Tag: cloud

“This Time it’s Different” are Dangerous Words | Sherpas in Blue Shirts

“This time is different” are often thought of as the most dangerous words on Wall Street. I’ve been in the outsourcing services industry since 1983 in the early days of outsourcing pioneer EDS. I watched the rise of the asset-intensive infrastructure space. Then I watched the rise of labor arbitrage and the enormous changes that brought to the industry. And now I’m watching the rise of automation, analytics, cognitive, and cloud bring a similar scale of disruption. I know from experience how “this time it’s different” is seductive to believe in the outsourcing industry.

In 1986 when I left EDS, its net return was 22.5 percent – very similar to the top labor arbitrage firms today. It was the height of the first wave of outsourcing. That continued to go on and the industry moved to large transactions and lower margins. That business peaked in the mid- 1990s. From 2000 on, labor arbitrage took over, and the industry went back to smaller transactions with high margins – very similar to the high margins that EDS achieved back in the 1960s and 1970s. Now we’re seeing the rise of the next S curve –automation, analytics, cognitive computing and cloud – and this space is rapidly growing and gaining share. Labor arbitrage is still growing, but it’s slowing, and profit margins are declining.

I’ve recently had private conversations with some industry executives who have been prophesying the death of labor arbitrage. Some leading executives believe the market is in for a massive shift over the next 18 months to five years in which the labor arbitrage space will be completely disintermediated. I think this is unlikely.

So is it different this time?

Like the asset-intensive space, I think the labor arbitrage space will be disintermediated. But just like in the asset-intensive space, which started in 1995-1996, here we are 20 years later, and we still have asset-intensive outsourcing. Yes, EDS was bought by HP and now is combined with CSC, and IBM is still in the game. There’s still a significant infrastructure market.

I expect 20 years from now that there will still be a meaningful market for labor arbitrage, but it won’t garner the same profits as today. And I expect the shift from labor arbitrage will be a slower move than 18 months to five years in terms of having a dramatic and drastic effect on existing workloads.

Having said that, I do expect the value will move to new areas – just as it did in the past as the market evolved. And we’re currently seeing this happen with automation and other digital technologies. Market capitalization and growth should be in the new models, just like it happened for EDS, HP, CSC and IBM.

Good news and bad news

I predict difficult years ahead for the arbitrage business but radical change to the current players. The only industry leader that successfully migrated to the labor arbitrage space from the asset-intensive space was IBM. Likewise, this time I don’t expect many existing arbitrage players to successfully migrate. We saw massive consolidation in the infrastructure space, and I expect to see consolidation in the labor arbitrage space too.

Yes, I understand this time it’s different in that minority shareholder laws in India will create more resistance to consolidation. But I think the change is an irresistible force meeting a little object. I believe that the industry will consolidate, growth will continue to slow and profit margins will come down, just like it happened in the asset-intensive infrastructure space.
At the same time, automation, analytics, cognitive and cloud technologies will shift the industry to new business models, different commercial relationships, different pricing structures, and different kinds of risk sharing – just like it happened when labor arbitrage entered the asset-intensive infrastructure space. The good news is that these new models will bring new providers into the services space. The bad news is I think these differences create a high barrier for incumbent providers when it comes to changing their offerings. So, once again, this time it won’t be different.

“Doing Cloud” vs “Thinking Cloud” Separates True Believers in Digital Transformation | Press Release

Enterprises move beyond typical cloud-based delivery model to adopt cloud as disruptive platform for “as-a-service” agenda.

When it comes to the IT mantra “cloud is critical,” some enterprises are true believers and others are not, at least not yet. New research from Everest Group finds that around 86 percent of enterprises consider cloud to be the critical component of digital transformation; however, only 60 percent of enterprises consider cloud services among their “top 3” investment priorities. This discrepancy suggests that “thinking cloud” and “doing cloud” are two very different things and that enterprises are at different maturity levels from a cloud-adoption perspective, especially with respect to driving digital transformation.

Everest Group predicts the cloud services market will grow nearly 25 percent CAGR between 2015 and 2020 as enterprises demand more value from cloud services, insisting on leveraging cloud as the core platform to drive strategic business initiatives. Increasingly, enterprises will be less concerned about the cloud platform or deployment model and its technological superiority, and more concerned about leveraging cloud to drive an “IT-as-a-Service” consumption model that goes beyond provisioning of infrastructure services.

“Cloud is critical for IT-as-a-Service but requires a broader agenda beyond cloud infrastructure. Although nearly 90 percent of cloud deals have an IaaS component, less than half of them can be termed as “transformational”,” said Chirajeet Sengupta, vice president at Everest Group. “Truly successful digital businesses will have to transform applications, infrastructure, and organizational culture to drive growth as well as internal efficiencies. Focusing on just one aspect will result in sub-scale adoption and value loss for the business. Likewise, cloud service providers need to think beyond infrastructure and keep the broader business transformation priorities in mind.”

Other findings in the research:

  • Private cloud deployments will lead growth, given enterprises’ emphasis on hybrid cloud services
  • Around 20 percent of infrastructure global services engagements include cloud-delivered services.
  • In terms of buyer adoption, the retail industry led others, almost doubling its contribution to overall engagements.
  • North America and United Kingdom contributed around 55 percent of cloud engagements.

These research findings are summarized in a set of high-resolution graphics available

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