In the first of my 2 part series blog, I will evaluate how our company, HCL Technologies one of the worlds leading global IT services companies and its competitors are able to navigate an extremely volatile market. What we will examine is the future operating environment and see what faces the Tech sector in the medium term for the next 5 years up to 2024 and in the longer term beyond that.
Last year’s Mergers and Acquisitions (M&A), Strategy and Ecosystem activity in the Tech sector show it is an industry in flux and undergoing a rapid pace of change. The table below illustrates those events that took place in the last Quarter of 2018 with most impact and give us an indication of what to expect for the industry in the Short to Medium Term.
M&A, Strategy & Ecosystem events
|Cloud Services||IT Services||Digital services|
|IBM acquires RedHat||HCL acquires IBM software||Azure blockchain kit launched|
|AWS launches cloud on premise outpost||Fujitsu Intelligence Technology||Atos & Google AI lab|
|AWS enterprise services extended by Accenture||BT GS oust 80% of its customers||Launch of McKinsey Design|
|Alibaba opens new Data Centres||Equinix expands in UK and Finland||Cap Gemini acquires June21 & Doing|
|Google Cloud appointed a new CEO||AWS launches enterprise Private marketplace||Tieto acquires Meridium, partners with Puppet|
|DXC buys BusinessNow and TESM||Tesco fined for Cyber attack||Accenture & EY blockchain tools|
|IBM Launches multicloud, AI tools and ServiceNow partnership||NEC acquires KMD||Publicis.Sapient acquires Xebia|
|Rackspace expands managed VMWare cloud on AWS||Google Open source NLP||TCS acquires W12 Studios|
|HCL partners with Pivotal||Sopra Steria core banking win||Accenture acquires KolleRebbe & Kaplan|
|Accenture extends ServiceNow and AWS enterprise services||IBM Open banking platform||Cognizant acquires Softvision|
|T-systems launces AWS managed services||IBM Launches AI training|
|Fujitsu launches PRIMEFLEX for Azure Stack|
Analysis of the Tech market by IDC reveal the following market predictions for 2019-2024:-
- Skill shortage - It is widely predicted that in 2019, European companies will continue to face skills shortages in IT skills a trend which is expected to continue until 2020 reflected in adjusted project plans, delayed product/service releases and extra costs incurred as a result.
- Innovation accelerators - European companies carrying out IoT initiatives are expected to progressively partner with a services firm able to offer key skills and capabilities to strategize, plan, implement, and/or manage the IoT initiative
- Culture change - By 2019, according to IDC, 55% of European IT divisions will be undergoing cultural transformation to "unlearn" analogue processes and to adopt DX-enabled processes, agile development practices, and collaborative workflows
- Business outcomes - We will begin to see a greater proportion of IT services delivered through automation utilising AI and non-AI techniques relational, for transactional, or financial Automation.
- New ecosystems - We are predicting that the breadth of digital ecosystems will have grown 45% for European services buyers and suppliers By 2020, with buyers increasingly favouring suppliers that can help them innovate using more complex ecosystems
- Architecture change - More than a third of European organizations use waterfall as their primary development methodology today; by 2021, that will dip under 10%, with 90% opting to use DevOps or a hybrid DevOps/waterfall approach instead
- Managed digital services - By 2022, 15% of managed services spending in Europe will be on digital services, driven by enterprises' need to achieve greater business agility via cloud, IoT, blockchain, cognitive, and analytics adoption.
- Strategy services - By 2023, two-thirds of European companies looking to drive revenue growth will only consider partnering with consulting firms that combine strategy, creativity, and IT services.
- Vendor sourcing priorities - By 2022, in Europe, because of increasing technology standardization and growing LoB participation in sourcing, 60% of enterprises will prioritize business capabilities over technology capabilities when sourcing IT.
Whilst there are interesting developments in store amongst Tech players, what do we expect the Tech industry to face in the longer term?
Longer term Tech trends
The key trend here is we expect growth and consolidation among the Platform and Born Digital players Google, Apple, Facebook, Amazon, Baidu, Alibaba:-
- Tech Platform commerce players – Given the strong positioning of large Platform and Born Digital players like Google, Apple, Facebook, Baidu and Alibaba this cohort has the ability to gather, analyse and monetise customers data from their extensive customer base. Facebook for example has 2.3bn users alone. Use of platform commerce players customer bases means this cohort can steadily progress to offer banking services. A great example is how Apple started a few years ago by offering payment services through its application iPay to pay for goods and services in conjunction with credit cards issuers and utilising customers digital wallets.
- Born Digital “Challenger” banks like Revolut and Atom bank are growing in number with the landscape ready for consolidation. They operate in an agile manager able to offer rapid data driven services with personalisation. Their cost base is also less than 50% of traditional banks and are good at building ecosystems of service providers supporting them e.g. Monzo and Starling with Moneyhub the personal finance application.
- Niche players - Tide for small business accounts and Oaknorth for SME specialised lending have been able to scale up by spotting a gap in the market not serviced by larger players e.g. in small business banking and commercial real estate loans
- Regulatory drivers such as PSD2 and UK’s CMA Open banking standards are enabling the disruption of traditional lenders monopolies and facilitating access to customer data for servicing by competitors. GDPR is also forcing the sector to enforce EU data privacy standards for customer data in their storage, processing and consent marketing. Privacy standards efforts are accelerating data tracking, growth in cybersecurity applications and resulting in changes to how customer data is protected, stored and retained.
- Banking industry – Trends shows that IT is creating massive change through deployment of APIs, Cloud Technologies, Machine Learning and Digital services. Banks are consuming microservices delivered through APIs to build bundled banking services which are facilitated by an ecosystem of partner channels on top of the banks legacy back office records and systems. Though cryptocurrency has not passed bank supervisory tests and its acceptance has been called into question, Blockchain and advances in payments is expected to be adopted in some shape or form in the future.
- Cloud – This is arguably the biggest value spend for businesses which are gradually moving their IT estates to the cloud or replacing with SaaS, IaaS and PaaS from suppliers and we see the major suppliers AWS, MS Azure, Google and others competing for dominance.
- Customer expectations - Customer expectations have also changed with a preference to Self-service banking using tools allowing banking anytime and anywhere saving the customer time.
In the next part of my 2 series blogs on Tech market trends, I will explore what we expect to see for the worlds largest Tech players and how the current macro economic environment is impacting investment and the success of Technology Start ups and FinTechs.