Digital technologies adoption is riding the crest of a powerful wave. I think one of the most interesting aspects is an emerging trend of service providers successfully using digital capabilities as a springboard for positioning themselves beyond the services industry.
A case in point: Leading successful service providers including Accenture, Deloitte, KPMG, IBM, McKinsey and PwC are acquiring advertising agencies. Think about that for a minute. This is not a trend of advertising agencies acquiring other marketing-related agencies to bolster their growth. Traditional consulting and IT service providers are spreading out and starting to disrupt the advertising industry.
The relation to digital transformation trends
This trend evidences a key factor in the way digital transformation is “crossing the chasm.” The same phenomenon is evident in findings in Everest Group’s January 2017 Enterprise Pulse Study on digital and IT services, “Customer (Dis)Satisfaction: Why are Enterprises Unhappy with their Service Providers?”
In the study, we interviewed 130 “reference clients” of leading service providers. We uncovered a significant differentiation. When ranking services firms according to providing the best overall client experience, three rise to the top: TCS, Cognizant and HCL. But when we look at how the clients ranked digitalization, the providers that shoot to the top are IBM, Accenture and Deloitte (three of the six I mentioned earlier as service providers acquiring advertising agencies).
The impact on traditional vs digital service providers
Simply put, clients look to a different set of providers for their digital needs. Why? Because the traditional, arbitrage-first service providers aren’t well positioned or credible as digital providers. The magnitude of the problem for traditional service providers trying to convince clients of their digital credibility is a bit like trying to spread thick, dry peanut butter on a soft slice of bread – it gets bogged down and doesn’t go far.
But consider this: IBM, Accenture and Deloitte faced the same problem that the traditional and Indian providers faced. Two years ago, when the rotation into digital became apparent, they were no more credible than the other players. How did they manage to become more credible in digital services?
They gained credibility largely by acquiring digital companies instead of attempting to build digital skill sets themselves. This strategy has been far more effective in shifting market perceptions of their ability to drive digital transformation.
Digital platforms are driving a sea change in ecosystem support. Advertising is just one example, but it’s starting to happen in all industries. The winning players will be those that quickly gain credibility in digitalization and deep expertise in industries.