Tag: service providers

IBM’s Watson Ups the Ante in Healthcare | Sherpas in Blue Shirts

The recently announced acquisition of Merge is one in a string of initiatives by IBM to increase both its market presence and depth of offerings to the healthcare sector. With birth rates increasing in many parts of the world and the aging population growing in developed countries, the race is on for data driven and highly efficient healthcare.

IBM is clearly targeting this market. Its recent activities have included:

  • Entering into new partnerships with companies such as Apple, Johnson & Johnson, and Medtronic for health-related data collection, analysis, and feedback
  • A partnership with CVS Health to develop care management applications for chronic diseases
  • Acquiring Explorys, a healthcare data provider, and Phytel, a hospital care coordination information provider
  • Buying AlchemyAPI to include text analysis and computer vision capabilities into Watson’s computing platform
  • Establishing a dedicated business unit called IBM Watson Health, headquartered in the Boston, MA, with the specific remit of growing its healthcare business
  • Collaborating with leading hospitals and research institutes including Memorial Sloan Kettering Cancer Center, University of Texas MD Anderson Cancer Center, the Cleveland Clinic, and the Mayo Clinic to leverage Watson’s healthcare capabilities at the cutting edge of medical research
  • Setting up IBM Watson Health cloud to bring together data for healthcare and research

The US$1 billion acquisition of Merge brings IBM a medical imaging platform to combine with Watson’s image data and analytics capabilities and an extended client base. Excellent and Elementary, Dr. Watson.

With these initiatives, IBM is building specialist competences, to capture, analyze, and recommend treatments or actions that would help healthcare providers, payers, pharmaceuticals, as well as individuals achieve positive health outcomes.

Gaining a wide range of capabilities in specific areas has helped IBM generate specific segment revenue in good and bad times. For example, its large number of information management and WebSphere portfolio acquisitions (e.g., Cognos, Netezza, and SPSS, to name but a few) has seen segment-specific revenues maintain steady growth over the years.

If IBM was to successfully combine its deep specialization in healthcare with Watson’s cognitive computing to enhance its services, it could gain a big edge over competitors at a time when demand is set to grow. At the moment we are seeing more of IBM in healthcare IT infrastructure modernization contracts than data-driven care provisioning and support services. Recent examples include:

  • A contract to update the UK NHS’ electronic staff record (ESR) system, adding mobile access and self-service capabilities for 1.4 million employees
  • A contract to provide mainframe and data center server and storage infrastructure services for Anthem Inc, a U.S.-based health benefits company, for the next five years at TCV of US$500 million

These types of contracts give IBM opportunities to tap into new solution and services openings at existing clients.

Other challenges for IBM’s intelligent and data driven healthcare offerings include:

  • Collecting enough data for its solutions to be relevant to, as well as accessible in, different parts of the world
  • Data protection barriers in Europe
  • Poor cloud infrastructure in emerging economies.

IBM is going all out when it comes to showcasing Watson as a competitive differentiator. In an uncharacteristic move (and a sign of the times), it has launched Watson Developer Cloud, an open platform for developers to build apps on top of Watson for industry-specific solutions (through a set of APIs and SDKs). It is also working with app developers such as Decibel, Epic, Fluid, Go Moment, MD Buyline, TalkSpace, and Welltok to build apps embedded on Watson technology, thereby, rounding up a robust ecosystem. It is abundantly clear that IBM views healthcare as the principal vertical where Watson’s computing prowess can make its mark. In the meantime other service providers are likely to build or acquire their own cognitive capabilities to challenge IBM on pricing and specialist offerings.


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The Empire Strikes Back in the Services World | Sherpas in Blue Shirts

I’ve been blogging about the changing world of services and how the growth is in the SaaS and BPaaS space. However, capturing SaaS and BPaaS opportunities is incredibly frustrating for large service providers, especially incumbents. Their efforts to win these deals often end up like David defeating Goliath.

That’s because, for the most part, customers select the new players in the SaaS and BPaaS space, like Salesforce and ServiceNow, instead of existing providers. This is similar to where we were in the dot-com era with startups threatening to sweep away the traditional players. Why is this happening?

Two frustrating challenges for providers

First, SaaS and BPaaS tend to originate in SMB markets, which is not where the revenue is for the large incumbent service providers; large enterprises adopt SaaS and BPaaS as point solutions. As point solutions, SaaS and BPaaS hold relatively modest opportunities for large providers’ growth and revenue.

Secondly, SaaS and BPaaS offerings are based on a different business model. The as-a-service business model requires a complete rethink of traditional service providers’ delivery systems. This forces providers to move to either a multitenant environment with all the implicit change management issues for clients, or to an automated vehicle that is likely still in the early stage.

Like the Star Wars movie saga, the empire will strike back

At Everest Group, we believe that now, as happened in the dot-com era, the empire will strike back. We think the way this will happen is through switching to an Enterprise IT-as-a-Service model. Borrowing from the Star Wars movie, we believe the dominant providers will strike back and reassert their role in services.

Instead of coming at IT services from a point solution and multitenant environment like SaaS and BPaaS, Enterprise IT-as-a-Service moves the entire service supply chain, component by component, into an as-a-service model. Rather than trying to have the entire supply chain operate on a single platform, it allows enterprises to migrate the individual components – data center, platform, talent factory, software licensing, etc. – into a supply chain model with components aligned with service lines.

Not all providers will be able to make this change, but those that do will be able to flourish and reignite their growth. The Enterprise IT-as-a-Service model favors large incumbent providers over startup SaaS and BPaaS providers.

SaaS models are most robust in SMBs. In the large enterprise, they manifest as point solutions, thus breaking the Dillinger principle – you rob banks because that’s where the money is. Service providers go after large deals in large enterprises because that’s where the money is.

Increasingly, the investment thesis on Wall Street favors the SaaS and BPaaS providers and rewards them with higher valuations because of their potential to disrupt industries. But we think the empire has a good chance of striking back. Traditional providers’ existing knowledge of the enterprise environment and ability to orchestrate the entire supply chain through the Enterprise IT-as-a-Service model will be favored over the SaaS and BPaaS players entering the market.

Analytics Services Market Maturing Quickly | Sherpas in Blue Shirts

Analytics has been a bright spot in the services world, particularly for the Indian service providers as their analytics practices have grown faster than the rest of their organizations. They often are able to command premium pricing in this space, and it holds the tantalizing promise of transforming other service lines such as ITO, apps dev, and BPO. However, I’m making a bold prediction: The analytics practices are going to quickly hit maturity and the rate of growth will quickly slow.

We at Everest Group observe three maturity characteristics now happening in this space, so the “recipe ingredients” are in place for this market to start maturing.

  1. Gold rush stage. As companies come to understand and believe in the power of analytics, they are eager to do proofs of concept, which they then scale into a Center of Excellence (CoE). For the most part, the leading providers that offer analytics services establish a CoE or complement an existing CoE with data scientists. But data scientists are scarce, so they often use partners to augment their CoE. But the analytics gold rush is starting to ebb. Many providers have already seen the light and are already on the journey to establish or scale up a CoE. Therefore, the market will mature.
  2. Analytics becomes core. At Everest Group, we see a trend in which the benefits of analytics are so strong that analytics customers over time tend to want to build their own CoE and use their own capabilities, leveraging third parties only as an overflow or extension of what they are doing.With the return on investment in analytics being so high and customers viewing analytics as core or necessary to their business and competitive advantage, they view the expense of building an internal analytics CoE as a justifiable cost and wise decision. Therefore, service providers’ labor arbitrage offerings are less compelling.
  3. Benefit doesn’t pull through to a process. For the service providers that have built a capability around analytics, it should lead to complementing other BPO or IT practices; but we have not seen this as a common occurrence. We believe the reason is that the customers’ stakeholders block providers’ access and seal them off translating the analytics work to a broader business process or IT application. The providers’ hope of pulling through work has not manifested consistently in a large degree.

As we analyze this issue, we believe there are three areas where analytics providers can build distinctiveness:

  • Provide access to proprietary data
  • Build proprietary tools
  • Provide capability

As already explained, we expect the market for providers whose practices are built on capability will slow rapidly. But we see substantial opportunity where a provider combines proprietary data and proprietary tools with capability that focuses on a specific business problem.

An example of a scaled analytics program that has achieved billions of dollars in this way is OptumRx. This solution includes a proprietary data source, proprietary tools and capability focused on a business problem that serves the healthcare industry at scale. And it generates billions – not millions – in revenue.

We believe that providers that transition to a model of creating proprietary data and customized tools combined with capability to solve a business problem will enjoy ongoing and potentially explosive growth.

But those that stay focused on providing capability and data scientists are doomed as they face a quickly maturing marketplace. It’s not that this space will go away; it’s just that it won’t grow fast and pricing pressure will start to take hold.

Although we believe the analytics market maturity will happen in the next two years, we think a lot of room and potential remains for providers that combine the three analytics components (data, tools and capability focused on a specific business problem).

Customers Changing Core Objectives for Services Industry and IT Delivery | Sherpas in Blue Shirts

There is a secular shift occurring within IT services. Many businesses are shifting from functional orientation – where cost and reliability are the key objectives – to a new focus where business value and cycle time are the new objective functions. This shift has big and very serious implications for organizations that encompass the technologies they use and the third-party services ecosystem they use to meet these needs. Accommodating these needs requires a significant rethink of traditional IT delivery, whether it’s through internal centralized IT services or third-party IT services.

Cost and reliability are still important; but these are now secondary issues and no longer dominant issues. C-level executives now drive IT spend. They increasingly focus on aligning IT and business value with the voice of the end user/customer as well as the speed at which IT can make changes and respond to the business needs.

I’ve blogged many times over the last few years, observing this shift of influence out of centralized IT into the rest of the organization (business units, CFO, CMO, etc.) These powerful stakeholders now believe technology more than ever is central to their moves to change the game. They want better value – technology that meets their needs and also responds far more quickly to their needs.

Functional IT structures has disciplines that frustrate these stakeholders because:

  • Projects or initiatives take too long (often a year to 18 months) for them to get the functionalities/capabilities
  • IT often focuses on how to do those functionalities cost-effectively instead of focusing on the customer or user experience and the value derived from that.

Therefore, their requirements can’t be met through a traditional structure of IT where technology orientation is based on functions (data centers, applications maintenance, application development, etc.).

To accommodate the change in demands – the new core objectives – enterprise IT must realign by service lines and have persistent teams that align from end to end on the service lines that focus on achieving business value instead of aligning on performing excellence in a functional way.

Therefore, organizations are rethinking their IT services and a new Enterprise IT-as-a-Service model is taking off. I’ll discuss this new model in upcoming blog posts. The implications are profound for internal services as well as third-party IT services.


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FOMO (“Fear of Missing Out”) – the Service Provider’s Ebola | Sherpas in Blue Shirts

FOMO is reaching epidemic proportions among service providers. We see it particularly in the Indian firms, but it’s not confined to the Indian providers. It starts in the sales teams as they fall behind in their sales goals; then it spreads and infects the entire organization.

You can easily identify the providers infected with FOMO. In the marketplace, there is no RFP or opportunity they don’t want to contest. The FOMO infection causes them to run from client to client with the newest PowerPoint presentations of great promises. But the decks aren’t compelling and lack depth, so the buyers don’t believe the providers’ messages. The buyers aren’t infected with FOMO, so they aren’t blind enough to believe that one company can be great at everything.

Because of FOMO, the providers don’t spend enough time with the existing or potential client to be able to develop the necessary depth.

Those free of FOMO actually outperform in the market consistently and build a much more relevant perspective unique to a client because of their effort to gain a more in-depth understanding of the client.

They focus on a client’s issues rather than chasing every RFP. They only go after opportunities where they have developed a perspective. They put most of their sales resources into focusing on existing clients instead of developing go-to-market schemes for yet-uncaptured clients.

Paradoxically, not only do disciplined providers outperform other providers with their existing clients, but they also outperform in the marketplace with new clients. This is because when they do engage, they engage in a thoughtful, impactful way.

Fortunately for services buyers, FOMO hasn’t infected the entire services industry.


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Taking the Internet of Things Journey from Pilot to Program | Sherpas in Blue Shirts

In the services world, how can we create business value from the Internet of Things?  As I’ve blogged before, the IoT is replete with opportunities to apply the data flow among IoT devices to business processes and transform the world. Therefore, it should open an unending series of opportunities for service providers to create completely new lines of service for their customers. So why is that potential primarily resulting in disjointed pilots and not evolving to programs?

I’ve observed the same pilot-to-program problem also occurring in analytics and cloud. How can service providers solve this problem?

I think the answer in most cases, and certainly in the Internet of Things, is that the pilots are not focusing on solving a real business problem. I acknowledge that some revenue-generating programs are successfully underway in some companies. But many can’t get to programs because the pilot doesn’t start with the right focus.

Let’s use service warranties as an example and look at how to apply the right focus.

First, define the issue – a real business problem – and then ask: “How can the IoT affect the warranty of our products and solve this problem?”

The answer to the question gives focus to what you want to try to accomplish. With this focus defined, you know what signals to look for from the data. You understand what data you need to acquire, the location of the relevant signals, and how to act on those signals to enhance your customer’s warranty experience or service experience.

Then you can build warranty platforms that apply broadly across multiple companies. And you’ll be able to transform the customer service processes and the device maintenance services.

If you start by characterizing a business problem and then ask how the IoT can solve the problem, you can move from a series of disjointed pilots to a program that can capture significant funding and create robust business results, gain market share, improve customer satisfaction and potentially even lead to creating additional service offerings.

The warranty service example is just one of many opportunities for the Internet of Things. I’d be interested in your opinion as to other IoT opportunities for the services world.

Q1 2015 in Services Industry Reveals Heightened Tensions | Sherpas in Blue Shirts

In reviewing the DeepDive Equity Research report for Q1, it’s clear that this year’s first quarter was a bit of a disaster for the services industry. Contrary to industry expectations at the beginning of the year, the report evidences that growth is decelerating. What happened to the expectations?

This report heralds what I’ve been blogging about for more than a year – the services industry has been rapidly moving to a mature state and is now at an inflection point. The results: slower growth, pressure on pricing and margins plus accelerated industry consolidation. In the Q1 report, Rod Bourgeois, founder and head of research and consulting at DeepDive Equity Research, presents analysis of the quarter’s results for 15 leading service providers.

The report (“IT Services: Whoa! What Happened in Q1 Results of 15 Services Firms”) is well worth reading. It reveals that nine of the 15 providers posted bad earnings results, two had mixed results and two were incomplete. Only two providers posted good earnings results. Only two – and these results are despite the accelerated GDP and more favorable economies in North America and the UK.

A caveat: as Rod points out, one quarter doesn’t make a trend. But it is troubling. And it certainly fits with my thesis of a rapidly maturing market.

What are the implications?

First, this means that the underlying growth assumptions on which the labor arbitrage market is based are no longer valid. Second, tensions around pricing and margins will heighten.

The challenge for providers is growth. The winning strategy will require moving from an industrialized arbitrage focus to one of differentiation and achieving a leadership position in new growth areas.

But the buying enterprises also have a challenge in a maturing market: don’t get trapped by vendor lock-in.


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Services Buyers: Don’t Overlook Technical Debt in New Techs | Sherpas in Blue Shirts

Any replacement of new technology for an old technology, or a new approach to technology acquisition, incurs a technical debt that the consumer of the technology must pay down. Providers make all kinds of promises around SaaS, BPaaS and platforms, which lead buyers to believe they can avoid the technical debt when they adopt these newer technologies. But avoidance is just a myth.

A good example of technical debt is companies that move from waterfall to agile. They must invest in a DevOps platform with automated testing, invest in training new and existing talent and invest in changing the way they architect applications to allow for frequent updates.

Let’s consider a Salesforce (SaaS) implementation. In theory, it’s very easy to start using Salesforce.com for your CRM. But in practice, it turns out to be more complicated. Data must be loaded, APIs must be connected, Salesforce must be configured, user training must be conducted and, finally, all this must be tested.

The technical debt tends to increase the more disruptive the change and, unfortunately, the more impactful the changes on the business. In the case of SaaS or BPaaS, which in large enterprises tend to be point solutions, there is a modest technical debt. But in the case of platforms, where the buyer must make large structural changes to important systems of records, the technical debt is significant.

The technical debt creates complications that slow down migrating to SaaS, BPaaS or platform technologies. It also creates user frustration because of ongoing issues in transition/migration. The business users are eager to get to the resulting capabilities and are impatient with the time it takes to get there and the learning curve they must go through to be productive in the new environment. Users are unwilling to invest in the cost and effort to pay down the technical debt, but it surrounds the users’ ability to integrate the new technology and make necessary changes to be able to use it effectively.

As your business moves forward with adopting new technologies, be aware that the technical debt is a key issue in successful adoption. Service providers must be clearer and more honest about the scale of the technical debt and work on approaches that limit it. Nevertheless, buyers need to remember that the technical debt resides with the consumer. And no matter what the provider tells you, the debt is there and it’s likely to be large.

Why Is Accenture So Successful? | Sherpas in Blue Shirts

Accenture’s set of service offerings is incredibly broad-based. They serve clients in an incredible number of business processes. They provide services in every geography. They deal with a huge variety of industries. How can a firm do so many things at the same time with such excellence?

Simply put, the answer is people. Using our framework assessing companies’ characteristics necessary for success, Accenture’s team of exceptional talent stands out. The provider is able to deal with a profusion of diversity in processes, industries and geographies because it aligns its brand, go-to-market approach, portfolio and business model with high-performance talent.

Assessment framework technology service companies

Accenture takes on clients’ big problems that require a transformational journey. Typically the challenge has a technology component or basis. And typically it requires the use of exceptionally deep talent.

Accenture’s relentless focus on high-end talent deployed against big business problems enables the provider to make decisions around what not to do. They are a talent engine, so they let others take on the roles of owning the technologies and servers. They play well in the ecosystem.

They also exit spaces that are highly commoditized where a provider can deploy less talented, cheaper resources. Accenture stays focused on big problems that require transformational journeys, which require high-end, exceptional talent. That’s why they’re extraordinarily successful in providing services in a bewildering variety of processes and industries.

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