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.

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.

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

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.

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. 

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. 

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.