Software Defined Networking (SDN) befindet sich nach wie vor auf dem Vormarsch SD WAN steht vor dem Durchbruch Klassische LAN- und WAN-Service-Angebote sind ausgereift und haben an Attraktivität nicht eingebüßt Die Experton Group stellt die zweite Auflage ihres unabhängigen Anbietervergleichs „Software Defined/Traditional Networks & Managed Services Vendor Benchmark 2017“ vor. Die Studie evaluiert und bewertet […]
What is Happening?
The IT and business services market is an extraordinarily competitive and unforgiving marketplace for incumbent providers that are not meeting client expectations. According to ISG research, two out of every three ISG-advised contract renegotiations over the past two years resulted in the enterprise buyer inviting new service providers to compete with the incumbent provider, and, in nearly half of these cases, the incumbent lost all the scope. One-third of the time, the incumbent lost some scope to another provider. Only 14 percent of renegotiations resulted in the incumbent retaining the entire scope, and only 7 percent of the time the incumbent saw an increase in scope.
Why is it Happening?
When analyzing this trend at an individual deal level, price, performance and relationship appear to be the three primary drivers for the increase in competitive renegotiations:
- Price. In response to the massive competitive pressure to explore digital solutions across the business, enterprises are looking to take cost out of non-strategic areas and re-invest those savings into digital initiatives. Enterprises are looking to reduce costs by 20, 30 and 40 percent, even those in existing generation-one and two outsourcing deals.
- Performance. A general lack of performance (or the perception thereof) is a key driver for enterprises that decide they want to bring in fresh thinking. Outsourcing buyers that can measure or even simply perceive a lack of innovation, a lack of understanding of their core business, or too much focus on day-to-day problem resolution from a service provider that doesn’t understand or resolve underlying root causes increasingly are interested in the idea of a competitive renegotiation.
- Relationship. Complacency in the relationship was a key theme for incumbents. Providers that do not understand underlying client messages, are insensitive to concerns, don’t proactively build relationships with key leaders or don’t have a proactive relationship plan are driving buyers to re-evaluate existing relationships.
While it’s no surprise that enterprise buyers want more competition in contract renegotiations, what is even more interesting is the fact that the risk of change is not a primary deterrent for a client to move to another service provider. Figure 1 below shows that, in more than 60 percent of deals in which the incumbent lost some or all of the scope, the client viewed the risk of changing providers as either moderate or high.
Figure: Risk is not a Significant Deterrent to Changing Providers Source: ISG Research.
This willingness to take on provider switching risk may be a leading indicator of an even broader trend occurring in the market: the global economy is changing at a pace where it is now riskier not to take a risk. Digital Business is transforming entire industries in a matter of months – not years – which means that enterprises need to adapt faster than ever before. Therefore, one could argue that at a more strategic level, enterprises buyers are willing to take on a high level of switching risk in order to avoid the even greater risk of business stagnation.
Of course price, performance and relationship are important. But what we may be seeing here is a view that these areas are simply table stakes – services commodities. Further exacerbating this challenge for providers is the fact they themselves have matured their transition capabilities to a point where the cost, time and risk of switching seems acceptable to enterprise buyers, as compared to the risk of not changing their business to adapt to Digital Business opportunities.
This is a sobering assessment for large Western and Indian Heritage firms that are also under siege from hyper-scale clouds, innovative SaaS companies, smaller platform-based managed services companies and niche providers offering digital solutions that augment the work of humans. But fact remains: if a client is unhappy with your services, it’s highly likely they will invite new providers to bid on the work. When (and not if) this occurs, you have a 50/50 chance of losing all of the scope you own today to another provider.
So while focusing on price, performance and relationship are critical to keeping clients happy, it is continuous innovation that we believe will help service providers win and retain clients in the future. Continuous innovation focuses on helping clients adapt to rapid business change today, rather than solving to what an RFP indicated months or even years ago. However, this is much easier said than done, because continuous innovation is a two-way street. Providers will need to invest ahead of the curve in differentiated, vertical-specific IP, and buyers will need to standardize processes and leverage shared systems. Meeting somewhere in the middle is where the risk, and the opportunity, reside for both providers and buyers.
Die Bundesanstalt für Finanzdienstleistungsaufsicht (BaFin) hat im Rahmen der Veranstaltung „IT-Aufsicht bei Banken 2017“ über aktuelle Trendthemen informiert. Neben dem Kreditwesengesetz (KWG), den Mindestanforderungen an das Risikomanagement (MaRisk) und künftig den „Bankaufsichtlichen Anforderungen an die IT“ (BAIT) bildet das IT-Sicherheitsgesetz (ITSG) die Grundlage für die Arbeit. Ziel ist es zu beurteilen und zu kontrollieren, welchen […]
Seit einiger Zeit geistern Schlagwörter in der ICT-Branche herum, bei denen Analysten den Eindruck bekommen, dass diejenigen, die den Begriff gerade vollmundig von ihren Marketing-Folien ablesen, nicht wirklich sattelfest sind, was eine Definition betrifft. Die Antworten der Industrie auf die Frage, was mit den Schlagwörtern „Cognitive Computing“, „Machine Learning“ oder „Artificial Intelligence“ gemeint ist, fallen […]
Die Vernetzung & Automatisierung von Geräten, Maschinen und Produkten schreitet weiter unaufhaltsam voran und birgt stetig neue Geschäftsmodelle. So sind in den Themen Internet of Things (IoT) und Industrie 4.0 (I4.0) mittlerweile viele gute Use Cases existent, die den Mehrwert von IoT/I4.0 sowie das breite Optimierungs- und Wertschöpfungspotenzial nachdrücklich belegen. Doch IoT-Projekte sind komplex, und […]
What is Happening?
Several ISG analysts and advisors participated in the Atos Analyst & Advisor 2017 Global Conference in Boston. The event was a comprehensive update on Atos’ business direction, portfolio and offering strategy, acquisition direction, and technology viewpoints. Clients of ISG Insights can look forward to a Briefing Note within the next week summarizing our take on all of this, followed by a series of deep-dives into specific segments of Atos’ service lines.
For this Research Alert, we want to focus on two larger-picture aspects that this event helped to crystallize for us: how providers’ digital strategies are shaped (and limited) by core ecosystems of customers and partners, and the intensity of the challenges that providers face while repositioning, reinventing, and improving themselves in order to enable and foster transformation for clients and partners.
Why is This Happening?
Presentations by and discussions with Atos leaders at the event shed some additional light on how IT providers in general are positioning themselves for the nascent digital opportunity, i.e., articulating digital-first direction and strategy that resonates within the existing customer and partner base; establishing offering foundations that utilize key existing technologies, offerings and partnerships as building blocks; and planning/announcing/executing acquisitions that layer on top of, or extend the footprint of, the foundation.
In Atos’ case, the company articulated a solid business strategy that leverages its existing capabilities into a Digital Transformation Platform – also referred to as a ”digital transformation factory” by company leaders during the event. The platform rests on four pillars consisting of or built from established Atos business: its Canopy Orchestrated Hybrid Cloud services; SAP HANA by Atos; the Atos Digital Workplace (including its year-old Unify acquisition); and Atos Codex data management and analytics – all supplemented with expanding cybersecurity and digital payment offerings. Each of these “pillars” in turn builds on and with Atos’ broader services mix.
What Atos has already in place is well-suited for enabling and delivering digital transformation capabilities. It is also shaped by what the company has and does right now, and what its customers and partners are capable of taking advantage of. Its portfolio, like most providers’, has developed and evolved on pace with the business IT changes being experienced by leading-edge clients, and company leadership has been strong and prescient enough to recognize the direction, rethink its strategy, reposition (and expand) the offering portfolio, and re-invent itself as needed overall.
But a substantial amount of work remains to be done. Atos leadership made it clear how enabling digital transformation for its enterprise clients requires ongoing and repeated rethinking and reinvention, down to developing more and better ways of finding, hiring, and retaining the right human talent in its own global workforce.
The reality of the digital transformation business for traditional providers was made clear when Atos reviewed its publicly-reported revenues. On one hand, in a market that has been largely challenging for most traditional IT service providers, the company looks to be healthy and growing. Among other statistics shared in presentations this week, Atos reported €11.7B revenue for FY2016 with an operating margin of 9.4%, along with a 5-year CAGR of over 15% through 2016.
On the other hand, while it is has been both reinventing itself and pushing hard to profit from digital transformation services, Atos leaders reported that only about 13% of current revenue actually comes from such offerings. We take that number at face value, given the difficulties in separating out digital-related business from traditional.
Given where they are today, Atos has set itself a substantial growth target for digital business: from 13% of revenue today to at least 40% by YE2019. As with many IT providers, Atos plans for some of that to come via acquisitions of digital-related providers, from infrastructure-related to transaction and digital payment-related capabilities (a la its Worldline acquisition). But the majority is expected to come through continual and recurring reinvention and adaptation/innovation of its existing service lines and partners.
This comes with significant challenges. Atos must invest effectively in innovation in how it does business and how its offerings can be applied and adapted, including in ways that are not currently envisioned. The company has earmarked an average of €300M annually for R&D spending, or about 2.5% of revenue. The most innovative established IT firms (e.g., Intel, Google, Microsoft, Amazon) spend more than 10% annually on R&D; innovative disruptors and digitally-native firms such as Facebook tend to spend as much as 20% annually. While €300M is not a small amount, 2.5% of revenue is relatively low for a company that must develop and improve multiple means of re-inventing and innovating across multiple lines of business.
Presentations and discussions at the event also helped to frame another critical need for IT providers like Atos: staffing. One of the greatest challenges that providers face as they gin up for digital business is a lack of qualified staff, especially in engineering, development, and associated management. Atos, for example, has about 100,000 engineers already on staff, and is hiring between 10,000 and 15,000 more per year just to keep pace with current business needs. Given that digital transformation requires an increasingly broad mix of traditional IT skills and new knowledge and expertise, providers (including Atos) are challenged to find more and better talent, quickly, with high rates of hiring and retention.
This is an area that requires not only provider business rethinking and reinvention, but also application and innovation of traditional and digital-first technologies and services. The cobbler must not only shoe his own children, but find and adopt more who can help him design and build new types of shoes. Atos is addressing this similarly to the ways that other providers are, including internal “university” training programs, using advanced analytics to develop and manage predictive hiring and retention programs, and fostering “digital communities” internally and with partners, utilizing Cloud-based knowledge sharing/collaboration platform capabilities.
Finally, one more consistent message was delivered by Atos leadership throughout the two days: Digital transformation, for Atos, its clients, and it partners, is an ongoing thing. It requires more than a one-time investment or a specific set or type of acquisitions. We see and hear similar messages from most traditional IT providers, and we see them working to balance the substantial investments required in balancing and managing simultaneous reinvention and extension of traditional business.
Interestingly, we do not hear much about this from Cloud-native/digital-native providers. For them, continual reinvention is part of their organizational, cultural, and technological DNA.
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What is Happening?
ISG Americas president Todd Lavieri used his keynote presentation at the IAOP Outsourcing World Summit (OWS17) to highlight not only the changing state of outsourcing, but also its critical effects on user enterprise and IT provider digital transformation. His net message: There is more change underway than meets the eye, creating confusion and opportunity for enterprises and providers.
Lavieri used data and insights from the 57th Quarterly ISG Index (4Q16) to identify and reinforce three key factors shaping digital transformation trends as we move into and through 2017: Change, uncertainty, and speed. The key change is the shift in outsourcing away from traditional IT toward more “as-a-service” capabilities. This is not only reshaping providers’ business strategies and models, due in large part to user enterprises looking for rapid deployment of advanced capabilities as they pursue transformation initiatives. The uncertainty comes from enterprises’ often still-nascent digital transformation plans and initiatives, and the resulting provider-side uncertainty about which capabilities will be most valued – and therefore should be invested in. Finally, the speed aspect reflects the accelerating pace of digital business technology adoption, adaptation, and innovation, which spurs similar acceleration of even more digital business initiatives and expectation.
The results: As Lavieri highlighted in his talk, 65% of enterprise clients feel disrupted, and express substantial uncertainty about what to do, where to go, and how to do it. We see IT providers expressing similar uncertainty – even while leaders position themselves to create opportunity from the chaos.
Why is it Happening?
Digital business transformation implies new processes and new outcomes, enabled by new ways of using information technologies. It is a series of fundamental changes that may be approached incrementally or as “big bang” projects. In either case, we are seeing more and more enterprise business and IT leaders impatient for change. They fear not being able to find and take advantage of new opportunities; they worry about falling behind competitors. They seek ever-improving means of trialing new capabilities and either succeeding or “failing fast” with reduced risk to the business. They push for more rapid adoption of digital business capabilities.
Meanwhile, digital transformation is still early enough in most firms’ agendas to lack cohesive, coordinating strategy and management. And we are seeing absorption of more digital business transformation plans, initiatives, and spending into ongoing business organizations and operations. On the plus side, this implies that more and more, “digital business” is more and more becoming just “business.” On the negative side, this suggests that digital plans and initiatives may be being spread more widely, away from centralized, coordinating governance.
On the provider end of the spectrum, developing and delivering new technologies for new services that enable new enterprise-side capabilities – often for clients that do not yet know their long-term needs – is very different than providing mature services to knowledgeable clients was just 5 to 10 years ago. As noted above, enterprise clients are really still becoming aware of what can be done, and taking early steps toward translating that into longer-term business planning and strategy. And enterprise investments in “as-a-service” IT are helping to provide most of the growth in outsourcing business today, but the applications of these capabilities are far more likely to be point- or group-solution types with dynamic demand and utilization than more traditional, steady-state, division- and enterprise-wide IT services outsourcing. Couple this rapidly-evolving new IT consumption model with mid-term uncertainty about digital transformation, and the enterprise-side uncertainty quickly translates into provider-side uncertainty.
In evolutionary theory, it’s not the strongest species that survive, but those that adapt the best and most rapidly to their environments. In a business IT environment rife with uncertainty, change, and speed, enterprises and providers both need to enable adaptability in order to survive and prosper. Three key actions to do this are as follows:
1. Understand that “change” really means “improvement.” Digital is not about raw change; it is about improvement. And as there are always too many opportunities for improving business and IT, look for the most valuable business improvements feasible. A first place to look is where current systems most inhibit the improvement of business and IT operations.
2. Reduce and manage the uncertainty. Identifying and implementing changes that improve the ability of the firm to do business will significantly reduce uncertainty about what to do, how to do it, and when. This simple, first organizational step enables vision and planning based on a path of measurable, incremental improvements that lead to strategic transformation.
3. Adjust your speed accordingly. It’s easier to travel faster (and farther) on a long journey when you are not distracted by constantly repairing and fueling the vehicle. Improving operational efficiency is like improving fuel efficiency. Your vision down the road is much improved, and you can avoid more traffic problems and accidents, when you do not have to constantly monitor dashboard gauges and lights for problems. In short, you can go faster with fewer stops and reach your digital destination with more resources and ability.
Simplifying the change+uncertainty+speed problem in this way also enables enterprise IT and business leaders to better identify the most valuable IT providers and capabilities. As improvements occur over time, the mix of suitable providers and capabilities (and solutions) will change. Insights and guidance such as those in our 2016 i3 and 2017 Market Lens reports, our ongoing Automation Index and Cloud Comparison Index research, and associated research and briefing notes, will help to identify and manage these changes as they emerge and evolve.
Providers need to understand these changes because there is great opportunity in helping client enterprises understand and scope possible improvements. We see surging uptake of such services among user enterprises, and this will accelerate and grow through the next 24 months at least. Providers also need to understand their own need for speed. Enterprise-side IT business changes are occurring quarterly, or even faster. Awareness of client enterprise business change – and the flexibility to adapt to that change and its accelerating pace – will be key to the ability of IT providers to compete.