Why Hyperscalers Need to Become Consulting Companies

By Kumar Singh, Research Director, SAPinsider

The future is going to be inevitably cloudy

But in a positive way. If you regularly follow my blogs, you may be a bit irritated by now as I repeatedly hammer “cloud is the future”. And it is not only in terms of technology infrastructure. Companies will, eventually, operate on end-to-end digital platforms. Infrastructure, algorithms, and solutions will support processes and people will interact with these processes. And all the three components of infrastructure, algorithms, and clouds will eventually move primarily into the cloud. They have to.

I recently did a deep dive into building data science solutions on three leading cloud platforms – AWS, Azure, and Google Cloud. And the more I dig, it further reinforces my notion suggested above. However, there was this other aspect that came to my mind, when thinking about the value of leveraging the cloud to build scalable, flexible data science solutions in an agile fashion. And that thought led to this article. The thought was – Does this “future in the cloud” trend present a unique, massively lucrative, opportunity in front of the three key players?

The strategy hierarchy

To explore this angel, we will first have to explore the strategy ladder in the digital age in brief. Why ? Well, we are talking about consulting here and there is no form of consulting, in my opinion, that does not involve aspects of strategy. Strategy formulation is like peeling an onion. It all starts with a business strategy, the very first layer and as you peel layers, each layer will be a strategy that supports a high-level strategy. An example is shown in the illustration below.

The relevance of this layered approach of strategy is that it all eventually boils down to digital capabilities in this decade. The example of “integrate technology” is obviously just illustrative and not exhaustive but it highlights that to integrate and create synergies, you will eventually HAVE TO leverage digital tools and technologies. This is where the real execution actually lies. In today’s world of free information, it is not challenging to find what are the n steps a healthcare company needs to take to accelerate the R&D cycle but then, that information is available to everyone. The execution, methodologies leveraged, for example leveraging AI to reduce the drug discovery timeline, are what will actually help companies actually develop differentiating capabilities. And this is where cloud will play an inevitable, strategic, and important role. And hence, presents a big opportunity for hyperscalers.

Irrespective of the direction of strategy, the buck stops at digital…..and eventually will end up in the cloud

Let us revisit the strategy formulation example shown in the illustration above and start with a common-sense question. How can you start leveraging value from your acquisition as soon as possible? Obviously by integrating the acquired company in your ecosystem as soon as possible. Now you probably already know how to create your synergies, through the M&A analysis you did prior to formalizing the acquisition. You have to obviously perform many “sidebar” tasks, but exactly at what point will the companies start functioning as one, cohesive, synergized unit? When their operating processes and systems are synergized. And as you imagine, this happens by leveraging digital capabilities. And this is an example of how the value of the cloud comes into the picture. While streamlining and integrating two different portfolios of systems is a challenging aspect, it also provides you an opportunity to leverage the cloud to streamline both the portfolios during integration and accelerate the integration process as well. And then, build innovative solutions on top of that integrated systems landscape.  As more and more companies transition to the cloud, the integration aspect in the future will become relatively easier and faster, since a plethora of applications for both companies will probably already be in the cloud, and will hence facilitate integration.

But despite cloud facilitating the ease of implementation and simplifying IT woes, organizations will still need help in terms of :

A. Threading that journey from corporate strategy to the cloud capabilities required to execute the strategy

B. The optimal architecture, for the organization’s unique nuances

C. Implementation

D. Building innovative solutions leveraging cloud

And this is where the consulting aspect comes into play. As you can imagine, in this scenario, there are multiple flavors of consulting involved, arranging from corporate strategy, all the way to cloud strategy. Then there is the flavor of implementation and solutions consulting. And the challenge that many organizations face is that they have to go to multiple players for many of these. But why? Is it because there are not many organizations that provide these end-to-end services ? The fact is, there are. However, even though they may have end-to-end services, they may not be viewed as actual end-to-end experts.

Every consulting firm is evolving into a digital consulting organization…fast!

Let us start with the pioneers of strategy consulting. Approximately 15 years ago, the likes of McKinsey, BCG or Bain (MBB) helping clients implement technologies was something that could not be imagined. But we know that these consulting companies have significant digital service offering now.  Considering that the very expertise of MBBs is to help companies understand what type of factors, internal and external, may impact them now and in the future, they were not oblivious of the fact that digital consulting, which was scoffed at by elite strategy consulting companies back then, will become mainstream. So if you now look at the services of a portfolio of MBBs, digital products and services now form a significant portion of their offerings and that significant portion will increase further. I believe an optimal ratio at some point should be 30/70. 30% of their consultants should be strategy focused and 70% of their expertise will be to then take the customer from strategy to execution stage. But the fact is, these companies are known primarily for their expertise in corporate strategy and as they foray into digital products and services, there are a few challenges they need to balance like:

• Establish them as experts in the digital domain vs companies like accenture and Deloitte which have been offering a combined portfolio of strategy plus technology for decades
• Establish the combined strategy + digital offering with the same premier touch, to avoid any brand dilution and justify the high consulting fees MBBs charge

The second point is extremely critical and is one MBBs in my opinion are still working on. Already known for deep expertise in strategy, they need to tie all elements together to showcase that it is their depth in strategy that makes them the preferred end-to-end shop, by integrating the elements of strategy in all services. This is a whole topic in itself and is not the focus of this article. The purpose of introducing MBBs and strategy consulting is important though, as we will find out in a subsequent section.

And now, as organizations move to the cloud at an exponential pace, it opens an opportunity for an entirely new category in the consulting domain- beyond MBBs, Accenture and Deloittes of the world. The opportunity is ripe for the in-house consulting or professional services teams of the hyperscalers, specifically the big three, to emerge as consulting powerhouses. This article will explore why and where the opportunity lies.

Steps to build capabilities in the cloud create a plethora of opportunities

Like most of the F500 organizations, your organization probably has a cloud strategy as well. We will not get into the details of what a cloud strategy entails but the strategy results from the amalgamation of many different strategies and internal and external influencing factors. But what is the end objective of your cloud strategy? At the end of it all, you want to build certain capabilities. You understand that the current on-premise or even hybrid setup, is actually constraining you from operating in a certain way, in a way that unleashes the full potential of your organization or aligns with your future objectives. The goal of a cloud strategy is not just about migrating to a cloud platform- it is about how you can leverage the cloud to build a future, digitally enhanced version of your organization. It is about digital transformation through the cloud. The cloud technology itself is a secondary enabler.

In their book “The Cloud Adoption Playbook”, authors list six prescriptive steps for developing a cloud strategy, as shown in the illustration below.

My take is that by the end of the third step, you should have finalized the cloud services provider(s). And this is where the huge opportunity lies for the professional services arms of hyperscalers. As a client embarking on leveraging the cloud to build “capabilities of the future”, it is not difficult to get persuaded to use the services of the provider that is providing you infrastructure and solutions already. After all, you trust their platform and solutions to keep your business humming, so why not their expertise to make it all happen? With a portfolio of use cases, selective engagements in the beginning, and an eventual marketing blitz, it will not be a hard sell, if carefully orchestrated.

With an extensive experience of helping clients across industries, these professional services divisions can help their clients:

• First, tie up, refine, and polish steps 1-3, indicated in the illustration above, that have already been completed.
• Execute steps 4-6
• Define and design a future state portfolio based around the envisioned future state in step 3
• Design the architecture of solutions and services
• Manage transition
• Be the single point of contact between the client and collaborating vendors
• Be a trusted partner during ongoing operations, to help clients innovate continuously leveraging cloud

And with all the points above, these hyperscalers can gradually morph their professional services teams into the consulting companies of the digital era. The good news is that organizations are still scaling their cloud initiatives and these teams have time to start building foundations in these areas. Once they build foundations in terms of getting expertise on board and generating few solid end-to-end use cases, they can then go all guns blazing at a time when the cloud mayhem has turned into a frenzy. Every client wants to see value from their technology investment. When they invest in technology, they are not buying technology. They are investing in the hope to see some transformational value from technology. You create that by providing end-to-end service that delivers unique solutions eventually and you win. Not to forget that you also save them the challenge of dealing with different partners for different types of strategies.

Expanding the scope of current services

If you look at this spectrum of strategies and implementation, as shown below, there is an opportunity to expand both upstream and downstream. And this is where we will reference the 30/70 split mentioned in the section where we discussed MBBs (and is the reason we mentioned MBBs). The significant advantage lever that these hyperscalers have is that they have control and expertise on the 70% part (as discussed above in the 30/70 split explanation). This means that the effort that they have to make, to get into that 30%, is not as massive as the effort that premium consulting companies have to make to establish themselves as having the pinnacle of expertise in the 70% (unless hyperscalers want to charge fees comparable to MBBs, which they have no reason to). There is no doubt that in their 70% foray, MBBs hire the same world-class talent that they do for their strategy arms but as mentioned above, the key is to help clients understand why they need to pay significantly higher fees for services that likes of Accenture and Deloittes were doing for significantly lower fees. And the technology prowess of hyperscalers is not second to the likes of Accenture and Deloittes of the world. The gist is they are very well placed to foray into this extremely lucrative arena.

If hyperscalers build a decent amount of reputation in the 30% arena, showcasing that they have the capability to tie end-to-end, from business strategy all the way to solutions portfolio, they will still have an edge, considering the grounding and resources they have in technology. And it is not rocket science. If Microsoft or AWS professional services team can showcase that they have strong fundamentals on steps 1-6 of the prescriptive steps mentioned in an earlier section, they definitely need not worry about the next steps of architecture design since that is thought of as their core competency. As far as implementation goes, the professional services team can be at the forefront, managing the implementation, keeping involved vendor partners in the background (much like the RISE with SAP model).

However, the biggest piece of the pie will be in continuous innovation. Thinking about an example from an analytics perspective, a wide range of capabilities like infusing augmented analytics capabilities into business intelligence tools to leveraging deep learning algorithms. In a series of articles, I will be sharing examples of some solutions that can be built leveraging AWS and Azure.

What does this mean for SAPinsiders ?

As more and more organizations transition to cloud in the “cloud rush” there is a massive opportunity in front of these hyperscalers. This opportunity can be harnessed by you as well, as you explore your cloud journey. When you interact with the professional services teams of these hyperscalers, try to leverage their expertise in this area to fine-tune your roadmap.

Build long-term strategic partnerships with hyperscalers. The journey does not stop after you have migrated and built initial capabilities in the cloud. The journey actually starts there. The playground that the cloud provides in terms of building innovative and unique solutions, fast, is amazing and hence needs to be leveraged as much as possible. This is where the real value comes into play.