagement where my3D is being leveraged to deliver application development is a global bank. Capgemini worked with the bank to roll out my3D to address the bank’s objectives of reducing IT spend through improved quality as well as eliminating gaps in metrics reporting and providing a single global view of project status.

To meet the bank’s objectives, my3D deployed 56 digital workspaces, live incident and defect tracking from ticketing systems, and enabled daily stand-up meetings across 1500 FTEs. The my3D skills management functionality was used to identify skill gaps within the incident management team to target training and reduce incident resolution times. My3D has become the central console for managing, monitoring, and reporting to a globally diverse team.

Capgemini is encouraging the development of new functionality within my3D through the use of its embedded innovation and crowdsourcing platform. One area being targeted is the expansion of integration across the toolset, enabling further automation and ‘zero-touch’ processes. An example targeted for roll-out this year is the automation of integrating sprint plans into my3D to auto-populate the activities assigned to each team member.

In general, these toolsets and processes also lay the foundation for Capgemini to incorporate next generation capabilities that will further accelerate service delivery. Integrating cognitive capabilities that link identified defect and technical debt issues with training plans for resources, or using available resource skills to inform the building of sprint plans, are simple examples of how these toolsets can provide even greater value when further integrated and analyzed.

Achieving results with financial services clients

Financial services is currently the largest industry population in the Accelerated Delivery Centers, accounting for approximately one-third of the total ADC client base. One example of Capgemini’s application of Frictionless AD is with a large European bank, where the bank’s traditional waterfall development cycle could not keep up with accelerating regulatory changes.

To define requirements and develop designs for the bank, Capgemini had the product owner travel to India and work on-site with the Capgemini development team. The joint team defined six personas as the basis for defining requirements and then leveraged iRise to build out wireframes. Capgemini estimates that this joint effort supported by iRise reduced the workload from weeks to days and that ‘feature waste’ (time spent on developing features that aren’t required) was reduced by 20-30%.

To complete the development activities for the bank, Capgemini stood up 22 pods, each comprised of five resources. App Builder was leveraged to translate the requirements from iRise into usable, pre-defined Java code blocks, reducing development effort.

To accelerate the testing effort for the bank, the requirements gathered in the RDV were loaded into Selenium to develop automated test cases using BDD Swift, with orchestration by Jenkins. This increased test code coverage and reduced defects in production.

Elsewhere, a global financial services firm has seen a 50% reduction in its technical debt. While still in progress, the bank projects a total of 50k savings in project hours which has enabled it to engage with Capgemini for more projects, growing Capgemini’s footprint at the client by 50%. In another project, Capgemini reduced defects found in SIT and UAT by 60% and improved time to market by 30%.

The rise of self-service provisioning and automation of public cloud environments gives companies autonomy in managing their infrastructure and flexibility in meeting fluctuating capacity demands. From the perspective of an IT service provider, however, if clients can provision new cloud environments in a few minutes and then use the same screen to orchestrate and manage that cloud environment directly from the host, does an IT services provider play the same critical role in managing infrastructure as it once did?

NelsonHall has found that rather than decrease in importance, the role of IT service providers may actually increase as clients move to cloud-based infrastructures. There are three main drivers of this:

• The need for help in developing and executing a migration plan
• The complexity of managing hybrid cloud environments
• The use of cloud as a foundation for broader digital transformation

Advisory & Migration Services Critical

Whereas, a few years ago, public cloud environments were used to host non-critical or non-production environments such as development or test, companies are increasingly looking to leverage cloud environments as broadly as possible across the enterprise.

Accordingly, IT service providers recognize the criticality of getting engaged in cloud advisory and migration for their clients. ~60% of the vendors profiled in NelsonHall’s recent Cloud Infrastructure Migration & Management project have made investments in cloud assessment automation tools and ~65% have invested in migration automation tools. The majority (~60%) also have PaaS offerings, based on open-source tools such as Cloud Foundry and OpenShift, to support developing cloud-native applications.

IT service providers are positioned to drive the process of defining how to disposition various workloads, including replacing existing applications with SaaS solutions, developing new cloud-native applications, or migrating existing applications to cloud environments, as well as where each should be hosted (public cloud, private cloud, on-premise) and have developed tools and methodologies not available within any single company.

In particular, IT service providers are increasingly investing in automation tools, such as AppDynamics Application Intelligence Platform, to enable the discovery and categorization of application landscapes, producing detailed migration strategies. These automation tools can reduce assessment and migration planning effort by 80-90%, with case studies showing effort that was measured in weeks and months now measured in hours and days.

IT service vendors are also leveraging broad application-migration resource pools in low-cost locations, as well as automation tools such as NetIQ’s Platespin, to accelerate the migration of workloads to cloud environments.

In addition, IT services vendors are managing to capture significant cloud management revenues from application assessments and migration services, with vendors typically reporting from 40% to 80% of their on-going cloud hosting and management engagements arising from advisory and migration engagements. These migration projects are increasingly where vendors build the knowledge and develop the relationships necessary to provide on-going support of cloud-based environments and the workloads that reside in them. For example, TCS, solely targets its cloud management services at clients with which it has an existing relationship, or at organizations for which it provides cloud advisory and migration services.

Managing Complexity in Hybrid Clouds

Large, established companies have found that there is not a one-size-fits-all cloud solution, so hybrid clouds spanning public cloud environments, private cloud environments, SaaS products, and legacy on-premise applications are becoming the norm. Management consoles that enable a company to provision, orchestrate, and manage across a variety of cloud environments through a single interface are critical for consistent IT infrastructure management in this new complex cloud environment.

For example, AWS sees IT service vendors playing a key role in driving clients on the hybrid journey: assisting clients to re-factor legacy applications to operate in the cloud, building new cloud-native applications, and providing the management of cloud environments across AWS and private clouds. NelsonHall estimates that ~40% of AWS’ large corporate clients are leveraging a third party service provider to manage their cloud environments.

Indeed, all 14 vendors profiled by NelsonHall have developed cloud management systems leveraging tools such as Chef, Puppet, ServiceNow and other tools, bundled into single proprietary toolsets that automate management functions and can be leveraged at centralized low-cost delivery centers.

Migrating to cloud environments and leveraging these automated management consoles has enabled companies to typically realize a 30%-40% infrastructure hosting and operating cost reduction and a drop in the time to provision new environments from weeks to hours.

Enabling Digital Transformation

While companies are looking at hosting workloads in the cloud to reduce operating cost, in many cases that is not the sole objective. NelsonHall’s Cloud Infrastructure Migration & Management study identified the use of cloud as a foundation for a broader digital transformation as a key driver of cloud adoption. Indeed, in ~19% of instances it was listed as the primary objective.

As consumer expectations for personalization and agility grow and new cloud-native companies become competition, digital transformation is a major focus area for most established companies. These digital transformation initiatives are broader strategic programs that often begin with migrating and managing workloads in the cloud.

While the value of cloud-hosted environments is measured in reduced infrastructure and operating costs, broader digital transformation initiatives typically measure success in client-facing and strategic objectives such as speed to market for new products, improved customer service, and ultimately increased revenue.

Accordingly, IT service vendors with a consultative and applications-centric heritage typically position their cloud migration and management offerings as components within a broader digital transformation service rather than as key ends in themselves.

Furthermore, given these critical roles that IT service providers play in supporting client cloud journeys, it doesn’t come down to making a fundamental choice between IT service providers and cloud hosters, as might be assumed. There are key complementary roles for both. 

NIIT has delivered IT services to its Lloyds of London clients for some 20-years, using its insurance specific tools:

• Subscribe: NIIT’s existing policy administration platform, a multi-currency insurance and reinsurance policy administration system
• Exact Advantage: a data capture facility for property, terrorism, credit risk, aviation and marine. The tool is used to assess and monitor risk exposure, using a mapping interface and GIS technology
• Ipf3: process automation and workflow tool
• Acumen Advantage: provides management information, encompassing underwriting, claims, reinsurance accounting and actuarial data.

Over the years, NIIT has enhanced these tools and also made acquisitions such as Room Solutions in 2006 (see separate article) in support of its insurance business.

In anticipation of new opportunities in the P&C insurance sector, stemming from a combination of factors (see below), NIIT is now launching a suite of software which combines all these tools, also a new tool.

The new product is intended to help commercial insurers deal with the challenge of operating with multiple systems: NIIT’s insurance clients, for example, typically operate with around a dozen systems, each with different regulatory and LOB capabilities. The new platform enables the effective integration of these systems by operating as an overriding core platform, while allowing clients keep the individual reporting processes of the various PAS, and the specific functionalities for different LOBs (some in the London market being particularly specialist).

The new product allows NIIT to address some of the key issues faced by insurers today, including:

• Increasing regulatory requirements
• Ongoing M&A activity: insurers continue to acquire books of business which operate on different PAS. A system that enables the assimilation of additional systems gained through acquisition is likely to be attractive; it also removes the need for training on different PAS and requires knowledge of just one system.

NIIT has between 15 and 20 clients operating on its existing Subscribe system currently and anticipates that all its clients will ultimately move onto the new platform. The first wave of client switch over is under way with two clients in PoC trials and a third in a model office. In effect, the move from Subscribe is an upgrade and the cost of switch over will be picked up by the client.

NIIT will continue to maintain Subscribe for a minimum of five years, as users migrate onto the new platform. NIIT is about to make improvements to Subscribe to ensure it is kept technically up to date - improvements will include replacing the Adelphi front-end and bringing the back-end up to a modern version of Sequel.

A major difference is that Subscribe is a post-bind system, running processes after submission and quotation, whereas, the new platform is a pre-bind and post-bind system starting at the point of initial case creation and running through to pricing.

Bringing its various insurance software tools and applications under one umbrella will help raise the profile of NIIT’s insurance solutions. The official launch of the new platform is October 1, 2014.

The program of change, called Digital Norfolk Ambition (DNA), involves a partnership with HP ES, the lead supplier, Vodafone and Microsoft. Overall objectives include:

• Building an information management service model to generate a net saving of £10.7m over a five year period from 2014/15 to 2018/19
• Providing for an additional investment in the establishment of an information management service of  >£6m over 2018/19
• Implementing a high bandwidth networking service to provide access to the internet and cloud
• Developing the Norfolk Information Center to allow the collation, sharing and linking of data
• Transformation of  IT to support the above model through cloud computing, and other measures such as a desktop service that provides choice of device (tablet, laptop etc) and modern collaboration and office tool.

While NCC has had a people first strategy, its information management capabilities have been limited to its own and not always integrated due to difficulties in integrating data from multiple-systems and legacy applications.Today those problems are being tackled from different directions. Tom Baker, the council’s CIO, is working on an information management architecture for the entire county, one that works across the organization as well as with partners' capabilities. Key components of the architecture include:

• Records management (HP’s)
• Search and big data capabilities through Autonomy IDOL
• Data integration and analytics through HP Vertica
• Master data management using Visionware
• Federated identity and access management (IDAM).

Another approach involves process integration with data audits and modelling currently underway.

The geographical boundaries of different types of services, such as NHS, Fire, etc. are aligned reasonably well to the boundaries of Norfolk. Tom Baker believes this alignment will boost attempts to join-up service delivery among local agencies when the information sharing capabilities are put into place.

The partnership with HP ES and its partners Vodafone and Microsoft is aiming to try and do things differently. Some joined-up activity exists around an educational support portal where NCC provides single sign on for 20k users. HP ES will be implementing the transformation to cloud, using its data centers and government cloud. It will be bringing information management expertise to the table and its experience of working with the DWP and MoJ, government departments contribute lots of  funding to Norfolks' social care and justice budgets. Vodafone will be delivering networking for mobile environments, and Microsoft its Windows 8.1 and Office365 software.

Longer term objectives include:

• Innovation in data management to enable Norfolk to become a five star open data council, targeting a £5m research grant for data innovation through a partnership with local universities of East Anglia and Essex
• Helping its towns benefit from smarter city technologies.

HP is contributing to these objectives by funding a degree course in information and management analytics at the University of East Anglia, to train the workforce of the future. HP ES has been intending to diversify from central government in the U.K. This contract award, to support a major local government change programme, gives it a high profile reference client. The award also supports HP's stated goal of targeting new style of IT opportunities. 

NCC has recognized that continuous budget cuts require long-lasting change. It has opted for vastly improved information management and sharing to reduce duplicated effort and increase productivity. We have anticipated this kind of program of fundamental change by local authorities for some time. When it came to cuts in response to the governemnt's auterity agenda, many councils went for low hanging fruit such as service and headcount reductions.

NCC will face challenges in implementing this complex program of change. Typical challenges for programs of this nature include getting all stakeholders to deliver their part of the bargain, and instilling a culture that values accurate and reliable information. NCC seems to have gained consensus among stakeholders and there is the potential for additional funding to help push the agenda for change.

•     Revenue was £555.3m  
•     EBIT was £28.1m, a margin of 5.1%.

Comparisons with the prior year were not provided as the company in its present from came into being in August 2012. For the new company, for the five weeks to the end of 2012 FY, revenue was £49.9m, EBIT, £1.1m and a margin of 2.2%.  

Prior to the financial restructuring in August 2012, Mouchel made an operating loss.

Mouchel Business Services (MBS) results were:

• Revenues were £167m, in a challenging local authority market
• EBIT of £5.3m and margin of 3.2%.

The restructuring which started in early 2012 was completed at the end of March 2013.

Over the priod, Mouchel has reported > £1bn contract wins. These were mostly in its construction and infrastructure business. In its BPO business the company won a three-year, £50m, contract extension for the provision of business and ancillary services with the Unity Partnership, its JV with Oldham Council. It also also won a place on the North West Pensions Framework in July 2013.

In this period Mouchel also completed the acquisition of the 50% share of its joint venture, EnterpriseMouchel, a UK-based infrastructure support services company.

The company reported:

• Order book of £2bn up from £1.7bn at the year-end matches 2008 level, the highest in Mouchel’s 125-year history.
• Strong pipeline of opportunities worth £2.1bn
• Leads and prospects amount to over £5bn.

Mouchel’s finances have bounced back well since its restructuring in August 2012. The infrastructure business has seen the bigger share of growth, unsurprisingly, with an uptick in the construction and infrastructure markets.

Mouchel continues to face tough conditions in its local government business. It sees growth opportunities in other sectors; in particular it will be targeting the universities sector with its established brand in the outsourcing market and its BPO expertise. It is also looking to leveradge its pensions administration expertise in the private sector.

Axelos was incorporated in July 2013, 51% owned by Capita, 49% by the Cabinet Office but governed by a separate board from the parent organizations. The company will be fully operational from January 1, 2014. Axelos is the owner and accreditor of the best practice methodologies.

Its aims are:

• Quality: to raise the quality bar for products and services delivered to clients for the full Best Management Practice portfolio
• Relevance: to improve the relevance of the portfolio to the business, e.g. demonstrable value to managers, CIO and CEO
• Growth: to grow internationally in both public and private sectors
• Innovation: to adopt new ideas and standards in communication, learning and management
• Collaboration: to be a social business with open and transparent communications and to integrate with other frameworks.

Axelos is looking to achieve these objectives by:

• Extensive use of digital channels including enhancing the existing Best Management Practice web site for multiple channels built on top of an enhanced document management core. Use of digital channels will include gamifying the learning tools and provision of information and material for practice tests on-line and as apps for smart devices
• Growing the online communities of practice that contribute to enhancements and development of the portfolio. It has already run product workshops in London, for attendees from the wider international ITSM and PPM communities to discuss subjects such as international tailoring and ITIL improvements
• Develop multi-national offerings for major organizations and industries.

The company is based at Capita’s offices in London. Capita provides Axelos with back office services such as HR and payroll, F&A and IT. Currently, there are 10 employees but Axelos is recruiting.

Axelos is in effect the new custodian of the best practice portfolio. The jewels in its crown include the widely adopted ITIL and PRINC2 methodologies. The JV is the vehicle to free the custodian from public sector constraints on commercialization to grow the revenues from this valuable portfolio. There is potential to grow the best practice products into international standards.

As a new company, Axelos is very privileged to have a strong portfolio of products which also lends itself well to client interactions in communities of practice and social networking, where ideas for enhancements can take shape faster, and be of value immediately after they are formally released. There is much value in collaborative and crowd-sourced innovation that Axelos can potentially tap into. There are already communities of practice based around the existing products, and Axelos will be looking to take them along its journey of evolution.

The challenge for the JV is to develop a new lasting operating model that successfully combines collaborative innovation, and crowdsourcing - benefiting from the wisdom of its communities of practice, while growing the business commercially. There are some good practice examples in the open source software community. Axelos should be looking at all options assessed against the requirement of protecting its IP.

Capita is offering the cloud service at a cost that is 30% less than its existing prices and, according to Capita, cheaper than an Amazon virtual instance when buying multiple instances. Through the VCE partnership Capita is looking to provide clients access to pre-tested approaches to migrating applications to its cloud environment.

The initial infrastructure as a service offering will be extended in the next 12-18 months to include PaaS for CRM and ERP deployments, as well as SaaS, when Capita will offer more and more of its own software on a SaaS basis on its own private cloud. These will feature the next-generation of its software portfolio.

The move to cloud by Capita was necessary for it to keep up with the market trend to cut infrastructure costs through shared capabilities and utility computing. It also enhances Capita's ability to offer ongoing cost savings in its contracts as well as improving its terms in a highly competitive market. Cloud was the right lever for Capita to pull, given increasing competition from Indian-centric vendors such as TCS in its main public sector market. When it comes to offshoring, Capita's delivery capability is still relatively small, <10% of Capita IT Services workforce compared with >80% of some of its competition.

If Capita had any doubts about the suitability of the cloud model in its key public sector market, this would have been completely dispelled when the U.K. central government adopted a cloud first procurement policy earlier this year. The policy extends to health and defence and indirectly to local government, Capita’s biggest client base.

Overall, this is a positive step by Capita. Likely benefits to the business include:

• Ability to support its BPO offerings on its own cloud
• Help with year-on-year cost efficiencies in existing contracts, not only in the public sector but in all its markets including financial services, retail and utilities
• Provides Capita the opportunity to leverage its well-known brand and existing contract base in the U.K. to cross-sell cloud services and related consultancy
• Overcome any lingering market perceptions that it is mostly a BPO and not an ITO provider
• Compete better with major ITO suppliers, such as HP,Atos and Capgemini, which have made huge investments in their data centers and cloud capabilities and which are also targeting the cloud service brokerage, integration and orchestration services.

Capita's own recent investments in its infrastructure include:

• Two Capita Command and Control Centers (C4), one in Pune, India, and a mirror site in the U.K.
• A co-located  continuity site for its main two data centers in the U.K.
• The acquisition of Northgate Managed Services, which was a key enabler of this move. NMS already operated a cloud service for schools with a large presence in Northern Ireland, including a delivery center in Belfast.

Since the acquisition completed on July 8, SoftLayer is being transitioned into the new IBM Cloud Services division headed by Jim Comfort, to offer a portfolio of services to IBM and SoftLayer clients, ISVs, and channel and technology partners.

With the combined offerings IBM is targeting the two cloud worlds that it believes best define the current market:

• The cloud-enabled world: with traditional applications, middleware and system of record environments e.g. ERP, where the number of existing and legacy applications that a company has can run into tens of thousands.  Here, cloud can help generate cost savings and transformation through measures such as hosting in a mixed environment of on-premise /hybrid cloud and virtualization
• The cloud-centric or cloud-native world - dominated by newer systems of engagements such as collaboration, social media interfaces and composable applications e.g. interactive dashboards. Applications in this world were developed to operate in a cloud environment from scratch.

Client requirements and solutions can span the two worlds. This is leading to different cloud conversations on the demand side of the market. A lot of CIO conversations are still about cloud enablement through measures such as consolidation and virtualization, focused on cost reduction. At the same time, business users want to see faster deployments and agile IT to increase speed to market. There are also different conversations to have with clients at the different cloud levels:

• Cost reduction, agility and faster deployment at the IaaS level
• Speed to market and deployment agility at the PaaS level
• How to compose multiple solutions together at the SaaS level.

With SoftLayer IBM is looking to enhance/complement its existing SmartCloud capabilities, allowing it to have these different conversations with its clients and to offer services that span the private and public cloud spectrum, the cloud-enabled and cloud-centric worlds as well as the different layers of cloud IaaS, PaaS and SaaS. With SoftLayer, IBM is looking to tap into the Internet-centric IaaS, designed for web native, performance-intensive applications particularly focused in the areas of mobile, social, gaming and analytics.

Overall, IBM has an embarrassment of riches when it comes to cloud capabilities. Prior to its acquisition of SoftLayer, which reportedly cost ~ $2bn, the company had already spent ~ $3bn on its cloud portfolio. This level of investment is not particularly a surprise: IBM has experience of evolving its portfolio to remain competitive. Over its 100 year lifetime, the company has proactively spotted emerging trends and morphed into new business areas when the time was right. Examples include:

• The disposal of its PC business years before the smartphone & device market derailed the laptop market
• The scrapping of its strategy not to sell software applications, in the mid-noughties, that led to it becoming a major global supplier of analytics applications through a series of acquisitions.

A current example is the imminent disposal of its CRM-related BPO services to Synnex.

With its acquisition of SoftLayer IBM, is increasing focus on the higher margin automated cloud provisioning business. It is leaping to next generation cloud technology with the intention of reverse engineering its capabilities into SoftLayer’s advanced automation. With this move, it is leaving behind traditional IT infrastructure outsourcing with a heavy dependence on labor arbitrage, an activity which has seen margins decline with the rise of Indian-centric vendors and their RIM offerings. The same vendors are also targeting the datacenter outsourcing renewals market in Europe and U.S. The expansion of IBM’s cloud capabilities increases its competitive edge.

The capability to more or less offer every cloud option to every type of client can complicate go-to-market strategies and requires clarification around priorities and messaging. IBM needs to:

1. Educate its salesforce about the differences between, and the relative merits of SmartCloud offerings and SoftLayer’s, and a coherent and aligned go-to-market strategy for both
2. Talk to clients about choices and options and the diversity of its offerings without confusing them.

Another step in the integration of SoftLayer and its global footprint is to convert or consolidate exiting IBM SmartCloud data centers to take advantage of SoftLayer technology. As they are, the two sets of data centers are not compatible. While the addition of SoftLayer's automation to some IBM datacenters is on the cards, changes to SoftLayer's are likely to include support for AIX and Linux, OpenStack and different types of storage. The changes are likely to take 18-24 months.

Lockheed Martin's IS&GS business has been affected by sequestration in its core U.S. public sector market and is clearly looking for growth elsewhere by expanding into new geographies and sectors.

A successful U.K. business such as Amor fits the bill well.  Amor had an impressive year in 2012, with revenues growing 27% organically to £57.2m and an EBITDA margin of 14.16%. Amor brings to IS&GS vertical and civilian products with an established presence and synergies in target markets. In particular, Amor's airport operations products will complement IS&GS’ civilian pilot training capabilities that it acquired in 2011 with Sim Industries.

The restructuring of NPS division last year, to focus more on services, combined with a number of contracts starting in 2012 helped improve NPS revenue. Contracts that started in 2012 include:

• The Blue Badge Improvement Scheme
• Athena - the managed service for data sharing by Essex Police and six other forces

NPS is also more agressively marketing its housing software internationally, reporting expansion in New Zealand, Australia and Canada, though no growth data was provided.

NPS' £170m contract with C2k to provide an Education Cloud for all schools in Northern Ireland was a major win for the company. Other contributors to the division's revenue improvements include managed services contracts with mid-market customers in the UK, including Christian Aid, Almac, Doosan, Wolseley, AAH Pharmaceuticals and the Driver and Vehicle Agency in Northern Ireland.

Capita's selection as a preferred supplier for a £175m, 12-year deal by the Department of Energy and Climate Change (DECC) to provide Smart Meter Infrastructure Management came as a surprise. "Smart metering will be the biggest step change in the retail energy sector since the industry was privatized, more than 25 years ago” Capita’s chief executive, commented Paul Pindar. That goes for Capita's presence in the utility sector too.

The company did not have a presence in the utility sector until it acquired Northgate Managed Services (NMS) in February 2013. Furthermore, Capita is not known for large scale IT infrastructure services. Capita talked to NelsonHall about Northgate Managed Services (NMS) having clients in the utility sector at the time of the acquisition and no doubt NMS has enhanced Capita’s ability to manage the infrastructure. Capita is still very likely to work with partners extensively to manage the national scale of requirements.

Preferred suppliers for DECC's other smart metering supporting contracts were also announced today:

• CGI (formerly Logica) for the Data Service Provider (DSP) contract to manage the volumes of transactional data, in an 8-years deal worth ~£75 million.
• Telefonica for the Communications Service Provider (CSP) for the central and southern regions, in a contract worth ~ £1.5bn over 15 years.
• Arqiva for CSP the northern region, a contract worth ~ £625m over 15 years.

NelsonHall will cover the awards in more detail when the contracts have been finalized.

NelsonHall's analysis of NMS' acquisition published in February 2013: http://www.nelson-hall.com/research-programs/tracking-service/industry-insight-database/?avpage-views=article&id=77391&fv=2

Services to be provided include:

• Transferring services from the incumbent provider
• Hosting core ICT services in Civica’s cloud
• Implementing a virtual desktop infrastructure at each school
• Helpdesk services to support ~10k users
• Broadband technical support, including assistance with filtering, security and email
• e-safety and data protection advice
• Support and training for schools, and advice on ICT integration for new building projects
• Full integration with the London Grid for Learning.

The incumbent IT team will transfer to Civica.

Cost savings are to be achieved through cloud deployment and utility pricing charged on top of the core managed service package. Civica is to buy back legacy devices from the schools and support them in making older devices last longer. Lambeth will continue to run an aggregated procurement model allowing schools to buy more services on-demand.

Civica provides similar services to local authority schools in Sheffield and Barnsley, to ~60,000 users in total.

This award was first announced on December 12, 2013. Civica has now started to deliver the services, replacing RM Education, the incumbent supplier.

Civica is the supplier to watch in U.K. local government:

• It is expanding its revenue and benefits services with two shared services schemes
• In ICT, it has won contracts from incumbents elsewhere too, e.g. an ICT managed services contract in 2012 at St. Anne’s Academy in Rochdale, where it replaced Capita (BSF) Managed Service
• At Lambeth, where Capita has a long established relationship with the Council for revenue and benefits services, it is Civica that has won the Lambeth Learning Futures ICT contract
• Civica is adept at cross-selling to existing clients too. For example at Rochdale, it also provides the library management system. Given its broad portfolio of software and services, every new relationship offers Civica many cross-selling opportunities.