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Can these global integrators raise their game in the coming year?

Technology Business Research analysts examine how four of the world's top integrators are likely to fare over the next year

IBM is set to bounce back and take a step closer to three of the world’s largest integrators, in terms of revenue growth, by next year, if the latest analysis by Technology Business Research (TBR) is anything to go by.

TBR principal analyst and practice manager, Patrick Heffernan, published a report in October investigating at the state of play for four global integrators, Accenture, Atos, Capgemini and, of course, IBM, and looking at how they are likely to fare over the coming year or two.

One of the standout predictions outlined by Heffernan was the expectation that IBM, which in October revealed 22 straight quarters of declining revenue, would bounce back by the end of 2018, to see positive revenue growth once again.

IBM revealed in October that its total revenue fell 0.4 per cent to US$19.15 billion from a year earlier, marking the smallest quarterly drop since the third quarter of 2016.

Weak demand from customers had left its legacy hardware and software businesses stagnating. However, growth in IBM's cloud, cybersecurity and data analytics business rose by 11 per cent to account for about 46 per cent of the company’s total revenue.

This forecast growth is expected to see IBM’s revenue growth rate pull in closer to those of Accenture, Atos and Capgemini, all of which Heffernan’s predictions suggest will either remain relatively static or fall slightly over the coming year.

From Heffernan’s perspective, the four integrators focus on different areas in which to invest and allocate resources. Likewise, each company also claims its own go-to-market strategies.

However, there is one common thread connecting all of them: they look to emerging technologies to fuel revenues going forward.

At the same time, Accenture and IBM have a habit of depending on organisational shifts and partnering to accelerate growth, whereas Atos and Capgemini, both smaller, will be able to look to acquisitions or investments for near-term revenue boosts, according to Heffernan.

The analyst flags Accenture’s investments in strategic initiatives around revenue diversification, business optimisation, new ventures and scope expansion as a major factor that will shape the breadth and depth of the company’s capabilities going forward, ultimately helping the firm gain and maintain its position in the market.

It has been noted by other analysts, meanwhile, that IBM is streamlining its delivery model to support corporate initiatives around cloud, cognitive and digital solutions, which is driving services sales.

However, the integrator may need to take additional steps to bring its multiple offerings under a single banner to boost future performance.

TBR analysts anticipate that aligning business consulting, cognitive‐ and cloud‐enabled application development, and hybrid IT management under a unified ‘IBM Services’ organisation could simplify client engagement and internal operations.

For Atos, the firm will likely sustain its acquisition activities to further expand global reach in its e-payments business while capturing digital transformation opportunities in markets such as North America.

While Capgemini has a global presence, including in Australia, it is expected that the company will continue drawing upon its established presence and proximity to clients in Europe, along with its knowledge of local industry and regulatory requirements, to capture digital and cloud work.

Looking for other sources of growth

As it stands, TBR expects IBM’s revenue growth to surge between now and the end of 2018, while it is anticipated that Capgemini’s revenue growth will remain fairly static or rising slightly. 

For Atos and Accenture, however, TBR expects both to see revenue growth fall slightly over the coming year.

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Regardless, TBR analysts have suggested a number of ways in which the four integrators might be able to make their revenue growth accelerate over the coming years.

“Accenture could accelerate revenue growth through further investments in cybersecurity, as well as a cultural shift from a global delivery to local presence,” the TBR report stated.

Additionally, TBR suggested that Accenture will strive to address the threat presented by amplified competition from IBM and Deloitte by developing proprietary and partner‐run solutions for new offerings.

At the same time, as IBM’s long‐term Watson bet begins to take shape, the company’s automation prowess could speed up its growth.

“By integrating Watson into its automation solution, IBM positions to ‘not only offset investments in onshore digital talent and client centers but also monetise its own IP through a value-added service offering’,” the report said.

For Atos, offering cybersecurity solutions that are differentiated from those of Accenture and other peers could make a substantial growth difference, TBR suggested.

Capgemini, on the other hand, may need to look beyond its traditional markets and expand further into North America to significantly increase its revenue growth trajectory.

Emerging challenges in the broader market

While the potential for the integrators to tap into new sources of growth, there are also challenges that need to be navigated going forward.

In contrast to the past several years, for example, when cloud dominated new offerings and the areas of growth in the market while more conventional IT services growth remained relatively flat, the next few years is likely to see a departure from this now established trend, according to TBR.  

Heffernan suggested that this shift could have something to do with individual vendors still trying to understand which new IT services will emerge from new technologies and which services will disappear.

“In the near term, we can expect a few disruptions to become substantial and significantly challenge these four vendors in their efforts to continue growing, even if it’s unclear which disruptions will fully play out,” he said.

Another potential challenge could be emerging from the Asia Pacific (APAC) region.

According to TBR, while many global consultancies steadily invest in APAC, targeting local clients as they look for born‐on‐the‐cloud opportunities, some APAC‐headquartered consultancies are similarly investing in the United States, heavily betting on their native expertise to win companies looking to expand overseas.

Meanwhile, the multibillion-dollar merger of Hewlett Packard Enterprise’s (HPE) Enterprise Services business and CSC earlier this year, creating DXC Technology, could be the first of many mega‐mergers set to disrupt the market.

“Combine these mega‐mergers with automation cannibalising revenues related to outsourced IT services, and additional large vendors could be created and/or disappear before 2022,” the report stated.

“Despite having only one‐tenth of the staff across vendors in TBR’s Global Delivery Benchmark (GDBM), Big Four firms are increasingly making legacy IT services vendors wary,” it said.