Month: June 2016

New Focus on Risk of Concentrating Too Much Scope in a Service Provider | Sherpas in Blue Shirts

June 8, 2016

As we at Everest Group study the service industry, we find that a number of service providers have been successful in growing their relationships with some large clients into very substantial annual expenditures often exceeding $100 million a year. These accounts have become the backbone of the leading service providers’ business and have accounted for much of the growth of the leading firms such as Cognizant’s and TCS. As we have studied this phenomenon, we have come to recognize that these mega accounts are important engines of the industry and are vital to the leading firm’s growth and profits. However, the industry is facing increasing headwinds inside many of these big accounts.

These headwinds emanate from different sources. In the financial services market, the headwinds come from regulators. Under Dodd-Frank, regulators are driving a more aggressive regulatory climate. One of the consequences of this is increased scrutiny of the financial services supply chain, specifically around the risks emanating from work done by third-party service providers and, in particular, where there is heavy service provider concentration.

As banks and financial services firms react to these regulatory concerns, they are reexamining the role of third-party providers and paying particularly close attention to the relationships in which they have large concentrations of work with one service provider. As this pressure works through the system, we see these firms starting to take action to lessen this perceived risk by bringing work back in house, acting to stop further growth with existing providers and, in some cases, looking to introduce new competitors to reduce concentration.

The latest example of this financial services regulatory headwind occurred at Virtusa. Its chairman stated that the firm would likely have a deceleration in its Citibank account, which is based on services from Polaris, the recent Virtusa acquisition. We’ve seen similar financial services headwind impacts at Cognizant and TCS.
In the healthcare payer market, we’re are also seeing concentration risk impacts. An example is Cognizant, which built a very substantial position both in the healthcare industry and in key accounts, by rapidly growing organically and by its TriZetto acquisition. The firm is now highly concentrated with very big positions in big healthcare companies.
For competitive reasons rather than regulatory factors, big healthcare companies are starting to introduce new competition; they are reluctant to give more scope to incumbent providers and are eager to take scope away. In addition, a dominant industry position centered around these large accounts also makes Cognizant vulnerable to the healthcare industry consolidation, which has contributed to several large accounts that are being phased out.
In summary, it’s clear that these large accounts have been a key part of the profitability and growth propelling the industry forward. However, providers now face headwinds in many of these key accounts, turning these once-reliable engines from sources of momentum into areas of concern and potential drags on growth and profitability.

How to Turbocharge Digital Transformation | Sherpas in Blue Shirts

June 7, 2016

The story of how H. D. Smith, a pharmaceutical distributor since 1954, transformed its business to the digital world and expanded to providing innovative services and solutions is remarkable. Progress in strategic business transformations always takes place outside of people’s comfort zone, so it requires excellence in leadership to drive extensive change. The firm’s leadership team understood several years ago that the pharmaceutical business would go digital; but as I described in part one of this story, the firm had underinvested in its IT environment and wasn’t positioned to succeed in a digital world.

In my blog on part two of this story, I shared how the company leaders invested heavily in technology and people who would be able to help the firm get to its vision for the future. This involved changing mindsets, business models, philosophies about people, going through a painful process of paying down a huge amount of technical debt, investing heavily in SAP and people, and putting building blocks in place to pave the way to the vision.

Read more at CIO online.

Everest Group Experts to Headline “Go Digital or Die” Event for CIOs | Press Release

June 7, 2016

Taking the message a step further, Everest Group cites recent research in warning, “No DevOps, No Digital.”

No longer a peripheral facilitator of business operations, technology must now be at the heart of every enterprise. It is time to “go digital or die,” according to Everest Group, a consulting and research firm focused on strategic IT, business services and sourcing. To become truly digital, enterprises need to develop a holistic applications and infrastructure strategy, with DevOps as the pivotal enabler.

Everest Group experts Sarah Burnett, vice president, and Eric Simonson, managing partner, will discuss these findings at an exclusive event, “Go Digital or Die,” to be co-hosted by Professional Outsourcing magazine and Nasscom on June 23 in London.

Burnett and Simonson will join R. Chandrashekhar, Nasscom president, in discussing technology from the capital point of view, disruptive technology, and making the digital transition.

***More information about this exclusive networking dinner and presentation at the Royal Horse Guards Parade Hotel is available here.***

According to Everest Group’s Application & Digital Services research conducted in Q1 2016, over three-fourths of enterprises believe in leveraging digital technologies to achieve competitive differentiation.

“Enterprises that embrace digital adoption are using technology to create new business, not just enable it. For example, enterprises are discovering how IoT and mobility can dramatically improve user experiences, which is unlike the traditional role of technology for driving efficiencies in back-office operations,” said Yugal Joshi, practice director and lead on the recently published report, “Application Services – Annual Report 2016: ‘No DevOps No Digital.’”

“Digital enterprises are those that employ emerging technologies throughout the enterprise—across internal and market-facing operations,” continued Joshi. “This requires an integrated applications and operations strategy with DevOps as its pivotal element.”

Everest Group also reports that though enterprises are keen to adopt DevOps principles, most organizations struggle with them and require hand-holding on their journey. Nevertheless, this has not resulted in higher engagement with service providers, as enterprises themselves are scaling up their portfolio to meet this demand.

Other Key Takeaways from Application Services Annual Report

  • Enterprises have begun adopting Agile and DevOps principles by themselves. However, they are struggling with scaling up their pilot projects to an enterprise-wide adoption.
  • Many enterprises already have adopted Agile approaches in the application development and testing phases of the lifecycle and are now experimenting with ways to integrate the crucial operations phase to embark on a truly DevOps journey.
  • While in some cases enterprises lack executive leadership commitment to institute cultural change, in other cases, enterprises overemphasize technology without getting the pre-requisite peripherals in place.
  • The Application Services market grew by approximately 5 percent in 2015, higher than the overall IT services industry growth of 3 percent.
  • Demand for consulting services spiked in the last year, driven primarily by enterprise adoption of digital technologies.
  • Anti-incumbency is gaining traction among buyers as they are increasingly seeking newer engagement constructs.
  • The Banking, Financial Services and Insurance (BFSI) segment led overall deal activity with 26 percent share. Healthcare and life sciences enterprises increased their spending proportion to 14 percent share.
  • As for the outlook for 2016-2017, Everest Group predicts that digital adoption will continue to witness increased traction, but the bulk of enterprise spending will be on traditional application services that take up the majority of legacy application portfolios. Application services will begin to take up a slightly larger share of the market as demand for digital technologies and connected systems will necessitate development of ecosystems across multiple channels.

***Publication-Quality Graphics***

High-resolution graphics illustrating the key takeaways from the “Application Services – Annual Report 2016: ‘No DevOps No Digital’” may be included in news coverage, with attribution to Everest Group. Graphics include:

  • No DevOps No Digital
  • Signs of anti-incumbency in Application Services deals
  • Consulting scope rising in Application Services deals
  • Application services deal sizes see deep decline

Download graphics here.

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