Yugal Joshi, Author At Everest Group

Technology Specialists – The New Dinosaur in Making | Sherpas in Blue Shirts

September 3, 2015

Are you a brilliant Java coder? An expert in the R programming language? A phenomenal database administrator? A brilliant software seller? Sorry to say it, but you’re likely to soon be a member of the “extinct club.”

In corroboration of Scottish economist Adam Smith’s concept of the division of labor, organizations have historically preferred and hired specialists to develop their technologies, and other specialists to sell them. These masters of their craft had acclaimed expertise in their specific areas. And despite the evolution from mainframes to microcomputers to PCs to client server to ERP to the web, it was relatively easy for them to upskill or move to an adjacent skill, as the technologies adopted by companies rarely changed in their fundamental structure.

This gave rise to an “I am a developer, let me develop, I am in sales, let me sell” model within technology companies. It worked well, as enterprises persisted with outdated technologies they had intertwined their business models, and the cost of replacement was prohibitively high. This persistence created the specialists, who were assured of their place in the high echelons of technology as the landscape was not changing fast enough. This also gave rise to the outsourcing industry, which was leveraged to support these outdated systems and reduce the cost of management.

However, those times are gone. Due to digital transformation, organizations expect their professionals to understand not only the technology, but also business users’ perspectives, technology ease of use, consumption flexibility, and creation of top line impact. Development or sales specialists lacking a comprehensive business view are quickly losing their relevance and competitive edge.

Lack of relevance and competitive edge can, and will, also effect many technology providers. This is due, in large part, to the fact that as the cost of consumption of hardware and software decreases, organizations are increasingly willing to dismantle their existing systems and embrace newer models, e.g., migrating from one SaaS CRM to another. The idea of “fail fast, fail better” is gaining traction within enterprises, and technology companies need to align their business models accordingly to serve them.

The reality is that this sea change requires full-scale overhaul of technology providers’ entire business model – including their investment strategy, product roadmap, partnership ecosystem, and go-to-market approach. Yet executives in these businesses have made their careers and big money by developing and selling technology in a certain manner that promotes status quo. Think about a large software vendor and its partners who earn millions of dollars by just providing “certificate training” for their technologies. If the technologies become redundant, their bottom line will be severely impacted. Therefore, they will invest all their efforts in ensuring their clients stick to their technology platforms, irrespective of whether they are outdated and unable to cater to the business. Of course, there are buyers that do not want to rock the boat by changing something until it is really broken. This comfortable nexus has been going on for ages.

But the times are changing very fast. Technology providers that view their buyers as “cash cows,” rather than valuable partners to be helped to achieve business objectives, will fast lose relevance. The providers that succeed will: 1) embrace this new world of disruption, and create meaningful solutions that are more than beautified version of their outdated platforms wrapped in a pretense of user friendliness; and 2) make their prized specialists realize the new norm of the business wherein they need to at least understand, if not master, the art of viewing the world from a business and end-user perspective that incorporates a holistic paradigm beyond their usual tunnel vision.

If he were alive today, Adam Smith might well have changed his tune, instead suggesting malleable skills to enable technology companies’ success in these uncertain times of technology.

Photo credit: Flickr

Will Corporate Venture Funding Lead to the Death of VCs as We Know Them? | Sherpas in Blue Shirts

August 14, 2015

For some time now, large companies have shied away from corporate venturing, unsure of returns and/or efficiency of capital usage. Enterprises have seen their venture initiatives fail, and many give up hope quickly after initial enthusiasm. Even corporates that have managed to run successful funds have struggled to monetize their leveraged investments as they scale up. Given these challenges, it’s not surprising that enterprises with large, under-utilized cash piles chose to maintain the status quo, rather than invest in an emerging startup economy.

However, we’re starting to see a significant change in the funding landscape. This week, Google announced plans for a new operating structure that effectively makes the eponymous search engine giant a subsidiary of a new holding company, Alphabet. One of the main driving rationales for this decision was to delink Google from other ventures in which the parent organization is involved, and give it more room to experiment with new ideas. After all, Google has diversified into areas including life sciences, drone delivery, space research, and home automation.

Last month, Workday, the enterprise SaaS poster boy, announced Workday Ventures, the company’s first strategic fund focused on identifying, investing, and partnering with early to growth stage companies that place data science and machine learning at the core of their approach to enterprise technology. In June 2015, Intel Capital led a US$40 million Series D investment in Onefinestay, best described as a luxury Airbnb competitor. And other corporate venture funding efforts have figured prominently in the recent hyper-competitive boom in the deals landscape.

Corporate VCs don a new avatar

Corporate venture funding has taken a new lease on life, and aroused widespread interest, notably in The Economist and Harvard Business Review. This is not without reason. AMD, Dell, and Google are technology giants with early venture funds, and firms such as Microsoft and Salesforce made similar moves later. A CB Insights study on corporate venture investment trend found that corporate venture capital activity witnessed a significant uptick in 2014, with deals by corporate venture arms jumping 25 percent YoY and funding rising 76 percent. The most active corporate venture investors in 2014 among technology companies were Cisco, Comcast, Google, Intel, Salesforce, Qualcomm, and Samsung, underscoring the attention being paid to this route.

In terms of exits by corporate venture investors, technology players again emerged on top, led by Google Ventures (OnDeck Capital, Hubspot, and Nest Labs), Intel Capital (Yodlee, [x+1], and Prolexic Technologies), and Samsung Ventures (Fixmo, Cloudant, and Engrade), and Qualcomm (Divide, MoboTap, and Location Labs). The marquee corporate venture deals in 2014 were Cloudera (US$900 million, led by Intel Capital), Tango (US$280 million, led Alibaba), and Uber (US$1.2 billion, led by Google Ventures). The chief areas of investment include Internet of Things, analytics, security, and platform technologies.

Differences between corporate venture funding and conventional VCs

While VCs tend to focus on growing portfolio companies and time their exit from a ROI standpoint, corporate venture funds take a strategic view of investments, and look to use their expertise to guide start-ups
Acquisition of portfolio companies is not uncommon for corporate venture funds (e.g., Google Ventures – Nest Labs). Funding a startup and acquiring it later, rather than building one organically, makes for a stronger business case. Traditional VCs frequently work with the intention of taking investments public
Corporate venture funds are less risk-averse than conventional VCs, given their deep pockets and long-term position. This is also reflected in their higher involvement in seed funding rounds
Typical VCs tend to lag corporate venture funds in terms of average deal size or term, also due to corporates’ deep pockets and long-term holdings
Corporate venture funded start-ups tend to go public more often than their VC portfolio peers

Strategic technology investment or desperate spend?

Given improved macroeconomic confidence, there is a lot of “easy money” floating around the technology continuum. And this is beginning to result in a “perpetual investment bubble.” While this isn’t to say that doomsday is just round the corner, with everything and anything getting funded (does anyone remember Yo?), utility, monetization models, and future relevance seem to be the last things on investors’ agenda. More often than not, there is a fine line between a blunder and a brilliant bet. Everyone and anyone in this easy dollar-fueled utopia tend to be under the messianic illusion that the next multi-billion dollar bet is around the corner and will change the world. Most players tend to add incremental value over existing processes, systems, and interfaces, rather than changing them as we know it, which is the reality of investing.

Given their tremendous business acumen, corporate funds have talent, skill set, pedigree, and, ultimately, deep pockets to exist and thrive in a volatile knowledge economy as they look to identify and nurture a truly revolutionary idea beyond just incremental technology value. That said, there is likely to be significant churn once the rose-tinted glasses come off. Still and all, with the strategic depth and domain guidance large enterprises can provide, their portfolio companies are likely to be better positioned to ride the wave.

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.

Hadoop and OpenStack – Is the Sheen Really Wearing off? | Sherpas in Blue Shirts

June 3, 2015

Despite Hadoop’s and OpenStack’s adoption, our recent discussions with enterprises and technology providers revealed two prominent trends:

Big Data will need more than a Hadoop: Along with NoSQL technologies, Hadoop has really taken the Big Data bull by the horns. Indications of a healthy ecosystem are apparent when you see that leading vendors such as MapR is witnessing a 100% booking growth, Cloudera is expecting to double itself, and Hortonworks is almost doubling itself. However, the large vendors that really drive the enterprise market/mindset and sell multiple BI products – such as IBM, Microsoft, and Teradata – acknowledge that Hadoop’s quantifiable impact is as of yet limited. Hadoop’s adoption continues on a project basis, rather than as a commitment toward improved business analytics. Broader enterprise class adoption remains muted, despite meaningful investments and technology vendors’ focus.
OpenStack is difficult, and enterprises still don’t get it: OpenStack’s vision of making every datacenter a cloud is facing some hurdles. Most enterprises find it hard to develop OpenStack-based cloud themselves. While this helps cloud providers pitch their OpenStack offerings, adoption is far from enterprise class. The OpenStack foundation’s survey indicates that approximately 15 percent of organizations utilizing OpenStack are outside the typical ICT industry or academia. Moreover, even cloud service providers, unless really dedicated to the OpenStack cause, are reluctant to meaningfully invest in it. Although most have an OpenStack offering or are planning to launch one, their willingness to push it to clients is subdued.

Why is this happening?

It’s easy to blame these challenges on open source and contributors’ lack of coherent strategy or vision. However, that just simplifies the problem. Both Hadoop and OpenStack suffer from lack of needed skills and applicability. For example, a few enterprises and vendors believe that Hadoop needs to become more “consumerized” to enable people with limited knowledge of coding, querying, or data manipulation to work with it. The current esoteric adoption is driving these users away. The fundamental promise of new-age technologies making consumption easier is being defeated. Despite Hortonworks’ noble (and questioned) attempt to create an “OpenStack type” alliance in Open Data Platform, things have not moved smoothly. While Apache Spark promises to improve Hadoop consumerization with fast processing and simple programming, only time will tell.

OpenStack continues to struggle with a “too tough to deploy” perception within enterprises. Beyond this, there are commercial reasons for the challenges OpenStack is witnessing. Though there are OpenStack-only cloud providers (e.g., Blue Box and Mirantis), most other cloud service providers we have spoken with are half-heartedly willing to develop and sell OpenStack-based cloud services. Cloud providers that have offerings across technologies (such as BMC, CloudStack, OpenStack, and VMware) believe they have to create sales incentives and possibly hire different engineering talent to create cloud services for OpenStack. Many of them believe this is not worth the risk, as they can acquire an “OpenStack-only” cloud provider if real demand arises (as I write the news has arrived that IBM is acquiring Blue Box and Cisco is acquiring Piston Cloud).

Now what?

The success of both Hadoop and OpenStack will depend on simplification in development, implementation, and usage. Hadoop’s challenges lie both in the way enterprises adopt it and in the technology itself. Targeting a complex problem is a de facto approach for most enterprises, without realizing that it takes time to get the data clearances from business. This impacts business’ perception about the value Hadoop can bring in. Hadoop’s success will depend not on point solutions developed to store and crunch data, but on the entire value chain of data creation and consumption. The entire process needs to be simplified for more enterprises to adopt it. Hadoop and the key vendors need to move beyond Web 2.0 obsession to focus on other enterprises. With the increasing focus on real-time technologies, Hadoop should get a further leg up. However, it needs to provide more integration with existing enterprise investments, rather than becoming a silo. While in its infancy, the concept of “Enterprise Data Hub” is something to note, wherein the entire value chain of Big Data-related technologies integrate together to deliver the needed service.

As for OpenStack, enterprises do not like that they currently require too much external support to adopt it in their internal clouds. If the drop in investments is any indication, this will not take OpenStack very far. Cloud providers want the enterprises to consume OpenStack-based cloud services. However, enterprises really want to understand the technology to which they are making a long-term commitment, and are cautious of anything that requires significant reskill or has the potential to become a bottleneck in their standardization initiatives. OpenStack must address these challenges. Though most enterprise technologies are tough to consume, the market is definitely moving toward easier deployments and upgrades. Therefore, to really make OpenStack an enterprise-grade offering, its deployment, professional support, knowledge management, and requisite skills must be simplified.

What do you think about Hadoop and OpenStack? Feel free to reach out to me on [email protected].

Photo credit: Flickr

SaaS, We Will Miss You – Well Not Really! | Sherpas in Blue Shirts

February 13, 2015

Do you ever think about the lamp in your living room? Probably not today, as it serves its purpose well. But its newness, beauty, and usefulness gave you great satisfaction when you first bought it.

SaaS adoption is much the same. In the last decade, clients bought SaaS applications because they were “SaaS,” outside their premises, and offered interactive interfaces, better access, quicker new features, and cost savings. Adopting SaaS used to be a priority…SaaS was the means and the goal. But in and of itself, SaaS is now a table stake that is being relegated to the background by four key trends.

Mobile has taken the center stage: All SaaS providers worth their salt, (e.g., Salesforce.com, NetSuite, and Workday.com), and traditional vendors that have embraced SaaS, (e.g., Oracle, SAP, and Microsoft), are now focusing on offering mobile services leveraging their SaaS solutions. Therefore, enabling mobility is taking a priority over being a “SaaS company.” Salesforce.com, the global SaaS leader, acknowledged this market trend and launched “Lightning,” its mobile platform, to enable developers to quickly develop and deploy mobile apps. I expect other providers to make mobile their chosen computing platform and architect their SaaS offerings accordingly. Making end-user mobile leveraging SaaS concepts will take precedence over offering “SaaS” applications.
Platform service has become crucial: All the major SaaS providers cited have developed their platform offerings to enable developers to create application extensions and integration. SaaS may lose its sheen when not accompanied by a meaningful platform service. To scale, every SaaS provider will require a platform service to integrate with the legacy and broader enterprise IT landscape. Think about Salesforce.com, which integrated its disparate platform services (Force.com, Heroku, etc.) within the Salesforce1.com umbrella to create an integrated platform offering that assists developers and IT operation teams. Private platform providers such as Apprenda, Cloud Foundry, and Engine Yard, as well as traditional integration vendors such as Dell Boomi, Informatica, and IBM, are also eyeing this opportunity for application integration, and are exploiting the gaps left by SaaS offerings running in standalone environments. Technology providers that continue to offer point solutions will experience a natural ceiling to growth once they generate a critical mass. These providers may be acquired by other larger players that can offer more comprehensive, end-to-end services integrating different cloud components.
Analytics has become integral: In the last six months, both Salesforce.com and Workday committed to their vision of analytics services by launching multiple applications and platforms such as Salesforce Wave and Workday Insights. This is market leader acknowledgment that clients need value from their SaaS offerings that goes beyond day-to-day operations. SaaS companies are sitting on a treasure trove of client data, and mining it could provide significant benefits to their customers. While these applications are generally delivered in a SaaS model, companies will not buy them for delivery ease or cost savings, but for functionality and value. I expect most other serious SaaS providers will offer analytics services, especially in domains that require data crunching by vast numbers of humans or machines (e.g., Social, CRM, HR, Finance, IT spend, and M2M.)
SaaS’ novelty has faded away: SaaS has become one of buyers’ preferred mechanism for deploying applications. Even if they are hesitant to leverage a public cloud service, they end up in a private SaaS model and make their developers create “SaaS-like” applications. As most applications are now available in the SaaS delivery model, SaaS’ newness and cachet as a point solution are gone. Most buyers now incorporate “SaaS architecture” in their applications, regardless of whether they are delivered as a SaaS or not. SaaS is now so entrenched as a concept that it is no longer a novelty or a David competing with the Goliath’s of the traditional application world.

Today’s buyers expect SaaS to be better than on-premise systems. They no longer adopt SaaS just because it’s delivered in an “as-a-service” model. They want SaaS because it can solve business problems that on-premise systems may not (or may be exorbitantly costly and time consuming). Buyers no longer buy delivery models; rather, they buy solutions and outcomes.

SaaS as we knew it is gone. However, now it will drive the broader ecosystem of IT consumption, aid clients in running and transforming their businesses, and help end-users perform meaningful tasks. It is the backbone of the entire application landscape. SaaS needs to perform this work in the background and let the new-age concepts and value drivers take the front seat. SaaS needs to become the lamp in the enterprise living room.

Enterprise Technology 2015: Heavier Apps, More PaaS, Troubled Security… and more | Sherpas in Blue Shirts

January 6, 2015

As enterprises freshen their technology mandate for 2015, they stand at the cusp of a multi-dimensional interplay of agility, flexibility, and rising security considerations. Beyond the usual SMAC stack, enterprises are also grappling with challenges to the status quo in terms of faster application development, automated IT operations, the Internet of Things, and process fragmentation.

Following are five technology trends that rose to the top of our list for the important role they will play in enterprise technology in 2015.

Mobile Apps – Will Need a RethinkThe IBM-Apple partnership to tackle enterprise mobility is a significant development that validates our earlier hypothesis. However, the enterprise apps now require a rethink. These apps were conceived to be “light weight” and easy to use, focused on a specific range of capabilities. But, due to increased adoption and constant demand for additional functionality, enterprises are going against this fundamental tenet by coding in multiple features that are making mobile apps heavy and difficult to use. Yet, this same “overhead bulk” has become compulsory to provide features such as analytics across apps usage, offline access, and cloud collaboration that help enterprises perform meaningful tasks. In 2015, enterprises will need to walk a fine line between honoring the basic principles of mobile apps and the persistent demand for increased functionality.
PaaS – The Needle Will Move FurtherWhile Platform-as-a-Service (PaaS) has been touted as the “next wave” since its inception, it never fulfilled its purported potential of adding meaningful value. However, enterprise technology may see that change in 2015 given the push from leading vendors such as Microsoft (Azure), IBM (Bluemix), Red Hat (OpenShift), Salesforce (Salesforce1), and AWS (Elastic Beanstalk). The PaaS business case will be enhanced by IaaS providers offering “PaaS-like” features (which is already happening), as well as PaaS platforms getting integrated with IaaS (e.g., the recent partnership between Apprenda and Piston Cloud). Although we do not believe PaaS will become the face of the cloud, we indeed expect 2015 to push its adoption within enterprises.
Cyber Security and Open Source – Conundrum Won’t be SolvedThe Sony hacking scandal reiterated the importance of enterprise security – which is often taken lightly as compared to most cool next-gen initiatives – and has turned cyber security into a top priority for 2015. However, with the proliferation of Open Source Software (OSS) in enterprises, this “insecure” perception will surge. Enterprises are aggressively looking toward OSS with a host of next-generation technology areas such as cloud (OpenStack), Big Data (Hadoop), mobility, IT operations automation (Chef, Puppet), and content management (Drupal, Joomla!). With marquee B2C corporations such as Netflix, Samsung, and Facebook already having undertaken major, well-publicized OSS initiatives, other traditional enterprises will be pushed hard, despite a concern for security. Google teaming up with Samsung to include Knox (additional enterprise security features) to make Android more appealing for the enterprise is a step in answering this conundrum. However, it won’t be solved in 2015.
Battle for Container Supremacy – Docker Will be ChallengedApplication development is getting a relook within enterprises with increased interest in container technology. Docker, the poster child for containers, whose open platform helps developers to build, ship, and run distributed applications, was rocketed in 2014 with competition from CoreOS. While Docker container technology is now supported by most platforms such as Amazon, Google, IBM, Microsoft, and VMware, its shortcomings are becoming visible. Developers believe Docker “replaces” virtualization but provides limited platform-type support, and its containers are becoming resource intensive. Moreover, given Docker’s early foray into container management, it will be pitted against the might of Google Kubernet and AWS, as well as nimble players such as Giant Swarm. This may dilute Docker’s focus on developing next-generation container technology, leaving an ample field for competitors to exploit.
Analytics – Focus Will be on Bread and ButterWith millions of dollars invested in data analytics initiatives, 2015 will make enterprises reassess the opportunity cost and value of data. While tools such as Hadoop and NoSQL have greatly reduced the entry barriers to analytics, they have witnessed middling adoption. Enterprises still have a long way to go to embed analytics in their existing processes. Therefore, despite the Internet of Things and wearable devices taking off and generating more machine data for organizations to tap into, these new initiatives will not be an immediate priority for 2015. In 2015, enterprises will get their analytics act together to focus on existing processes, consolidation, rationalization, and targeted spending, with data management, governance, and security taking priority.

Danish physicist and Nobel Prize winner Niels Bohr once commented that, “prediction is very difficult, especially if it’s about the future.” So, please join us out on the limb. What are your predictions for 2015 enterprise technology?

Atos Bets on Xerox’s ITO Business to Achieve Global Aspirations | Sherpas in Blue Shirts

December 22, 2014

The Facts

On 18^th December 2014, Atos, a leading European IT service provider, announced the acquisition of the IT outsourcing (ITO) business of Xerox. The ITO business was part of Xerox’s services unit that also delivers Document Outsourcing (DO) and Business Process Outsourcing (BPO). The acquisition does not impact Xerox’s DO or BPO businesses, and signals an intent from Xerox services to focus entirely on those businesses.

Atos is paying US$1.05 billion in cash with an additional consideration of US$50 million subject to fulfillment of certain conditions, and will add ~US$1.5 billion of ITO revenue to Atos’ topline. Post completion of the acquisition, revenues from the United States will almost triple for Atos, making it the single largest operating geography. This acquisition will also add 9,800 professionals to Atos’ existing 85,000+ employees. Further, Atos will become the primary IT services provider to Xerox (~US$240 million annual revenue) and also have the right to first refusal on collaborative opportunities with Xerox. The acquisition is expected to close by Q2 2015.

The Good

Atos has faced perennial organic growth challenges with 2-4% annual revenue decline that it countered by large acquisitions such as Siemens Information Systems in 2010 (for US$1.1 billion) and Bull in 2014 (for US$830 million). Both of these were focused primarily on the European region. Xerox ITO derives ~93% of its business from North America with an estimated 250+ clients in this region. Xerox’s ITO business (acquired with ACS in 2010), has witnessed growth of above 5% CAGR over the last 5 years. This should help Atos partially address its own growth challenges.

Atos’s 2016 ambition is to become a Tier-1 “global” (read non-European) service provider with significant presence in the North American region for traditional and next-generation services such as big data, cloud, and digital. The acquisition provides a strong foothold in the North American market that is growing faster than Atos’ European stronghold. Moreover, Atos’ plans of achieving ~US$1.2 billion from North America by 2016 are easily surpassed by this acquisition. Xerox ITO will more than triple the contribution of the U.S. market and increase the region’s share to 17% from the current 7%.

Atos performed an extensive due diligence on assets and analyzed over 85% of existing Xerox’s ITO contracts to ensure alignment with strategy. Given that Xerox’s ITO business is exclusively focused on infrastructure managed services, Atos can possibly cross-sell system integration, consulting, big data, cloud and BPO services to these clients. Despite limited presence in North America, Atos is a recognized brand and now with Xerox’s capabilities, it can meaningfully penetrate this market. Conversely, for Xerox, it can leverage Atos’ European presence to expand its BPO business beyond its U.S. stronghold.

This acquisition is an important milestone in achieving Atos’ 2016 ambition of growing IT services by ~5% in 2014-2016 largely through “external initiatives”. Further, Atos has aggressive “offshore-leverage” plans for its global delivery organization with over 60% of incremental hiring planned in these regions. Xerox brings 40-45% of resources in these markets, which are higher than Atos’ overall offshore-leverage of 25-30%. This will also aid Atos’ 2016 ambitions of improving operating margins by 100-200 bps.

The two companies are also highly technology focused and could join forces to come up with new innovative ways of doing business particularly in the world of all things digital.

For Xerox, the divestiture of the ITO business signals a strong commitment to the DO and BPO segments within services, and will allow Xerox the capital to continue making investments in advancing service delivery capabilities in the BPO market which is facing significant disruption due to technology and service delivery automation.

The Uncertain

History indicates that acquisitions fail due to a variety of reasons, the biggest being culture misfit. However, we believe it’s impossible to predict the outcome of an acquisition based on cultural conflicts and therefore, this is best left for the future.

Yet, there are some risks and challenges Atos will needs to address. For example, despite Xerox adding to “low-cost” headcount, Atos still significantly lags major Tier-1 providers such as IBM, Accenture, TCS, and Capgemini. These incremental low-cost resources do not meaningfully enhance Atos’ commercial flexibility to offer attractive pricing to its clients. Xerox ITO has a long-tail of clients where ~80% of clients contribute only ~15% of revenue. Atos may need to trim this long tail and carefully evaluate Xerox’s presence in the mid-market segment. Moreover, the aspiration of selling IT services to ~800 of Xerox’s BPO clients will require sustained efforts given a significant number of these will already have strong incumbents.

Atos is making considerable investments in digital and cloud services with its Canopy subsidiary and recent acquisition of Bull. However, it lags peers such as Accenture, Capgemini, and IBM in offering big data and digital services. Despite Xerox’s ITO investments in cloud (eight private cloud set-ups, seven multi-cloud hubs), it is not recognized as a leading cloud provider. We believe that the Xerox ITO addition will not add meaningfully to Atos’ branding for cloud services in the North American market. From a scale stand-point, a US$1.7 billion revenue from North America pales in comparison to IBM’s $20 billion, Accenture’s $10 billion, TCS’ $7 billion and even “European” Capgemini’s US$2 billion from this market.

Moreover, Atos will need to closely manage internal organizational dynamics as the North American operations become increasingly influential. Currently most major decision making is centered in Europe. Atos will need to ensure that the North American leadership is suitably empowered to grow the business and meet the aspirations of becoming a major provider in that region. The go-to-market and sales strategy need to be adjusted with greater decision-making authority given to the front line team in North America.

The two companies’ leadership talk about their BPO offerings as being complementary. In fact, there is some overlap, certainly in healthcare administration with Atos having a strong presence in healthcare assessments in the UK public sector and Xerox in the US healthcare administration. Both companies also offer payment processing. We see some potential for “coopetition” in these lines of business.

The Road Ahead

Both organizations are very committed to making the acquisition a success with a formal strategic governance board including the respective CEOs to ensure smooth collaboration. Moreover, they will combine go-to-market strategy for select products and services across the client base. We expect Atos to transform the pure “managed service” focus of Xerox ITO by introducing its broader next-generation services to North American clients. We believe Atos has the capabilities and the investment DNA to carry out this transformation. The combination creates a powerful alternative infrastructure services provider for the North American market. Xerox ITO provides a good platform for Atos to strive towards its aspiration of becoming a major North American and Tier-1 global IT service provider. Whether this provider can offer next-generation cloud and digital services, and whether the North American clients will embrace it, only time will tell.

Digital Transformation is Digital Marketing. And You are Stupid. | Sherpas in Blue Shirts

November 6, 2014

In these times of “everything digital” mass hysteria, if we believe the first portion of the above headline, the second is almost certainly true. While I discussed businesses’ obsession with digital marketing and customer facing processes and their digital disruption in an earlier post, I am not surprised that the hysteria about marketing being everything in digital transformation has not abated. And unfortunately, it may not in the considerable future.

Multiple discussions with new and old age businesses such as ecommerce, banks, manufacturing, and retail reemphasize that digital transformation is a big boon for the marketers. With multiple channels and technologies enhancing the customer experience, digital transformation certainly hold great promise for CMOs. Given that it’s easier to get funding for “customer-centric” initiatives, organizations are defaulting to this choice. But they are over-focused on launching newer products/services and extending the reach of their organization. By believing the power of digital transformation resides just in marketing, we are doing it a great injustice.

To effectively adopt digital transformation, organizations need to rethink their business model. Many processes that dearly need digital disruption are internal to the organization, rather than external customer facing. What digital transformation should do is keep the end-user (the user who consumes the service, irrespective whether it’s a customer or not) at the forefront and re-imagine these processes. A clear role of digital initiatives needs to be defined across service center, support functions, legal and risk, HR processes, supply chain, and IT operations. Leveraging collaborative platforms, mobility, analytics, and cloud services should help all these functions to add value to the business rather than remain docile cost centers.

Moreover, various businesses are missing out on significant cost savings potentials that digital transformation can provide. In their single-minded obsession to drive customer engagement, and therefore over-emphasis on the top line, they are unable to fully realize the value of these initiatives to streamline and simplify internal processes and operations to save costs. If a business provides a wonderful mechanism to serve customers without really understanding how this should change its view regarding how it conducts the business, it won’t ever leverage digital transformation meaningfully.

Digital transformation is not only about spending a fortune in leveraging cool technologies to make marketing “next generation.” It’s something way beyond. It encompasses how much the business understands, values, appreciates, and respects people, processes, technology, and all the relevant stakeholders with which it directly or indirectly engages. It should not be viewed as just one more strategy for earning money from customers. Digital transformation should instead be seen as something that empowers stakeholders and the business. Something more than pure technology that helps in meeting and shaping people’s aspirations.

Excessive focus on sales and marketing may provide near term returns and easier funding. But it will not be sufficient to sustain digital initiatives. Digital transformation is a philosophy of conducting and doing business with simplicity, operational efficiency, and customer centricity. It is not just technology-enabled cool marketing. It’s fine to make engaging customer interaction platforms, perform all the analytics on customer behavior, and leverage virtual reality. But businesses that deploy digital strategies to fundamentally understand their role in serving all stakeholders, in turn impacting the related processes, will be truly leveraging the power of digital transformation. It’s a tremendous opportunity, and it will be pity if we do not exploit its full potential.

What has been your experience?

Photo credit: Andre Musta

Analytics Consumerization: Think “data doctor + tools = data scientist?” Think again | Sherpas in Blue Shirts

September 9, 2014

In October 2012, the Harvard Business Review named “Data Scientist” the “sexiest job of 21^st century.” While this profession has since gained meaningful acceptance and understanding in the broader big data analytics world, the dearth of real data scientists (some believe there are only 3,000 in the world), has opened the door to what I call “data doctors.” And many enterprises desperate to make sense of their burgeoning data to drive business value might get duped by IT consultants or aspiring candidates masquerading as data scientists.

What’s the distinction between the two? Data doctors – business intelligence analysts, ETL developers, data assemblers, data quality testers, data analyst, etc – are skilled in working with data. But data scientists typically deal with complex algorithms and statistics to unearth the hidden treasure in big data. They give yet unexplored meaning to the data. Their work has a higher degree of risk and probability to fail, but it also delivers the highest rewards. They are the ones responsible for big-ticket transformational ideas.

Yet, with the increasing consumerization of analytics and the realization that the data scientist pool is minute, many enterprises believe they do not need data scientists as:

There may not be all that much value in the data
Data scientists are very expensive
When given the right tools, data doctors can replace data scientists.

While it’s true that data scientists are expensive, the other two above points are erroneous. There is a lot of value in data that data doctors are unable to mine. And assuming that a college graduate or an IT engineer adept in BI technologies can become or substitute for a data scientist by leveraging new age big data solutions is a mistake.

These “consumer focused” solutions hide the complexities of generating meaningful insights, data discovery, and visualizations by adopting a WYSIWYG (What-You-See-Is-What-You-Get) approach where users can assemble workflows and analytics logic/model using drag and drop in a highly intuitive user interface. These technologies are destroying the data custodian ivory towers of corporate IT, and making business analysts perform substantial analytics projects on their own. But make no mistake… they do not reshape analysts, the data doctors, as data scientists.

While it is true that new age technologies help data and business analysts skill up to perform more advanced analytics, assuming this eliminates the need for data scientists is akin to saying we don’t need human pilots due to the auto pilot function. Indeed, the great demand for real data scientists is the reason many universities have launched dedicated data scientist programs (e.g., advanced analytics programs at Columbia’s Institute for Data Sciences and Engineering).

The real value of these new analytics tools is in enabling data doctors to perform many tasks previously handled by data scientists, thereby freeing the prized scientists to work on resolutions to highly complex problems that can significantly benefit the business. They also help enterprises who believe data scientists are overkill to enable data doctors to perform reasonably complex tasks.

However, enterprises really interested in data-driven insights will be best served by empowering both scientists and doctors. The doctors need to keep updating their knowledge about the latest analytics solutions that can help them add more strategic value. And data scientists need to dive deep, unravel unexplored territories, and develop data-driven insights that can transcend the boundary of human intelligence.

Photo credit: Stephen Coles

Digital Transformation: P&L for the CMO? Really? | Sherpas in Blue Shirts

August 11, 2014

Sigmund Freud once said, “Most people do not really want freedom, because freedom involves responsibility, and most people are frightened of responsibility.” Had he added a phrase about fear of business ownership, the father of psychoanalysis could easily have been talking about most Chief Marketing Officers (CMO) in the current world of digital transformation. The freedom given by digital disruption to transform marketing function may come with a frightening responsibility of owning a P&L.

Today’s CMOs are expected to leverage disruptive technologies, and thus are receiving more technology funding than their IT counterparts. However, many CEOs will push their CMOs to own P&L if they need that funding for digital initiatives.

While most marketers dread the prospect of P&L ownership, the reality is that digital transformation has the power to enable them to assume a more strategic and central leadership role. And mobility, analytics, social platforms, and cloud services – many of which are available outside the control of corporate IT – can give them the needed ammunition to transform marketing into a business builder and create real impact than being a strategic overhead.

Those marketers looking forward to the challenge realize that unlike the traditional models, the rapid digital transformation of the marketing function enables the CMO’s office to influence and generate revenue, as well as run operations efficiently. Digital transformation provides significantly more engaging, flexible, and agile platforms to attract, retain, and grow consumers than traditional models. They allow “fail fast” with manageable cost repercussions. These new mechanisms give marketers direct, quicker, and clearer access to the end-consumer. Marketers now have the technology to run data-driven real time analysis of consumer buying behaviour and enhance their strategies accordingly.

However, to make this a reality, marketers need to work more closely with different departments within their organization, and develop perspectives on the various business units. While their lack of knowhow of organizational operations will be a recipe for disaster, increasing use of collaboration platforms and process digitization can help. Marketers can now communicate and collaborate with their counterparts from other units more effectively in a shorter time span leveraging digital services.

It’s always challenging to transform a cost center to own a P&L. In marketing’s case, it’s not only about revenue attribution, but also:

a complete change in the thought process of the marketers themselves
their self-perception and confidence in running a business (rather than just enabling it)
staking claims at the high seats of the corporate hierarchy
changes in the hiring, incentives, and retention strategies of marketing organizations

P&L ownership also impacts the way marketers are perceived in their organizations, as well as senior business leaders’ attitude toward them. Marketers will have to undertake a lot of internal selling of the idea. And a lot of organizational machinery will need to be oiled and transformed to make the marketing department own a P&L.

Most client conversations indicate this is still a utopia. However, some executives do believe it’s high time that the digital transformation makes marketing more accountable. They consider the CMO to be everything related to a customer (Chief Experience Officer, Chief Customer Officer, etc.) and believe that marketers now have the right technology and tools to create real business impact.

The onus is on the CMOs, and the opportunity is vast. However, they need to get out of their mindset as a business support function, where they are assisting businesses to leverage digital services much like an external consultant, and instead take center stage. But it’s not going to be easy.

Sigmund Freud today would probably have said “CMOs who want to enjoy the freedom bestowed by digital transformation must not scare away from the responsibility of the P&L.”

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Author: Yugal Joshi