When a merger is an acquisition CSC “Merges” with HP Enterprise Services

Today, May 24th 2016, CSC and HP Enterprise (HPE) announced that the HPE Services unit would be spun out of HPE and merged with CSC which recently spun out its government business. This surprising deal is being positioned as a merger, but as indicated by the Press Release from CSC, with the headline address of Virginia, and Mike Lawrie as CEO, it is clear that this is fundamentally an acquisition, albeit by the smaller of the two providers.

Note that this is on the heels of the deal in Australia for CSC to acquire UXC. With the benefit of time, this deal and the scale of the comparative Australian entities was a good test ground for CSC and HPE to go global. CSC acquires UXC – Boosts Australia

The key facts of the merged entity are as follows:

  • Total Revenue – US$ 26B
  • Total Countries – Over 70
  • Total Clients – 5,000
  • Services Firm Ranking – 3rd largest globally (according to CSC/HPE)

The new and as yet unnamed firm will clearly have significant strength and capability in Infrastructure. It is stunning to realise that the 2nd, 3rd and 4th largest IT services providers 8 years ago are now all the one firm as HP ate EDS, and CSC now has merged/acquired HPE Services. This fact alone highlights how difficult the market has been for Infrastructure Services providers; particularly those who have struggled to maximize the cloud opportunity and shift the delivery model for both application and infrastructure services.

The number of employees of the new entity was not released, but it is clear that there will be “significant synergies” realized in this part of the business. That is of course corporate talk for downsizing. It is however hard to see how much can be cut from the HPE Services business which has been hit in an ongoing manner since the EDS acquisition.

Key Strengths

From the capioIT perspective, these are the key strengths of the deal

  • Scale of infrastructure reach and capability
  • Depth of partnerships with key providers, particularly Microsoft
  • Enhanced reach in core markets such as the US, Australia and UK
  • Strength in security capability and IP
  • Industry strength in Insurance, Transportation and Healthcare

Key Weaknesses

From the capioIT perspective, the key weaknesses are

  • Lack of depth in cloud capability and investment
  • Applications strength will lag several other providers despite recent focus
  • Subscale capabilities in key growth markets of Analytics/Big Data and mobility
  • Industry momentum has dissipated since EDS issue at HPE, hence reliant on smaller CSC industry footpath
  • More disruption for employees, particularly legacy EDS who have been unsettled for many years.

2016 has been the year of mergers in the IT Services sector. This has been predicted for years, and has clearly ratcheted up in pace. This year we have had three very significant and different acquisitions occur (alongside numerous smaller deals)

  • NTT Data acquire Dell Services
  • IBM acquire Bluewolf
  • CSC acquire/merge with HPE Services.

This consolidation will only accelerate. There are now several vendors who are subscale and struggling to adapt to the new business ecosystem. Firms such as CapGemini, CGI and the legacy Indian firms, alongside older firms such as Fujitsu, have to radically change their business to maintain leadership and innovation. On that note, HPE/CSC would do worse to add the likes of CapGemini to their new group to build out their application services, and EMEA capabilities.

The shift of IBM away from hardware and the jettisoning of IT Services by hardware based vendors such as Dell and HP has shown that the model of the integrated IT giant is no longer relevant. Fujitsu from the Japanese perspective at least is now the outlier.

Capture Point

Will the new business work? That is of course the $26 billion dollar question. There is no doubt that the integration has to happen incredibly quickly. The market is moving too dynamically for there to be any delay. CSC and HPE clients are not going to show the same patience in 2016 for a slow or challenged integration. It creates an infrastructure giant alongside an at times vulnerable IBM, so whilst it is a surprise, if the integration happens decisively and the clients stay to course, then the pain of recent years may enable the environment to make it a success. Failure on any of these counts will mean that it is a failure of the deal, and that will impact all parties from clients, partners and employees.

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The Digital Hotel Key – A Positive Entry to Disruption

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On a recent visit to San Francisco I stayed at the San Francisco Hilton Union Square. (Don’t worry; I am not going to offer hotel room reviews. Tripadvisor and others have that covered). As a long time member of Hilton Honours I was offered the chance for a Digital Key to my room. My phone would become my primary communications device for the hotel.

The Digital Key is something that I have been positively anticipating for a few years. As an early adopter of technology, I was happy to use it regardless of potential flaws.

I was notified through the Hilton app that I could use a Digital Key. I could use this digital key to check in, select my room and then go to my room without having to go to the front office. All good. Unfortunately from the technology utilization perspective, I arrived early and had to go to reception because my digital key wasn’t ready due to the out of hours check in. That is of course no fault of the technology. Once I had done that I was away.

In general it worked well, although a few times took a few seconds to register, but again, it was not enough to test my attention span.

The key issue came on the second night. I went to open my room and the door would not open. It was not working at all. I had to get security to let me in to my room, (which took some convincing, because with Apple Pay, I did not need my wallet, so no ID).

I then had to go down to reception and have the key recoded. This was a concern. It provided doubt in my mind. Would the digital key fail again? Why did it fail?

I was fortunate to run into the hotel locksmith. After we discussed the technology the issue was that my room was in a wireless black spot. As a result the experience was diminished, and the risk of failure remained (As an aside, kudos to Hilton, they gifted my 10,000 bonus points as a result of my issue. Clearly they want the technology to work, and more importantly visitors to have an enhanced experience).

Some other points on the technology

  • Only one card can be issued per reservation. If there are two people staying at the hotel only one has a digital key. This is a flaw that is limited by technology. It must be changed to provide a real experience
  • The role of the hotel locksmith has continued to be disrupted. There is no role that stays the same in the digital era
  • More broadly, there is a very disrupted experience for the hotel staff, and the customer’s engagement with them. It will be possible not to speak with a human through the entire hotel experience, and the impact on society is very important to consider. I know as a regular traveller, human contact on the road, even at a hotel reception is very important.
  • The customer experience when it works is very strong. Virtually all customers have their mobile with them, so it is one less thing to lose during the day, or forget to take in the morning.

 

Of course this technology will not be limited to hotels. Any entry process that requires a key can now be mobile first, be it offices, gyms etc. This takes the mobile device and of course makes it event more central in our lives. Is that a good thing?

As your driver’s license, credit card, hotel key and entire record of life of an individual is attached to a mobile device, then we have to adapt our relationship with technology even more fundamentally. We will shift expenditure to those who can provide the integrated digital experience and away from those who fail to understand.

Capture Point

The hotel experience is ripe for disruption. The digital hotel key is just one step in this process. Initial experience has been positive. There is still work to be done in reliability and for multiple users, but it is a technology that will substantially change our relationship with the hotel experience. Now to disrupt the rental car market.

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NTT Data Acquires Dell Services – Can a Telco rule IT Services

In late March, NTT Data announced a transaction to acquire the services arm of Dell for just over $3 Billion. This transaction includes all of Dell Services, including Perot, which was acquired by Dell in 2009 for $3.9B. The only services that will remain are the break fix attached product services of Dell.

From the capioIT perspective, the outcomes are as varied as NTT and Dell. For NTT Data it is a leap in depth of capabilities and the order of magnitude of the business. Some of the new markets that NTT have gained significant new capabilities include:

  • Healthcare, Financial Services, Public Sector
  • US non healthcare, Australia, Europe
  • Infrastructure Services
  • Mid-market services
  • Offshore service delivery
  • BPO

This is a significant deal for NTT Data. What will be a factor to watch is the speed in which it can shift people based services to asset-based services that are scalable, repeatable and cost effective. A note of caution has to be raised because in executive briefings post acquisition, a lot was made of the people acquired. capioIT will be looking to hear more about the process and asset based services that will be developed rather than the people aspect. In the as-a-Service, robotics world humans are the enablers of the new technology, rather than the workers.

The acquisition has a significant impact on the rest of NTT. Of course, capioIT believes that the most pertinent area of overlap will be with Dimension Data. In markets such as Australia and parts of Asia, Dimension Data and Dell did have an overlapping market capability and competitive environment. NTT has displayed a keenness to maintain the branding of Dimension Data in the market, so as this continues, there may be some overlap, but this will be balanced by the very significant growth in the NTT Data brand which is largely unknown in the UK, Australia and parts of Asia from a services point of view.

A note on NTT and services. capioIT has been very bearish about the capability of a Telco to offer IT services. We have seen many fail to understand what is required to offer such services, most succinctly the difference between a consultant and an engineer. NTT have been smart in separating the Telco from the services arm. Acquisitions such as Dimension Data have resided outside of headquarters and the legacy business. Perhaps they can be the vendor that breaks the history of Telco’s such as BT, AT&T, Verizon, SingTel and Telstra being far from successful with their long term strategies for growth through IT based services and solutions.

Dell on the other hand is a genuine concern. The primary motivation of the transaction appears to be to free up cash to help pay for the $67B acquisition of EMC. As capioIT has already commentated, the EMC-Dell transaction does not appear to offer to the customer any significant differentiation in growth areas such as analytics, mobility and cloud outside of commoditized markets. Without the services arm, the limited software capacities of EMC and Dell (excluding VMware which will look to maintain its independence if history is any guide) are not enough to drive the required innovation to ensure customer outcomes.

Whilst software is the future, the industry knowledge, scale and capability that Dell is giving up may come back to restrict the capability of Dell. For $3B in a $67B transaction, Dell and its investors may wonder if the value was worth it. Having said that, I am not Michael Dell, and I have not set up a multi-billion dollar company. I will give some benefit of the doubt to his strategy and investment.

Capture Point

NTT acquiring Dell Services was a poorly kept secret. capioIT believes that NTT Data is the big winner in the deal. It paid less than the market thought it would, and gains a significant increase in scale, capability and customers. It is a move to leapfrog it up the rankings for services providers.

On the other hand, capioIT has questions as to the extent to which Dell will be able to differentiate itself in the market as it pays for the $67 Billion dollar acquisition of EMC.

 

If you require further information, please contact Phil Hassey, CEO of capioIT. capioIT is an advisory firm focused on helping organisations to understand customer experiences from emerging technology as the world becomes Digital. Phil may be contacted easily in the digital and real world.

phil@capioit.com

+61422231793

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Department Store ecommerce – Not a Customer First Experience

Most traditional retailers have struggled with the shift to an online retail/ecommerce, reactive social media and other other technological innovations in meeting the ever-changing requirements of buyers from millennials through to the silent generation.

They may have largely deluded self justified reasons for this, but given that Amazon is now over 20 years old, the time for excusing or rationalizing poor customer outcomes from ecommerce for legacy retailers in any category is long gone.

Of all the major retail markets in the world that have tried to engage in online retail and ecommerce, department stores have been a true laggard in so many ways. The reasons for this, such as the franchise market, duopolies, leasing issues, regulations etc are reason for a lack of capability and enterprise skill, not excuses for a lack of success.

The loser in this systematic failure is the customer, and ultimately the shareholder. All because the department stores have no idea how to develop the experience their customer wants.

This is further evidence of the reasons why capioIT pioneered the concept of the Digital Devil’s Advocate  Each week we identify where too many enterprises fail to understand the role of the customer in the customer experience, digital or otherwise.

The failures are too easy to find because organisations just fail to understand the simple requirement for customers to have a real optimised experience on their terms. This can’t be achieved through technology alone. An app developer, or marketing executive asking a friend for experience is not validating customer experience. You need unemotional independent yet informed capabilities to act as the digital devil’s advocate and overcome these shortcomings.

On to the Department Store example.

The following pictures reflect the experience for shopping at a prominent Australian Department Store.

First Page – All good. The store is having a sale, the benefits are highlighted that is clear. One can shop for the usual categories at a department store, womenswear, menswear, shoes etc. 

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Second tab (after clicking on womenswear) – Shop by size. What is David Jones thinking? This defies optimising the shopping experience in so many ways. 

IMG_0686

Since when have women department store shoppers had size (6,8,10,12,14,16) as their first priority in terms of what they buy. Surely the type of fashion, e.g. formal, jean, casual, jumpers etc, is much more relevant. It is just a staggering approach that is so far removed from customer experience.

Overwhelmingly consumers will not just be a size 10, for some things, they might be an 8, for others 10, and 12. I showed the options to approximately 10 women (actual and likely customers of David Jones). Not one woman I spoke with would shop on the basis of size as the first point of call. After choosing womenswear, all would then chose the type of fashion, the brand, then size, in store as they would online. It just is a crazy and failed approach to customer experience for customers. It is  be difficult enough for department stores to attract the next generation of shoppers. With laughable online shopper environments it will be impossible.

Anyone who knows David Jones and the online experience in Australia will not express shock. They have long been laggards and failed to understand the customer experience. Not surprisingly the likes of H&M and Zara who understand, serve and engage their customer across platforms are blitzing the market locally. 

What can be learnt from the experience. It is quite simple. Retailers have to allow their customers to shop in any format in the way that best provides an experience. David Jones and other retailers need to

  • Make the customer central to all decisions, investments, and outcomes
  • Move-on anyone who cannot act on the unequivocal central role of the customer in all the enterprise does online or otherwise.
  • Ensure that the entire ecosystem is customer centric, from buyers, manufacturers, distributors and even external and internal technology providers
  • Continue to invest and involve
  • Understand the role of the Digital Devil’s Advocate

Capture Point 

The time for excuses for poor online customer experiences for retailers has long past. It is just not acceptable to have poor online experiences and customer outcomes. Learn from laggards like David Jones make the future viable.

  • Make the customer central to all decisions, investments, and outcomes
  • Move-on anyone who cannot act on the unequivocal central role of the customer in all the enterprise does online or otherwise. 

If you require further information, please contact Phil Hassey, CEO of capioIT. capioIT is an advisory firm focused on helping organisations to understand customer experiences from emerging technology as the world becomes Digital. Phil may be contacted easily in the digital and real world.

phil@capioit.com

+61422231793

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No Game of Drones For Indonesia

One of the joys of technology is watching new innovations become pervasive throughout societies across the world. There was a time when one wouldn’t answer a phone on a bus, now, 10 minutes on a bus will sound like a soap opera. Eye contact on a Japanese subway is impossible as eyes are glued to the screen not to the blank subway faces of the fellow subway traveller.

Drones are now rapidly becoming pervasive. They have several applications starting from consumer toys, all the way to being the cornerstone of sophisticated military action. Amazon has trialed drones to deliver packages and the potential role of drones in a connected world is unlimited. The role of the drone in managing wildlife and agriculture provides considerable scale and cost benefits.

Unless you are in Indonesia. I was on a website of a hotel that I will stay at for an upcoming conference in Bali and was surprised by this addition to the FAQ’s.

Screen Shot 2016-04-07 at 9.31.33 PM

This is no simple hotel generated initiative. Drones are heavily restricted and regulated in Indonesia. The punishment for breaching the regulations is severe. Flying a drone over 150 meters at any time, in any location needs a license that is not simple to procure. Fail to get a license, and then you leave yourself liable to three years jail and a fine of approximately US$75K. Indonesia is a country that can under regulate, or significantly over-regulate, particularly around national security issues (real, or imagined) and this is a vivid example of the way in which the country operates. If the Indonesian government does not like something the simple advice is to avoid it completely. It works for drugs, it works for drones.

Capture Point

The drone is going to be a very significant aspect of much of the life of the global population in the next generation. The Indonesian example highlights how important regulatory environments are to ensure that the innovation permeates throughout an environment. Clearly in Indonesia, the government feels that safety and security threats outweigh the social and societal benefits of the technology. How long this last will depend on managing the technology and ensuring that safety issues of the populace are managed.

If you require further information, please contact Phil Hassey, CEO of capioIT. capioIT is an advisory firm focused on helping organisations to understand customer experiences from emerging technology as the world becomes Digital. Phil may be contacted easily in the digital and real world.

phil@capioit.com

+61422231793

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Big Blue Acquires Bluewolf – IBM Invests in the Salesforce and SaaS Services Market

On March 31st, 2016 (although it will already be April Fools Day in many parts of the world, it is no joke), IBM will announce the acquisition of Bluewolf, in a deal that according to Re/code is a US$200M plus investment. (IBM to acquire Bluewolf – Re/code) 

This is one of the least surprising deals in the Business Services sector that we have seen in recent times. From the moment that Accenture acquired Cloud Sherpas, (see – https://capioit.wordpress.com/2015/09/16/accenture-acquires-cloud-sherpas-cloud-services-provider-consolidation-reaches-new-heights/) it was only a matter of time before Bluewolf and Appirio (the other two major independent Salesforce integrator) would be acquired.

In fact, when we announced the Cloud Sherpas and Accenture acquisition we finished our research with the following – “Finally, what does it mean for the remaining “born cloud” providers. Firstly, their price is now a bit higher than it was yesterday. The potential list of suitors for the remaining two providers is easy to develop. IBM, NTT Data, Fujitsu, Infosys, TCS et al are all relative subscale in the space and need to do something quickly if they are to retain leadership.”

Until the investment was announced,  IBM has lagged badly in the Salesforce Services market specifically, and in the SaaS services market more broadly. Unlike Accenture and Deloitte, it did not make the transition from traditional IT and Application services provider effectively enough. The old model of IBM did not suit the new world. It was questionable if IBM actually had the capability to deal in the SaaS Services market, with a new type of engagement model, platform and customer. The acquisition of US based Workday provider Meteorix in September 2015 was a critical indicator that IBM would start to do something serious in the space. Bluewolf was the next logical step.

For the $200M it spent, IBM gets a very substantial  boost in capability. In the 2014 capioIT Capture Share report for the Global Salesforce Services Market, Bluewolf was ranked as an overall leader in the market, and of the 14 vendors included in the study, it was placed 2nd behind Accenture. By contrast, IBM was ranked very much in the bottom rung of capability. – For more of this study –  https://capioit.wordpress.com/2014/09/17/capioit-announces-the-global-salesforce-com-systems-integration-and-services-market-leadership/   – (note, capioIT is currently undertaking research to replicate this study, details as it is finalised in mid 2016). Geographically, Bluewolf has strength in  traditional Salesforce focused markets of the USA, UK, Australia and France.

As with all acquisitions, regardless of the scale, the proof will of course be the integration, keeping the customer happy and scaling up the capabilities. IBM has to prove all of this, ensure key staff are retained, and organically build out capability. Acquisitions at IBM have been more focused on Software in recent years, so the investment in Services as highlighted is overdue, but will present some integration challenges.

It is worth understanding the cultural differences that the acquisition will present. Bluewolf is very much born of the SaaS world, offices are urban, the fact that it will sit in the IBM iX (Interactive Experience) group is a good starting point. Further to the cultural differences, capioIT research and analysis points to the fact that IBM and Bluewolf do not have a lot of historical employee overlap. The opposite worlds that they have lived in will be of some concern for integration.

IBM is, and always will be, an acquisitive company. Some of the acquisitions such as the Weather Company are lateral at first to the core business but play out over time. For legacy IBM, the Bluewolf acquisition maybe another left field move, but it is well overdue to position IBM in the Salesforce and SaaS Services space. As ever, it is now on IBM to execute, integrate and maximise customer satisfaction.

The market may now turn attention to Appirio and the unique crowdsourcing model it deploys. It is the last of the three remaining independent providers. Either Deloitte will look to maintain its competitive position, or one of the remaining providers, NTT Data, Infosys etc will spend money. To be fair, NTT Data has already spent $3B this week on Dell Services, it may have attention focused elsewhere.

Capture Point 

IBM is, and always will be, an acquisitive company. Some of the acquisitions such as the Weather Company are lateral at first to the core business but play out over time. For legacy IBM, the Bluewolf acquisition maybe another left field move, but it is well overdue to position IBM in the Salesforce and SaaS Services space. As ever, it is now on IBM to execute, integrate and maximise customer satisfaction.

If you require further information, please contact Phil Hassey, Founder capioIT. capioIT is an advisory firm focused on helping organisations to understand emerging technology and their customers as the world becomes Digital. Phil may be contacted by email below,

phil@capioit.com

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Google Announces 12 new Data Centres – Game on for AWS

Google has announced that it will be opening 12 new Cloud Data centres over the next 12-18 months to compete with AWS. The first two data centres will be in Oregon and Japan, followed by 10 more centres in as yet undisclosed locations. 

It is doing this to directly target AWS and to a lesser extent Azure in the Public Cloud, Iaas/PaaS/SaaS marketplace. Clearly it will have an impact on other public cloud providers such as IBM and Rackspace.

Whilst the investment is a very positive move, (and parallels strongly with the recent Apple announcement) there is no doubt that Google has been far to slow to the enterprise market opportunity and customer outcomes. The strength of Google as a consumer company transposes sharply with the capability of it in the enterprise. It has lagged in strategy, execution, focus and most importantly customer outcomes. 

In the recently released Australian Infrastructure Management Services Capture Share report, capioIT ranked Google as a “Transform Focus” vendor. It was differentiated because it is Google, but lacked the scale and local capability to come close to challenging AWS. – (see https://t.co/SsaloPaHu7)

In July 2014 following a customer event we wrote that “capioIT was intrigued to find that front and centre at the entrance was a bowl of lemons. I can only guess that Google was going to make lemonade from lemons, sadly, whilst the day had moments of sweetness, Google could not set up the lemonade stand this time around.” (see – http://tinyurl.com/jspw7uw)

The new locations are not disclosed, but if Google is serious in competing with AWS and Azure it has to be in the majority of the following locations in this 12-18 month timeframe. Otherwise, it is not going to win the global scale argument or local reach requirements.

  • Australia
  • Brazil
  • Canada
  • China
  • Germany/Netherlands/France
  • India
  • Korea
  • Singapore
  • UK/Ireland
  • South Africa

If Google seriously wants to disrupt AWS it needs to challenge with locations. If it considers some of the following locations then it may be able to be a differentiated provider in the market. (Note these markets provide significant challenges from a network, regulatory and market perspective, but playing catchup requires risks)

  • Indonesia
  • Argentina/Chile
  • Thailand
  • Kenya/Nigeria
  • UAE

It is also hoped that it understands the customer requirements. When it launched the Taiwan facility, Google seemed to force itself to believe that the cutting edge nature of the centre was enough to make Asian customers rush to it. Except it was in Taiwan. Taiwan is a comparatively small market and had major issues for non-Taiwanese customers. It was a perplexing decision as an outside to Google.

AWS will of course respond. It is clearly the market leader, and the announcement by Google is not going to change that in the short to medium term. It will continue to innovate on price, but as it has done in the last 12-18 months, it will focus to refine the perspective around the ISV and partner ecosystem, functionality, scale and innovation. Amazon as a company has withstood significant competitive challenges whilst remaining dominant, though to be fair, they have not had to fight the likes of Microsoft and Google in the online retail space.

Microsoft has a strong installed base with Azure and of course the Office 365 suite. That will continue to be critical for it, alongside relationships with the likes of Salesforce. IBM’s Softlayer and Rackspace will come under even more pressure, and if Google follows up on the investment, it is difficult to see the need for a fourth provider, that is more than a niche. The differentiation for IBM in particular will take a significant amount of investment.

Capture Point

It finally appears that Google is finally being serious about the enterprise IT market, particularly from a cloud perspective with the announcement of 12 new data centres. The most important outcome of the investment is that enterprise customers (Of Google or others) will be the winner. capioIT strongly believes that competition drives innovation, so when the competition is increased, so to is innovation. That has to be good for the customer and for the entire competitive ecosystem. 

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