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Who’s Trying to Crash the Party for Accenture, Deloitte and IBM? | Sherpas in Blue Shirts

October 1, 2013

In the worlds of sports and business, there are many examples of teams coming from behind and winning big. Oracle Team USA’s exciting win over Team New Zealand in the 2013 America’s Cup yacht races last week is certainly a big one.

There’s also a race happening among the global services providers in the tier-one transformation services space. I’ve blogged before about the big three currently in the lead in this space: Accenture, Deloitte and IBM. But other service providers are trying to crash the party for the big three because increasingly transformation is the lucrative differentiated space in a commoditizing marketplace.

Transformation is the axis upon which higher-value services are delivered today. It drives profitability and growth in the services marketplace and is the most desirable of capabilities in a maturing market where high growth at profitable margins is increasingly difficult to come by.

Providers coming around the curve in the tier-one transformation space are not new kids on the block and not trying to reinvent themselves. They’re just strengthening their existing capabilities and strategies so they can cross the border and be invited to opportunities to compete against Accenture, Deloitte and IBM.

So who are the potential party crashers? Here are the ones we’re watching.

Cognizant and TCS. Clearly these two strong players are making big strides in the transformation area, particularly where they are already embedded in an account. Both have above-industry growth rates and very strong profitability, and increasingly they are in the mix in large transformation plays. Both are leveraging their large existing client portfolios and capitalizing on the permission and reputation that they have built with those clients to be considered for more expensive and larger-scale transformation opportunities. Often this comes on the back of significant investments in industry capability.

Most Indian firms aspire to achieve a spot at the table; but with the exception of Cognizant and TCS, most of them are somewhat off pace in their ability to regularly get in the mix for consideration for large transformation opportunities.

E&Y, KPMG and PwC. Deloitte’s sister audit firms and consulting companies also are working hard to build capabilities to join the leaders in the tier-one transformation services space. Each is capitalizing on the strengths they already possess.

E&Y’s formula is to search for transformational opportunities in its top 50 accounts and invest in a depth of understanding of the relationship and capabilities needed by these clients. It is rare to see them venture away from these top 50.

The strategy for both PwC and KPMG is to add capabilities and grow inorganically, and both have been on the acquisition trail. They continue to build out their systems integration and consulting activities to become more transformational partners.

Who’s buying transformation?

It’s important to note that the growing influence of business stakeholders in provider selection is fundamental to all attempts to participate in the transformation marketplace. Their increasing influence (at the expense of the CIO and shared services groups) is evident by the fact that the CFO, business unit heads or CMO often now drive the funding as well as the project management in new deals.

Which of the above providers are most likely to join Accenture, Deloitte and IBM at the tier-one transformation space party? We believe it will be the companies that are most adept at addressing the new business stakeholder groups’ issues.

Deloitte: The Global Services Dark Horse Challenging Accenture | Sherpas in Blue Shirts

August 15, 2013

Accenture has beautifully moved into the number-one spot among transformational service providers. They snatched it from IBM, their biggest competitor for that spot.

How did they do it? Accenture created a significant gap between itself and IBM in two game-changing aspects: customer access and talent.

Accenture gained a leg up on IBM in customer access because it was better able to access the emerging business stakeholder groups outside of the IT organization. They were better able to communicate with the CFOs or business heads and leads, which helped increase Accenture’s credibility around transformation services. Discussions with the business stakeholders also gave Accenture visibility into large transformational opportunities.

In the second aspect, Accenture built a larger and deeper bench for consulting and systems integration (SI) talent than IBM.

Accenture has taken transformation services to a level that’s hard to beat.

But IBM has taken the challenge seriously and has been busily recruiting consulting talent. They started in the ERP arena and are now extending it to other areas. We’re seeing a lot of ex-strategy consultants showing up at IBM from Booz Allen and other firms.

So IBM is closing the gap created by Accenture in consulting. As they do that, they are starting to win back market share.

But then along came the dark horse, Deloitte.

Deloitte is contesting both Accenture and IBM for large transformation deals. But it’s able to be more disruptive to Accenture — in fact, the disruption is right along the same lines as Accenture followed to beat IBM.

Access to boards of directors and senior management suites has been a defining differentiator of Accenture and IBM compared to other providers in the transformational services landscape. But Deloitte is able to match them in this customer access aspect. And the dark horse provider has even better access than Accenture to the business stakeholder groups, particularly the office of the CFO, which is becoming increasingly important on large transformational agendas.

Deloitte also brings similar consulting and SI talent as Accenture, plus it has deep industry knowledge and industry practices; thus Deloitte is highly relevant on industry and domain topics, not just on technology.

But far more interesting is the central difference in the way Deloitte and Accenture approach transformational problems. Accenture tends to carve out the attractive outsourcing pieces and leave the asset-heavy risk-shifting pieces for others. Deloitte takes a much lighter touch and agile approach. The dark horse tends to reconfigure transformation agendas to be more of a consulting and SI effort and less of an outsourcing effort. This doesn’t work well with every client, as some prefer an outsourcing approach; but this lighter, more agile approach makes Deloitte’s offering more complete and distinct.

IBM is starting to narrow the gap that Accenture created. But Accenture is still the reigning king among transformational service providers. Both need to watch out for the dark horse as Deloitte has emerged as a tier-one transformational provider in the same category and same quadrant as Accenture and IBM.

There are other providers trying to get into the tier-one group. But that’s another story. Stay tuned for a future blog post on who they are and how they’re trying to compete.

The A to Z of Mortgage BPO – Accenture acquires Zenta | Sherpas in Blue Shirts

August 24, 2011

Earlier today Peter Bendor-Samuel, CEO of Everest Group, posted a blog about what Accenture’s acquisitions of Zenta and Duck Creek signal for the global services industry. My goal in this blog is to drill down into specific details around the Zenta acquisition. So, with that…

Accenture announced earlier this week that it had acquired Zenta, a provider of residential and commercial mortgage processing services in the United States. The announcement also cited the launch of Accenture Credit Services, which will consist of full service consulting, technology, and BPO capabilities for the commercial real estate, residential mortgage leasing, and automotive finance industries.

Given the abysmal state of the mortgage industry – especially residential – in the United States, this is an ideal time for a large BPO service provider with sufficient cash reserves and existing low-cost delivery model to build or expand its capabilities in the mortgage servicing space by taking advantage of attractive valuations, thereby making an investment in the future. (Cognizant did exactly this last month when it acquired CoreLogic’s India-based captive.)

Think about it. The mortgage industry is facing significant double whammy profitability issues, with costs rising due to higher fulfillment expenses and the need to manage increased and changing regulatory norms, and revenue dropping due to lower origination volume (purchasing volume). The nature of services itself has changed with loan modification volume rising significantly, while new mortgage initiations have reduced dramatically. And the increased regulatory oversight, resulting from regulations such as the Dodd-Frank Act and additional proposed changes, has created an air of uncertainty in the mortgage servicing industry. Against this backdrop, Accenture’s acquisition of Zenta was certainly smart and well-timed.

The acquisition was also smart, for a different reason. Within the banking, financial services, insurance (BFSI) BPO market, Accenture has a strong position in the insurance sector which accounts for 60 percent of its BFSI BPO revenue. However, it has a fairly modest scale of operations in banking BPO, and limited capability in industry-specific capital markets BPO. With this acquisition, Accenture gains Zenta’s strong voice and non-voice experience and capabilities in the mortgage services space, which it can then infuse with its own strong consulting and technology capabilities to establish what is essentially a one-stop-shop for the mortgage industry. The launch of Accenture Credit Services is a clear step in fulfilling this objective.

With Accenture making this move in the mortgage services space – as we had suggested it might in our BFSI BPO service provider profile compendium released earlier this year – what can we expect next? Will it make further investments in banking BPO around, say, credit cards? Or will it perhaps invest in capital markets BPO, which has been a gap in its overall BFSI offering? Can it develop the capabilities organically, or may another acquisition, either a captive or pure-play niche service provider similar to Zenta, be in its crosshairs?

Yes, it’s exciting times in the BFSI outsourcing space. Stay tuned for new developments!

Does Accenture’s Acquisition of Zenta and Duck Creek Signal Industry Maturation? | Sherpas in Blue Shirts

August 24, 2011

In the last several days, Accenture – a firm that has largely focused on organic growth strategies and avoided significant inorganic expansion activities – announced two acquisitions: Zenta, a U.S. mortgage processing firm, and Duck Creek, a provider of software solutions for the property and casualty insurance industry.

When Accenture does occasionally make acquisitions, it has followed a policy of buying tuck-in properties which allow it to build IP or enter new markets. Both of these acquisitions fit Accenture’s historical pattern by adding capability and IP which extend its transformational offerings. In this case, Accenture is adding an attractive mortgage processing platform from Zenta and important IP in the property and casualty arena from Duck Creek. Both of these additions more strongly position Accenture in attractive industries currently undergoing substantial transformation.

Taken together, these acquisitions may be heralding an increasingly acquisitive stance by Accenture, while at the same time demonstrating that at least some private equity firms are exiting the space. Historically, Accenture has been a value buyer, with these recent announcements appearing to fit that pattern. What’s unexpected is that the exiting PE firms are accepting modest valuations as compared to the high multiples often offered through a public offering.

The increased rate of inorganic activity from Accenture, combined with PE firms’ willingness to take reduced multiples, are consistent with a maturing market in which traditional powers adjust their strategies to take advantage of and accommodate new realities.

What other changes do you see coming to the industry? Does this signal a new round of consolidation? Will Accenture divest Zenta’s commoditized services lines? If so, which firms will pick up those assets? Will less attractive valuations of properties slow the rate of investments into the space by PE firms?

Sneak “PEAK” into the Banking Applications Outsourcing Service Provider Landscape | Sherpas in Blue Shirts

June 16, 2011

Per our observations of the evolution of the service provider landscape before and after the recession, the single most important factor we have seen for creating differentiation in the IT applications outsourcing (AO) market is significant strengthening of vertical/domain expertise. And recognizing the need for “vertical-specificity” in the AO market, earlier this year we launched an annual research initiative focused on assessing market trends and service provider capabilities for AO in the banking, financial services, and insurance (BFSI) vertical.

One of the first results that emerged from this research initiative was the Everest Group PEAK Matrix for large banking AO contracts. In a research study released earlier this week, we analyzed the landscape of AO service providers specific to the banking sub-vertical. In a world in which everyone and their uncle delivers AO services to financial services clients, this report examines 22 service providers and establishes the Leaders, Major Contenders, and Emerging Players in the banking AO market.

As we congratulate the five Leaders (Accenture, Cognizant, IBM, Infosys, and TCS), and acknowledge the capabilities and achievements of the Major Contenders and Emerging Players, we also want to highlight three inter-related market themes that suggest the PEAK Matrix in 2012 for large banking AO relationships may look significantly different:

Buyer-driven portfolio consolidation: Most banks currently use a complex collection of service providers for their applications portfolio. Decentralized decision-making, global expansion, and large-scale M&A introduced further complexity into their portfolios. Rationalizing the portfolio creates a less complex sourcing environment, enables strategic partnerships with service providers, and also delivers meaningful financial benefit (our analysis indicates that the financial benefits of utilizing fewer service providers can be as much as 22-28 percent on an annualized basis). As more buyers join the portfolio consolidation bandwagon, the larger/more established service providers are winning at the expense of their smaller competitors.

The Matthew effect: Buyer-driven portfolio consolidation is giving rise to the Matthew effect which (in sociology) states that, “the rich get richer and the poor get poorer.” In the context of the banking AO landscape, the Matthew effect translates to “the big get bigger.” Banking AO buyers are placing disproportionate emphasis on domain expertise as a key decision-making criteria for selecting their service providers. Scale influences a company’s appetite to invest in developing vertical/micro-vertical-specific domain expertise, which in turn determines market success, which ultimately impacts growth and scale. This vicious circle of scale fueling scale is increasing the polarization in the marketplace, and could further widen the gap between the Leaders and the Major Contenders and Emerging Players.

Accelerating M&A: In response to the Matthew effect, as the Major Contenders and Emerging Players seek to achieve the next level of growth, mergers, acquisitions, and alliances will accelerate. M&A will play a significant role in service providers looking to achieve quantum leaps in capability and performance. The M&A activity is likely to significantly alter the landscape in the coming months to create a new set of Leaders and Major Contenders, In fact, since we finalized the Banking PEAK, Emerging Player Ness Technologies has already changed ownership.

Given the above three market forces, how much will the landscape of service providers you bank on (pun intended) change in the months to come? Only time and we can tell. Keep watching this space for more!

Related Reports:

The Brand Angle in Technology Services | Sherpas in Blue Shirts

April 26, 2011

There has been a lot of recent talk about growing commoditization in the technology services industry, and understandably so. In an industry significantly fragmented (nearly 100 global firms with more than US$1 billion+ in revenue), there is a growing sense of firms turning into mirror images of each other. For example, large Indian IT firms are today so perceptively indistinguishable that they are more identified by their category presence (e.g. Tier 1, TWITCH) than by unique company branding.

To be fair, quite a few industry firms have attempted to build brand awareness through creative advertising. Accenture’s “High performance. Delivered.” and HCL’s “Mr. HCL” campaigns are cases in point. Yet, these tend to focus on building awareness on capabilities and credentials, and rarely, if ever, communicate differentiation. Every equivalent player in the marketplace has its own version of the “delivering high performance” or “we run everything that has technology in it” theme to deliver to clients when needed.

While a few firms could be starting to differentiate on their strategic intent, and the commodity characterization of some could be debunked with diligence, distinctive brand communications are needed if market perceptions are to be molded. With similar sales and delivery capabilities, similar talent pools, similar hiring and training structures, similar methodologies and tools, and management with similar backgrounds, it is easy for the market to continue viewing all firms in a category as clones.

In addition, the technology services industry is quite unique in the long-term nature of client-provider interactions. Because these interactions happen continuously throughout sizable deal tenures, these experiences influence client perceptions more than all advertising and sales communications.

Therefore, a key to communicating differentiation lies in branding delivery. While obviously easier said than done, two well worn-out strategies from other service industries could help:

Create tangible “markers” around experience touch points: Airlines brand everything from aircraft look and feel to merchandise sold on board to customer greetings today. Closer akin, professional services firms brand everything from distinctive color schemes to employee apparel to unique jargon. Creating “smashable” markers that communicate distinctive value is difficult, but not infeasible.

Recruit and train to align with the value proposition: P&G hires entry-level employees for fit with long-term values (‘Hire the person, not the position’). From the lowest rung, employee recruitment needs to be aligned with the brand intent and values. And training needs to move beyond technical, to reinforcing brand specific values.

Today, only two of the top 50 global brands (per the Interbrand 2010 rankings) have a technology/business services focus (IBM at #2 and Accenture at #47). And not one among the Indians features in the top 100.

It would be great to see this change.

How Will the IT/BPO Industry Leaderboard Change? | Sherpas in Blue Shirts

April 14, 2011

This past weekend, many people were glued to their televisions watching the 2011 Masters Golf Tournament at Augusta National. As the days rolled by, the leaderboard changed in some surprising ways – the young McIlroy slid a long way from Number 1 on Day 1; Tiger Woods finally showed his old spark and stayed steadily within the top 5 throughout the game; and Charl Schwartzel jumped into the front-runner spot to take the Green Jacket.

While we now know the Masters winner, there is significant speculation on the changes in the IT services leaderboard, both today and going forward. The market is rife with questions on where Wipro and Cognizant will end up this season. The discussion on C-level changes at Infosys made a leading Indian newspaper speculate on issues it may be facing, with TCS speeding on and Cognizant being on steroids and catching up quickly. The next day, analysts said TCS would continue to outpace the other TWITCH majors as the quarterly results season starts.

We will know the answers to these questions in the next few weeks, after all companies report their numbers. But the more important long-term question is, what else will change in that leaderboard? Will we see more M&As, new entrants, or exits? And fundamentally, what will the future structure of the IT services industry be, and who will the winners be?

In a recent meeting, a CEO of an IT services company made an interesting point about there being steps at the US$500 million, $1 billion, $5 billion, and $10 billion marks, and that it is progressively challenging to get to the next level. It was clear he was thinking that some, including those in the $2+ billion scale, will struggle to reach the next level, and some will stabilize in their current or adjacent level.

The TWITCH discussion is interesting, but then there are the mid-tier IT players. We are just past the first quarter of 2011, and already three (iGate, Patni, and Headstrong) no longer exist, at least not in their original form. From all we hear or understand, several more may go before the end of 2011.

Then there are continuous speculations about pure play BPO players being shopped about. The rumor that Cognizant will take out Genpact has been around for ages. EXL is up for some action, and the market is abuzz with other speculations. As one of my colleagues recently blogged – will the Indian pure play BPO companies survive in the same shape and form past 2011 or 2012?

Net, net, here is the big picture. Some large Tier 1 players are struggling, mid-sized IT is not necessarily the best place to be, and pure play BPO companies are a vanishing tribe.

All this raises more questions: What is the future structure of the global services industry? Will Accenture, IBM, Dell, the Japanese majors, TCS and probably a few others become the super majors by 2015 or 2020, and will the rest need to find their own places under the sun? What other categories and groups of service providers will exist, and what will their characteristics be, for example, regional specialists, vertical specialists, etc.?

Irrespective of how the industry evolves, consolidation will continue, and the M&A juggernaut will roll. This business generates cash, and doesn’t require a lot to sustain it…so companies will invest in buying capabilities, assets, businesses, and people in attempts to win top spots on the leaderboard.

We certainly are headed for some interesting months ahead. Is anyone betting on who the winners will be at the end of 2011?

Indian Heritage Providers Are Achieving Differentiation | Sherpas in Blue Shirts

April 5, 2011

One of my partners recently returned from a conference remarking that he could randomly put any service provider’s logo on any of the collateral being distributed and nobody would notice. Everyone’s message was essentially the same as their competitors. It is difficult to differentiate among the Indian heritage providers. Or at least it has been. Recently, three of the Tier 1 firms have emerged with highly divergent and (to date) successful differences at the strategic intent level.

Before we look at what these three firms are doing, let’s look at how the maturation of the global services industry is manifesting itself:

Clients are becoming progressively thoughtful about which providers they want in their portfolio, and are actively working through portfolio rationalization to achieve that mix
New logos are increasingly hard to come by and expensive to acquire; as a result, providers are focusing their efforts on growing business within existing clients – wallet share is king
The difference between ITO and BPO providers is blurring, and clients are increasingly looking for a provider that can deliver services across a wide range of areas
As client firms mature in their use of labor arbitrage, they are increasingly delegating decision making, giving rise to the purchasing function as a more influential player; this is starting to commoditize the offshore services market and is putting pressure on price
Simultaneous to the delegation of decision making, senior client firm executives are increasingly wondering and questioning what they should do next, specifically beyond arbitrage, to increase value.

These dynamics are challenging the Indian heritage Tier 1 providers to evolve their strategies and tactics in order to retain and grow their client bases, as well as secure new deals with a next generation flavor.

So how are three of the biggest addressing these issues per their strategic intent?

TCS’s strategic intent is “flawless execution.” TCS’s clients and the market are increasingly viewing TCS as a superb operator with a well-polished and effective talent management model. Many view TCS as the leading example of how to deliver consistently high quality work at attractive prices. It invests significantly in becoming its clients’ strategic delivery partner, including focused initiatives to build relevant IP. TCS has been very thoughtful in segmenting the market and organizing its business by vertical industries. The multinational provider it is most similar to is IBM. Both have a large client base, are very deliberate in their strategies, are highly intentional in their investments, are very focused on deep and broad client relationships, and work consistently to identify and nurture them.

Infosys’ strategic intent is being a “transformation partner.”Infosys has invested considerably in building a large and impactful consulting organization in order to combine consulting with delivery to achieve transformation for its clients. That objective is being bolstered by its 3.0 co-creation strategy, which is a move further down the line of transformation. It is achieving many successes, and is considered a formidable player. The ongoing transition of senior leadership at Infosys seems to be well along its path with clear succession planning underway and significant investment to develop the next generation of management. Yet, Infosys is taking a challenging strategic intent route as it is squarely emulating Accenture’s strategy. The transformation hill is steep to climb because of the difficulties involved in combining consulting with delivery. Accenture has done well, but others have struggled to succeed along this path. Infosys’ ability to resolve the key conflicts between consulting and delivery will determine its long-term success.

Cognizant’s strategic intent is superb “client engagement.”Cognizant is simply the best at working with clients on business issues. Its secret sauce is an ability to engage with clients on problems and pull through consulting and delivery services. This is different than Accenture’s and Infosys’ transformation model in that Cognizant focuses on the client relationship and client engagement by working through the suite of problems currently on the client’s plate, as compared to game-changing transformation. Cognizant invests significantly in highly empowered onsite teams, and its delivery and consulting organizations are tuned to be responsive to the client engagement team. This overall model and strategy is quite different than any other Indian or multinational firm, and is achieving significant growth and profitability returns.

Each of these strategic intent approaches appear successful to date, and has moved each of these three firms to a superior level of performance. Indeed, as clients increasingly recognize the clear difference among these players, and other providers follow their lead to secure true differentiation, we will see a new Tier 1 emerge in the Indian heritage provider space.

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