Digital Transformation Services Market Segment: Digital Focus

Transcription

1 NEAT EVALUATION FOR DELL: Digital Transformation Services Market Segment: Digital Focus This document presents Dell with the NelsonHall NEAT vendor evaluation for Digital Transformation Services (Digital Focus market segment). It contains the NEAT graph of vendor performance, case studies of Dell in Digital Transformation Services, and the latest market analysis summary for Digital Transformation Services. An explanation of the NEAT methodology is included at the end of the document. The vendors researched are: Accenture, Atos, CGI, Cognizant, CSS Corp, Dell, Happiest Minds, HCL Technologies, IBM, igate, Dell, Sopra Steria, Tata Consultancy Services, Tech Mahindra, Unisys, and Virtusa. Introduction NelsonHall has assessed and evaluated Dell s proposition against demand for Digital Transformation Services, and has identified Dell as a Leader in the Digital Focus market segment, as shown in the NEAT graph on page 2. The Digital Focus market segment reflects the ability to support clients in adopting new digital offerings (e.g. IoT, omni-channel) and/or digital business models. NelsonHall January 2016

2 NEAT Evaluation: Digital Transformation (Digital Focus) Buy-side organizations can access the NEAT tool for Digital Transformation Services (Digital Focus market segment) here. NelsonHall January 2016

3 DELL DIGITAL TRANSFORMATION SERVICES CASE STUDIES U.S. University Background This client is a U.S. state university with ~30k students and ~12k personnel. It includes 16 colleges, 93 undergraduate schools, 99 master programs, and 66 doctoral programs. It is the largest university in its state, although it is mid-sized by U.S. standards. As a state university, it is partially funded by the state. Financing by state is based on a number of KPIs, including retention of students. Business challenges The client identified several opportunities where real-time analytics would have significant impacts such as student retention, career guidance, and campus security, but the challenge was to prove the value without compromising privacy. The university wanted to prove the concept through the adoption of SAP HANA, and selected Dell to provide and implement its SAP HANA appliance. During the 90 day deployment process, Dell worked with the client on identifying business challenges that could be solved by IT. Dell and the client decided to solve a challenge where the client was losing 20% of its students by the second year, and where the four year graduation rate was only 60%. Low student performance had several impacts for the client: It was damaging in terms of university reputation It also had a negative impact on tuition fees received, both from the smaller number of students going into their second year, and from funding from the state It had a larger impact statewide as students were incurring debt without the potential earning power of a college degree. The university calculated that one percentage point of improvement could impact its profits by $1m. Dell suggested that it could improve first year retention by two percentage points, with the assistance of faster internal reporting and sharing select KPIs to students. NelsonHall January 2016

4 Nature of transformation Dell worked with the client on a two-fold transformation program to: Create an academic risk score (ARS) to help students understand how likely they were to be admitted to college in the second year Increase communications with students, explaining how they could improve their ARS, using levers such as course attendance and grades. Academic Risk Score Dell and the client created a student retention predictive analytics model (SRPAM), compiled from 1,000 data categories/fields, to measure student engagement. Examples include: Personal information: ethnic group, gender, residence status Score: high school grade point average (GPA), ACT/SAT score, current GPA Attributes related to student, course, school, and faculty engagement, e.g. class attendance, online portal usage, library time, and educational assistance programs (tutoring, writing labs, study groups) Other: college loan provided by U.S. federal (Pell) grant, campus activities. Communication with Students Dell worked with the client on improving communications with students and with parents, through automated alerts on a mobile app. The mobile app has several features including a traditional course schedule and access to the students own ARS. Dell and the university put an emphasis on helping students at risk, and have provided several features in the mobile app including automated appointment making with tutors, or automated recommendations/self-service. Meanwhile, due to the initial SAP HANA implementation, university advisors and tutors now have fast access to the complete score file of students, and have a comprehensive view of student engagement. Benefits achieved The university has not yet shared details on the improvements it has seen in its first student attrition rate. However, it believes that it can positively influence mainstream students, whose needs are for further mentoring and follow-up. Outlook The university has two main follow-up objectives: Adapt the course pace to students: the university believes that it has gained insights into the proficiency of its students for a given course. It now wants to adapt the pace of courses based on students scores, and make adjustments to achieve the best level to meet students requirements It wants to move from standard reports on students to a more personalized report, to provide more relevant action plans for students at risk. NelsonHall January 2016

5 U.S. Museum Background The client is a U.S. museum based in Dallas, TX. It has 180k sq. ft. of exhibition space, spread over 11 halls, with 100k artifacts in its collections, and a 297 seat digital cinema. Since its opening in 2012, it has had two million visitors, a number that is considered highly successful. The museum has several programs and missions, including its permanent exhibition, and its educational role (with 26 onsite education programs available). The museum has expanded inorganically, and has acquired new collections/artifacts. Several months after its opening, the museum appointed a new CEO who, shortly thereafter, initiated a multi-year business transformation to address the following challenges: Revisit the museum s mission and build a new organization Streamline internal operations Explore how to apply digital transformation technologies. Dell was engaged to address the second and third of these challenges. Business challenges The client faced a number of challenges to its streamlining and digital transformation, in terms of the internal organization and culture, and IT. The museum: Had limited technology to support administrative business processes such as accounting and budgeting, and applications were not sufficiently integrated. Additionally, IT had limited capabilities to automate, personalize, and trigger outbound marketing programs to boost membership and donations Suffered from a website with poor design and usability, with low rankings in local search results, and shopping functionality issues resulting in high abandonment rates Lacked the in-house skills and experience, and clear accountabilities required for planning and managing digital assets. Nature of transformation The museum engaged Dell to lead two efforts: a business transformation program (named itransform) focused on business process improvement and operations improvement; and a digital strategy program. Business Transformation Program (itransform) Dell worked with the client to identify three operational areas for each business section, in terms of costs, priority and strategic nature. Dell oversaw the execution in the selected areas, by helping to: Identify ~45 improvement opportunities Execute ~8 improvement opportunities in development, sales, IT and finance. NelsonHall January 2016

6 Areas of highest impact included process re-engineering (62% of potential identified savings), software/technology (45%), staffing and organization (7%), and communications (20%). Examples of key initiatives led by Dell included: Re-engineering several process areas, e.g. budgeting and accounts payable Making recommendations on improving recruitment, performance management, and training processes Improving customer experience of the client s website Project management SharePoint implementation for better reporting and analytics capability. Digital Strategy and Plan Dell used its 5R (rethink, review, revamp, realign and realize) methodology to develop a digital strategy and plan. The project was based on a series of interactions with stakeholders and management, and also on document reviews around: Current and planned digital initiatives Current and desired level of digital maturity Identified opportunities for improving the CX operations and the business model, using digital technologies. Dell also worked on: Defining the objective and governance of the digital strategy, and setting up the scope of required digital projects Identifying a digital champion and providing required resources Rolling out an HR strategy for hiring, training and internal development. Dell identified 50 digital use cases. NelsonHall January 2016

7 Digital Transformation Services: Market Summary Buy-Side Dynamics Not all clients active in digital transformation services want to reinvent their business model. In fact, ~50% of spending is focused traditionally on cost savings and IT improvements. We estimate that 10% of DTS spending is on projects where clients are primarily pursuing cost savings, e.g.: Hosting migration to Amazon Web Services or Microsoft Azure. Examples include CPG firms standardizing all hosting of their marketing websites (globally) to Amazon Web Services (and also standardizing their web content management systems) Adoption of SaaS based personal productivity applications (Office 365, Apps for Work). A large number of clients (~40% of DTS spending) focus on improving IT to provide better services to business. The range of use cases and possible technologies is broad, where clients: Implement data integration portals to centralize information from different (potentially aged) software Mobile enable a web application Re-develop applications (based on software component approach). We estimate that 50% of DTS spending is traditional (cost savings and IT refresh) while the other half is driven by clients need to adapt to new business models, whether reactive or proactive. A third client segment, which we call digital increment clients, is taking an active role in disrupting the prevailing business model in its industry. Typically, this includes manufacturing firms implementing IoT projects and driving their product portfolio towards service-led. This also includes firms implementing new e-commerce technologies and experimenting on how to be the next uberpop in their industries. Digital increment clients are relatively uncommon and represent, we estimate, 20% of overall DTS spending. Finally, a significant client segment (30% of DTS spending) is reacting to an ongoing change in its industry business model. Usually, this is in the retail sector or in retail banking, but potentially this will be a concern to all sectors. Currently, the most common use case is omnichannel. Market Size & Growth Worldwide spending on DTS is valued at ~$81bn (in 2015). This includes cloud computing, big data and analytics, e-commerce and IoT. This represents 16% of combined professional services and IT outsourcing spending. DTS is largely a professional service activity: two thirds of DTS spending is in professional services and one third in IT outsourcing. DTS is growing nicely, by 16% ( CAGR). IoT is the fastest growing segment within DTS, with a five year CAGR of 67%. Growth is driven by B2B projects, while spending on consumer connected devices is minimal and currently shows no sign of traction. IoT overall is a niche spending area (we estimate it to be $1bn in IT services). NelsonHall January 2016

8 Meanwhile, cloud computing is the largest source of spending in DTS: (approximately $33.5bn in 2015). Cloud computing is also about high growth (the second fastest after IoT). Within cloud computing SaaS services is a significant source of spending (~$8bn in 2015), and is highgrowth (+30%). IaaS is a larger market (~$24.5bn) and also high-growth (+20%), driven by public IaaS and the success of Amazon Web Services. Finally, e-commerce and analytics and big data represent $21.5bn and $25.0bn in spending, respectively, growing by 10% and 8%. Outlook DTS is driving significant changes within clients. It is also driving important changes among IT service vendors, both in professional services (i.e. consulting and systems integration) and IT outsourcing. We estimate that: Professional services can grow by up to +5% during good times, while DTS professional services will grow by 14% to 18%. This leaves non-dts professional services growing by 0% to 2% maximum. The rise of DTS will, in a best case scenario, involve significant reskilling of employees. In a worst case scenario it will involve global employee restructuring, including in Continental European countries where labor laws are more favorable to employees IT infrastructure management: public IaaS currently captures 15% of all server management spending, and this is growing by 50% in 2015, driven by the performance of Amazon Web Services. Private/hybrid IaaS is growing by ~15%. In contrast, traditional server management and datacenter services are declining by 7%, due to cloud computing and Indian offshoring. This decline is going to lead to further employee redundancy and accelerated transformation of IT service vendors. Outside of IT services, the SaaS application industry, with its 35% annual revenue growth, is an under-utilized opportunity for IT services vendors. Only Accenture has taken a systematic approach to growing its SaaS ISVs practice, mostly organically and also through acquisitions. Finally, DTS is a living set of offerings: security is the next likely candidate to be part of it, given the fact that security is pervasive and will be instrumental in the success of IoT. Other candidates for the long term for DTS include 3D printing, drones, RPA, and cognitive computing. However, we think that PaaS and IBM Bluemix, with its focus on providing developers with a low cost, feature-rich software developer toolkit, is going to impact the software development industry in the same manner as agile and DevOps are currently. NelsonHall January 2016

9 NEAT Evaluations for Digital Transformation Services NelsonHall s (vendor) Evaluation & Assessment Tool (NEAT) is a method by which strategic sourcing managers can evaluate outsourcing vendors and is part of NelsonHall's Speed-to-Source initiative. The NEAT tool sits at the front-end of the vendor screening process and consists of a two-axis model: assessing vendors against their ability to deliver immediate benefit to buy-side organizations and their ability to meet client future requirements. The latter axis is a pragmatic assessment of the vendor's ability to take clients on an innovation journey over the lifetime of their next contract. The ability to deliver immediate benefit assessment is based on the criteria shown in Exhibit 1, typically reflecting the current maturity of the vendor s offerings, delivery capability, benefits achievement on behalf of clients, and customer presence. The ability to meet client future requirements assessment is based on the criteria shown in Exhibit 2, and provides a measure of the extent to which the supplier is well-positioned to support the customer journey over the life of a contract. This includes criteria such as the level of partnership established with clients, the mechanisms in place to drive innovation, the level of investment in the service, and the financial stability of the vendor. The vendors covered in NelsonHall NEAT projects are typically the leaders in their fields. However, within this context, the categorization of vendors within NelsonHall NEAT projects is as follows: Leaders: vendors that exhibit both a high ability relative to their peers to deliver immediate benefit and a high capability relative to their peers to meet client future requirements High Achievers: vendors that exhibit a high ability relative to their peers to deliver immediate benefit but have scope to enhance their ability to meet client future requirements Innovators: vendors that exhibit a high capability relative to their peers to meet client future requirements but have scope to enhance their ability to deliver immediate benefit Major Players: other significant vendors for this service type. The scoring of the vendors is based on a combination of analyst assessment, principally around measurements of the ability to deliver immediate benefit; and feedback from interviewing of vendor clients, principally in support of measurements of levels of partnership and ability to meet future client requirements. Exhibit 1 Ability to deliver immediate benefit : Assessment criteria Assessment Category Benefit demonstrated by DTS project Assessment Criteria Ability to deliver cost savings Ability to balance offshoring and client intimacy Ability to handle project complexity NelsonHall January 2016

10 Exhibit 2 Ability to meet client future requirements : Assessment criteria Assessment Category Current investments Financial security Potential for expanding delivery Potential to reach new client geographies Assessment Criteria Level of investment in DTS M&As Clarity to investors Current scale in DTS Revenues EBIT margin Ability to finance development Ability to scale in India Ability to manage attrition Ability to scale onshore in UX Potential to expand in N. America Potential to expand in U.K. Potential to expand in Continental Europe Potential to expand in APAC Potential to expand in Latin America For more information on these and other NEAT evaluations, please contact the NelsonHall relationship manager listed below. Sales Enquiries NelsonHall will be pleased to discuss how we can bring benefit to your organization. You can contact us via the following relationship manager: research.nelson-hall.com Steven Taelman at steven.taelman@nelson-hall.com Important Notice Copyright 2016 by NelsonHall. All rights reserved. Printed in the United Kingdom. This document has been licensed for distribution subject to the Terms & Conditions of the NelsonHall NEAT Agreement. NelsonHall exercises its best efforts in preparation of the information provided in this report and believes the information contained herein to be accurate. However, NelsonHall shall have no liability for any loss or expense that may result from incompleteness or inaccuracy of the information provided. NelsonHall January 2016