Month: February 2018

Dig-It-All Enterprise: Dressing up Legacy Technology for Digital Won’t Work Anymore | Sherpas in Blue Shirts

I have long been a proponent of valuing the legacy environment, and I am still a great believer in legacy technologies. But despite the huge investments enterprises have made in their legacy environment, even though they’re desperately trying to use bolt-ons and lift and shift to avoid going the last mile, and regardless of their belief that their core business functions shouldn’t be disrupted, time is running out for piecemeal digital transformation where old systems are dressed up to support new initiatives. It simply won’t work any more. Why?

Digital enterprises need different operating models

Enterprises are finally realizing that there’s dissonance between the execution rhythm of a digital business and its legacy technology. Although they can spend millions to make the legacy technology run the treadmill to keep up with digital transformation, the enabling processes and people skills will never catch up. For this, enterprises will have to invest in fundamentally different operating models in the way technology is created and consumed, the way in which people are hired and reskilled, and the way in which organizational culture is evolving towards speed and agility.

Legacy technology is breeding legacy people

Our research suggests that 80 percent of modernization initiatives are simply lift and shift to newer infrastructure. In those that impact applications, less than 30 percent of the code is upgraded. Therefore, most technology shops within enterprises take comfort in the fact that their business can never move out of specific legacy technologies. They believe the applications and processes are so intertwined and complex that the business will never have the courage, or the budget, to transform it. This makes them lethargic, resulting in a large mass of people without incentive to innovate. Such established blind rules need to be challenged. Enterprises need to set examples that everything is on the table and a candidate for transformation. The transformation may be phased, but it will be done for sure. This will keep people on their toes, and incentivize them to upskill themselves and drive better outcomes for the business.

Legacy technology is simply not up to the challenge

Enterprises are realizing that there is a limit to which they can patch their technologies to beautify them for the digital world. Our research suggests that every one to two years enterprises realize their mistakes as the refurbished legacy technology becomes legacy again. They are now believing they will either have to take the hard route of going the last mile in transforming, or shut out their legacy technology and start from a blank slate. This is a difficult conundrum, as 60 percent of enterprises lack a strong digital vision and, therefore, are confused about their legacy technology future.

Organizations that continue to believe they can put band-aids on their legacy technology and call it digital have lessons to learn from Digital Pinnacle Enterprises. Our research suggests that these businesses, which are deriving meaningful benefits of their digital initiatives, are 36 percent more mature in adopting digital technologies than their peers. These enterprises understand the limitation legacy technologies put on their business. Though they realize they cannot get rid of the legacy technology overnight, they also understand they have to move fast or get outdone in the market.

The courageous enterprises that understand that legacy technology is hard to change, is built on monolithic architectures, requires humongous investment to run, and doesn’t allow the business the flexibility to adapt to market demand, and are willing to “Dig-It-All” for digital, will succeed in the long run.

What has your experience been with legacy technologies in digital transformation initiatives? It would be great to hear your views, whether good, bad, or ugly. Please do share with me at [email protected].

Everest Group’s 3rd Annual Service Provider of the Year™ Awards: Did Your IT Services Provider Win? | Sherpas in Blue Shirts

2017 was a seminal year for IT services. Digital adoption finally broke free from the shackles of marketing’s lip service and moved from “pilot” to “program.” The of role CIOs resurged as business stakeholders relied on them to deal with an ever-growing supply landscape and procurement conundrum to deal with new-age technology. And growth challenges appeared to have bottomed out for the two key industry verticals: BFSI (the largest) and Healthcare & Life Sciences (the fastest).

Hence, our 2018 Service Provider of the Year™ awards for IT services providers – our third edition – recognize companies that not only weathered a challenging year but reinvented themselves to chart out a new phase of growth for 2018 and beyond.

Our methodology

We select the IT Service Provider of the Year award winners based on the consolidated scores they achieve in the Star Performer, Leader, Major Contender, and Aspirant positions on our PEAK Matrix™ evaluations. In 2017, 67 service providers participated in 24 PEAK Matrix evaluations.

Awards categories

This year’s awards categories:

  • Leader boards
    • ITS Top 20: A list that recognizes the top 20 service providers
    • Top 10 Challengers: New this year, this list recognizes the top 10 service providers with annual revenue less than US$2 billion that increasingly position in the PEAK Matrix evaluation segments as challengers to the established leaders.
  • Individual awards
    • Leader of the year: Recognizes the service provider(s) with the maximum number of Leader positions
    • Star Performer of the year (overall): Recognizes service provider(s) with the maximum number of Star Performer positions.

We awarded these recognitions in the following areas:

  • Overall IT Services
  • Application Services
  • Digital Services
  • Cloud and Infrastructure Services
  • Banking, Financial Services, and Insurance
  • Healthcare and Life Sciences

Highlights of 2018 Service Provider of Year Awards

Here’s a look at the top five on the ITS Top 20 leader board:

PEAK SP of the Year

  • Accenture and TCS took the top two positions in the ITS Top 20
    • Accenture retained its top slot from 2017
    • TCS moved into second place, leapfrogging Cognizant and IBM
  • Accenture won Leader of the Year (overall)
  • TCS won Star Performer of the Year (overall)
  • And in the new Top 10 Challengers category, LTI and Virtusa snagged the top two positions.

Wondering if your IT services provider – or the firm you work for – received one of these coveted awards? See the complete list of winners.

New Kind Of Vendor Lock-In And Purchasing Concerns | Sherpas in Blue Shirts

Increasingly, there has been a push by firms purchasing services to move towards consumption-based pricing. Accompanying this move is an additional desire to reduce the length of contracts. Ideally, you should only pay for what you use; and when you stop using it, you stop paying for it. Although this is what traditional contracts purport to offer, the reality is far from this seemingly natural and beneficial state. Most traditional contracts create buyer lock-in and require some form of take or pay.

Read more in my blog on Forbes

Critical Factors to Consider Before Selecting a Nearshore Location, Part 9: Putting It All Together | In the News

There is good news for the Latin American and Caribbean countries fighting for nearshore business: there is now more to go around than ever before.

This sentiment is shared by Salil Dani, vice president in the global sourcing service line for the Dallas-based consulting and research company Everest Group. Embracing the nearshore is no longer just a novel idea. He says the service providers in Latin America and the Caribbean are increasingly being viewed as an essential part of the strategies maintained by the Fortune 500 companies that have been in the outsourcing game for decades, such as General Electric, Citigroup, Proctor & Gamble, and Bank of America.

“They are growing a lot in Latin America in particular,” says Dani. “Within Latin America, there could be questions as to whether you want to go to somewhere like Mexico or Costa Rica depending upon what you want to do or other factors. But nearshoring as a proportion is growing in terms of headcount and in terms of revenue. The time-zone alignment creates a huge plus.”

Read more in Finance TnT

Everest Group Announces Winners of 2018 IT Service Provider of the Year Awards | Press Release

Everest Group names 10 new challengers to the top 20 IT service providers, as stalwarts Accenture, Cognizant, IBM, TCS and Wipro lead the industry for the third consecutive year.

Everest Group—a consulting and research firm focused on strategic IT, business services and sourcing—today announced the winners of the 2018 PEAK Matrix Service Provider of the Year™ awards for IT services. The awards, now in their third year, recognize IT service providers who have demonstrated consistent leadership in the PEAK Matrix™ reports issued by Everest Group in the previous year.

Topping the 2018 Top 20 ITS Service Providers list are Accenture, TCS, Cognizant, Wipro and IBM, in that order. Accenture retains its position at the top of the leaderboard for the second year, and TCS moves up to second place (from fourth), leapfrogging Cognizant and IBM, who take the third-and fifth-place spots, respectively. Wipro claims the No. 4 spot, improving from fifth-place ranking in 2017.

***All winners are listed in the report, “2018 PEAK Matrix Service Provider of the Year Awards” available for complimentary download here.***

“Throughout the year, Everest Group evaluates service providers who are distinguishing themselves in the eyes of enterprises with their innovative service strategies,” said Jimit Arora, partner at Everest Group. “We also evaluate the service providers’ market success, their business strategies and how they are investing in the future. By taking all of that into account, these PEAK Matrix Service Provider of the Year awards recognize the IT providers that truly set themselves apart.”

New for this year’s awards, Everest Group names the Top 10 ITS Challengers—service providers with less than US$2 billion in annual revenue who are credible partners for enterprises in the digital-first era. LTI, Virtusa and Syntel top the inaugural list.

“Although smaller in size, these challengers are credible alternatives to the leading players in the industry in certain niches,” said Abhishek Singh, practice director at Everest Group. “Challengers have successful service strategies that focus on specific solution segments, geographies or industries that align well with enterprise needs.”

Everest Group also identifies Top Leaders and Star Performers in five market segments: Healthcare and Life Sciences (HLS); Banking, Financial Services and Insurance (BFSI); Cloud and Infrastructure Services (CIS); Application Services (AS); and Digital Services (DS). These honors are awarded to IT service providers who appeared in “Leader” or “Star Performers” positions most prevalently within the previous year’s PEAK Matrix reports specific to that segment.

Companies recognized either as Leaders of the Year, Star Performers of the Year, or both, include Accenture, Capgemini, Cognizant, IBM, Tata Consultancy Services, and Wipro.

Other Findings of Note

NTT Data made the most impressive move up the rankings, moving up ten places from No. 20 to No. 10. Seven additional service providers improved their rankings:

  • TCS moved from No. 4 to No. 2.
  • Wipro moved from No. 5 to No. 4.
  • Infosys moved from No. 9 to No. 7.
  • Tech Mahindra moved from No. 14 to No. 12.
  • LTI moved from No. 16 to No. 13.
  • Virtusa moved from No. 15 to No. 14.
  • Syntel moved from No. 17 to No. 16.

New entrants to the ITS Top 20 list include Mphasis (No. 17) and Genpact (No. 20), and there were no exits from the list. DXC Technologies—a merged entity of CSC and HPE, both previous members of the list—appears for the first time at No. 9.

In 2017, Everest Group published 24 PEAK Matrix reports, evaluating a total of 67 service providers in various segments of the IT services market.

About the PEAK Matrix™

The Everest Group PEAK Matrix is a proprietary framework for assessing the relative market success and overall capability of service providers based on Performance, Experiences, Ability and Knowledge. Each service provider is comparatively assessed on two dimensions: market success and delivery capabilities. Market success is measured by revenue, number of clients and year-over-year growth. Delivery capability is measured by scale of operations, scope, technology and innovation, delivery footprint and buyer satisfaction. The resulting matrix categorizes service providers as Leaders, Major Contenders, and Aspirants. Companies that demonstrate strong upward movement in successive reports are recognized as Star Performers.

Global Offshoring and Outsourcing Market—What’s Hot, What’s Not: Everest Group Highlights 2017 Trends, 2018 Predictions in Feb. 15 Webinar | Press Release

Adoption of digital services is crossing the line from pilots to large-scale programs; will require knowing how to build portfolios of the future, according to Everest Group

Everest Group’s predictions that 2017 would see continued market slowdown and technology-led disruption in sourcing were right on the money. Growth of outsourcing services slowed in 2017 and, for the first time ever, digital-focused outsourcing deals surpassed traditional transactions in Q4 2017.

Other key market trends witnessed in 2017 include:

  • New Global In-house Center (GIC) setups recorded an all-time high activity due to increased preference for insourcing next-generation services.
  • Location activity was led by Asia Pacific and Central and Eastern Europe. Q4 2017 recorded an all-time high activity in Middle East and Africa driven by setups in Israel.
  • Leading service providers made several investments (e.g., expanding onshore presence, exploring opportunities for inorganic growth, and upskilling/reskilling talent) to remain competitive in the market.

So, what does 2018 hold for the sourcing industry?

On Thursday, February 15, at 9 a.m. CST, Everest Group experts, including CEO Peter Bendor-Samuel, Salil Dani, H. Karthik, Michel Janssen, and Eric Simonson, will host a complimentary webinar to review 2017’s industry shifts and share their predictions for 2018.

***Register Here for Complimentary Webinar***

The webinar—“Q1 2018 Market Vista™ Briefing: 2017 in Review & 2018 Predictions”—will cover the key forces and metrics defining the market, including trends in outsourcing, digital adoption, and the Global In-house Center (GIC) market, as well as insights into location activity in offshore and nearshore geographies.

Research analysts will also provide findings from the Market Vista™ quarterly report series. The most recent report, Market Vista: Select Findings Q1 2018, was released yesterday and covers key developments in Q4 2017, such as:

  • Transaction activity increased in Q4 2017, with 365 deals compared to 350 in Q3 2017.
  • GIC market activity increased in Q4 2017 for offshore and nearshore locations, with 46 new setups, four expansions and no divestitures.
  • Location activity in Q4 2017 was higher compared to the previous quarter, driven by significant growth in Nearshore Europe; activity in tier-1 locations was marginally higher than tier-2 cities.
  • Most service providers reported sequential growth in revenue.
  • The share of digital-focused global sourcing transactions increased from 47 percent in Q3 to 61 percent in Q4 of 2017, eclipsing transactions for pure traditional services. Half of all GIC setups during this period were digital focused, with analytics and automation being the primary areas of investment. Service providers focused on digital services in 79 percent of alliances, mergers and acquisitions during Q4, with an emphasis on cloud, automation and analytics.

 “As reflect throughout 2017, outsourcing transaction activity in Q4 was driven by an increased adoption of digital services, and we are certain the trend will continue in 2018 as more enterprises move beyond pilot projects to large digital programs,” said Michel Janssen, chief research guru at Everest Group. “This continuing trend will have implications for all stakeholders – and will only be buoyed by positive economic factors and other geopolitical dynamics at play.”

***Download a complimentary abstract of “Market Vista: Select Findings Q1 2018” here.***

 About Market Vista™

Market Vista —a subscription-based service of Everest Group—provides the research, analysis and insights that enable Global Sourcing professionals to navigate the complexity of today’s sourcing market and make informed and impactful decisions. Market Vista research includes developments related to service providers, locations, processes and sourcing models, as well as a comprehensive outlook of the fast-evolving global offshoring and outsourcing market.

IT majors see an increase in utilisation rate | In the News

As the tech titans grapple with digital and changing consumer behaviour, their emphasis on improving productivity of their workforce seems to be paying off with utilisation levels improving by up to 600 basis points (100bps = 1 percentage point).

Assessing utilisation levels is a significant part of the financial review process as these numbers indicate the workforce efficiency of the company. With multiple winds of change impacting the IT sector – from tightening client spends to digitalisation and automation – finding the right person with the right skill, or reskilling the existing workforce, has become paramount.

Everest Group CEO Peter Bendor Samuel said, “As the industry moves from the labour arbitrage factory model to the technology-based digital model, the revenue per person rises and fewer people are needed.”

Read more in The Economic Times

Cognizant earns more per person as IT sector moves to tech-based digital model | In the News

Cognizant’s revenue grew 10% in 2017 even as its headcount fell by 200 from the previous year, for the first time in its history, a performance that experts said the rest of the IT sector is working hard to emulate.

IT companies, whose growth typically marches hand-in-hand with headcount growth, have been talking about decoupling the two for years but Cognizant is the first to show success over an entire reporting annual reporting period. The Teaneck, New Jersey-headquartered firm reports results for the calendar year, while Indian-listed IT services companies follow an April-March reporting period.

“As the industry moves from the labour arbitrage factory model to the technology-based digital model, the revenue per person rises and fewer people are needed,” said Peter Bendor-Samuel, CEO of IT consultancy Everest Research. “Cognizant is one of many firms which is driving hard into the new digital marketplace and this effort is showing results both in their increased growth and the improved revenue per person and falling headcount,” he said.

Read more in The Economic Times

Is Amazon’s HQ2 Strategy Viable? | Sherpas in Blue Shirts

Unique, bold, unprecedented…those are just some of the words that describe Amazon’s announcement to establish a second headquarters in North America, with an end-state over the course of 10-15 years of 50,000 employees with an average salary exceeding $100,000.

The intent is exciting, both for potential employees and the cities that Amazon identified as location contenders. But is Amazon’s strategy viable? We believe it’s realistic to the extent that Amazon can keep its mojo going over such a long period of time.

Four factors driving Amazon’s HQ2 location selection

Scalability of talent

For Amazon to be able to amass 50,000 employees in 15 years, it will need to add 3,000 to 5,000 employees per year. These employees will have to be a mix of recent college grads and mid-management-level workers. So Amazon will have to take into account how many local universities and businesses there are in the selected location and the city’s relocation attractiveness.

Business mix

This is all about what Amazon intends HQ2’s business concentration to be. For example, will it have a retail focus like its Seattle headquarters? Does it intend to grow its advertising business in its new location? Will its focus be on the government sector, shipping/transportation/ logistics, or Latin American market growth? Whatever its intent, the new location will have to be a hot-bed of activity.

Time zone

If Amazon wants its second headquarters to help lead its international growth or manage suppliers based in Europe or Asia, the time zone overlaps of a location in the eastern or central U.S. time zone will be a huge business advantage.

Physical proximity

This relates to how easy it is to get to other geographical markets of interest. For example, if Europe is a target, a site in the northeast or central U.S. makes sense. But if Mexico, Central America, and Latin America are on the radar screen, a major city in the southeastern U.S. would be a good option.

Of these four, the biggest issue and most important consideration is: can Amazon get the volume and quality of talent it needs to fulfill its HQ2 vision? As we said above, the company will need to add up to 5,000 employees each year to get to 50,000 strong in 15 years. That’s a massive hiring agenda. For comparison purposes, when we’ve worked with other leading brand name organizations that are scaling new IT shops, they’ve typically been able to hire 200-350 people per year.

Can Amazon do it, or might it ultimately revert to a hubbed model, first establishing HQ2, and several years later HQ2.5? Only time will tell.

The six cities on our short list

Although Amazon recently winnowed its options down to 20 cities, we think only six of those are truly viable. Here, in alphabetical order, is a quick look at our short list:

Atlanta is a diverse economy, with UPS and Delta-driven strength in shipping and transportation, and Home Depot in retail. There’s a lot of impressive university talent available, in Georgia as well as the neighboring states of Alabama, Florida, and South Carolina

Boston is a great education center, and is known for large, corporate innovation. It would be a wonderful place for Amazon to build on what its been doing with Siri there, and to continue its growth in the high tech space. It’s also an airline hub with comparatively short flights to Europe.

Chicago is strong in the consumer and retail industries, and that obviously overlaps nicely with Amazon. It also has good connectivity to Europe, Seattle, and, to a reasonable extent, Asia.

Dallas has a good history of relocating companies’ operations and a strong tech talent pool and ability to pull talent in from universities in the region. One unique aspect in favor of Dallas is Amazon’s AWS business. As that matures, we expect it will need to increase the sophistication of how it sells to enterprises. And because Dallas is considered the original home of outsourcing enterprise IT services in North America, Amazon could find a lot of sales, marketing, and other talent in the area that wouldn’t be as common in the other cities.

New York City is by far the largest labor market, and Amazon could attract a lot of talent. If the company is trying to really increase its advertising business, the Big Apple would be a good choice. And because of the city’s diversity, Amazon wouldn’t be too limited in any one direction.

Washington, D.C. has a fairly large labor pool with a lot of high tech, much of it government-oriented, which may be both a pro and a con, depending upon Amazon’s mission. It’s well connected internationally, and is a fairly interesting place to try to establish a large corporate.

To learn more about our take on the viability of Amazon’s HQ2 strategy, please read our viewpoint, and listen to a discussion I recently had Ryan Takeo, host of KING-TV’s The Sound Podcast, called, “Talent, not incentives, most important in HQ2 search.”

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