Improving the Customer Experience Takes More Than Technology Innovation

Ron Exler Research Alert

What is Happening?

Over the past few weeks, Customer Experience (CX) has been in the limelight because of publicized airline incidents as well as CX technology announcements from major providers. As enterprises focus on improving the experiences of their customers, it’s important to recognize the complexities of serving them. Customer expectations and experiences vary but in some industries satisfaction is high, while in others frustrations continue to mount. While it’s tempting to lean on technology to address CX shortcomings, working solutions can include technology but can’t rely solely on it. Enterprises also need the right policies, organization structure and methodologies. For example, airlines are longtime users of advanced technologies – especially for reservation systems – but recent events show it’s often the human element that determines the most critical customer experiences.

On the technology front, several recent announcements highlight the expanding focus on CX. Oracle held a conference called Modern Customer Experience 2017 April 25-27. At the conference, Oracle added to its Customer Experience (CX) Cloud Suite. The goal is to reduce IT complexity, improve customer experiences, and better business outcomes. Oracle’s technology innovations come in the form of chatbots and artificial intelligence as well as enhanced messaging, mobile, and video capabilities.

Another indicator of focus on CX amongst technology companies is mergers and acquisitions. This week Deloitte said it would acquire Web Decisions LLC, an omni-channel data management and marketing services company. Deloitte Digital plans to add this to its Customer Experience Value (CXv) offering that is both a solution and a set of services that provides marketers with a customer strategy that is aligned with their business strategy. Other services providers are adding CX-focused capabilities via acquisition or partnerships.

Yet the path to improved CX runs through Digital Transformation, which relies on changing processes and methods. The use of Agile methods intend for team sizes to be smaller and allow those teams to deploy more features into production earlier – many of which can improve CX – which can increase revenue. For example, Australia and New Zealand Banking Group (ANZ) recently said it will be adopting Agile methods to quickly respond to changing customer expectations, engage and empower staff, and to improve efficiency within the bank.

So technology has a role in CX across industries. In healthcare there’s much action around improving the patient experience by evaluating the entire patient journey. As they were grilled in Congressional hearings this week about recent events, several airline executives touted that they offer “in-the-moment” apps for mobile devices that assist employees to help solve issues on the spot. Such digital workplace solutions that empower the workforce and treat employees as individuals can improve CX.

Why is it Happening?

Today’s customers expect new ways of engaging, and digital technologies have raised the stakes and the bar for the customer experience. These pressures are driving change within enterprise business models, forcing creation of new customer-centric operating models, and make dramatic shifts in technology investment strategies. These strategies connect and cross customers, the supply chain, and enterprise departments, forming a Digital Fabric (Figure 1).

Figure 1: ISG Digital Fabric

ISG Digital Fabric

Source: ISG

We think several realities contribute to the confluence of technology and customer experience.

  • Competition. There’s increasing competition for customers in some industries, decreasing competition in others – both affect CX.
  • Customer expectations. Expectations change for a variety of reasons. We see more digital experiences with instant information and on-demand capabilities from some services. Those experiences raise the bar for all businesses.
  • Recent incidents. Highly visible incidents shine a spotlight on poor CX, while the ability to record and report incidents becomes ubiquitous.
  • Agile methods. There’s a growing acceptance of Agile methods, for IT as well as other parts of business – even in large enterprises.
  • Maturing technology. Customer Experience Management (CEM) solutions include sentiment analysis deriving insights from enterprise systems combined with data from social media and contact center interactions.
  • Emerging technology. Newer technology advances include some innovations that can scale and integrate with existing systems, e.g. cognitive computing, video, virtual reality / augmented reality, and wearables.

CX is a 360-degree model of engagement with many linked elements. Technology has an important and growing role in capturing and measuring those experiences; however, it can only supplement an underlying culture of service.

Net Impact

Because of mobile phones, brands are on display 24x7x365 with global reach within minutes. So while most enterprises do a good job most of the time, social media can highlight rare disconnects to overshadow those positive experiences. Enterprises need to recognize the new digital reality and plan accordingly.

An integrated approach to CX should include asking and answering these questions:

  • Which technologies help and in what parts of the customer journey? Do customers want or need all these technologies?
  • What’s the right combination of technology, policies, processes, and training to address ongoing problems affecting CX?
  • What’s the best approach to prevent problems by having systems not only enforce policies but also predict issues?
  • How can Agile approaches improve how the enterprise deliver services?
  • How can the enterprise use CEM to better gauge customer sentiment while also supporting marketing initiatives?
  • How can the enterprise help its customers feel better about their brands and improve CX with personalization?
  • How can the enterprise prepare for the inevitable viral video and follow-on backlash?

Enterprise might be willing, but are not yet ready, to address all elements of improving CX. Empowering employees is tricky but necessary. Often a customer service department is disconnected from the department responsible for employee training, for example. Outsourcing of such functions can lead to further disconnects, requiring oversight to ensure common focus on customer needs and desires across the customer engagement value-chain. Integrating CX with marketing seems obvious, but very few companies — perhaps as few as one in ten — are currently equipped to blend their marketing and customer experience processes, according to a recent observation from Oracle CEO Mark Hurd.

In summary, enterprises should focus on understanding the experience that the customer wants delivered. Do not get distracted or focused solely about what various technology solutions can accomplish. In other words, focus on the problem from all perspectives – that 360-degree view. The tools that might be available to help fix the problems will naturally follow suit.

Warum muss die Datenbank besser geschützt werden?

In vielen Unternehmen ist die Datenbank mehr schlecht als recht gesichert. Nicht selten besteht die Sicherheit nur aus der Eingabe von Name und Passwort, ob es der berechtigte User ist, der auf die Datenbank zugreift, wird nicht erkannt. In anderen Fällen sind Systeme im Einsatz, die zwar Zugriffsberechtigungen durch ein Rollenkonzept einschränken, aber wenn diese […]

ISG Index™: As-a-Service Growth Signals Shift to Platform-Based Sourcing

Stanton Jones Research Alerts

What is Happening?

On April 12th, we held our 58th quarterly Index call summarizing the state of the combined sourcing and as-a-service industry for global, commercial, and public sector contracts over $5 million in Annual Contract Value (ACV). Key takeaways from the call included the following:

  • First-quarter ACV for the combined global commercial market (including both as-a-service and traditional sourcing) reached $10.5 billion, up 12 percent over the first quarter last year and up 13 percent from the fourth quarter of 2016.
  • In the public sector, the combined market ACV, at $12.9 billion, was down 21 percent year-over-year, yet rose 17 percent from the 2016 fourth quarter. Traditional sourcing, which still represents the lion’s share of spending in the public sector, was $12.5 billion, down 22 percent, while as-a-service ACV in the public sector, at $0.4 billion, was up 31 percent.
  • Human Resources Outsourcing (HRO), a leading indicator for the sourcing market, is seeing a shift from services-led sourcing to platform-led sourcing, whereby companies are place bets on cloud platforms (e.g., Workday or Amazon Web Services), then sourcing implementation and managed services to fit their technology strategy.

With a combined ACV of $23.4 billion this quarter for both commercial and public sectors, performance was a full 15 percent higher than the prior period – but did not quite meet the level of a year ago. From a trailing 12-month perspective, the combined market ACV contracted somewhat as traditional sourcing settled down after a very strong prior period and returned to what it was two years ago. As Figure 1 illustrates, as-a-service ACV continues on a fairly steep upward trajectory.

Global Commercial and Public Sector Quarterly ACV

Figure 1: Global Commercial and Public Sector Quarterly ACV ($B). Source: Q1 2017 ISG IndexTM

As seen in Figure 2, financial services companies generated $8.4 billion in ACV during the trailing 12 months, a 15 percent increase over the prior 12 months. The rapidly increasing as-a-service market comprises 29 percent of total financial services ACV this year. Business Services emerged as another strong performer with an increase in ACV of 26 percent over the prior like period, and a considerable 80 percent increase from two years ago. As-a-service contracts account for 63 percent of Business Services ACV, indicating this industry’s particular reliance on the cloud.

Industry Details

Figure 2: Industry Details for Trailing 12 Months ($B). Source: Q1 2017 ISG IndexTM

Meanwhile, the gap in contract value between traditional sourcing and as-a-service continues to close. The left bar chart in Figure 2 delineates the difference between the commercial and public sector markets, in which the gap in contract value has not yet emerged.

Why is it Happening?

In the commercial sector, the gap between traditional sourcing and as-a-service sourcing differs by industry vertical. While the financial services industry generated $3.8 billion in total ACV during the prior 12 months, which is a steady rise over the past two years, as-a-service accounts for more than a third of its total market ACV, up from 25 percent two years ago. This activity confirms the fact that this industry has typically been the fastest adopter of new technologies and solutions.

Cloud infrastructure providers such as Amazon and Google serve this specific market segment across a broad base of customers, from startups to midsize businesses and large enterprises.

Telecom and Media use of the cloud is also on the rise, despite short-term uncertainties due to industry consolidation. As-a-service ACV accounts for more than half of its total market ACV, up from 31 percent two years ago. In Manufacturing, digitization of the supply chain may account for some of the strength in as-a-service spending, which now accounts for 41 percent of total market ACV.

For the public sector in the U.S., transitions after two-term presidents generally involve disruption, so we expected ACV over the past several months to be subdued. And, indeed, the number of large deals dropped from 75 in 2015 to 55 in the current trailing 12-month period. Public sector ACV in EMEA has traveled a bumpy road over the past three years, bottoming out in the past 12 months. For both the U.S. and EMEA public sector, enterprises can embrace as-a-service offerings only as quickly as they meet regulatory and compliance requirements.

Market Impact

Commercial IT services spending is shifting rapidly. In 2014, 30 percent of spending was on as-a-service. Today, that number is nearly 46 percent. This rapid shift in spending from traditional sourcing to as-a-service signals that generation-three relationships are in full swing. These next-generation relationships leverage software in favor of labor arbitrage, use agile delivery models to increase speed and reduce risk, and rely on standardized, massive-scale clouds as the underlying delivery platform.

For example, automation will continue to drive up service provider productivity levels, drive down delivery costs, and encourage buyers to adopt more standardized as-a-service offerings all while increasing service provider profitability (assuming they choose not to pass this on to customers in order to win work). Cloud will be the future delivery model of choice, as 50 percent or more of enterprise workloads move to the public cloud by 2020. This once-in-a-generation shift will force large Indian and Western heritage service providers to shift their delivery model from managing assets to managing services. It will also favor leading SaaS and IaaS vendors, who are quickly cementing their market dominance as companies increasingly move to a platform-based sourcing model.

In the public sector, the story is somewhat different. At only 3.1 percent of public sector spending, the as-a-service segment still represents a small share of the total market, as governments have yet to embrace cloud-based services as strongly as the commercial market. As more massive-scale clouds become certified by federal governments, we expect healthy growth in public sector as-a-service adoption. For example, the U.S. Department of Defense recently granted Level 5 accreditation to Microsoft for its Azure and Office 365 offerings, making it the only commercial cloud provider operating at that security level. As other providers gain similar accreditations, platform-based sourcing will increase dramatically in the public sector.

Watch the Advisor: Webcast mit Raymond Tischendorf zu Highlights aus dem Application Services Vendor Benchmark 2017

Am 16. Mai 2017, von 10:00 bis 10:45 Uhr stellt Experton Group die Ergebnisse ihrer Studie „Application Services Vendor Benchmark 2017“ in einem Webcast vor und diskutiert mit Capgemini über die weitere Entwicklung dieses Themas im Markt.

Das erwartet Sie, wenn Sie an dem Webinar teilnehmen:

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  • Im Nachgang des Webinars erhalten Sie ein Strategiepapier der Experton Group mit ergänzenden Informationen zum Application Services Vendor Benchmark 2017

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New Report – Aligning and Guiding Finance and Accounting Outsourcing (FAO) with User Needs

Bruce Guptill, Jan Erik Aase

What is Happening?

Research and analysis in a new ISG Provider Lens™ report indicate that the Finance and Accounting Outsourcing (FAO) market, though traditional in nature, is emerging as an innovative and technology-driven service segment. We see more and more providers with diversified portfolios and capabilities catering to the expanding and varying needs of different enterprise clients in this space. However, rapidly-changing enterprise client needs make it increasingly difficult for service providers to build expertise and offer services around every aspect of F&A outsourcing.

Our new ISG Provider Lens Report: Finance and Accounting Outsourcing (FAO) Services builds on months of research focused on services, key service providers in this space, and the global range of buyer needs in order to address this. The report summarizes the relative capabilities of FAO services providers and their abilities to address the requirements of four typical, frequently-encountered categories of enterprise user types (“archetypes”). Each archetype represents a unique set of enterprise user business and technological needs and challenges. And the ability to satisfy the needs of these archetypes is what’s going to enable provider success in an increasingly-diverse FAO marketplace. Even then, experienced guidance will be required to optimize the alignment of provider and services with archetype needs.

Why is it Happening?

When we know what users plan to accomplish, how they want to accomplish it, and what capabilities they require to do so, then we can better identify and/or develop suitable and repeatable combinations of IT services, whether as in-house IT resources or as outside IT providers.

However, knowing how to apply and adapt archetypal characteristics will be key to success for both sides. This is due in large part to two core realities regarding the archetypes:

  • The characteristics of each archetype are a moving target over time, because while the core requirements rarely change, the relative importance of different requirements can vary based on business and/or technological environment changes.
  • Multiple archetypes tend to be present in most enterprises, especially in larger firms. As the requirements of each archetype evolve and adapt based on business and technological changes, so too do the presence and value of each archetype.

This gives CFOs, CIOs, IT procurement leaders, and decision makers a shifting series of choices when it comes to FAO services provider selection. Striking and maintaining the proper balance between archetype requirements and service provider capability is a mandate to achieve optimal business value. Within the ever-evolving outsourcing space, it will be hard to standardize client requirements and map them against one particular client archetype without anticipating future needs.

For example: The key characteristics of what we call the “Automation and Transformation-Oriented” archetype appear on the left side of Figure 1. Their core needs today revolve around digitization and optimization of Finance. These clients were once traditional outsourcers, but are now embracing innovation and optimizing processes through transformation. ISG sees them mostly as 3rd generation outsourcers who are looking forward to changing their IT ecosystem and creating a difference with automation and analytics.

On the right side of Figure 1 are what our advisors working with these types of clients see as four key capabilities needed to satisfy client-side requirements. The relative size of the “gears” in Figure 1 represent the relative typical need for each within this client archetype. We use providers’ ability and approaches to delivering these as a key means of evaluating provider and service suitability for this archetype.

 

Figure 1: Mapping Client Needs with Provider Capabilities. Source: ISG Inc.

All that being said, these are depictions of archetypes that do not apply completely and strictly to all clients with similar needs. Adaptation based on experience is required to best gauge and align specific client needs within this or any archetype. And as clients within each archetype progress and mature, their needs will change, and so the relative importance of provider capabilities will also change

Net Impact

Readers of this report will understand better how to strike and maintain the proper balance between their Finance and Accounting requirements and service provider capabilities – and be better able to achieve optimal business value. FAO needs, possibilities, and benefits will be (a) better understood, and (b) more readily accomplished.

Both services providers and enterprise CFOs (and other Finance leaders, as well as outsourcing/services procurement leaders) will be better able to understand each other’s capabilities and requirements, enabling more value for both. Key report findings to enable this include the following:

  • Service providers need to have a complete understanding of the client’s internal technology landscape and outsourcing objectives. They should be able to relate to the client’s existing archetype and their future requirements. This will enable them to design solutions while providing insights, more as a consulting partner.
  • Enterprise clients need to understand their organizational characteristics to lay out an effective outsourcing plan and do a suitability analysis and choose service providers based on their requirement.

This new report is available for immediate download by clients of the ISG Insights Sourcing and Procurement (SPS) research knowledge area. Clients may simply log in and download a PDF of the report. Non-clients may obtain copies of the report by contacting ISG Insights at http://insights.isg-one.com/learn-more/.

Note: This report presents services providers’ known capabilities in the context of user enterprises’ typical project needs (i.e., archetypes). This report is not meant to rank providers or to assert that there is one top provider whose abilities can meet the requirements of all clients who identify themselves with a particular archetype.

See more at: insights.isg-one.com/research/new-report—aligning-and-guiding-finance-and-accounting-outsourcing-(fao)-with-user-needs

New Research Report: HR Tech Shifts Toward Cloud – But Not All In Just Yet

Alex Bakker, Bruce Guptill Research Alerts

What is Happening?

Based on analysis of data from our latest global web survey on human resource (HR) and human capital management (HCM) technology usage and plans, the HR shift to SaaS is not an “if” but a “when.” We expect more than 50 percent of user enterprises to rely on SaaS and hybrid HR/HCM solutions by the end of 2020.

In large part because leading on-premises HR software vendors have shifted the bulk of their development efforts to the cloud,users of legacy, on-premises solutions have little choice but to plan for a significant shift to Cloud-based HR/HCM in the relatively near term.

While the trend is clear, how to make the shift – and how much to spend in making it – is still a muddied picture. Our newest research report, Industry Trends in Human Resources Technology and Service Delivery Survey, captures the latest thinking from more than 200 enterprise HR organizations, and explains the analysis that leads us to conclude that most enterprises will have to begin making the shift to SaaS within three years.

Why is it Happening?

One particular set of data from the survey provides a snapshot of the overall situation – and the pace of change that enterprises are experiencing. When we asked survey participants to tell us their plans for implementing SaaS/Cloud-based HR/HCM software by category/function, we found an already-strong adoption of – and a steady acceleration toward – SaaS/Cloud through 2019, at which point more than 75 percent of enterprises expect to be using at least some SaaS/Cloud HR/HCM management software in each category/function across their HR organization. The following figure illustrates this.

SaaS-based HR/HCM

Figure: Shift to SaaS-based HR/HCM is Happening Across All Categories Source: ISG Inc., 2016 global Industry Trends in HR Technology and Service Delivery survey; n = 206

The Industry Trends in Human Resources Technology and Service Delivery Survey report digs more deeply into why HR SaaS adoption is growing across categories, and what it means for other factors and trends in Cloud-based HR/HCM management evolution and adoption. Findings include the following:

  • In a variance from past survey results, this year’s survey found software and process management cost is now the primary benefit expected from HR SaaS. A wide range of enterprise-wide digital-business-related influences – including scalability of solutions, global reach, employee-user experience and access to innovative capabilities on an ongoing and automatic basis – are helping to accelerate adoption.
  • While there is a shift underway, the data suggest that not everything is going wholly to Cloud right away. While 75% or more indicate at least some HR SaaS expected in place through 2020, only about one-third of survey participants indicate a wholly-SaaS-based model as their primary HR approach in the same timeframe.
  • While HR organizations are still working to master analytics, the improved and ubiquitous analytic capabilities (and security features) of leading SaaS solutions and platforms will help increase HR analytics use. This is a trend that we predict will drive more adoption, and adaptation, of Cloud-based HR/HCM capabilities. Better data analytics enables better management of the organization’s human capital.

Net Impact

We see the move to SaaS as possibly the single biggest opportunity to transform HR service delivery in the enterprise, with benefits that range from improved talent targeting and employee engagement to increased data accuracy and compliance. Given the key trends revealed in the survey, enterprises that lag in deploying and integrating SaaS-based capabilities risk falling significantly behind in their ability to attract, develop and retain the talent necessary to compete in a rapidly evolving talent market.

Of course, such strategic shifts require strategic planning – and an enterprise-wide willingness and ability to execute. Organizations needs to develop and staff three- to five-year transition strategies as soon as possible. And these plans need to be based on relevant and supportable financial factors. Important considerations include support costs, transition vs. license renewal costs, IT and HR skills training, application rationalization and vendor selection. Administrative savings and added business value from improved HR capability should not be overlooked.

Finally, migration to SaaS/Cloud is not a once-and-done activity. Rather, it is an ongoing series of transformations. Plan for continuous and expanding change not only in solutions and providers, but also in how solutions are utilized in-house. Expect provider revisions and updates two to four times a year. And be aware of the kinds of changes that your chosen providers are likely to make and how they may affect the management of HR specific to your enterprise. Given the current and emerging trend toward digital business transformation in all markets, aligning provider business, solution change and enterprise business requirements will require ongoing, dedicated resources.

Experton Group/ISG Whitepaper & Webcast „Cloud Navigator 2017″ – es kann nicht nur einen geben–

Heiko Henkes Cloud Trends – Infrastrukturen sind essenziell, aber ohne Applikationen als Ziel nur die halbe Miete Cloud Use Cases – Szenarien für einen Wettbewerbsvorsprung gibt es zahlreiche, nun profitiert jede Branche von der Cloud Cloud Provider – Shortlist Input: Stärken und auch Herausforderungen der wirklich relevanten Anbieter für unsere Ansprüche Microsoft vs. AWS – […]

Half of Incumbent Providers Losing Everything in Competitive Negotiations

Stanton Jones Research Alerts

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.

Renegotiations

Figure: Risk is not a Significant Deterrent to Changing Providers Source: ISG Research.

Net Impact

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.

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.

Sage Summit am 7. und 8. März 2017 in Berlin: Vollgas in die Cloud!

Vergangene Woche war Experton Group / ISG wieder Gast des Sage Summits, der in diesem Jahr erstmalig nicht zentral und international an einem Ort, sondern gesondert an mehreren Weltmetropolen wie London, Johannesburg oder Melbourne stattfand und stellenweise noch stattfinden wird. Die Besonderheiten der jeweiligen lokalen Märkte sollten dadurch thematisch besser berücksichtigt werden. Für Deutschland wählte […]