5 Success-driving Actions IT Workforce Leaders Need in 2022 | Webinar

February 1, 2022

on-demAND EXPERT PANEL

5 Success-driving Actions IT Workforce Leaders Need in 2022

Access the on-demand webinar, which was delivered live on February 1, 2022.

In 2021, IT workforce attrition rates increased by 10% across roles and regions – and time to hire took two to three times longer than the norm. The current global IT talent shortage will be a long-term challenge, with the possibility of lasting the next three years.

Organizations need to arm themselves with the resources to develop world-class talent capabilities to find and keep talent.

This expert panel discussion reveals the implications of the IT talent shortage and five success-driving actionable steps for IT workforce executives to build a fit-for-purpose IT workforce in the mid- to long-term.

The panel explores the following topics:

Why the global IT talent demand-supply gap will be a multi-year phenomenon
The lessons learned from the intense IT talent scramble in 2021
Strategic imperatives and options that IT workforce development teams and leaders need to know

Who should attend?

IT executives
IT strategy leaders
IT workforce strategy/planning leaders
IT talent acquisition leaders

Rohitashwa Aggarwal

Vice President

Jimit Arora

Partner

Michel Janssen

Chief Research Officer

Ashwin Venkatesan

Vice President

IT Talent – Winning the Short-term Battle and the Long-term War | Blog

August 6, 2021

With the cost to secure IT talent internally and through third-party providers only continuing to rise, attracting and retaining technology workforce will require immediate and long-term tactics. Participate in our study to identify best-in-class IT workforce development strategies in leading global organizations.

Take the survey

The cost of hiring top-tier IT talent is escalating by the day. The persistent skills shortage has been exasperated by increasing post-COVID digital transformation spend and pent-up business demand, creating an intense short-term talent scramble.

Despite enterprises using known offensive (attraction) and defensive (retention) tricks, a demand-supply gap of 15%+ for critical roles in cloud, data, automation, agile, and security is being seen across regions. Offering compensation corrections and counters, bonuses, flexible location options, or job rotations are keeping companies in the race, but more ingenious measures are needed.

Insights to win the short-term battle

Enterprises are realizing that classical attraction and retention strategies are being relegated to “common differentiators.” Many enterprises are starting to max out on the stretched end of their annual IT workforce budgets – even as attrition levels spike beyond 30 percent for key roles.

We see this scramble persisting over the next 3-6 months. However, as pointed out by our CEO Peter Bendor-Samuel recently, fulfillment of pent-up demand and potentially increased cross-border talent movement is expected to start narrowing the demand-supply gap from the current dizzying levels as we enter 2022.

Here are a few novel approaches enterprises can take to alleviate workforce challenges to a certain extent, especially around access and time-to-hire:

Relax shortlisting criteria: Recalibrate technical competency thresholds (e.g., the stringency of HackerRack test ratings and additional technical rounds), within reasonable limits, to broaden the talent funnel in the short term. Consider increased training at the start and onboarding graduates with dedicated training investments
Involve business and operations: Follow the lead of best-in-class enterprises by having:
- IT engineers, product managers, and agile coaches – actively recruit and scout in online communities
- Senior IT and business leaders – elevate brand value and excite prospective candidates via informal discussions
- IT teams – screen candidates to cut down shortlisting efforts, especially for critical/complex roles
- Team members – approach candidates before the on-boarding to build rapport
Upskill rapidly: Stagger skilling and training for new employees joining the organization and existing employees switching roles to reduce deployment time (e.g., from 8-9 weeks to 4 weeks)
Focus on internal mobility: Re-evaluate internal career progression designs and create better growth opportunities for employees by properly mapping competencies, clearly articulating alternative roles/paths, and incentivizing critical skills development
Explore alternative channels: Expand staffing partnerships, leverage hackathons/online competitions, proactively reach out to developer communities (Hacker News, Github, Stack Overflow, and Reddit), and engage with boot camps to improve channel access
Hire location-neutral: Hire talent remotely with no requirement of the work location to tap into the broad IT pools and push decisions on Work from Home (WFH) or visas for later. Consider pods, satellites, and Centers of Excellence (CoEs) to access niche skills
Increase referral premiums: Jack up referral premiums by 50 to 100 percent, especially for critical positions
Award retention bonuses: Offer retention bonuses with a time lag of only a few months to counter immediate attrition

Staying ahead in the long-term talent race

With IT at the front and center of every business, enterprises across industries are inevitably competing for the same target talent pool. With demand expected to outstrip supply, only enterprises that take their tech workforce destinies into their own hands will survive. And the planning and structural interventions required to drive IT talent self-sufficiency need to begin today, if not already.

If you are interested in learning how other organizations are addressing the IT talent shortage, Everest Group is currently conducting an extensive study to identify best-in-class, or Pinnacle, IT workforce development strategies in leading global organizations. Take the survey

We will share a complimentary summary analysis of the survey results highlighting how your organization compares against the peer group with respect to capabilities created and business outcomes achieved.

Please reach out to [email protected], [email protected], and [email protected] to discuss this critical topic.

Also watch Peter Bendor-Samuel’s two-part video series about the ongoing talent war.

The Emergence of Distributed Agile Software Development: An Old Weapon with New Firepower | Blog

April 9, 2021

Imagine brainstorming your customers’ journey with digital holograms of globally located developers, user experience (UX) designers, and business leaders, all collaborating organically with each other’s 3D replicas – something straight out of Star Wars and other sci-fi films! Such virtual interactions may be coming closer to reality with application software development kits (SDK) like Microsoft Mesh, a photo-realistic AR/VR application SDK for creating holograms, recently released at Microsoft Ignite 2021.

The advent of tools like Mesh makes it clear that the second wave of digital transformations will empower creators and communities and expand economic opportunities for global workforces. This comes as no surprise since the COVID-19 pandemic has driven lasting changes in the enterprise IT operating model as technology further becomes the foundation of doing business.

Enterprise IT functions are now expected to deliver enhanced employee experiences, rapidly adapt to business requirements, and mitigate operational risks to drive sustainable growth. These coincided with the pre-pandemic focus on personalized customer experiences and the pandemic-induced need for work-from-anywhere models.

The evolution of a new Agile

Agile software development has come a long way from its conception in the Agile Manifesto near the turn of the century. Since then, the traditional and widely accepted model with offshore and onshore delivery has helped many enterprises derive value out of their software and operations.

The pandemic threw the Agile model into chaos and tested its limits as the lockdowns bound team members to their homes. As enterprises rapidly transitioned into an Agile++ model, they replicated the processes, governance, and workflows of traditional Agile development. The pace of change also pushed the importance of remote collaboration and productivity technologies to connect teams to the forefront.

The increasing need for continuous value delivery alongside risk-efficient, employee-centric operations is driving enterprises to adopt the Distributed Agile methodology. In fact, 40 percent of the enterprises that participated in Everest Group’s 2021 Key Issues in Global Sourcing study are looking to adopt Distributed Agile as their de facto software development model.

True Distributed Agile

The next generation of Agile embraces a natively distributed nature. In a Distributed Agile model, communication, processes, and workflows are optimized for remote delivery. This is achieved by divesting focus from a location-based team model and building virtually proximate global feature pods. The operating philosophy rests on product teams structured as core teams comprised of architects and Agile feature pods. Each feature pod is laser-focused on end-to-end product features with no notions of an offshore-onshore construct. The Distributed Agile model will have a flexible location mesh covering:

Hub (key delivery location)
Spoke (secondary delivery location)
Satellite (tertiary location)
Work from home

Benefits of Distributed Agile

Significant cost savings: Contrary to typical apprehensions about the cost implications of Distributed Agile development, a feature pod approach is expected to cut operational costs by as much as 13 percent compared to a traditional Agile model.

Improved talent models: The location-agnostic nature of Distributed Agile helps improve access to quality talent by two to five times compared to traditional models. The overall increase in talent quality will overpower concerns around running virtually and an associated drop in productivity. A wider pool of candidates will make it easier to hire for niche skills in both older and emerging areas.

Enhanced BCP / Resiliency: In the Distributed Agile methodology, the risk of environmental disruptions is apportioned across various regions creating a more resilient business continuity model. The fundamental overlap of skills in a feature pod allows teams to manage short-term disruptions with ease.

Improved delivery model flexibility: The Distributed Agile model helps source talent from multiple locations, creating flexibility in the traditional pyramid. With virtual interaction as its foundation, this model allows firms to shift out of onshore/offshore delivery into location agnostic application delivery.

Societal and environmental benefits: Increased location flexibility allows employees to allocate more time for personal endeavors, thereby improving overall work satisfaction. Spoke and Satellite offices for a distributed workforce can rejuvenate smaller cities.

Setting the foundation for Distributed Agile

Because a Distributed Agile model fundamentally rethinks enterprises’ IT organization, substantial change in processes, people, and structure will accompany the technological shift. It will require a cultural and mindset shift at all levels of the IT organization that prioritize non-invasive governance and autonomy. Such a cultural shift can be built on what we named a foundation of TRUST.

Transparency: A change effort as extensive as this will compel enterprises to focus on measuring the productivity of adopting teams. Having holistic metrics that track the efficiency, efficacy, and timeliness of the team will equip enterprises with the information necessary to ensure lasting impact. This can be done by adopting practices such as using virtual whiteboard repositories, creating healthy backlogs with well-refined stories, clearly separating work duties, and optimizing the use of overlapping hours across the team locations.

Resilience: A Distributed Agile model creates a new set of vulnerabilities that need to be mitigated through a thorough leftward shift of security in the development process. Inclusion of security early in the development process relies on educating developers and testers on security aspects, including security as a key criterion in user stories, periodic reviews of security practices, and automated security across the CI/CD pipeline.

Understanding: This is about a stronger emphasis on softer work aspects that build psychological bonding between team members. Success in a Distributed Agile model will rely heavily on catering to employees’ self-actualization with critical focus on independent ownership, familiarity with members, and empathy for the individual members’ motivations and challenges.

Self-reliance: Driving self-reliance in a distributed agile setup will require following a ”Team of Teams” construct that provides autonomy to feature pods. Emphasis will also be placed on non-invasive governance through Scrum Masters for each team with a centralized scrum of scrums approach.

Tech bedrock: Technology will need to be seeded as the enabler of the shift to the Distributed Agile model. The IT backbone needs to be supplemented with a wide array of tools to foster collaboration, drive productivity, improve knowledge management, and enable continuous improvement.

As businesses emerge from the pandemic, we expect enterprises to consider shifting gradually to a Distributed Agile model. And we expect initiatives with high people complexity to be prime candidates for the first wave of adoption, followed by those with high project complexity. Enterprises can accelerate their adoption of Distributed Agile by engaging IT service providers to simplify and guide them through the change.

If you’d like to learn more about the Distributed Agile landscape, please reach out to us at [email protected], [email protected], and [email protected].

Enterprises Must Bake “Contextualization” into Their IT Security Strategies | Sherpas in Blue Shirts

December 10, 2018

Given the rapid uptake of digital technologies, proliferation in digital touchpoints, and consumerization of IT, traditional enterprise security strategies have become obsolete. And challenges such as security technology proliferation, limited user/customer awareness, and lack of skills/talent are making the enterprise security journey increasingly complex.

Against that backdrop, the key thrust of our just released IT Security Services – Market Trends and Services PEAK Matrix™ Assessment 2019 is that the conventional, cookie cutter best practices prescribed by service providers no longer cut it. Indeed, we subtitled this new assessment “Enterprise Security Journeys and Snowflakes – Both Unique and Like No Other!” because the complexities of today’s technological and business landscape are forcing enterprises to use a much more guided and contextualized approach toward securing their IT estates.

What does this mean? To achieve success, enterprise IT security strategies must focus on three discrete, yet intertwined, levers.

Enterprise-specific Business Dynamics

In order to prioritize their investments in next-generation IT security, every enterprise needs to understand which assets it considers its crown jewels, how the business – and its security investments – will scale, and how to best mitigate risk within budgetary constraints. For example, a traditional BFS enterprise has far different endpoint security needs than does a digital-born bank.

Enterprises must also determine how delivery of superior customer and user experiences and exceptional security can co-exist. For example, a BFS enterprise’s introduction of an innovative new payments service backed by multi-factor authentication must operate without degrading the customer experience with delays.

Vertical Considerations

Enterprises need to take an industry-specific, value chain-led view of IT security that ensures optimal budget control without compromising the overall security posture.

For example, BFS firms must invest in security measures that protect their transaction processing and control/compliance capabilities. And building security controls for user access management, introducing behavioral biometrics into an integrated authentication process, and developing identity controls for anti-money laundering compliance are essential safeguards for sustainable competitive advantage.

Regional Considerations

Stringent regulatory environments (such as GDPR for customer data protection in Europe, PCI DSS for payments in the U.S., HL7 for international standards for transfer of clinical and administrative data between applications) and geography-specific nuances require a circumstantial approach to IT security. This means that geography-specific compliance around data protection, protectionist measures undertaken by the government, enterprises’ digital demand characteristics, and enterprises’ priorities in specific regions need to be taken into account. And global organizations must adhere to a well-defined strategic roadmap to address multiple variants of IT security standards across the globe.

For service providers, this essentially implies delivery of localized services in their focus geographies.

Taking a Phased Approach

While bolting-on IT security capabilities may lead to unnecessary – and valueless – sprawl, enterprises can avoid this challenge by investing in their IT security strategies in a phased manner, as outlined in the figure below.

To learn more about IT security contextualization, please see our latest report delves deeply into the important whys and hows of contextualizing IT security, and also provides assessments and detailed profiles of the 21 IT service providers featured in Everest Group’s IT Security Services PEAK Matrix™.

Feel free to reach out us to explore this further. We will be happy to hear your story, questions, concerns, and successes!

Enterprises Should Jump – Carefully – on the Cloud Native Bandwagon | Sherpas in Blue Shirts

November 20, 2018

With enterprise cloud becoming mainstream, the business case and drivers for adoption have also evolved. The initial phase of adoption focused on operational cost reduction and simplicity – what we call the “Cloud for Efficiency” paradigm. We have now entered Wave 2 of enterprise cloud adoption, where the cloud’s potential to play a critical role in influencing and driving business outcomes is being realized. We call this the “Cloud for Digital” paradigm. Indeed, cloud is now truly the bedrock for digital businesses, as we wrote about earlier.

This is good and powerful news for enterprises. However, to successfully leverage cloud as a business value enabler, the services stack needs to be designed to take advantage of all the inherent benefits “native” to the cloud model – scalability, agility, resilience, and extendibility.

Cloud Native – What Does it Mean Anyway?

Cloud native is not just selective use of cloud infrastructure and platform-based models to reduce costs. Neither is it just about building and deploying applications at pace. And it is definitely not just about adopting new age themes such as PaaS or microservices or serverless. Cloud native includes all of these, and more.

We see cloud native as a philosophy to establish a tightly integrated, scalable, agile, and resilient IT services stack that can:

Enable rapid build, iteration, and delivery of, or access to, service features/functionalities based on business dynamics
Autonomously and seamlessly adapt to any or all changes in business operation volumes
Offer a superior and consistent service experience, irrespective of the point, mode, or scale of services consumption.

Achieving a true cloud native design requires the underlying philosophy to be embedded within the design of both the application and infrastructure stacks. This is key for business value creation, as lack of autonomy and agility within either layer hinders the necessary straight-through processing across the integrated stack.

In this regard, there are salient features that define an ideal cloud native IT stack:

Cloud native applications – key tenets

Extendable architecture: Applications should be designed for minimal complexity around adding/modifying features, through build or API connections. While microservices inherently enable this, not all monolithic applications need to be ruled out from becoming components of a cloud native environment
Operational awareness and resilience: The application should be designed to track its own health and operational performance, rather than shifting the entire onus on to the infrastructure teams. Fail-safe measures should be built in the applications to maximize service continuity
Declarative by design: Applications should be built to trust the resilience of underlying communications and operations, based on declarative programming. This can help simplify applications by leveraging functionalities across different contexts and driving interoperability among applications.

Cloud native infrastructure – key tenets

Services abstraction: Infrastructure services should be delivered via a unified platform that seamlessly pools discrete cloud resources and makes them available through APIs (enabling the same programs to be used in different contexts, and applications to easily consume infrastructure services)
Infrastructure as software: IT infrastructure resources should be built, provisioned/deprovisioned, managed, and pooled/scaled based on individual application requirements. This should be completely executed using software with minimal/no human intervention
Embedded security as code: Security for infrastructure should be codified to enable autonomous enforcement of policies across individual deploy and run scenarios. Policy changes should be tracked and managed based on version control principles as leveraged in “Infrastructure as Code” designs.

Exponential Value Comes with Increased Complexity

While cloud native has, understandably, garnered significant enterprise interest, the transition to a cloud native model is far from simple. It requires designing and managing complex architectures, and making meaningful upfront investments in people, processes, and technologies/service delivery themes.

Everest Group’s SMART enterprise framework encapsulates the comprehensive and complex set of requirements to enable a cloud native environment in its true sense.

Adopting Cloud Native? Think before You Leap

Cloud native environments are inherently complex to design and take time to scale. Consequently, the concept is not (currently) meant for all organizations, functions, or applications. Enterprises need to carefully gauge their readiness through a thorough examination of multiple organizational and technical considerations.

Our latest report titled Cloud Enablement Services – Market Trends and Services PEAK Matrix™ Assessment 2019: An Enterprise Primer for Adopting (or Intelligently Ignoring!) Cloud Native delves further into the cloud native concept. The report also provides the assessment and detailed profiles of the 24 IT service providers featured on Everest Group’s Cloud Enablement Services PEAK Matrix^TM.

Feel free to reach out us to explore the cloud native concept further. We will be happy to hear your story, questions, concerns, and successes!

Automation Economics for Service Providers – Not So Straightforward? | Sherpas in Blue Shirts

September 13, 2016

IT infrastructure environments are getting increasingly complicated to manage, particularly because enterprises are adopting agile delivery models – e.g., cloud and as-a-service – to meet the dynamic needs of their digital businesses. As assets proliferate, process complexities rise, and management costs escalate, enterprises realize the need for a more coherent, strategic approach to automation to regain control. This renewed focus of automation within IT infrastructure services has new-found implications for IT service providers.

Service providers stand to derive significant cost and productivity benefits from, and showcase value within engagements through, automation. That said, revenue cannibalization is a short-term outcome for which they need to brace. However, this comes against the backdrop of a highly competitive pricing environment and enterprises’ increasing insourcing initiatives. To complicate matters, the margin implications of automation can be tricky, as automation runs fundamentally contra to the arbitrage-driven margin model.

It’s time to get running and cut the fat…

Service providers lagging in industry growth will be caught in a vicious cycle of margin contraction and degrowth unless they focus on reducing overhead, and make significant and prompt investments in strengthening their core delivery and account management capabilities to capture revenue run-off as a result of automation.

High-growth service providers also need to remain wary, and use automation as a growth lever without holding an excessive margin orientation in order to stay ahead of the pack. This includes firming up their strategic business model by assessing automation strategies in the context of aspirations for a product + services versus a services only play. And the answers may crucially depend on their current starting positons.

As automation stands to disrupt the IT infrastructure services space more than ever before, you can be certain we’ll continue to pay close attention to developments. If IT infrastructure services helps you win your daily bread – so should you!

For drill-down and detailed insights into latest trends in the IT infrastructure services automation space, please see Everest Group’s newly released report, “IT Infrastructure Services Automation – Codified Consciousness is the Future.”

IT Infrastructure Services Automation – What Enterprises Need to Know | Sherpas in Blue Shirts

September 8, 2016

IT infrastructure services automation is evolving rapidly as the objective function shifts from efficiency gains to service resiliency and agility. IT infrastructure processes have become dynamic and complex, and traditional automation strategies, characterized by siloed initiatives and reactive script-based automation techniques, are becoming increasingly obsolete.

Autonomics holds the key to the “as-a-service” world…

Autonomics is poised to disrupt the automation space, and lay the foundation for business-aligned infrastructure services delivery. The self-learning and self-healing capabilities offered by the technology can help enterprises drive significant efficiencies and control within complex and judgement-intensive IT operations (think availability management or capacity management.) Efficient management of such processes, driven by autonomics, will be a critical enabler of the shift in IT service delivery towards the consumption-based/as-a-service paradigm.

We believe that the nirvana state of the IT infrastructure delivery-automation interplay, though a fair distance away, will involve the leverage of cognitive computing to create a “self-aware/alive” IT infrastructure model. Such a model will help deliver services contextualized to real-time user/business needs leveraging data from human-to-machine and machine-to-machine interfaces – i.e., making infrastructure “truly conscious.”

What is the best mode of automation adoption?

We observe three broad adoption modes for automation within enterprises:

Tools-based approach: This primarily focuses on automating low-end, high-volume tasks with the key objective being cost/FTE headcount reduction. While suitable for processes that are extremely well-defined and static, this approach does not unlock the full value of automation. Initiatives are siloed and lack business context, leading to accumulation of legacy portfolio with poor integration.
Adoption embedded within managed services constructs: Here, the focus of automation is on streamlining operational processes (i.e. balancing cost reduction and operational efficiency gains.) This model is being increasingly adopted by enterprises with significant outsourcing experience. Although well-understood, it is reactive, and cannot drive business innovation. Additionally, the focus on generating new use cases and creating common standards and best practices across the enterprise remains limited.
CoE-based adoption: A centrally-driven initiative with a strategic view to harmonize adoption benefits across each layer of the IT infrastructure stack, this approach helps drive long-term innovation by proactively identifying new use cases/scenarios, acting as a conduit for business enablement. That said, this model requires extensive upfront planning, seamless between business-IT collaboration, and a strong change appetite. Enterprises also need to brace for a significant gestation period before business benefits (commensurate to investment levels) are realized.

While each of these models offers varied levels of benefits, we observe that the eventual mode of automation adoption chosen is highly dependent on enterprise imperatives/mindset and pre-existing service models, and rightly so.

Our recommendation to enterprises…

Traditional automation within IT infrastructure services has been around for ages, but is simply not designed to deal with today’s dynamic environments. It is time that enterprises took a coherent, business-context-aligned approach to IT infrastructure automation. Such a strategy should:

Focus on what automation can achieve for delivering services in an agile and resilient manner, not on technical sophistication alone
Involve a pragmatic and phased adoption approach with a clear roadmap to scaling, taking into account organizational change constructs
Keep in mind that automation is not a one-shot affair – it needs process improvement as pre-work, and downstream maintenance and harmonization with new and changing business requirements
Balance the trade-off to protect existing tool investments against the need to avoid lock-in.

For drill-down and detailed insights into the latest trends in the IT infrastructure services automation space, please see Everest Group’s newly released report, “IT Infrastructure Services Automation – Codified Consciousness is the Future.”

Digital Transformation – Will IBM Attain its Aspirational Leadership Position? | Sherpas in Blue Shirts

June 15, 2015

Everest Group had the opportunity to attend IBM’s APAC analyst day in India on 11-12 June 2015. Business and technology leaders from IBM presented their offering portfolio, demos, and real life transformative case studies with active participation from their clients. One thing that stood out was how Big Blue is communicating not only its technology vision, offerings, and organizational commitment toward open technologies, but also its internal transformation to serve clients and reclaim its technology leadership position. It realizes that the “old IBM” ways will no longer work, and it needs to become more nimble and innovative, and play an important part in shaping the technology disruption the digital age has brought onto us.

What’s happening?

Earlier this year, IBM aligned its go-to-market strategy around key industry verticals. It also created internal structures to make myriad of its offerings, technology groups, services business, sales and marketing, and its research lab work in sync. It believes this will help create solutions that are required to leverage digital technologies, and thereby not only redefine itself, but also create a new ecosystem of product and service providers around it.

Going back in the history, IBM truly transformed the technology industry when it invented the Mainframe. And while today’s technology becomes tomorrow’s legacy, no one can deny that the Mainframe was a historical system that shaped and created the technology industry as we know it today.

However, since then, IBM became a nuts and bolts company providing middleware, desktops, and back-end efficiency solutions focused on enterprise computing. While it did introduce incremental innovation and acquire many technology companies, it did not play a meaningful role in shaping the industry vision. It continued to invest in its research labs, and its products were always considered leaders in enterprise computing. But it hasn’t been a leader in true enterprise technology transformations such as the rise of ERP, virtualization, SaaS, or IaaS.

This has changed. The analyst meeting demonstrated that digital has become the new pivot around which IBM will take back its earlier pedestal position of being the company that forms, shapes, and guides the technology industry. This story was ably supported by multiple client interactions during the event. Clients say that this is not the IBM they had earlier worked with, or had expected to work with.

IBM’s much publicized partnerships with digital native firms like Facebook and Twitter, and leading user experience and design companies such as Apple, are an important but small part of its digital journey. The bigger part is moving away from its traditional way of working, and realizing that it must play a key role in the digital everywhere environment. Its increased focus and core commitment toward open technologies is highly apparent. And it has always had the technology, scale, and reach to transform businesses. Now, the muscle it’s putting behind Softlayer and BlueMix, its mobility play, and its investments in analytics, the Internet of Things (IoT), and Watson have the potential to transform not only its clients but itself as well.

Is there any challenge?

With its go-to-market alignment with industry verticals, IBM can bring effective solutions to clients looking to transform their businesses. However, disruption in most industries is happening from the outside, (e.g., Uber to the taxi industry, Airbnb to hospitality, Apple Pay to banks, and Google cars to automotive), rather than within. Therefore, a rigid structure around industries may not work well. IBM will need to ensure that its technology, industry verticals, and innovation groups talk to each other, an area where it has historically struggled.

Moreover, monetization of some of these innovations will be a long, drawn out process. IBM has had significant growth challenges, and has shed many of its businesses. For its growth and profitability to return –which should be the big drivers along with reclaiming its innovator status – IBM has to do a lot more. It has historically been viewed as a company that helps clients’ operations run more efficiently; it now needs to carefully position and communicate its willingness and ability to partner in clients’ growth.

Where does IBM go from here?

In addition to the digital technologies IBM possesses, other of its strong strategic initiatives include: internal transformation around reskilling the workforce toward innovation and design thinking; commitment to open technologies; collaborative alignment between its services business and its technology groups; renewed commitment toward client centricity; improved sales effectiveness; and focus on solving core industry problems.

IBM’s changes have been pushed right from the CEO’s office, and IBM executives believe results will be visible in the next 6 to 12 months. IBM needs to play a dual role in which it helps some clients disrupt their industries and business models, and assists others sail through the digital disruption. It again needs to become a technology innovator. While it’s a difficult task, we believe it has the needed technology, vision, and now internal alignment to achieve these objectives.

Virtustream Acquisition – EMC Spreads Its Hybrid Cloud Wings | Sherpas in Blue Shirts

May 27, 2015

EMC has taken a significant step forward in its hybrid cloud journey with the announcement of its acquisition of Virtustream in an all-cash transaction of US$1.2 billion. Founded in 2009, Virtustream is estimated to have clocked ~US$ 100 million in revenues last year through its cloud hosting services and management software (xStream) offerings – while cloud IaaS accounted for 60% of this revenue, the remaining 40% came from management software licenses.

The U.S.-based company will eventually become the managed cloud services division within the EMC Federation business. The transaction is expected to close by the third quarter of 2015 and be additive to EMC’s revenues starting 2016.

EMC is well known for its deep pockets. With about 70 acquisitions since 2003, the inorganic route is clearly not new to EMC (to put it mildly). The company has not shied away from flexing its muscles from time-to-time to build capabilities for its mainstay storage business and beyond.

EMC’s “Shift” to Cloud

The emergence of cloud has had a strong impact on EMC’s core storage business, which has been witnessing a sluggish demand over the past few years (the overall Information Storage division of EMC has witnessed a CAGR of ~3% over 2012-14). While EMC has rejigged its focus to cover new storage products, this “strategic tweak” in itself is not expected to arrest EMC’s plummeting revenue growth. Therefore, EMC has put its bet on the “next big thing” in the IT industry – hybrid cloud.

EMC’s association with VMWare and Pivotal has ensured that EMC is no newbie to the cloud; however, the real sign of intent from EMC came with the launch of its Enterprise Hybrid Cloud Solution last year. The launch also coincided with a triplet of cloud acquisitions – Cloudscaling (an OpenStack IaaS solution developer), Maginatics (a cloud-enabled storage provider), and Spanning (a cloud-based application data security provider).

So what does Virtustream bring to the table?

As EMC looks to make a mark in the enterprise cloud market, the Virtustream acquisition offers multiple benefits to EMC:

Expansion of the Enterprise Hybrid Cloud Solution portfolio: EMC’s Enterprise Hybrid Cloud Solution is currently an on-premise private cloud offering that provides cloud-bursting options to VMware vCloud Air and other public cloud services. The addition of Virtustream’s xStream platform provides EMC with capabilities to manage both on-premise and off-premise deployments, thereby offering a truly hybrid cloud setup

The xStream platform will be leveraged by EMC Federation service provider partners to deliver independent services based upon it
Credible cloud managed services capabilities: Virtustream has witnessed credible success in serving large enterprises with complex cloud deployments and managed services requirements, through partnerships with industry-leading vendors such as SAP (which made a US$40 million investment in Virtustream in 2013), Oracle, and Microsoft. Virtustream has been certified by SAP to offer SAP HANA as-a-service. EMC can leverage Virtustream’s managed service capabilities/experience to serve its own existing clientele as well as prospects
Datacenter footprint: Virtustream brings a credible revenue stream based on its datacenter footprint spanning locations such as the U.S., UK and the Netherlands (catering to key demand markets such as North America and Europe)
Meaningful clientele: Virtustream brings a credible roster of clients including Coca-Cola, Domino Sugar, Heinz, Hess Corporation, and Kawasaki, which will get added to EMC’s kitty (to cross-sell its broader hybrid cloud and storage offerings).

The move to acquire Virtustream seems to be a logical one for EMC (although the revenue multiple of ~12X indicates some level of desperation on EMC’s part, given the ongoing stakeholder unrest). Also, given EMC’s traditional modus operandi of allowing its acquired entities to operate autonomously, we do not expect the acquisition to grossly impact Virtustream’s innovation capabilities (barring potential integration and cultural challenges)

Virtustream’s rationale for being acquired?

The development may have come across as a surprise for many market observers, given that the company was grappling with the idea of going public barely six months ago. While Virtustream was going great guns, the brand recognition of a cloud provider typically plays a huge role when it comes to large enterprises looking for sourcing options. Consequently, hitting the “next level” of growth trajectory potentially becomes a significant challenge for players such as Virtustream (especially with a large enterprise focus).

Therefore, it comes as no surprise that Virtustream’s CEO, Rodney Rogers, claims to have considered multiple suitors over a period of time, before choosing EMC (based on terms offered and a chance to become a part of the EMC Federation).

Does this point to more consolidation in the cloud IaaS market?

The EMC-Virtustream deal has been preceded by multiple notable acquisitions in the cloud market over the past few years (Terremark by Verizon, Savvis by CenturyLink, SoftLayer by IBM, Metacloud by Cisco, and GoGrid by Datapipe). As various players in the enterprise cloud market, be it global IT service providers, telecom providers, or public cloud providers look to gain a stronger foothold, it is hard to bet against other similar acquisitions happening in the near future. The question is which company will be the next one to get gobbled up? CloudSigma? DigitalOcean? Joyent? ProfitBricks? Or even Rackspace? That only time will tell.

Photo credit: EMC

Announcing our inaugural conference: Everest Group Engage, The Pragmatic Edge: Designing Your Future. Learn more.

Author: AshwinVenkatesan