Malcolm Frank is, in my opinion, the best "analyst" on the outsourcing sector. He is not an analyst per se, but as EVP of Strategy and Marketing at Cognizant, he has a ringside view of trends in the sector. I make it a point to spend time with him at least twice a year and listen to him present and read what he writes every chance I get. I recently caught up with him on what he gleaned from his time at Davos, the digital and design thinking buzzwords in the market, automation and other trends in the sector. Here is part 1 of our conversation.
Malcolm, "Digital" is a hot theme with every outsourcer these days. Seems like you have been talking Digital for 5-6 years. Now that every one else is talking Digital, how is your thinking evolving?
When it comes to the "Digital" buzzword, I have a bit of a giggle about this. We're all going to look back a few years from now and say collectively, "Oh, that was so 2015." If you view it from the CXO perspective the term is still too ephemeral. Rarely do clients roll out of bed and say, "I have to solve a digital problem today."
You can see also see how the SMAC (social, mobile, analytical, cloud) stack has evolved in the market zeitgeist year over year. Around 2010 cloud was the rage, as it seemed everybody was marketing solutions around the “cloud” to the point where the term became meaningless. I think clients in particular got a bit annoyed by it.
Then around 2012 it was about building the social enterprise. I remember Salesforce.com focused on the concept and then a year later they pulled the plug on that and did not use the term again. Then in 2014 the market conversation seemed to focus on Analytics and Big Data.
Maybe I'm showing my age but I also struggle with the "Digital" term because I keep having visions of Robert Palmer and the demise of Digital Equipment Corporation.
All of that said, I think we're moving in the right direction. In the next couple of years you will likely see more digital solutions become crystallized and clients understand them better and how to procure them. For example, a bank will likely talk about to vendors about robo-advisory automation solutions as opposed to something “digital.”
Malcolm, I think you are being modest. For years now, you have helped guide Cognizant through its "Three horizons" strategy and you wrote the Code Halos book couple of years ago. Surely, that counts for some competitive advantage?
We think it's served us well in a couple of fronts. One is certainly in terms of establishing mind share and thought leadership because this is important to us. We're thoughtful about it as a company. We had our Center for the Future of Work. We've been at that now for 5 or 6 years. We have some very talented people as you know. That's certainly has gone well for us. It allows to see what's real in the markets and what's just talk.
Around the Code Halos book, I think the key nugget people picked up was that any person, place, or thing is going to have a virtual life as well as a physical life. It has its digital twin. We have seen a number of our clients pick up on that. It resonates with them. That clearly has been a very helpful construct.
I think a third construct that has worked well for us are both internally at Cognizant and for clients is our 3-horizon model. We hear a lot of talk today about two-speed and dual-track IT, and the 3-horizon model certainly applies to IT. Horizon 1, at least the way we have structured it applies to your core operations. These are things that are old to you and they're old to the market. The mandate there is run those better, faster, cheaper. Find ways to increase quality and reduce the cost.
Horizon 2 applies to things that may be new to that company but they are understood in the marketplace. We saw that in the automotive business with SUVs; firms like Chrysler had been making Jeeps forever. You had new entrants like a Volvo, BMW, Mercedes, Lexus, that came in about 15 years ago and said, "Hey, great category. It's understood in the market. It's just new to us."
There is a lot of activity there in digital. We see clients looking at use cases for their businesses which mirror the FANG (Facebook, Apple, Netflix, Google) vendors. That's a Horizon 2 model.
Then Horizon 3 is invention that is something that's new to you as a company and also new to the market. That's where we see a lot of our clients in banking, healthcare, insurance, and retail who are looking to reinvent their sectors. How can we think out of the box and apply digital and create completely new offers?
It's been a very good model to help clients to manage the change around them. Once you see an activity fits into one of the 3 Horizons, then you can get the appropriate model, staffing, budgets and goals to go against it. I think those are some constructs that have helped us in the marketplace to get more credibility in "digital".
Malcolm, if you think back to the 90s, "digital" back then spawned a variety of new consulting firms like Scient and Viant. In the Horizon 3 projects are you seeing a new category of competitors like digital agencies or design firms?
Yes and no. You do see some new entrants, but it all depends on how the client frames the problem. If they define it as a design issue, you start to see some of the design firms showing up. If the client is truly just trying to figure things out, they may say, "Hey, I don't want to talk to the usual suspects. Why don't I go talk to one of these new strategy houses that is focusing on digital?" Others may define it as a data problem and go "Hey, that's big data. We need to get our arms around on this data exhaust and turn it into a business value." They may go to a shop that the focuses on that.
That said, as a general trend we see the market moving back to the usual suspects, meaning larger players like ourselves who sit at the intersection of business and technology. When clients get serious about digital – in moving the needle in their companies – they go beyond issues like planning, design and understanding the new technology stack. They say things like: "I need to figure out the business process change, I need to have somebody that has a vertical industry expertise to understand the regulatory issues, I need to have somebody who understands where the bones are buried in my internal IT. At the end of the day, I may have systems of engagement or systems of intelligence that are on the digital side, but they all have to tie back to the systems of record. I need somebody who knows that." and "If I want to do it on a global scale or at least on a broad scale, I need somebody who can do that heavy lifting". We’re finding that’s increasingly how clients are framing the problem.
More in Part 2 next week