Atos Event Crystallizes Digital Transformation for Providers

Bruce Guptill, Charlie Burns, Jan Erik Aase Research Alerts

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.

Net Impact

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.

Insights at the Outsourcing World Summit – Digital Change, Uncertainty, and Speed

Bruce Guptill, Todd Lavieri Research Alerts

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.

Net Impact

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.

Harnessing the Power of Disruption – IAOP State-of-the-Industry Survey

Jan Erik Aase Research Alerts

What is Happening?

Results from the latest IAOP State of the Industry survey, co-presented by ISG at the Outsourcing World Summit (OWS17) in San Antonio, TX last week, indicate that enterprises and providers alike are awash in uncertainty driven by disruption in technology and in business. And both the choice of dealing with, or managing, disruption.

The survey and the Summit centered on themes directly impacted by or have disruption at their core: Outsourcing Market Trends, Enabling the Digital Economy, Influences of New Business Models, The Rise of Robotics, and Impacts of Various Populist Elections. Key highlights include the following:

  • The traditional outsourcing market is getting upended by the dramatic increase in IaaS and SaaS contracts, mostly led by the US market – but EMEA and APAC are showing signs of following suit.
  • The success of digital innovation and transformation is demanding increased engagement from service providers.
  • Enterprise clients are hungry to be “uberize” but are reliant on service providers to bring industry expertise and solutions to change their existing business models.
  • Automation brings threats of job losses but also hope of new key roles for employees and providers.
  • And finally, the geo-political environment has the greatest chance of disrupting the entire outsourcing eco-system that we’ve seen in the last 20 years. The anticipation of the unknown could be a bigger disruption than the actual policy changes.

Our conclusion: Disruption is needed to meet consumer demand, remain competitive and increase revenues. Avoiding disruption will not create stability and strengthen a firm’s position in the market, but will instead guarantee that they will lose market share and a segment of their customers.

Why is it Happening?

“Dealing with” vs. “managing” disruption is an important distinction. The response to this year’s survey was unique in that there was a record number of incomplete and abandoned surveys, and all were connected to the section on disruption. ISG and IAOP have speculated that this is symptomatic of what we are seeing in the market. Most clients admit that they don’t know what they will do, nor how they will react to many of the disruptions in their industries and in technology. They are being disrupted in multiple ways and are overwhelmed. This aligns with the top four disruptions that were identified by enterprise clients, service providers, and advisors in the survey, as shown in Figure 1.

Disruptions

Figure 1: Top Four Disruptions for Enterprises, Providers, and Advisors Source: 2017 IAOP State of the Industry survey.

Those enterprise clients who responded to the survey confirm that the impact of new government policies, different market demands, and changing consumer behavior is driving disruption. This in turn disrupts enterprise expectations and dependencies on service providers and third-party advisors. The need is no longer for “lift and shift” or “shift left” types of engagement. There are few if any within most enterprise client environments who have experience in dealing with the current level of business and technology disruption. So it isn’t surprising that, according to the survey results, the greatest dependency by enterprise clients on service providers is around both business and technology expertise and associated solutions.

Expectations

Figure 2: “What are your disruption-related expectations for your service providers?” Source: 2017 IAOP State of the Industry survey.

Additionally, 89% of enterprise clients indicate that their top dependencies for third-party advisors is “Bring the Right Vendors,” and 84% said “Identify the Solutions that Drive Disruption.” This confirms the dilemma facing enterprise clients: how to manage disruption while also creating their own disruptions. Both require key partnerships with service providers and advisors – and ISG is finding that enterprises are impatient for solutions. Todd Lavieri, ISG President Americas, speaking about client expectations said in his keynote speech at OWS17, “They want to move faster, but they are cautious of the impacts to their various business lines. They are looking for service providers and vendors to react to their changing requirements – and to bring insights and innovation every quarter and quality every day.”

Net Impact

These survey results align with the advice that ISG and many others are giving to enterprise clients and providers as they deal with and manage disruption. Three key themes that stood out in the survey results, and reiterated throughout OWS17 presentations and breakout sessions, can be translated to three key actions to manage disruption as follows:

1. Embrace new business models. The survey indicates that 78% of enterprise clients feel that the adoption of new business models will be the key to their success. An audience poll conducted with the 300 attendees of the OWS17 keynote presentation asked “Are providers providing technologies which enable the new business models?” An average of 47% of enterprise clients and advisors indicated that “Providers are behind where we want them to be,” while 21% of the providers in that same audience poll said “We are completely ready” and 59% said “We are preparing and building competencies.” It appears that enterprises seeking to “uberizing” their business or embrace other key business models will rely heavily on themselves for the near term at least.

2. Remain flexible to best practices in digitization efforts. In the survey results, 66% of service providers indicated that the expectations of their clients around various digital initiatives is more complex due to relationships that are more directive vs. collaborative. And in response to another audience poll question, “Which disruption is impacting your business the most,” 40% of enterprise clients, providers, and advisors agreed that it was Technology Driven Disruptions. With most companies relying heavily on providers for technology-centric solutions, a trusted collaboration with key providers is critical.

3. Proactively plan for geo-political business impacts. Clients are banking on advancements in automation that will enable them to reduce dependencies on offshore resources and replace them with automated processes. Both enterprise clients and service providers are exploring new in-sourced and nearshore options as well as deferring their sourcing decisions pending policy changes. In an online poll that was conducted during the keynote presentation, the audience was asked, “Do you believe that the current global political environment will impact your sourcing strategy?” 66% said Yes, 20% said No, and 14% said Not Sure. We believe that “Not Sure“ is typically the best answer. Proactively planning for various contingencies is always a good approach, with speculations left to others.

Enterprise clients need to be willing to “show their hand” if they also hope to learn from others. Where the disruption creates competitive advantages, it’s obvious why some clients are keeping quiet. But most clients are entering a new frontier and a collective and collaborative approach will be the most effective way to get everyone to a solid foundation. At that point natural selection will separate the wheat from the chaff.

Providers need to be more prescriptive in how they’ve seen the consumption of the various disruptive technologies and business models happening in key industries, different regions and around the world. The uncertainty of enterprise clients engenders disruption but awareness of best practices and case studies will greatly reduce elements of the disruption.

NRF 2017 – Four Critical Digital Developments for Retail Success

What is Happening?

Several ISG advisors participated in the annual NRF Retail’s Big Show, January 15 to 17, 2017 in New York City. The conference showcased how retail technologies and innovations are core to the industry. The show also highlighted disruptions – not only technological but also political – and how they form a challenging environment for retailers. But it’s clear that customers are the source of the most disruption – they expect a connected, fun, consistent brand experience.

ISG came away from the NRF show with four main themes that retailers and their technology partners should consider, as follows:

  1. Retailers need customer-centric and integrated digital platforms;
  2. The store still matters (as long as it’s connected);
  3. Analytics must drive actionable insights; and
  4. Blockchain is significant beyond payments.

Why is it Happening?

Today’s customers need new ways of engaging with buying and digital technologies have raised the stakes for the customer experience. These pressures are driving change within retail business models, forcing retailers to create new customer-centric operating models, and make dramatic shifts to technology investment strategies. These strategies connect and cross customers, the supply chain, and retailer departments, forming a “Digital Fabric” (Figure 1).

ISG Digital Fabric

Figure 1: ISG Digital Fabric. Source: ISG

1. Retailers need customer-centric and integrated digital platforms. While front-end digital user interfaces garnered much attention from their “cool” factor, there was less buzz around such “bright shiny objects” at this year’s show than in the past. Retailers and vendors all recognize what goes into the effort to implement an omni-channel digital platform: it requires implementing a customer-centric technology platform.

Intel’s introduction of its new Responsive Retail Platform (RRP) reflects the need for integrated digital platforms. At the show, Intel announced plans to invest more than $100 million over the next five years in RRP. The platform connects disparate islands of in-store technology and makes it easier to develop and deploy Internet of Things (IoT) software and services by bringing together retail hardware, software, APIs, and sensors.

2. The store still matters (as long as it’s connected). The continued growth of online purchasing at the expense of physical stores seems irreversible. But retailers are once again recognizing stores for what they can be – a valuable asset for differentiating their brands. The emphasis at the show was not about transforming the brand to become an online retailer, but rather about the convergence of the brick-and-mortar and the digital worlds and the breaking down of barriers between channels. To address that need, Samsung and SapientRazorfish introduced IoT tools to bridge online and in-store shopping activities.

We talked with many vendors showcasing facial recognition technology, interactive store applications, Augmented Reality (AR), Virtual Reality (VR), and wearables. ISG’s research shows that these solutions are gaining faster adoption in enterprise applications. But while these emerging technologies all fit into the category of capabilities that improve the consumer experience and employee productivity, retailers need to focus their investments on consumer engagement technologies that blend the physical and digital touch points along the customer journey.

3. Analytics must drive actionable insights. Session presentations and our other interactions at the show indicate that retailers are getting smarter about Big Data. Top priorities include better data management, improved and actionable analytics, and leveraging sensors to better engage consumers and improve productivity of employees and assets. But the deluge of data makes actionable insights difficult to obtain. We heard from many at the show that integrating artificial intelligence (AI) in systems is the next logical action for retailers looking to deliverable actionable insights and improve performance across customer engagement, omni-channel commerce, and supply chain. Some of the providers with predictive analytics and AI-based offerings for the Retail sector include BlueYonder, Jetlore, CognitiveScale, and r4 Technologies.

IBM via its Watson cognitive computing / AI suite continues to deepen its capabilities and extend them across its commerce, marketing, and supply-chain applications. Other companies also offer credible AI systems to market – and not just traditional software providers. For example, Cognizant’s Intelligent Process Automation Framework applied to its RetailMate, HCL DRYiCE, Infosys Mana, TCS Ignio, and Wipro HOLMES AI platforms are from the outsourcing community. AI also has a clear role in customer engagement (e.g. chatbots) and insight as well as in support of knowledge worker productivity and efficacy.

4. Blockchain is significant beyond payments. Blockchain has the potential of having a significant impact on the retail industry well beyond secure transactions. Today’s “always on” consumer brand loyalty is directly impacted by their appetite for information and a demand for transparency. Blockchain can enable this transparency, allowing all parties—supplier, manufacturer, retailer, and end consumer—to trace a product’s journey. In addition to traceability, connecting all members of a supply chain to the decentralized blockchain allows for a direct exchange of bill of lading documentation between parties, potentially solving one of the shipping industry’s largest problems. There are also applications in warranty claims and counterfeiting.

As an example of a potential use of Blockchain in retail, Microsoft hosted a solution from partner Mojix at its NRF booth. The Mojix RFID and IoT platform solution, based on Microsoft’s Azure Blockchain-as-a-service, automates a retailer’s supply chain enabled by blockchain-based smart contracts between the retailer, its suppliers, and logistics providers.

Net Impact

An integrated digital platform – for retailers can and must provide an integrated infrastructure, and a set of core digital business processes in which common tools, capabilities, and data are transparent and shared, not duplicated. Such a digital fabric for back-end services allows a retailer to create a digital consumer engagement seamlessly across all channels. But putting the pieces in place requires making sense of the many choices of platforms, tools, and services.

Blockchain’s chain-of-custody record will aid in tracking product journeys as well as reducing counterfeiting for luxury items. Goods can be certified with a Blockchain’s digital ledger record, to more easily identify stolen merchandise. But Blockchain is still poorly understood and not widely trusted. So we think broad market adoption is beyond 2017, but Blockchain’s future applications will sweep across many aspects of Retail. Clients of ISG’s subscription research services will see further analysis of business uses of Blockchain and examinations of leaders and disruptors in future research publications.

To varying degrees, the analytics vendors at the show demonstrated capabilities to understand varied content and then reason through disparate data to draw conclusions and recommendations, learn as they go, and interact with knowledge workers and customers. In upcoming research we will cover more about the importance of advanced customer analytics and the role of AI.

Lastly, retailers should make sure emerging technologies under consideration have staying power, and determine whether they fit within the strategy for an end-to-end customer-centric operating model. Instead of being about disconnected or loosely connected, as we discussed about the innovations showcased at the CES 2017 show, retail technologies are bellwethers of where user experience technology innovation is going, using the convergence of data, devices, immersive connectivity, and artificial intelligence to improve customer engagement. Look for additional ISG research about the digital fabric of retail business.

Save the Date: Expertonale 2017

Jürgen Brettel

Jürgen BrettelUnsere diesjährige Jahreskonferenz, die Expertonale 2017, am 24. Oktober im Hilton Frankfurt Airport, The Squaire, Frankfurt/Main, richtet sich an ICT-Anwender, -Hersteller und -Dienstleister.

Im Laufe der Expertonale werden wir über die aktuellen Trends und Best Practices berichten, einen Ausblick auf die Kernthemen für 2018 geben und themenübergreifend neutrale und unabhängige Handlungsempfehlungen aussprechen.

Die Veranstaltung soll Ihnen als Informationsplattform dienen und zusätzlich den Kontakt und Austausch mit anderen ICT-Verantwortlichen ermöglichen.

Im Rahmen der Konferenz haben Sie zudem die Möglichkeit, mit unseren anwesenden Advisorn Einzelgespräche zu Ihren Themen und Fragestellungen zu führen. Nutzen Sie die Gelegenheit für kurze, intensive Beratungssessions.

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24.10.2017, 09:00 bis 18:00 Uhr

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.

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.

ISDN: Der All-IP-Countdown läuft, rechtzeitig die Weichen stellen – aber wie?

Frank Heuer, Wolfgang Heinhaus

Frank HeuerWolfgang HeinhausKommunikationslösungen waren früher in vielen Unternehmen ein Randthema, das häufig nur alle paar Jahre aufkam, wenn der Mietvertrag der Telefonanlage auslief. Mit der Ankündigung, dass 2018 die Umstellung von ISDN auf das All-IP-Netz abgeschlossen sein soll, stellen sich viele Unternehmen die Frage, wie man sich generell hinsichtlich der Kommunikationslösungen in Zukunft optimalerweise aufstellen soll.

Denn während die Möglichkeiten der Unternehmenskommunikation bis vor einigen Jahren noch sehr übersichtlich waren, gibt es heute eine Vielzahl von Optionen, z.B. Unified Communications, und unterschiedliche Bereitstellungsmodelle – sei es der gewohnte Eigenbetrieb, Private oder Public Cloud. Auch die Anbieterlandschaft hat sich erheblich gewandelt, manch ein etablierter Provider ist verschwunden, viele neue Anbieter sind auf den Markt gekommen, IT-Anbieter haben das Kommunikationsthema in ihr Portfolio integriert und weiterentwickelt.

Zwar werden ISDN-Emulationen angeboten, die den ISDN-Betrieb auch über das Jahr 2018 hinaus möglich machen sollen, aber bei Einsatz der ISDN-Emulationen fallen die aus ISDN-Zeiten gewohnten Funktionen weg, wie Halten, Makeln oder Vermitteln. Wenn zudem schnurlose DECT-Telefone weiter verwendet werden sollen, ist zu untersuchen, ob eine Weiterverwendung möglich ist. Sollen analoge Fax-Systeme angeschlossen werden, gibt es Laufzeitenprobleme. Das sind nur einige Beispiele, die zu berücksichtigen sind.

Darüber hinaus sollte die Umstellung auch als eine Chance begriffen werden, die Möglichkeiten neuer Technologien zur effizienten Kommunikation und Zusammenarbeit zu nutzen und sich damit auch die Wettbewerbsfähigkeit zu erhalten.

Wie können Unternehmen in diesem Zusammenhang optimal die Weichen stellen? Wir stehen Ihnen in einem Strategie-Workshop zur Verfügung, in dem wir Entscheidungsunterstützung zu den vielfältigen Aspekten anbieten und auf die Punkte hinweisen, die berücksichtigt werden sollten. Wenden Sie sich bei Interesse bitte an clientservice@experton-group.com (Betreff: „All-IP Countdown“)

Beispiel-Optionen

Abbildung: Beispiel-Optionen der Kommunikationstechnologie. Quelle: Experton Group AG, 2015.

New Research – 10 Key Insights for 2017

Bruce Guptill Research Alerts

What is Happening?

Based on our analysis of current and emerging business technology, industry, and market trends and causes, ISG Insights expects 2017 to be the year when “digital business” begins being absorbed into “business as usual,” pushing enterprise leaders and IT providers, into either accelerated business and IT transformation – or competitive decline.

A recent Strategic Perspective published for our premium subscription research clients outlines ten key changes and developments behind this transformation. Those changes and developments are summarized in this Research Alert.

Why is it Happening?

While we see a broad range of business IT changes and developments emerging through 2017, we find ten that are most likely to force fundamental change in how enterprises do business, and how they procure and manage business IT – and in how IT providers do business as well. The ten are as follows:

  1. “Digital Business” becomes just “business.” Digital transformation is rapidly becoming a normal state of business. By YE 2017, it will be important for all aspects of business to shift their thinking away from Digital Business being something separate or compartmentalized, and toward a larger, more integrative vision. This will require increased synchronization between the changing IT organization and all aspects of business operations – not just Finance and strategic planning.
  2. Digital Labor settles in. While the applications and effects will differ by firm and by market, 2017 will bring an acceleration of mostly-software-based “robots” in more areas of business than ever before. This will include a changing variety of mixed digital and human functionality. Today, we see most such automation is taking place in enterprise IT and Finance organizations, with some increasing activity in HR.
  3. Workforce management and Talent 3.0. While enterprises look to more automation and outsourcing to reduce reliance on human-focused functionalities, they will also create more complex and non-standardized mixes of software- and services-provided labor. The resulting complexity of labor management will increase costs, and trigger business for outside providers who can improve the management of said complexity.
  4. IoT swallows Enterprise IT. In essence, the IoT (including the Industrial Internet of Things) will become the connectivity hub for the majority of enterprise information technologies that collect and feed data stores for analysis. The core data connectivity, distribution, storage, and analysis function of the traditional IT department, in effect, gets “swallowed” by IoT; IoT thus becomes the de facto enterprise IT architecture.
  5. IoT / IIoT as an economical way to extend legacy infrastructure value. As a result of “swallowing” enterprise IT, we will see IoT capabilities help to prolong and even enhance the lifetime and value of many legacy systems. In most IoT / IIoT environments, greater current business value (including operational and process efficiency improvement) will be derivable from existing infrastructure – and help to extend legacy equipment and system lifespans. This will cause enterprise IT and business leaders to re-think workload migration as well as investments in traditional and Cloud-based infrastructure.
  6. Agile operating models go mainstream. Given all of the above, we will see traditional business and IT operating models clearly demonstrated as obstacles to necessary innovation and business growth. In 2017, agile and iterative models will start to shift from experimental stages to be competitive table stakes for businesses seeking expansion. Like “digital business” becoming “business,” “agile” will become the IT and enterprise operating norm.
  7. Shadow IT grows closer to being “real” IT. While “shadow IT” has always been present, Cloud IT adoption and adaption has driven massive shifts in technology and services buying growth outside of traditional channels. As this behavior becomes mainstream through 2017, we see enterprise IT procurement approaching a tipping point, where Shadow IT shifts into being considered “real” IT throughout the enterprise. This forces traditional enterprise IT organizations to quickly adapt – or risk being restructured into primarily support roles.
  8. As-a-Service buying surges. Systems of engagement are critical enablers of a digital business transformation. These types of platforms are increasingly being delivered via As-a-Service delivery models that prioritize speed, productivity and innovation over cost reduction -the traditional outcome sought by outsourcing buyers. Therefore, As-a-Service buying will continue to increase, while traditional sourcing will stay relatively flat. This will add disruption for traditional service and technology providers, while steering enterprise buyers to more IT buying/usage options.
  9. The de facto decline of business software upgrading. We are seeing a substantial, sharp increase in the number of longtime enterprise software users (and buyers) considering Cloud sourcing instead of upgrading core, legacy applications and supporting databases. This is a huge reversal of long-standing IT industry trends. The economic case for rip-and-replace is becoming better – and the more legacy software vendors try to force upgrades, the more likely user enterprises are to weigh replacing them. In 2017, we will see this “get real” as enterprise business and IT leaders begin to flex their preferences for Cloud-first solutions over legacy upgrades.
  10. Cost management initiatives demand and drive CFO-CIO unification. The business benefits of digital transformation will be limited or even unattainable without improved alignment, synchronization, and operations at all levels between enterprise Finance and IT organizations. We have been encouraged by recent initiatives toward more converged CFO and CIO approaches as regards IT cost management. But in those firms where these groups – and leaders – are not in synch, expenses will spiral out of control while competitive capabilities improve only in fits and starts.

Market Impact

Everything is not suddenly changing in 2017. But our analysis of patterns, trends, and causes make it clear that 2017 will be the year when provider-side IT-as-a-Service, and enterprise/user-side IT adaptation and business innovation, really begin synchronizing. This will put transformation (and disruption) in enterprise IT procurement, usage, and management into overdrive. It’s been a bumpy ride to this point on the digital journey; from here through 2018 at least, we expect it to be more of a roller coaster.

ISG Insights will be examining each of these ten developments and changes thoroughly throughout the year (and beyond), and providing insights, guidance, and best practices regarding each. Look for upcoming series of research note and reports covering disruptive technologies and providers, models and guidance for aligning changing software and services needs with vendor/provider capabilities and offerings, and summary insights and guidance from our advisors and consultants based on real-world experience among hundreds of enterprise clients and provider clients.

SAP: Preisvergleiche und Leistungsverrechnungen

Axel Kohlmann-Gralfs

Axel Kohlmann-GralfsSAP spielt in vielen Unternehmen mittlerweile eine zentrale Rolle bei der Abwicklung von Geschäftsprozessen.

Durch die zunehmende Ausdehnung des Portfolios über das klassische ERP hinaus (z.B. CRM, Business Intelligence, etc.), sind die IT-Budgets für die SAP-Landschaft stark gewachsen und vereinen auf sich häufig mehr als 50 Prozent der Kosten für Hosting sowie Anwendungsentwicklung und -Wartung (ADM). Gerade weil SAP in solchen Fällen eine Schlüsselrolle bei den Geschäftsprozessen des Unternehmens innehat, sollten diese Kosten eingehend auf ihre Angemessenheit und Verteilung hin betrachtet werden, um größtmögliche Effizienz und Transparenz zu gewährleisten.

Kernfragen dieser Betrachtung sind:

  • Wie teuer ist eigentlich die gewählte SAP-Implementierung bei den Betriebskosten im Vergleich zu anderen Unternehmen der Branche?
  • Wie lassen sich diese Betriebskosten verursachungsgerecht auf einzelne Konzerngesellschaften umlegen?
  • Welche Abrechnungsparameter können zur Leistungsverrechnung herangezogen werden und wie können diese Parameter als Maß für marktübliche Kosten/Preise dienen?

Für diese unterschiedlichen Fragestellungen werden im Folgenden anhand von Beispielen Wege aufgezeigt, um Antworten zu finden und Lösungen zu entwickeln.

Beispiel 1 – Vergleich der Betriebskosten: Branche Energieversorger

Durch die vor einigen Jahren gesetzlich vorgeschriebene Entkoppelung (Unbundling) von Netz- und Stromversorgung (EnWG Novelle 2005), mussten die bestehenden Landschaften der von SAP angebotenen ERP-Industrie-Lösung zur Energiedatenverwaltung und Abrechnung (Industry Solution Utilities, IS-U) angepasst und verändert werden, um diese Trennung in den Verträgen abbilden zu können. Dies geschah oft über zusätzliche Mandanten oder auch eine zweite Landschaft mit Prozess Integration (PI) als Schnittstelle zum Datenaustausch.

Stückpreise SAP

Da bei SAP IS-U der Vertrag bzw. Zählpunkt die zentrale Bezugsgröße ist, über die zum Teil sogar Service Provider die IT-Betriebskosten abrechnen, lässt sich hier über diese Geschäftskennzahl der Benchmark durch Beratungsunternehmen herstellen.

Voraussetzung für einen validen Vergleich ist aber, dass die Daten für die jeweiligen Landschaften gleichartig über eine einheitliche Methodik erfasst und normiert werden. Dabei ist es besonders wichtig, genau die Leistungstiefe aufzunehmen und gegebenenfalls auch gewisse Anteile abzugrenzen (z.B. SAP-Software-Wartungsgebühren o.Ä.).

ISG verwendet hier ein bewährtes Modell, das alle relevanten Betriebskosten gleichartig erfasst und darüber hinaus die Option eines Drilldowns (ein Verfahren, bei dem die verschiedenen Eigenschaften von vorhandenen Informationsobjekten herangezogen werden, um die Datenanalyse schrittweise zu verfeinern) eröffnet, um Ursachen für Abweichungen analysieren zu können. Dafür ist es nötig, eine funktionale Sicht der IT abzubilden, die vergleichbare Anteile normalisiert und gegenüberstellt.

SAP IS-U Hosting

Das Beispiel illustriert einen solchen Vergleich und die daraus resultierenden Unterschiede: Man sieht sehr deutlich, dass der Preisanteil für den Serverbetrieb deutlich höher als beim Referenzgruppenmittelwert ist. Die folgende Ursachenanalyse in diesem Bereich fördert dann schnell die Gründe für diese Überhöhung zu Tage und eröffnet den Weg für entsprechende Maßnahmen, um die Kosten effizient anzupassen. In der Konsequenz bedeutet eine solche Anpassung Kosteneinsparungen, die Ressourcen für neue Projekte oder Optimierungsmaßnahmen freisetzen, die letztendlich dem Unternehmen als Ganzes zu Gute kommen.

Beispiel 2 – Verteilung der Betriebskosten: SAP HCM

Durch die steigende Funktionalität und Komplexität hat die HR-Lösung von SAP längst die Dimension verlassen, in denen die gesamten Betriebskosten auf HR-Stammsätze oder Personalabrechnungen normiert werden können.

Der Service Stack ist geprägt durch neue Funktionen und Produkte (z.B. das Portal), die klar abgegrenzt werden müssen, um einen adäquaten Preis- oder Kostenvergleich durchführen zu können. Diese neuen Zusatzfunktionen erzeugen zusätzliche Betriebskosten und Aufwände, so dass sowohl aus Transparenzgründen wie auch aus der Sicht eines Dienstleisters eine Erweiterung des Preismodells nötig ist, um diese Funktionalitäten abzubilden.

Modularisierung

Über die Einführung eines Servicekatalogs, der alle Leistungen transparent und detailliert erfasst und darstellt, lassen sich nicht nur IT-nahe Leistungen, sondern auch Themen wie Zeitwirtschaft und Personalabrechnungstätigkeiten beschreiben und für ein exaktes Preismodell granular abgrenzen.

Am Ende bekommt der Kunde so ein klares Leistungsprofil mit den genauen Preiskomponenten der abgerufenen Leistung. Dadurch wird verhindert, dass z.B. einzelne Konzerntöchter für intransparente Leistungsschnitte unterschiedlichste Kosten haben und es eröffnet die Möglichkeit, über Marktpreise in einem Benchmark die erforderliche Transparenz herzustellen.

Beispiel 3 – Abrechnungsparameter: ERP

Die Leistungsverrechnung wird weitaus komplexer, wenn die Applikation eine Vielzahl von Geschäftsprozessen unterstützt und keine eindeutigen Normierungsgrößen mehr vorhanden sind.

Dann muss ein Ansatz gewählt werden, der ausgewählte Größen für die Geschäftsprozesse nach einem gewichteten Raster normiert. Hier bieten Beratungsunternehmen bewährte Verfahren aufgrund profunder, empirischer Daten aus verschiedenen Branchen an, um Kunden bei diesem Prozess zu unterstützen.

Dies ist vor allem bei einer neuen Leistungsverrechnung notwendig, da externe Expertise eine höhere Akzeptanz für ein neues Verfahren schafft, das dann von allen Beteiligten trotz der neuen Kostenverteilung auch angenommen wird.

Dieser Ansatz kann z.B. innerhalb eines Konzerns anwendet werden, um mit am Markt validierten Preisen eine verursachungsgerechte Abrechnung für die SAP-Nutzung einzuführen.

Für ein ERP-System ist dies nachfolgend beispielhaft illustriert.

Verrechnungsschema

Neben den Stamm- und Bewegungsdaten einzelner Geschäftsprozesse wird auch eine User-bezogene Komponente verwendet, die aber nur eine von vielen Parametern ist.

Häufig wird nur der User als einzige Abrechnungskomponente eingesetzt, was im Vergleich zu diesem ausgewogenen Modell, das auch die Nutzung in den Geschäftsprozessen als Parameter dazu nimmt, starke Ungleichgewichte erzeugen kann, wenn einzelne Firmen aufgrund ihres Geschäftsmodells, z.B. eine hohe User-Anzahl benötigen, aber eventuell nur wenige Geschäftsprozesse im ERP nutzen.

In der Kombination von Geschäftsprozessdaten, die das Nutzungsprofil dokumentieren und darüber auch den Ressourcenverbrauch verursachungsgerecht zuordnen, mit den Nutzerzahlen lassen sich die Abrechnungen von gemeinsam genutzten Systemen wesentlich transparenter strukturieren.

Neben der reinen Leistungsverrechnung kann ein solches Schema zudem ein Vergleichsraster für einen Benchmark sein. Hier bietet die Höhe der einzelnen Stückkosten je Geschäftsprozess ein Maß für die Betriebskosten und Effektivität der Implementierung. Denn häufig liegen die Gründe für erhöhte Wartungsaufwände in der gewählten Anpassung.

Innerhalb einer Branche kann die Höhe der Betriebskosten bezogen auf die Geschäftsprozess Parameter ein Maß für den gewählten Weg der Implementierung sein und als Benchmark für die Marktüblichkeit der Gesamtkosten dienen.

Die angeführten Beispiele zeigen, dass die eingehende, neutrale Betrachtung und Bewertung der SAP-Landschaft eines Unternehmens, branchenbezogen Transparenz schafft und durch den Marktvergleich über Benchmarks Kostenpotenziale aufzeigt oder eine verursachungsgerechte Leistungsverrechnung fördert.

Bei Interesse stehe ich Ihnen gern zur Verfügung. Bitte schreiben Sie an Axel.Kohlmann-Gralfs@isg-one.com