Category Archives: Everest Group

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Virtustream Acquisition – EMC Spreads its Hybrid Cloud Wings | Sherpas in Blue Shirts

EMC

EMC has taken a significant step forward in its hybrid cloud journey with the announcement of its acquisition of Virtustream in an all-cash transaction of US$1.2 billion. Founded in 2009, Virtustream is estimated to have clocked ~US$ 100 million in revenues last year through its cloud hosting services and management software (xStream) offerings – while cloud IaaS accounted for 60% of this revenue, the remaining 40% came from management software licenses.

The U.S.-based company will eventually become the managed cloud services division within the EMC Federation business. The transaction is expected to close by the third quarter of 2015 and be additive to EMC’s revenues starting 2016.

EMC is well known for its deep pockets. With about 70 acquisitions since 2003, the inorganic route is clearly not new to EMC (to put it mildly). The company has not shied away from flexing its muscles from time-to-time to build capabilities for its mainstay storage business and beyond.

EMC’s “Shift” to Cloud

The emergence of cloud has had a strong impact on EMC’s core storage business, which has been witnessing a sluggish demand over the past few years (the overall Information Storage division of EMC has witnessed a CAGR of ~3% over 2012-14). While EMC has rejigged its focus to cover new storage products, this “strategic tweak” in itself is not expected to arrest EMC’s plummeting revenue growth. Therefore, EMC has put its bet on the “next big thing” in the IT industry – hybrid cloud.

EMC’s association with VMWare and Pivotal has ensured that EMC is no newbie to the cloud; however, the real sign of intent from EMC came with the launch of its Enterprise Hybrid Cloud Solution last year. The launch also coincided with a triplet of cloud acquisitions – Cloudscaling (an OpenStack IaaS solution developer), Maginatics (a cloud-enabled storage provider), and Spanning (a cloud-based application data security provider).

So what does Virtustream bring to the table?

As EMC looks to make a mark in the enterprise cloud market, the Virtustream acquisition offers multiple benefits to EMC:

    1. Expansion of the Enterprise Hybrid Cloud Solution portfolio: EMC’s Enterprise Hybrid Cloud Solution is currently an on-premise private cloud offering that provides cloud-bursting options to VMware vCloud Air and other public cloud services. The addition of Virtustream’s xStream platform provides EMC with capabilities to manage both on-premise and off-premise deployments, thereby offering a truly hybrid cloud setup

      The xStream platform will be leveraged by EMC Federation service provider partners to deliver independent services based upon it

    2. Credible cloud managed services capabilities: Virtustream has witnessed credible success in serving large enterprises with complex cloud deployments and managed services requirements, through partnerships with industry-leading vendors such as SAP (which made a US$40 million investment in Virtustream in 2013), Oracle, and Microsoft. Virtustream has been certified by SAP to offer SAP HANA as-a-service. EMC can leverage Virtustream’s managed service capabilities/experience to serve its own existing clientele as well as prospects

    3. Datacenter footprint: Virtustream brings a credible revenue stream based on its datacenter footprint spanning locations such as the U.S., UK and the Netherlands (catering to key demand markets such as North America and Europe)

    4. Meaningful clientele: Virtustream brings a credible roster of clients including Coca-Cola, Domino Sugar, Heinz, Hess Corporation, and Kawasaki, which will get added to EMC’s kitty (to cross-sell its broader hybrid cloud and storage offerings).

The move to acquire Virtustream seems to be a logical one for EMC (although the revenue multiple of ~12X indicates some level of desperation on EMC’s part, given the ongoing stakeholder unrest). Also, given EMC’s traditional modus operandi of allowing its acquired entities to operate autonomously, we do not expect the acquisition to grossly impact Virtustream’s innovation capabilities (barring potential integration and cultural challenges)

Virtustream’s rationale for being acquired?

The development may have come across as a surprise for many market observers, given that the company was grappling with the idea of going public barely six months ago. While Virtustream was going great guns, the brand recognition of a cloud provider typically plays a huge role when it comes to large enterprises looking for sourcing options. Consequently, hitting the “next level” of growth trajectory potentially becomes a significant challenge for players such as Virtustream (especially with a large enterprise focus).

Therefore, it comes as no surprise that Virtustream’s CEO, Rodney Rogers, claims to have considered multiple suitors over a period of time, before choosing EMC (based on terms offered and a chance to become a part of the EMC Federation).

Does this point to more consolidation in the cloud IaaS market?

The EMC-Virtustream deal has been preceded by multiple notable acquisitions in the cloud market over the past few years (Terremark by Verizon, Savvis by CenturyLink, SoftLayer by IBM, Metacloud by Cisco, and GoGrid by Datapipe). As various players in the enterprise cloud market, be it global IT service providers, telecom providers, or public cloud providers look to gain a stronger foothold, it is hard to bet against other similar acquisitions happening in the near future. The question is which company will be the next one to get gobbled up? CloudSigma? DigitalOcean? Joyent? ProfitBricks? Or even Rackspace? That only time will tell.


Photo credit: EMC

 

Genpact Eyes Syntel Acquisition – Times Of India | In The News

“Peter Bendor Samuel, CEO of US-based Everest Group, said if the acquisition goes through, it would be a good strategic fit. Genpact needs to add an IT capability if they are going to successfully play in the transformation market place. Headstrong (an IT services and consulting firm which Genpact acquired in 2010 for $550 million) is not big enough or diverse enough to do the trick. It appears that Genpact finished second in the Igate sweepstakes. With Bain Capital owning a large stake and being on their board, they are being pushed to be aggressive in growth, both organic and inorganic. An IT firm such as Syntel would be accretive to earnings as well as position them well in the changing market place, he said.” Read More.

 

Indian IT Firms Like TCS, Infosys To Gain From HP’s Enterprise Services Cost Cuts, Say Analysts – The Economic Times | In The News

Economic Times

“Hewlett-Packard’s decision to cut $2 billion (about Rs 12,700 crore) in costs in its enterprise services business could open up opportunities for Indian technology firms such as Tata Consultancy Services and Infosys, said analysts tracking the development. The planned cuts in the enterprises services division can come from staff reductions, moving more work offshore, delaying or eliminating investments, and writing down assets that are being deprecated, said Peter Bendor-Samuel, chief executive at consulting firm Everest Group.” Read More.

 

Offshore Captive Centers Are Again A Thriving Outsourcing Model – CIO | In The News

“Captive centers — in-house IT and business process delivery arms — accounted for one quarter of the $150 billion global services market last year, according outsourcing consultancy and research firm Everest Group. While there was significant talk of the demise of the offshore captive center in the previous decade the approach is alive and well in 2015, says H Karthik, partner and leader of Everest Group’s global sourcing research practice.” Read More.

 

Services Sales through the Looking-Glass | Sherpas in Blue Shirts

Jabberwocky

Lewis Carroll is famous for his novel, “Through the Looking-Glass, and What Alice Found There.” In this whimsical world, everything starts out as familiar things but, on examination, turn out to be nonsense. It puts me in mind of many service providers’ sales pitches.

Perhaps my favorite part of the Looking-Glass novel is Jabberwocky, a poem in which Carroll strung together nonsense words. When put together, they sound impressive and one wants to believe they tell a story. But as you can see in the verse below, the words are just nonsense.

’Twas brillig, and the slithy toves

Did gyre and gimble in the wabe:

All mimsy were the borogoves,

And the mome raths outgrabe.

It’s like service providers’ sales teams that talk to potential clients about a transformation agenda and driving business value from IT. They throw in words such as “agility,” “flexibility” and “cloud.” Or phrases such as “consumerization of IT” and “as a service.” They even sprinkle in entire sentences such as “outsourcing will allow you to variabilize costs.”

These pitches sound wonderful and sound like there is deep thought associated with what the speaker says. But on examination, one finds the claims are largely nonsense. For instance, there is no variabilization of costs; it’s virtual, and there is little time to business value. And the supposedly agile environment is anything but agile.

It’s very easy to grasp for platitudes and read blogs and take the ideas without really understanding them.

So just like Alice, we find ourselves asking, “Which way should I go?” Well, like the Cheshire Cat says to Alice, “It all depends on where you want to get to.” Providers’ impressive-sounding presentations, on examination, are often just gobbledygook and attempts to intrigue the audience and get them to buy services. But they fall apart on close examination.

Successful sales depend upon a clear understanding about what the customer and provider will try to accomplish, how they will do it and the steps necessary to accomplish the goals. The best presentations use common, plain language to identify the issues and how to meet the goals.


Photo credit: Flickr

 

Is Myntra Foregoing Growth for Profit? – Business Standard | In The News

Business Standard

“The hiring that these companies have been doing has changed in the recent past. They are hiring a lot from consulting firms, etc, which could be aimed at giving more structure to their businesses. They perhaps are looking to run their companies more as serious businesses and less as just start-ups,” says Yugal Joshi, practice director at Everest Group. Read more.

 

10 Golden Rules for Good Benchmarking | Sherpas in Blue Shirts

Originally posted on the National Outsourcing Association (NOA) blog


Insights from the NOA “Benchmarking” Special Interests Group with Everest Group

Benchmarking is a worthwhile endeavour. When conducted properly, the practice will give you a baseline indicator of where your business is currently, where it is headed on its current trajectory, where you need to be to maximise gains and how you can get there.

Benchmarking can also act as the catalyst for a more fruitful long-term outsourcing relationship, by highlight areas that must be focused on moving forward. On the other hand, it is not the solution to every problem that relationship might have. The term is frequently misunderstood and the practice is even more frequently misused.

At the NOA’s Special Interests Group on Benchmarking in association with Everest Group, benchmarking experts led a roundtable discussion on when benchmarking is necessary, how it is best carried out and what the practice does to help business relationships between clients and their providers.


Read more on the NOA blog

 

Supply Chain Management BPO Grows 25 Percent, Offers Immense Opportunity to Buyers, Providers | Press Release

Rapid growth of SCM BPO—25 percent CAGR since 2010—spurred by large, North American organizations and manufacturing sector. 

DALLAS, April 10, 2015—BPO in Supply Chain Management (SCM) has grown from a nascent practice to an emerging one in a very short span of time. This practice grew at over 25 percent compound annual growth rate from 2010 to 2014, and the market size currently stands at US$1.0-1.2 billion.

In terms of adoption trends for SCM BPO, the following buyer categories are the primary drivers:

  • Adoption is led by North American organizations (65 percent)with Asia Pacific being the region with the highest growth;
  • Large-sized organizations (revenue exceeding US$5 billion) represent 69 percent of buyers; and
  • The manufacturing vertical leads in adoption (40 percent market share).

Currently, core SCM BPO processes focusing on delivery are the most frequently included in SCM BPO agreements. In the future, control tower based solutions are likely to continue to gain traction. Also, as supply chain analytics become more complex, big data analytics is likely to impact the market significantly.

These results and other findings are explored in a recently published Everest Group report:  “Supply Chain Management (SCM) BPO—Annual Report 2015: SCM BPO: An Idea Whose Time Has Come.”

***Download a complimentary 14-page preview of the report*** (Registration required.) This preview summarizes report methodology, contents and key findings and offers additional resources.

The full report analyzes the global SCM BPO market, focusing on:

  • Market overview and contractual activity
  • Global growth and adoption trends
  • Solution characteristics and emerging trends
  • Service provider landscape

“In the past, organizations tended to compartmentalize procurement, logistics and inventory management, but now companies are seeking third-party providers who offer comprehensive SCM BPO offerings,” said Swapnil Bhatnagar, Everest Group practice director. “The potential is huge, so service providers are responding quickly, developing offerings that blend technology augmentation, reporting/compliance capabilities and analytics to transform the supply chain operations of their clients.”

*** Download Publication-Quality Graphics ***

High-resolution graphics illustrating key takeaways from these reports can be included in news coverage, with attribution to Everest Group. Graphics include:

  • Supply chain management: Out of the shadows
  • Supply chain management BPO contracts often paired with other functions
  • The supply chain market shows increasing interest in control tower solutions to enhance supply chain operations.
  • Analytics: A potentially disruptive force in supply chain management

***Additional Resources***

 

Service Providers are Killing the Goose that Lays Golden Eggs | Sherpas in Blue Shirts

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I blogged last year about the growing anti-incumbent bias in the services industry. That’s not to say that clients are biased against incumbent providers, but there are more clients who want to switch out providers than there used to be. This is true across every segment of global services (applications, infrastructure and BPO). We can trace at least some of this client mindset back to providers’ actions that are similar to the farmer in Aesop’s Fable who killed his goose that laid golden eggs. In their haste to get more golden eggs (more profitability), providers unintentionally kill the golden substance inside their goose (existing client base).

At the heart of the issue is providers’ wrong view of their clients. As a result, they take actions that cause clients to believe the provider exploits them, as the actions benefit the provider’s revenue. When a client believes the provider is only interested in maximizing its revenue, the client no longer sees the provider as a trusted advisor.

Here are three examples I’ve observed in which providers appear to act for their own interests, which results in clients no longer trusting them.

  1. The provider moves from an FTE-based model to a transaction-based model, but the provider’s revenue stays the same. Basically the provider finds a way to charge the client more for volume, which wouldn’t need to happen under the FTE-based model. Clients see through that, and the provider loses its trusted position. Clients realize the provider is exploiting them rather than serving them.
  1. The provider moves to a productivity model, promising to support portfolio apps at lower cost through a managed service. What actually transpires? The provider nickel-and-dimes the client, which ends up paying more money over time. Functions that were delivered in the FTE model are now a la carte, outside of the new model; so the client actually pays twice for the service.
  1. The provider flattens out its factory model and optimizes it to use junior resources instead of senior resources. The net result for the client is churn in the provider’s resources, so the provider doesn’t build client or industry knowledge. On top of the churn, the client actually ends up with lower productivity because junior people now do what senior people were doing.

And that’s how providers kill the goose that laid golden eggs.


Photo credit: Flickr

 

Value Leakage in Outsourcing Contracts | Market Insights™

value leakage_pricing 2015

Value leakage can have significant consequences – as much as 38-50% of total spend

More information on pricing