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What is Happening?
You would need to be hiding under a rock to not have noticed the recent rise in popularity of the term “machine learning.” This statistical method, which consists of using computers to build complex and sensitive predictive algorithms, underpins much of what today is being billed as artificial intelligence. While machine learning has been around in various forms for many decades, improved access to computational power in the cloud – as well as the application of machine learning capabilities by large internet companies such as Amazon, Google and Facebook to improve recommendations, searches and content filtering – have made it top-of-mind for businesses engaged in Digital Transformation. Depending on how it is applied, enterprises can use machine learning to improve targeting and interacting with customers, to better automate tedious tasks in back-office processes or to help model and avoid financial risk – a very flexible tool indeed.
Figure 1 – Google Trends Data – Machine Learning. Source: Google Trends (Accessed 20 April 2017). Note: Google Trends data is represented as Search Interest in the given term over Time, with 100 indicating peak popularity and 50 indicating the term was half as popular.
As seen in Figure 1, the growth in interest in this topic is clearly visible with the search instances roughly doubling over the last year.
Why is it Happening?
The fact that businesses, software engineers and statisticians are using a new method isn’t particularly noteworthy in and of itself, but, when taken in context, it represents the beginning of yet another important shift in the evolution of computing. Until now, the evolution has happened in three epochs, starting from early tabulating machines and progressing to the extensive mobile and social networks of today. The series of developments goes (roughly) like this:
- Systems of Record – developed primarily to store data about the business
- Systems of Interaction – developed to provide new ways to work with data in the Systems of Record and to focus on creating, reading, updating, deleting – or “CRUD” operations
- Systems of Engagement – developed to move beyond a strict transactional system to add share and react functions on top of CRUD operations. These systems formed the basis of collaboration and enabled a level of abstraction from the transaction to better allow users to understand the process and engage with it.
Each of these developments has been built upon the last, and none of them replaces the ones that came before it. Instead, they offered additional abstraction from the data and the computer’s processes to get closer to what the human processes needed to be. While the nature of these systems is not predicated on the evolution of databases, the concomitant evolution of databases from tabular > hierarchical > relational > graph and unstructured has also enabled many of the additional capabilities of these systems over time
As Systems of Engagement have matured over the last few years, we have been watching closely to see where the innovation was likely to lead next. Based on our recent survey and interview programs, we believe two more systems will be added to the three existing ones, and that they will be:
- Systems of Understanding
- Systems of Intelligence
The surge in interest in machine learning and the increasing maturity of predictive analytics technologies already are building this nascent group of systems to help us understand the world around us. “Cognitive” systems, as Systems of Understanding are frequently called, include many sophisticated tools that help expand the scope of both human and computer decision-making by giving us new ways of understanding data and the relationships therein. The computing systems being developed now build on top of Systems of Record, Systems of Interaction and Systems of Engagement to help us describe, correlate, and predict based on information to which we have access.
While Systems of Understanding are still immature, we are seeing early evidence of a future of Systems of Intelligence, which will be defined by the ability to understand within a real-world context. This capability will allow computers to navigate beyond describing correlation to inferring causation.
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What is Happening?
Conversations at the January ISG Executive Provider Summit with CEOs, CTOs and global product/service leaders of leading IT providers Cognizant, HCL, Hexaware, NTT DATA, Inc., and Softtek have helped us to crystallize core trends and market developments that we’re seeing in our work with enterprise and provider clients alike.
The net takeaway is this: Providers “get” Digital Transformation. They understand what enterprises are trying to accomplish, and the resulting need to change what they themselves do and how they do it.
But while providers are taking important steps in the right direction, each also faces substantial challenges in balancing their own and enterprise clients’ current interests and capabilities, versus what is in the best interests of both parties over the long term. It is a complex, costly, and potentially dangerous cycle wherein providers are re-inventing themselves and clients, while clients re-invent themselves and providers.
Why is it Happening?
Let’s start with an important position statement: IT providers demonstrate more digital transformational knowledge and technology leadership than the vast majority of enterprise business and IT leaders. They know how to “do digital” better than most of their clients. They understand the strategic point of view and the required planning and management. They are bringing to market a wealth of digital business consulting and planning capabilities, and improving on these through strategic acquisitions and partnerships.
Meanwhile, most enterprises want, and are trying to, develop and pursue key aspects of digital transformation on their own. Most also report initial success. However, we know from our research that these successes are mostly minor and fleeting, because of two factors. First, the vast majority of digital initiatives to date are tightly-focused, small in scale, developed without an integrative strategy, and not measured effectively. Second, digital is still so new that enterprises leaders lack the experience and knowledge required to develop effective, unifying strategies. And it is still rare to find the CEO and CIO who recognize that they cannot do it all themselves – that they need to be led. So, while we see more IT providers like Cognizant, HCL, Hexaware, NTT DATA, and Softtek developing and bringing to market a range of what can best be called “digital leadership” services, we don’t yet see a critical mass of enterprise leaders able or willing to take advantage of these.
Forward-looking IT providers understand this, and so continue to develop IP-led capabilities to address the more focused, tactical digital improvements that most enterprises are aware of and capable of benefiting from. This includes putting together IP based on existing technologies and weaving in more emerging technologies, really moving far beyond traditional IT services in more ways. So we see more providers investing in IP, especially for industry-specific digital business process improvement. And because enterprise clients today tend to focus on tightly-focused digital improvements, there is more interest in “outcome-based” contracting aligned with specific business or IT operations and processes. And we see increased and accelerating provider investment in market-specific knowledge and capabilities through partnering with and acquiring market-, operation-, and process-specific technology, software, and services providers.
The range of what enterprises want and require for digital transformation is increasingly complex. This is forcing re-invention of provider-side portfolios and business models well beyond the changes already being forced by evolving IT sourcing practices and patterns.
This is much more than weaving automation, analytics and autonomics into specific, digital-supportive solutions. It is an increasingly complex and shifting mix of provider- and client-side technologies, business models, and relationships. Things can quickly get more costly than anticipated. It is a real danger for providers, even those who “get” what digital means strategically while understanding and addressing typically tactical enterprise digital requests. We see a significant likelihood of providers’ stumbling on the digital journey, despite the current clarity of vision and intent.
That being said, the spreading scope of digital-driven business and IT complexity will give rise to one of the greatest long-term opportunities for both providers and enterprise clients: re-invented integration. To make digital business work in the long term, enterprises will need an integrative business+IT strategy and rapidly-improving and expanding integration capabilities across potentially thousands of digital project instances. Such strategic and integrative capabilities will be the purview of the re-invented IT providers as they shift toward:
- A broader systems integration role that focuses on more complex and comprehensive projects such as infrastructure transformation; and
- A business integration role that focuses on measurable enterprise business transformation and improvement over time.
Such a shift, or series of shifts more likely, raises further questions that we will continue to address for our subscription research and advisory clients, including the following:
- If, as part of their emerging digital transformation roles, IT providers take over more business IT planning, delivery, and leadership, what becomes of the CIO’s job?
- And if outsourced IT development, delivery, and execution are increasingly correlated to specific business outcomes, what becomes the primary value of the enterprise IT organization?
- What are the next critical changes that IT and services procurement leaders and organizations need to consider – and how quickly?
We’re not putting the cart before the horse. Anyone who spends any reasonable amount of time within or around enterprise IT understands the inherent, massive complexities that effectively limit the pace and amount of change that is possible in a given amount of time. We cannot forget or discount the traditional business of IT providers and the reasons for enterprise outsourcing. As one CIO now working in the sourcing industry recently told us, there is “still a ton of blocking and tackling and drudge work” going on, and that will remain the “meat and potatoes” of IT provider business for the near future. There is still a long, long way to go for most enterprises in transformation, and therefore also for IT providers. So providers will be tested as they remain in multiple cycles of re-invention that are developing at differing speeds. They face multiple, competing and overlapping business models, resource requirements, and timeframes. Success will come from balancing a focus on “point solution” enterprise transformation and modernization, typically of specific IT functions, operations, and outputs, while investing more over time in strategic, bespoke business and IT consulting capabilities. The greatest challenges will come in determining how much, and when, to shift investment from traditional business or tactical digital initiatives to tactical initiatives or strategic services.