Growth Strategy Archives - Page 3 Of 6

Cognizant Acquires TriZetto: The New “Big Blue” of Healthcare IT? | Sherpas in Blue Shirts

September 15, 2014

Today, Cognizant announced the acquisition of TriZetto® (a leading provider of healthcare IT software and solutions) for US$2.7 billion. The deal ties in favourably with Cognizant’s dominant position in the healthcare IT marketplace, with the combined entity having US$3 billion in healthcare revenue. TriZetto has around 3,800 employees across the U.S. and India, who will join Cognizant’s existing healthcare business, which currently serves more than 200 clients.

The acquisition is a landmark deal within the Indian IT service provider community, given the size, scale, intent, and implications to the status quo, but what makes it unique is its focus on industry solutions vs. other services-centric acquisitions.

Indian IT service providers’ notable acquisitions

What it means for Cognizant’s services focus

TriZetto primarily develops and licenses IT platforms and service for healthcare providers and payers, competing with the likes of Allscripts, DST Systems, and McKesson. Cognizant aims to leverage its dominant position in the market–a healthcare IT portfolio in excess of US$2 billion–to provide an integrated portfolio across services and platforms. Investing in products and solutions has been a key area of focus for Indian IT service providers as they look to embed their solutions within enterprises buyers, use technology adjacencies, and leverage the technology-platform model instead of flexing just the labor arbitrage card. This acquisition could be one of the steps allowing Cognizant to cross-pollinate and build an integrated (applications/infrastructure/business process services) services play in an industry in which it has primarily relied on its application services strengths.

What it means for Cognizant’s growth story

Cognizant will get access to multiple software platforms and aims to realize nearly US$1.5 billion of potential revenue synergies over the next five years. TriZetto currently operates at 18.5% margins on a revenue base of US$711 million. The numbers are right in the zone for Cognizant, as it wants to continue to drive its growth-plus-margin story in the high revenue base in which it currently operates. The products, platforms, and solutions play has very unique challenges, opportunities, and operating dynamics. Whether Cognizant can navigate this fundamental transition and still maintain its growth story, will be an interesting study.

How it relates to the way Healthcare IT industry is evolving

The ongoing transformation in the U.S. healthcare system is shaping service provider’s strategies as they look to capture the incremental opportunity that is up for grabs. The focus on driving down healthcare costs, wide-sweeping reforms (driven by Obamacare and ICD-10), and blurring lines between payers and providers, are principally reshaping the healthcare delivery model. Cognizant will aim to drive increased stickiness with healthcare buyers to drive retention in an increasingly complex vendor landscape. It is aimed at garnering a large share of the growth pie, when it comes to the payer and the provider ITO market. This acquisition is an unmatched clear indication that service providers must evolve from a services-only play to a platform-based solutions play, to stay relevant in a market that has an immense potential to grow.

What this means for the competition

The deal will also have myriad implications for the overall healthcare IT services competitive landscape. Most competitors of Cognizant already have a steady revenue stream (large or small) implementing TriZetto solutions, most importantly Facets™, which is used by most payers in the U.S. How this impacts its engagements and partnerships will be tricky. Whether Cognizant will want to (and if so, how) assume a dichotomous role of a partner and competitor will be another interesting area to watch. Additionally, whether Cognizant plans to ultimately absorb TriZetto (thereby dissolving the brand) or leverage its unique positioning is also unclear.

Cognizant is ideally placed in healthcare with few like-sized competitors, allowing it to consolidate. Two things that are definitely salient here–one, Cognizant is going all out to bet big on healthcare; and two, this acquisition has the potential of taking it to a different league altogether! There are already murmurs in the healthcare IT industry equating Cognizant to a new “IBM,” when it comes to its negotiating power at the table. This is another step in ensuring it stays ahead of peers as the competitive intensity in the market increases. The deal definitely has characteristics of a long-term strategic bet than a tactical manoeuvre.

Download the complimentary breaking viewpoint: Cognizant Acquires TriZetto for US$2.7 Billion.

Mobile Apps Start to Generate Real Revenue in Services | Sherpas in Blue Shirts

September 4, 2014

The mobile app space offers service providers the potential for new growth platforms. However, these are often small projects that are delivered quickly and are not a great revenue stream. But recent studies we came across reinforce our growing opinion that the mobile app space is changing.

Mobile apps are costing more and taking longer to develop; they’re far more expensive than expected. We believe there are a couple of reasons for this.

First, mobile apps are moving out of the experimental phase into the mainstream business and therefore are far more complicated. That alone requires more rigorous development and testing. But they also must be integrated in today’s IT ecosystem. So they are bigger projects that take far more effort testing. This should give greater opportunity for service providers to benefit.

Recall the early days of the Internet. In the beginning websites were simple and easy to launch. Now they are extremely important to eCommerce and branding and thus require significant resources to develop and maintain. We believe mobile apps are following the same path as the Internet.

So there is a frustrating aspect despite the fact that mobile apps are starting to generate revenue for service providers. Providers are impatient for mobile to take off and give them a new growth platform, but growth is slow.

Internet of Things Opens Up Intriguing New Growth Opportunities for Service Providers | Sherpas in Blue Shirts

September 2, 2014

Code Halos: How the Digital Lives of People, Things, and Organizations are Changing the Rules of Business, by Cognizant’s Malcolm Frank, Paul Roehrig and Ben Pring, discusses the impact of the already huge and ever-increasing amounts of data surrounding individuals and our environment. The authors point out today many pieces of equipment or devices have the potential to generate data about themselves and we can collect, analyze and act on that information and transform the world around us. The implications for service providers are exciting.

The authors of Code Halos explain that equipment, processes and people will have so much information coming off of them that it will create a halo that surrounds them, containing an ongoing flow of information.

An example is a GE jet engine into which GE has put sensors that provide GE and its customers with ongoing diagnostics of an engine’s performance, location and conditions on which it’s operating. This information is collected and synthesized, allowing GE to move from a one-to-many maintenance schedule to an individualized path that treats all of its jet engines the same with customized maintenance. This allows GE to predict when an engine is going to fail so the company can act ahead of failure. Creating customized maintenance also dramatically improves the performance and cost to maintain the engines.

The same potential exists for most, if not all, pieces of equipment. Let’s take the common light bulb. Today we can put a sensor on the light bulb and treat that bulb as an independent entity. We can monitor its working conditions, its useful life, replace it when necessary and adjust the electricity coming to it for greater or lesser amount of light at certain times and conditions. So we can take the most mundane household appliance and create a code halo around it and transform its use, its cost to serve and its usefulness.

As the authors rightfully point out in the book, if we apply this to business processes, it opens up an unending series of opportunities to apply digital technologies and transform the world around us.

One of the meta effects of this phenomenon is that service providers can create completely new lines of service to transform their impact on their customers. Think of GE, which utilizes Genpact to gather and analyze the data to transform its maintenance of its jet engines.

In a services world where we have maturing markets for traditional outsourced application development services, the potential of these code halos is almost limitless. And the need for partnership with companies such as Genpact and Cognizant is significant.

This could create a whole new set of services and market growth opportunities in a maturing market space and become a significant bright spot for the services industry.

Service Providers Struggle Using Big Data and Analytics to Drive Growth | Sherpas in Blue Shirts

August 19, 2014

Observing service providers’ much talked about efforts to provide new levels of value and create new growth opportunities through big data and analytics reminds me of a quote often attributed to Yogi Berra, the great NY Yankees coach. “In theory it’s simple, in practice it isn’t.”

Yogi captures, as only he can, the timeless truth that sometimes things that are obvious and easy to articulate are very hard to execute. Those of you who play golf will immediately recognize the power of this observation. The service industry’s collective experience with big data and analytics is causing a lot of service providers to also identify with this Yogism.

Service providers have been quick to recognize the potential for big data and analytics to change the game in their increasingly commoditized offerings and have made substantial investments in talent and tools they hope will be important in applying these new sources of value to their customers. In a cursory analysis these efforts are encouraging and yielding fruit. The providers continually talk about it to customers and crow about the rapid growth they are seeing in these areas.

But upon further reflection we see mostly a set of tools and capabilities with a lot of hype but disappointing total revenue given the amount of attention and hype. We find that the growth comes off a very small base and amounts to a small total revenue.

The use cases the providers use as examples are few, and they use the same use cases or case studies again and again. Plus the case studies are very industry and company specific and therefore are not easily repeated across the customer base. Basically these are one-off solutions that don’t lend themselves to broader industry application.

Big data and analytics are powerful and obvious in terms of their impact. It’s simple in theory. But in practice it’s difficult to build large big data and analytics revenue streams.

More New Faces at Serco to Help Turn the Company Around | Sherpas in Blue Shirts

August 13, 2014

Serco’s H1 2014 results were poor but in-line with expectations. Adjusted revenue was £2,433m, up 1.1% year on year but adjusted operating profit was down 59.1% year on year to £50.7m.

Profits were impacted by £30m from reduced volumes of work for the Australian Government Department of Immigration and Border Protection (DIBP) and other contract attrition (principally Electronic Monitoring and U.S. contracts).

Changes in other contracts impacted profits by an additional £25m. These included work with AEGON and Shop Direct moving from transformation into run and maintain phases.

A further £30m was wiped off profits due to two other troubled UK government contracts, COMPASS (for the provision of accommodation for asylum seekers) and PECS (Prisoner Escort and Custody Services) and the internal corporate renewal program.

Serco fared better in other geographies with 10% revenue growth in AMEAA and 7% in Americas.

The focus on fixing major contract problems in the UK has taken management attention away from sales. The pipeline declined by £4bn year on year down to £8bn. Furthermore, Serco has lost eight major new bids and two major rebids in this period.

To help the company turn around, Rupert Soames, Serco’s new CEO, has brought in a number of new executives. These include:

Liz Benison, soon to be the new Chief Executive Officer of Serco UK & Europe, Local & Regional Government division. Benison joins Serco from CSC where most recently, she was VP and General Manager for the UK business, managing a £1bn business and its 8,000 employees, with over half of its revenues coming from government customers. Her experience of working with the public sector is key. She has also worked for Capgemini and Xansa plc (now Steria)
The latest executive appointment to be announced is that of Angus Cockburn as Group Chief Financial Officer as from the end of October 2014. Angus is currently the interim Chief Executive Officer at Aggreko plc, having replaced Soames who joined Serco in May this year.

A strategic review is underway and in the coming months we expect to see:

More money put into strategic and targeted bids to improve the poor win rate and the pipeline
Better qualification of opportunities to focus on returns and not revenue alone
Further reorganization to simplify the business – the company operates in 47 different business segments, some of which are loss making – more divestments are very likely
Steps towards eliminating loss making contracts
Reduction of internal costs through improved internal functions, managing a troubled transition to shared services, and better management information.

Serco left its outlook for 2014 unchanged and expects revenue attrition of circa 5% in 2015.

The company is on a turnaround path to rebuild itself, its reputation and its pipeline. The strategic review is bringing out some clear weaknesses that it can address. With fresh faces on board to support the turnaround, Serco also needs to reenergize its workforce and, as Soames said, become a magnet for top talent.

Accenture and IBM Playing from the Same Playbook in Shaping Their Future | Sherpas in Blue Shirts

August 4, 2014

Accenture appears to be picking up its pace of acquisitions and making a series of big moves. This is not a new tactic for Accenture; historically nearly every time you turned around there was another Accenture acquisition. But clearly the pace has quickened and the size of the acquisitions has increased. It’s important to understand how this acquisition strategy helps to shape the provider’s future, for it sends a signal to the entire industry.

Like IBM, I think Accenture recognizes that the services market is changing, so it seeks to move into new territories. The April 2014 acquisition of i4C Analytics vaults Accenture securely into the digital world, and acquiring Procurian in 2013 launched the firm’s procurement group services. Both of these acquisitions are examples of creating access to new markets in which Accenture will be able to navigate the changing services marketplace and ensure they are in the leadership position for next-generation services.

Any service provider tries to grow its practice organically, particularly when it creates offers that are significantly different from their existing offers. However, this strategy is difficult, slow and expensive, and it often confines a provider to a lower market share. Both IBM and Accenture are using the same playbook — moving to deal with this dilemma by buying fully formed companies with established value propositions and working business models that have already been developed and perfected.

Accenture historically developed practices from scratch and successfully scaled them, so spending more time and resources acquiring companies is a bit of departure for Accenture. But we at Everest Group think Accenture’s strategy is to marry acquisition into its impressive record of organic development rather than a complete sea shift in developing new offers.

I think we can look forward to an ongoing acquisitive posture from Accenture as it seeks to extend its businesses. The provider is paralleling IBM’s well-demonstrated move into new service areas through acquisitions, and seeking to drive explosive or significant growth off the new platforms.

Why BPO Providers Are Disappointing Investors | Sherpas in Blue Shirts

August 1, 2014

Out of 22 outsourcing stocks, a few have outperformed the S&P to date this year: EXL Service, Global Payments, Star Tek and UEPS. But 18 have underperformed by an average of 9 percent so far. Why is this trend happening?

First, investors are always forward looking, and stock disappointments or exuberance are relative to the prior year. We saw great appreciation in stocks across the industry in 2013. But this year we’re well off that pace. With stocks at full value last year, they have less progress to go.

Several other factors are in play. Protectionist sensitivity to moving work offshore affects several providers. Rising labor costs, attrition and currency fluctuations take another hit. Competition and pricing pressure are intense in some segments. And some providers are dealing with a stepped-up pace of regulatory changes as well as integration challenges of acquisitions.

Top driver

But I believe the biggest factor is that the global services space is maturing. The strong, robust growth driven by the secular shift to offshoring or labor arbitrage is starting to flatten.

As a result, the industry is in search of the next set of S curves that can drive growth. There are a number of interesting contenders:

Cloud
As a service
Digital
New functional areas that companies are willing to contemplate giving to third parties
Vertical industry plays in healthcare or financial services driven by wrestling with regulations and driving further into compliance and dealing with regulations

All these areas are promising for industry growth. However, these new growth opportunities are not sufficient to offset the declining rate of growth in the broader arbitrage segment. So what does this portend for the future?

The future

I think at least until — and unless — these new areas develop enough scale for robust revenue growth, we’ll see the kind of cyclicality that we’ve experienced over the last few years with the industry’s fortunes tied to economic cycles rather than an underlying growth engine.

EXL Positions Itself for Growth with Acquisition of Blue Slate | Sherpas in Blue Shirts

July 18, 2014

Earlier this month EXL acquired Blue Slate Solutions and positioned itself for growth through transformation services. But the move also reflects a broader industry move.

Blue Slate is a consulting firm that drives operational transformation. The acquisition looks to be a move to buttress and increase EXL’s ability to add value to clients through driving large-scale transformational projects. It also improves EXL’s industry expertise in critical areas such as healthcare.

And it will better position EXL to compete. The Blue Slate acquisition matches Genpact’s investments to add similar capabilities and also allows EXL to compete more effectively with Accenture and IBM on large-scale transformational opportunities.

So it’s a nice acquisition. But it also has broader significance. As we think holistically about this, EXL is joining a broader industry move of players positioning themselves to transcend or add value beyond operational excellence.

OneHP and Progress towards Profitability and Growth | Sherpas in Blue Shirts

July 8, 2014

At HP EMEA analyst summit in London last week, the company highlighted progress towards strategic plans and targets. Key messages included:

Progress with implementing OneHP
Stronger sales
Better leveraging of HP technology and software IP with continued focus on the “New Style of IT”
Growing the advisory part of advise, transform, and manage

Under the moniker of OneHP, the different divisions within the group have been working more collaboratively to share skills and assets better. This strategy was further emphasized during the analyst summit with representatives from various divisions co-presenting sessions.

Stronger sales is a key initiative across the business. This has been achieved to some degree in EMEA already but there is still more to do; Q2 FY 2014 results showed that EMEA, which accounted for 38% of the company’s revenue had experienced growth of 4% compared with a decline of 6% in Americas and a growth of 1% in APAC year-on-year. However, growth was driven by hardware while services revenue shrunk. HP Enterprise Services (HPES) in particular, saw the biggest negative growth within HP group, of 7% year-on-year globally. HPES profit margin of 2.5% in Q2 2014 was up 100bps on previous quarter but unchanged year-on-year.

HP Enterprise Services

Focusing on HP Enterprise Services (HPES): the management presented a brighter outlook for sales than previous quarters with 400+ new clients added in 2013 and a very large deal in the pipeline. Signs of progress on strategic objectives included:

Sales restructuring: HPES has changed its sales structure with 29% of sales force deployed on proactive/new sales rather than scope extensions/renewals sales up from 4% in 2013. HPES has enhanced its sales collaboration tools to improve planning and execution. It is also improving account management. To enhance its sales HPES is hiring top talent as well as building a global practice to meet market demands.

New Style of IT: Delivering solutions for the new style of IT, comprised of capabilities for cloud, mobile, big data and security. Examples of success in this activity include the Norfolk County Council contract which was won in 2013. Contract deliverables have included a cloud-based information hub for data sharing to enable public services work better in partnership with each other. HPES is also delivering desktop, data center and other infrastructure services to the council. The OneHP component includes the use of Autonomy and Vertica, as well as HP’s technical skills around cloud, desk top, virtualization and infrastructure capabilities.

Increasing advisory services: This is to enable HPES to engage with clients early, to help articulate requirements better and specify the solution that can draw on OneHP, to also increase higher margin services. An example of this is HPES’ contract with Seadrill which included advisory services to plan vacating a data center in six months and migrating 31 applications to the cloud, including some transformation. The advisory service appears focused on identifying potential innovation or transformation opportunities or helping clients define a solution as part of an on-going service. Carving a modernization niche for its advisory services, in this style, could help HPES potentially avoid coming into direct competition with major consultancies that would sell their services on a vendor/technology agnostic ticket and with SI partners that may be HP resellers.

Other measures underway include developing more vertical capabilities, becoming more business requirement-focused and continuing to reduce costs.

Overall, the focus of the event was heavily on IT with BPO limited to a short part of the HPES deep dive session. HPES maintains that BPO is an important part of its business and it is currently bidding for a new major contract in the UK government sector. My take is that BPO has become something of a quandary for HPES. Although it values the business and wants to grow it, other activities appear to get the higher share of resources. Yet, we live in the era of increasing digital channels and automated processes. HPES’ IP and access to vast technology resources should position it to do well in this market. Some of its IP such as Vertica, Autonomy, and multiple content/document management software can be used to deliver analytic-based or more automated digital BPO services. HPES also has a whole load of vertical capabilities, such as banking, government tax and revenue, and healthcare, that it can take advantage of to leverage platform-based BPO sales. HPES is taking a good hard look at these assets. A comprehensive strategy for growth of the BPO line could bring all the different components together to target emerging demand for a new style of BPO such as analytic-based services (e.g. revenue assurance, fraud and error, and risk management).

Tech Mahindra Puts Satyam to Bed | Sherpas in Blue Shirts

July 1, 2014

Tech Mahindra has run the gauntlet of stabilizing after its acquisition of the corrupt-ridden Satyam. The fully integrated companies have a unified leadership team, the client base is satisfied and stable, and Tech Mahindra has a robust brand. The provider is now turning its focus to growth.

When Satyam imploded through a well-documented set of corruption cases, Mahindra stepped forward to acquire its assets and, by extension, stabilize the Indian heritage services industry.

It has been a long, difficult journey for Tech Mahindra, more difficult than anticipated. Mahindra had to wrestle with rooting out the corrupt practices, getting the books restated, negotiating with the regulatory bodies and shareholder lawsuits, satisfying a concerned customer base, dealing with a nervous employee base and transitioning from the tainted Satyam brand to the robust but less well known Tech Mahindra brand.

Although there was some client flight, many clients chose to stay and wait it out. These clients are now satisfied and pleased with the progress Tech Mahindra has made.

Kudos to Tech Mahindra for enduring the journey to a successful outcome. We’ll watch with interest as they now focus on growth.

Announcing our inaugural conference: Everest Group Engage, The Pragmatic Edge: Designing Your Future. Learn more.

Tag: growth strategy