Tag: enterprise

Implications for the Application Development Outsourcing Market from Strategic Intent to Cloud | Sherpas in Blue Shirts

The current enterprise shift in strategic intent toward cloud services has major implications for the outsourcing market. I’ve blogged about the implications for the infrastructure outsourcing market. Clearly the strategic shift will also affect application development outsourcing. We see three major implications for this market.

Everest Group is working with large enterprises as they consider the issue around migrating to the cloud. It’s very clear that they over-provisioned their application development and maintenance teams. And they spend a lot of time and effort in managing teams rather than focusing them on delivering business value.

The as-a-service orientation seeks to address this by aligning apps with infrastructure by application or by service area application family.

Increasingly application maintenance and development are more commoditized and less sticky than they were in the past. We see this demonstrated in the big jump in challenger wins in recompetes.

Implications

  1. The incumbent providers will need to shift to new models or suffer loss of market share. However, it is unclear at this time whether or not providers that have succeeded with the traditional factory arbitrage model will be able to make the shift, potentially opening the door for a new range of challengers coming through.
  2. The shift to an as-a-service orientation appears to put more emphasis on the need for provider domain and industry expertise
  3. The as-a-service model also will require a greater proportion of flexible delivery close to the user, hence challenging Indian firms’ established factory model so prevalent in the arbitrage era.

The implications are still emerging. But it is already clear that the services industry has a potential challenger model emerging in the outsourcing applications development space.

Implications of the Enterprise Strategic Intent Shift toward Cloud | Sherpas in Blue Shirts

Since the beginning of 2014 Everest Group has seen a real shift in large enterprise CIO organizations in their strategic intent toward cloud services. What are the implications on the traditional infrastructure outsourcing market from this strategic intent?

Timing

First, we expect that this shift will not happen overnight. As organizations work on their cloud plans, it’s clear that this is a three-to-five-year journey for migrating some or all their environment into this next-generation environment.

Runoff of work from legacy environments

Second, we expect the runoff on traditional outsourced contracts to accelerate. The runoff has been running at about 5-10 percent a year. We expect this will pick up to something close to 50 percent of the workloads to shift over to the cloud in the next three years with 30 percent of that shift happening in the next two years.

So this is a dramatic runoff of work from legacy environments into the next-generation models. This will put significant pressure on the incumbent service providers in that space.

Who will be the likely winners?

The third implication is the likely winners from this strategic shift. We think that at least for the next two years the Indian players or those with a remote infrastructure management (RIM) model will enjoy substantial benefits. Often a move to cloud or next-generation technologies can be facilitated by a move to a RIM model. So we see RIM continuing its torrid growth.

We also believe the providers with enterprise-quality cloud offerings will be players. One that particularly comes to mind is IBM’s SoftLayer, which we think is well positioned for the shift. It has its own runoff and can grab share from asset-heavy or other legacy providers as runoff occurs there.

We expect to see Microsoft and its Azure platform play an increasingly prominent role in cloud services. It will be interesting to see if AWS, Google, and Microsoft can make the shift from serving rogue IT and business users to enterprise IT. At this time we certainly believe IBM can. And it looks like Microsoft is making deliberate efforts to transition its model. It remains to be seen if AWS and Google are willing to shift their models to better accommodate enterprise IT.


Photo credit: Photo Dean

Sea Change in Large Enterprises’ Cloud Strategic Intent | Sherpas in Blue Shirts

For five years we at Everest Group have tracked the cloud space in global services. Until this year, there was a lot of talk about cloud, but much true cloud adoption was driven in business units with large enterprises. CIOs basically sat out the game and watched the cloud’s performance. But since the beginning of 2014 we’ve seen a real shift in large enterprise CIO organizations, which signals a significant change for the services industry.

Until recently CIOs in large enterprises were reluctant to put cloud initiatives in place because they felt it was premature. They struggled with compliance and security questions. And they worked to make sure their organization understands and embrace cloud and as-a-service technologies. Their posture is moving from cautiously watching to actively planning and driving, and some have large initiatives underway. Their plans with regard to cloud have moved from the radical fringe to mainstream strategic intent to embrace and drive.

Large enterprise tech budgets are still controlled by the CIO organization because they are best able to drive technology initiatives to scale and to execute initiatives across functions.

This is a very important development and will cause significant changes in the technology and services industry. This undoubtedly will start to drive a significant shift in spend from the traditional structures into the cloud and as-a-service models. As that occurs, we believe it will pick up momentum and pull the rest of the industry through.

The Surprise in Mobile Services | Sherpas in Blue Shirts

Companies’ end-user compute budgets are flat to down. Yet they’re challenged by much more complexity in terms of many more devices. This is a surprising fact. There is an explosion of devices that need to be secured and managed and that are often paid for by the corporate enterprise. Why has the explosion of mobile devices not resulted in corresponding growth in companies’ budgets for servicing end-user computing?

There are several reasons for new offers not coming into play despite the hope generated by the increase in devices. But the main reason is that the way support is provided has shifted.

The level of robustness of the support has shifted spend away from the central groups that used to provide support. Increasingly the manufacturers of the devices are taking on far more of the support responsibilities. They do this through extended warranties and service agreements attached to the devices.

The end-user compute services landscape is shifting in unanticipated ways.

Frenemies IBM and Apple Team Up to Shake Up the Enterprise Mobility Space | Sherpas in Blue Shirts

On 15 July, 2014, IBM and Apple announced a sweeping enterprise mobility-focused partnership to create business apps and sell iPhones and iPads to Big Blue’s corporate customers, thereby bringing IBM’s big data and analytics capabilities to the iOS ecosystem. The venture includes more than 100 industry-specific enterprise solutions, including native apps developed for the iPhone and iPad, targeted at the retail, healthcare, banking, travel, telecommunications, and insurance verticals. IBM will leverage its 3,000 mobile experts and industry/domain consultants, to provide cloud services and onsite support for enterprises. The two companies will collaborate on IBM’s MobileFirst for iOS solutions, combining their distinctive strengths – IBM’s big data and analytics capabilities and Apple’s consumer experience and developer platform.

The Rationales Behind the Partnership

The intention of the deal for Apple is to enable its products to become go-to-offers for large enterprises. It also principally underlines the company’s immediate need to expand its presence in the enterprise world, as consumer sales peak and competitive intensity in its core market heightens. Meanwhile, IBM hopes Apple’s mojo can help revitalize its fortunes after nine consecutive quarters of year-on-year revenue decline, as it places its bets on mobility in the workplace. It will also help IBM solve its big data and analytics growth issues (i.e., providing Watson with much needed impetus through enhanced mobile users’ data), forming a pivotal part of a new growth story. (To this point…think back three decades to Apple’s iconic television commercial titled “1984,” when it attacked IBM as an evil Big Brother figure. Talk about a 180-degree turnaround!) iPhones and iPads are already owned by employees in large enterprises but are hard to manage and govern. IBM can leverage its enterprise-wide system management expertise to make a compelling value proposition, complementing its Fiberlink acquisition (a provider of cloud-based enterprise mobile management solutions). Additionally, it will help IBM cement its reputation as a leader in the “mobile first” movement in enterprise solutions.

Implications for Rivals

Microsoft will feel most uneasy about this alliance, as while its products are ubiquitous in corporate PCs, it has been a laggard in serving the mobile workforce. This is a critical whitespace its new chief, Satya Nadella, is determined to fix. Google, Samsung, and the Android bandwagon will also feel threatened, given their recent push in the enterprise market. To allay fears about Android’s security for enterprise use, Samsung has built a system called Knox into its devices. Last month at its developer conference, Google announced that it would embed software elements of Knox in the next version of Android. They will also have to look at alliances with other enterprise-focused vendors to shore up their business case. Also, if IBM becomes the de facto champion for iOS, it will have potential ramifications for other service providers such as Dell, HP, and CompuCom.

Multi-faceted Challenges

Apple has not targeted enterprises with any zeal in the past. Steve Jobs was infamous for his contempt for selling to enterprises, even referring to CIOs as chief information “orifices.” While the Tim Cook era has seen Apple making small but significant progress in courting corporate stakeholders, IBM’s significant experience in the space makes Apple/IBM a very unlikely pairing. Apple and IBM have drastically different people cultures. Any effective partnership will need to account for these differences. They also have very different go-to-market and channel strategies, which will result in friction over the direction the alliance takes. Their sales motions tend to be at odds, with IBM solutioning for a client, while Apple caters to essentially product categories. IBM has defocused severely from the end-user computing space. Does this alliance signal a revival in this regard? The companies’ divergent investment attitudes will make joint investments problematic. To complicate matters further, both have stark but strongly held philosophies about design, customer support, and sales, making collaboration painful. 

The Road Ahead

Partnerships and alliances such as this are notoriously difficult to manage. Both organizations will find it challenging to bring two entirely different culture sets to work cohesively as one. The alliance will need sustained resources, time, and senior leadership investments, along with a steadfast commitment to change management. Given the complicated dynamics sweeping the enterprise market, IBM and Apple have certainly stolen a march over rivals. We will need to keep an eye on the investments both are making into the alliance, the steps they are taking to mitigate the challenges, and the success stories that emerge as a result.

One thing is certain. The enterprise IT market is in for some interesting times. For further insight into the enterprise mobility space, check out our recently published viewpoint.

Social Analytics and an iPad to Chop Veggies | Sherpas in Blue Shirts

I recently watched a WhatsApp video in which a woman was visibly pleased when her advanced-age father said her gift of an iPad was “great,” then became baffled and shocked when she saw him using it as a vegetable cutting board!

While this is certainly an extreme example of something being used for a different purpose than its intent, we’re seeing the same type of disconnect with social media platforms and the associated analytics. Lots of organizations have deployed social analytics tool to assess the typical engagement metrics (e.g., number of users reached, time spent per user), beauty metrics (e.g., hashtagged or liked), or perspective metrics (e.g., positive or negative sentiments). Much like the iPad veggie chopper man, these enterprises believe the solution is doing its job well. However, like the daughter knew, this is not what social analytics platforms are made for.

Social analytics platforms should be deployed to generate value beyond tracking customer portal trawls. They are meant to listen to, engage, and amaze customers and prospects. However, very few organizations use them for those purposes. Hardly any of them have integrated social data with the main customer data bank. Moreover, there is little collaboration or coordination across social media, analytics, and sales teams, each instead working in its silo. Why is that? Although enterprises may give different excuses, I see four main reasons per my market interactions:

  1. Organizational challenges in terms of structure and complexity that no business manager wants to disrupt

  2. Lack of forceful evangelization

  3. Limited understanding of how to leverage social media and analytics

  4. Deployment of social media and analytics for “buzz purposes,” rather than as something meaningful

In various organizations, the entrenched old school senior management fundamentally does not believe in “new age toys” of social media. Many of them admit that social media is good to impress the CEO and tick mark their key performance indicators, but not good enough to drive meaningful business. This reluctance results in half-hearted strategies with little focus or commitment.

These reluctant organizations, however, have a very potent argument. They believe there are limited, if any, successful adoptions of analytics solutions that have resulted in revenue enhancement. While they think that analytics may help in running operations more efficiently, reducing costs, and enhancing their brand, they consider its direct impact on revenue to be weak.

Responsibility for this misperception falls both on technology providers and the buyers of analytics solutions, more with the providers. They publicize client adoption focusing on cost savings than revenue enablement. This diminishes the real value a business can derive from analytics adoption. And there are indeed organizations actively deploying social analytics to generate insights, serve the customer, and build the next product, many of which now have a Chief Data Officer overseeing the adoption of analytics solution.

How can an enterprise become truly social? Can it align the wide range of business units – including procurement, HR, finance, sales and marketing, product development, customer support, and quality management – to become social? Can it embed the philosophy behind social initiatives into its business processes? While the challenges are significant, this is where the value from social media initiatives lies. Silo-driven deployments will only add to the fragmentation, instead of helping the business.

Is your company using an iPad to chop its vegetables? Our readers would enjoy hearing your social media experiences.

Digital Enterprise Iceberg | Sherpas in Blue Shirts

We all understand the power of digital — it enables us to change the way we interact with our customers, employees, vendors and governments. Getting interactions right with those stakeholder groups gives us powerful strategic advantages. However, the digital world is like an iceberg, and we tend to see only the tip. Below the water is a mass of ice that can sink digital outcomes just as it sunk the Titanic.

Companies that can change their stakeholder conversations in a meaningful way can change the game, changing the competitive landscape almost overnight, reaping enormous wealth. Wal-Mart and Interstate Battery achieved this outcome when they changed their supply chains. And Amazon, Google and H&R Block completely changed the game in their markets.

So what’s the problem? 

The business stakeholders see the tip of the iceberg. But the CIOs recognize that 90 percent of the expenses are below the surface and initially can’t be seen.

Digital iceberg

What we’re finding at Everest Group is that when companies switch to the digital world — such as creating a mobile app as a new way of communicating with Millennials about insurance offerings — there are huge pull-through implications on the rest of the organization.

For example, the company’s vendor systems may not be set up to interface to the new mobile app. Sure, the digital product enables the company to be able to spot new customers as they emerge. But the company needs to change its organizational systems to move into this instantaneous world so that the company can react quickly enough to take advantage of these opportunities or operate in a way that is digitally friendly in this new world.

We’ve all been through the experiences of the impact of the portion of iceberg under the water … such as the half promise when we’ve visited a website or used a mobile app to find we can only go part of the way. We get frustrated when the promise isn’t fulfilled.

As the figure above illustrates, many companies find a huge body of work that is not obvious when they start down the digital path. Although it looks like the cost and time required for launching a mobile app is small, the cost of getting to a great customer experience is high because it often requires huge amounts of infrastructure, application changes and organizational change to live in the new world.

In addition to the cost and time, there are other business risks in the iceberg portion below the water. And aligning the organization so it can operate at digital time requires significant effort and change management tactics. We tend to operate from committees. But in the digital world, that takes too long; it must be instantaneous.

Finally, providers need to venture into this new digital world while they still maintain the old world, thus increasing their investments in services capabilities. There are significant costs involved in dealing with the risks in the part of the iceberg hidden under the water.

Snowflakes in the Global Services World | Sherpas in Blue Shirts

There is increasing skepticism and cynicism in the customer ranks in the hyper-competitive environment of the services world. As a customer commented to me, “Providers are like snowflakes. They all think they are unique, but they look just like everybody else. And if you put them under pressure, they all become the same thing.”

The customer was referring to being bombarded with providers’ offers in PowerPoint presentations and the fact that many of the presentations are “paper thin and aspirational.”

Providers come in with the latest hot topic (especially digital, cloud or cloud orchestration) or what they’ve heard at a conference, spinning that into a PowerPoint presentation. But, as the customer explained, it very quickly becomes apparent that the provider has no real experience or only limited experience in the service touted in the presentation. At best there are one or two examples of having done something similar. The offer is more PowerPoint than reality.

There is another problem with these thin PowerPoint offers. These presentations are all about the provider — how smart it is, how capable it is and the complications involved in the provider delivering the service. But this information is of limited interest to the customer, who wants to talk about their own business issues.

The offer overload showing thin experience results in customers’ increasing cynicism. And the focus on the provider creates further barriers for good conversations. Adding to the negative impression, providers usually offer these aspirational PowerPoint multiple times; but essentially, this accomplishes only one outcome: it reduces the customer’s willingness to entertain new offers.


Photo credit: Andrew Magill

Accenture Goes for More Analytics | Sherpas in Blue Shirts

Earlier this week, Accenture announced that it has acquired PureApps, a UK-based specialist in Oracle-based Enterprise Performance Management (EPM). PureApps enables clients to analyze financial data to gain insights into corporate performance, to measure and improve organizational effectiveness, and alignment to strategy. PureApps enhances Accenture’s capabilities for services to the CFO, and enhances its consultancy services in the UK and Europe and global shared services offering. This is good timing by Accenture when many large organizations are looking to get increased visibility into their financial performance.

PureApps is to be integrated into Accenture’s Finance and Enterprise Performance practice, part of Accenture Strategy. The acquisition fits into Accenture’s focus on increasing its analytics capabilities through acquisitions.

Another recent example of this strategy is the acquisition of i4C, announced on 30 April 2014. Italy-based i4C is a provider of advanced analytics applications (AAAs), turn-key industry- and function-specific solutions. The i4C ACE platform allows analytics to be built and integrated into workflow without the need to do any coding. It uses industry specific logic and maps business processes into the application with configuration tools. Its portfolio includes some applications for energy, finance, retail, manufacturing, and telco sectors and a set of other applications, such as predictive asset maintenance tools.

Everest Group estimates that the market for analytics BPS, alone, is set for 30% CAGR to 2015. Accenture has made steady investment in its analytic capabilities over the years but the most recent acquisitions, those of PureApps and i4C, in quick succession show that the service provider is positioning for the predicted growth in demand for analytics. It is also filling the gaps in its portfolio by adding different flavors of analytics (e.g., EPM and predictive analytics) to its existing capabilities such as customer analytics.

Why Hasn’t Cloud Had a Bigger Disruption on the Services Industry? | Sherpas in Blue Shirts

If you read the technology news in the press and social media sites, it’s apparent that we’re in the midst of a big sea of change in which the as-a-Service and public cloud models are transforming the services industry. HP and IBM’s travails and Oracle’s slowdown are laid at the feet of the SaaS providers. But when you pile all the current cloud activity together, it amounts to a hill of beans, not a mountain. Why aren’t we seeing evidence that disruption from these models is happening on a significant scale?

The buzz

In the famous words of an American hamburger TV commercial several years ago: “Where’s the beef?” Everyone is talking about big agendas to rework workload portfolios and making big efforts to to do that. Yes, Accenture has invested well over $1 billion around cloud and several Indian providers have invested $100+ million a year in mobility and cloud work. And the HCL-CSC alliance is predicated on the fact that there will be a huge cloud sandwich for which they want to position themselves.

If you give providers half a moment, they’ll wax with great eloquence and excitement about the prospects for the cloud model as a high-growth area in services. But if cloud disruption is coming to the services industry, it must be walking; it sure isn’t running.

Where are the billion-dollar practices that do cloud? Why don’t we see service providers launching entire new practices or start-ups reworking applications so they work in the cloud? Who is doing all the work?

The reality

The answer to the above questions is that disruption to service providers is happening occasionally but not en mass.

It reminds me of a conversation I overheard around the impending revolution about self-driving cars. Supposedly a Google executive was saying that it’s not likely that new self-driving car will come on the market and people will buy them when they arrive. Instead, he believes the more likely scenario is that we’ll find ourselves using cars that park themselves and then over time become incrementally more capable and eventually driving themselves. But we won’t have gone through that aha moment where we went out to buy a self-driving car.

I think the same thing is happening with cloud disruption. There just doesn’t seem to be a lot of evidence that companies are driving huge transformations to the cloud right now. Maybe it’s a timing issue in which CIOs and large enterprises will become comfortable enough with the technology that they’ll move en mass to rework their ecosystems to embrace this model. But maybe they won’t embrace it like this and, instead, the industry will wake up one day and find that we’ve incrementally adopted SaaS, public cloud and private cloud.

Perhaps the tide bringing cloud disruption is coming in slowly rather than in as a tsunami. What do you think?

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