IT Providers and the Enterprise Digital Leadership Challenge

Bruce Guptill, Charlie Burns Research Alerts

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.

Net Impact

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:

  1. A broader systems integration role that focuses on more complex and comprehensive projects such as infrastructure transformation; and
  2. 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.

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Drivers of SaaS Adoption in HR Differ by Growth Profile

Alex Bakker

What is Happening?

In our 2016 HCM Adoption Survey we examined whether companies are moving their HCM solutions to SaaS / Cloud (they are), and we also looked into what was driving that shift. As we have seen over the last several years, vendors are increasingly shifting focus to their cloud systems, leaving the fate of many on-premises software applications on an inevitable upgrade path. However, many customers aren’t waiting until the last minute – the HCM suite has been a leading category for enterprise SaaS adoption for several years.

Why is it Happening?

Figure 1 shows what companies indicated were their top three drivers for selecting to move their HR systems to SaaS over the next few years.

Reducing TCO easily tops this – which is somewhat intuitive, because HR software tends to have high total costs. Many systems rely on manual workarounds, have high customization costs, and require 3rd party add-on functionality. Downtime, errors, and maintenance also have costs across the organization and tend to be reduced with SaaS applications. Finally, HR apps and data have high compliance and privacy risks. PII laws often protect the data, and legislation on benefits such as the ACA can also impose significant costs on HR processes.

SaaS Adoption

Figure 1: Top 3 Drivers of SaaS Adoption. Source: ISG Inc., 2016 HCM Adoption Survey, Global n = 206.

After that, reduced demand on IT is seen as a major driver for SaaS deployments – both to avoid configuration and deployment delays, but also to reduce reliance on in-house support. This driver is one that we see often in our consulting engagements in addition to HCM systems typically being lower on IT’s priority list after client facing services and other business systems.  It is also closely related to the TCO question as well, since by sourcing HR functions to SaaS providers it also reduces the helpdesk, hosting and applications development and maintenance burden. Finally, while infrastructure costs are rarely the driver of high total cost of HCM systems, the reduction in human costs associated with the shift of on-premises applications to SaaS has follow-on importance to cost reduction.

However, cost management is far from being the complete story here. Figure 2 looks into the drivers across various company growth profiles. In the fastest-growing companies, the shift to SaaS is driven mostly by the need to increase employee engagement, likely focused on retention and fast onboarding needed by companies that are rapidly adding headcount. For those same companies, user experience is also of high importance.

Companies whose business is shrinking/contracting are looking for benefits that immediately enable them to leverage best practices – often a critical area of liability coverage when reducing headcount. After that, they also seem the most critically focused on reducing their need for IT. We see a strong trend that the faster-growing companies are not as worried about the performance of their IT departments. This reflects a dichotomy in IT that shrinking businesses recognize that their IT departments are holding them back, while fast growing companies often are able to grow quickly because their IT delivers above-average capabilities to the business. IT can be the cause of the fast or slow growth, as well as a symptom of either.

SaaS Adoption 

Figure 2: Top 3 Drivers of SaaS Adoption – By Company Growth Profile Source: ISG Inc., 2016 HCM Adoption Survey, Global n = 206.

Market Impact

While cost management remains overall top-of-mind for the majority of companies selecting HR SaaS, these goals are not uniform across all growth profiles. In our experience, the primary benefit that companies receive from SaaS is seldom true reduction of total cost, at least in the short term. While the lack of costly upgrades can have real impact on the long term total cost, we find that in the shorter term, the primary benefits to the organization are softer, e.g., improved agility, faster time to value, easier data integration, and improved employee experience.  These issues still ranked lower in the survey overall than costs, despite showing up often.

We believe that this indicates a mismatch between what customers really need, vs. what SaaS helps them achieve. For example, they want a reduction in cost, but they are more likely to get improved agility. To truly achieve lower total costs, the organization typically needs to look beyond their basic software implementation toward specific processes and operations that can be streamlined to actually reduce overhead and costs. SaaS sets companies up well to have the flexibility to reduce or avoid costs, but it doesn’t necessarily reduce costs by costing less.

Feierliche Verleihung: Experton kürt Benchmark Leader

Am 8. Februar fand in Kronberg im Taunus die feierliche Auszeichnung der aktuellen Benchmark Leader durch die Experton Group statt.

Im Rahmen dieses Gala-Abends wurden die Unternehmen geehrt, die in den jüngsten Vendor Benchmarks von Experton Group zu

  • Big Data,
  • Cloud Computing (Platforms, Technologies & Access),
  • Industrie 4.0 / Internet of Things,
  • SAP HANA,
  • Security und
  • Social Business

eine Position als „Leader“ bzw. „Rising Star“ (also einem Unternehmen, das in absehbarer Zeit zum Leader avancieren kann), erreicht haben.

Dies sind die ausgezeichneten Preisträger

  • Alexander Thamm
  • Atos
  • Axians IT Solutions
  • Bosch Software Innovations
  • CANCOM/PIRONET
  • Communardo Software
  • DATAGROUP
  • Device Insight
  • Empolis
  • FAKTOR 3
  • fluid Operations
  • Freudenberg IT
  • Fujitsu TDS
  • GIS Gesellschaft für InformationsSysteme
  • iTAC Software
  • Jive Software
  • QSC
  • Deutsche Telekom
  • T-Systems International
  • T-Systems Multimedia Solutions
  • United Planet

Die Verleihung der Leader Awards wurde als Anlass genutzt, um die herausragende Performance der geehrten Anbieter zu würdigen und zu feiern. Der Dinner-Event im Schlosshotel Kronberg brachte neben der Verleihung der Awards auch jede Menge Möglichkeiten zum persönlichen Austausch unter Branchenkollegen.

Experton Group Leader Awards

Weitere Informationen zu den Benchmark-Projekten finden Sie hier:

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