All Posts By

Julian Herbert

Julian Herbert is a Vice President at Everest Group located in our London office.

Bitcoin is to Blockchain What A5 was to GSM – A Parallel from Digital History | Sherpas in Blue Shirts

By | Sherpas in Blue Shirts

The mobile communications industry provides a historical example of how it solved a real problem with cryptography, overcame complexity, and transformed a market once viewed as a niche into something the world takes for granted. Blockchain has a way to go.

Blockchain is no longer just Bitcoin. Medical records, claims handling, fraud checking, supply chain management, national identity records and personnel background checks: all need to access data from multiple sources between multiple entities, in a secure, efficient way.

But all technology adoptions face challenges. An article by Iansiti and Lakhani in the February 2017 edition of Harvard Business Review presented that complexity and novelty are the two principal challenges. Complexity is defined as “the number and diversity of parties that need to work together to produce value with the technology.” Successful adoption requires a huge effort of co-ordination. The more parties involved in the technology ecosystem, the longer it takes.

Novelty translates as “is this a solution looking for a problem?” In other words, does the technology solve a real problem, or one that’s manufactured to accommodate the technology? The ecosystem needs to understand the problem and recognize the solution.

With that stage-setting, let’s take a look at an historical precedent that shows how a complicated technology that required multi-party cooperation and adherence to a common standard overcame complexity and addressed novelty to make the long journey from concept to successful adoption.

GSM: Global System for Mobile Communications, nee Groupe Speciale Mobile

In February 1987, the European Conference of Postal and Telecommunications Administrations (CEPT)published the first draft of a specification for mobile telephony, GSM, which had been conceived in 1982. At that time, mobile radio was a well-established, if niche, expensive, and technologically imperfect phenomenon. CEPT recognized that business people needed to use a phone connected to a public telephone network while on the move, and sought to improve its use in several ways.

Because phone call privacy was critically important to business users, CEPT specified a stream-cipher technique called the A5 algorithm (“A5”) at the February 1987 meeting. When the first GSM networks were launched commercially four years later, users simply understood that with a GSM phone, it was impossible for anybody with a $50 Tandy scanner to listen in on their phone calls. Cryptography had found a receptive marketplace, and the prevailing term “digital” sold the idea that conversations on the move were private and secure.

Because successive organizations that promoted GSM lined up a pool of telecom operators willing to buy, technology manufacturers organized themselves into consortia to share the risk, and invested heavily in turning GSM into physical equipment in just four years. National regulators then set the conditions for the licensing of competitive carrier models. With these moves, GSM had overcome complexity in its ecosystem “to produce value with the technology.”

Five years after its commercial launch in Finland in November 1991, GSM with A5 had been adopted by 200 carriers in 100 countries. Just under half of the world’s mobile phone subscribers were connected to a GSM network by 1996. By the end of 2008, when Bitcoin was creeping onto the world stage, an evolved set of standards based on GSM had become a de facto global standard for mobile.

Users of most of the world’s five billion active mobile phones don’t know or care why A5 was specified, that it can now be processed in real time by security services, or that it has been routinely hacked by cryptographers since the late 1990s. But in recognizing that a solution was required for an easily understood problem – air-interface privacy – CEPT had kick-started a market, assisted by cryptography, with scale and application way beyond the problem which the technology originally solved.

But, even with a highly orchestrated ecosystem, it had taken 26 years.

Back to Blockchain

Blockchain technology has arrived, and proofs of concept and enterprise-specific applications abound. IBM and Maersk will establish a joint venture to develop a trade platform for the global shipping industry. Australia’s stock exchange, ASX, is deploying blockchain to replace its existing registry, settlement, and clearing system. Nation states following Estonia’s lead are considering using blockchain to build their entire e-government infrastructures.

Blockchain as a broad technology will certainly end up as a solution to thousands of parochial problems. But the back to the future lesson from GSM and A5 is that for Blockchain to emerge as a transformative solution on a global scale, it needs a single big ecosystem (banks?) to identify a single problem (interbank settlement?) and to adopt a single standardized approach (Ethereum? Ripple? Iroha? Corda?  Quorum? Sawtooth? Et al?). That ecosystem must have convinced regulators at worst that the approach will be compliant, and at best that the approach is mandatory. It must then agree timelines for implementation and adoption, and stick to them.

Will it take 26 years? I guess we’ll all have to shine up our crystal balls.

To learn about our practical five-point framework for understanding business processes that are best suited to blockchain adoption, please see our November 2017 viewpoint, “Unblocking Blockchain Adoption“.

IT modernization: Fool’s Gold for Transformation and Gainshare | Sherpas in Blue Shirts

By | Sherpas in Blue Shirts

Contracting exemplars for digital transformation are not to be found in IT modernization deals

If your enterprise is expecting digital transformation from a service provider and the incentive in the contract is based on cost savings, you’re likely barking up the wrong deal tree. Why? Because it likely signals that the provider will be approaching it as a legacy IT system modernization engagement, rather than a true digital transformation.

And there’s a big difference between the two, as Everest Group’s Founder and CEO, Peter Bendor-Samuel, talked about in a recent Forbes blog post. He explained that while big IT deals may contain transformational elements such as moving legacy infrastructure to the cloud or DevOps adoption, they are IT modernization programs, not digital transformation, unless they are motivated by fundamental business model change.

Don’t get me wrong: although IT modernization programs are important and big, they are not transformational. And in a competitive environment where experience and reputation count, enterprises need to be able to spot the differences between reference projects driven by the need to modernize or integrate infrastructure and those that genuinely transform their business models.

Here’s some food for thought

At an analyst briefing a few days ago, a senior executive from a global service provider described its firm’s recently completed multi-year transformation project for a major European banking client. I asked him afterwards about the delivery incentives for contract that was inked back in 2014. Had he, the service provider, been incentivized on business model transformation, or just cost take-out? Was there any element of shared risk or outcome-based incentive?

He was delightfully candid: to his knowledge, there isn’t a single major ITO contract in Europe or North America in which a service provider has accepted a gainshare incentive, and his case was no different. Programs of this sort that are being completed now are all about modernization. They are cost reduction exercises, albeit on a huge scale, but they are not business transformation.

Indeed, exemplars of shared risk incentives are few and far between. Even those in the public domain, including IBM’s 10-year, $700 million contract with Etihad in 2015, and ACS/Atos’s 10-year $500 million contract with Allscripts Healthcare in 2011—which had significant transformation scope such as data center consolidation or private cloud implementation—may have shined with the fool’s gold of transformation, as they were likely driven and funded by cost reduction, not business model transformation.

There is one public domain deal that is a genuine transformation exemplar: IBM’s 10-year $1 billion deal with Banorte in Mexico, which started in 2013. It is a top-down, long-term vision, driven by a strategy to deliver value through a customer-centric focus, rather than a requirement to upgrade creaking technology and save cost. The original press release hints at shared risk, and a joint venture-like governance model, in the way it was to oversee the project and measure progress.

But Banorte is an exception. In Everest Group’s own experience of analyzing dozens of ITO contracts over the past three years, gainshare constructs are exceedingly rare in the digital transformation space. And the evidence base of completed digital business transformations, as opposed to completed IT modernizations, is pretty much non-existent.

To gain deeper insights into digital transformation contracting incentives, we will be conducting extensive research among enterprises over the next few months to investigate the mix of output versus outcome-based pricing metrics. Keep your eyes on this space to read more about how the best enterprises are evolving their outsourcing models in this new digital frontier.

What the Global Services Industry Can Learn from 17th Century Firefighters | Sherpas in Blue Shirts

By | Sherpas in Blue Shirts

A couple of weeks ago, several of us from Everest Group hosted a roundtable for sourcing executives in the U.K. The event was held in London’s Moorgate area – Moorgate is the name of the northernmost gate in the old city wall, and everything to the south and west was destroyed by the 17th century Great Fire of London – so I decided to orient my discussion on benchmarking by drawing parallels between the fire and digital disruption in the global services industry.

For context, the Great Fire started shortly after midnight on 2 September 1666 in a bakery on Pudding Lane. Over the next three days, the fire gutted the medieval City of London inside the old Roman city wall, and consumed 13,200 houses, 87 parish churches, St. Paul’s cathedral, and most of the buildings of the City authorities.

As we’re just several weeks shy of the 351st anniversary of the Great Fire, let’s all have some fun by casting today’s enterprises and two different types of outsourcing service providers as the entities trying to find a solution to stop the fire from spreading.

service providers


First, as there was no city-run fire brigade, the householders – read, the enterprises – attempted to put out the fire themselves, as it engulfed their own buildings. But their two capabilities, dousing buildings with water despite the inadequacies of the pipe network and pulling burning material from structures with bill hooks, were reactive and futile. Theirs was a sub-optimal process.

With the fire quickly spreading, the city authorities realized that a more coordinated approach was required. The city militia – read, service providers that deliver “traditional” services – was called in, and concentrated its efforts on pulling down houses that stood in the fire’s path. While this was an optimized process, it only minimally delayed the spread of the fire, and certainly was not popular with the householders/enterprises.

Finally, the garrison at the Tower of London – read, a provider that offers transformative, digitally-based solutions – offered a solution that was conceptually challenging: the creation of effective firebreaks by using gunpowder to demolish entire streets. This genuinely transformed process rescued the city by leveraging a highly disruptive technology (gunpowder).

The immediate outcome was prevention of further fire spread. Problem solved! But the solution also resulted in two unforeseen, and highly beneficial outcomes: the end of the bubonic plague outbreak that had ravaged London since 1665, and, because of the huge anticipated cost of rebuilding the city, a financial imperative to end the Anglo-Dutch war. The eradication of disease meant that London was immediately a safer place to live, so both economic and intellectual capital returned to the city. Peace with Holland created conditions for trade to thrive, insurance against risk took off (Lloyds appeared as an insurer just 22 years later in 1688,) and London’s emergence as a global city began…extraordinary value-add.

How does this connect with service providers today?

The moral to this entertaining (and historical fact-filled) exercise? Today’s enterprises are facing multiple, unprecedented forces. In order the stop the spread of the fire – or gain and maintain a competitive foothold – they likely need to partner with  service providers that embrace innovative, disruptive, digital solutions.

Enterprises can always insist that service providers find better ways to prevent the spread of fire, and to optimize processes by taking a rounded, contextualized approach to reviewing the detail of an existing arrangement. In our experience, this can account for value improvements of between 18 and 24 percent of the total cost. But by insisting that service providers themselves start thinking innovatively and imaginatively, that improvement can often be doubled. While some of the consequences will be unintended, many of them will deliver benefit far beyond their intention.