Under the hood of Atos' new strategy
It has been a busy 12 months for Atos.
The world’s tenth largest IT services supplier completed the $3.4bn purchase of Syntel, started the separation process with its Worldline payments processing division, and kicked off a new three-year strategy (“Advance 2021”).
This week, the company talked us through its plans at its latest annual analyst event in Boston, including how it plans to reinvigorate its legacy activities in infrastructure and apps management and tap into new opportunities in areas such as IoT. Here are some of the key takeaways.
Going deep on industries
Atos has for some time talked about rewiring the business to focus more on industry sectors than horizontal propositions.
The company has always had a solid presence in some verticals but a key part of the new strategy is to leverage the additional industry-specific focus that Syntel has brought in areas such as financial services. But management talked about needing to get a better understanding of what the customer wants to do with its technology, in order to become a more relevant partner. For example, it sells the same HPC technology to support wildly differing use cases in the banking and manufacturing sectors, and getting a better handle on the underlying business drivers will help it to take a more strategic approach.
So does this mean an overhaul of Atos’ business model? There are no major organizational or structural changes planned in 2019, but it is first looking to double down on its top 100 globally integrated accounts (which represent 60% of group revenue) by allocating more dedicated resources in areas such as client delivery executives, architects, consultants and cyber experts. Atos also plans to add 500+ additional sales resources and industry-specific experts during the next three years, supported by more industry specific innovation centers and CoEs, and a greater number of industry-specific partnerships, along the lines of tie-ups with Sapiens and Duck Creek in insurance.
The company has seven major verticals on its radar (manufacturing; financial services; healthcare; E&U; retail, transport & logistics; TMT and public and defence), and it already has a solid platform on which to build in most of them. The manufacturing sector remains its strongest suit, with 30,000 manufacturing sector technologists in its ranks, supporting long-term global accounts such as Siemens, with whom it has a €330m joint R&D investment program.
Revitalising the infrastructure business
Like all of the major players in the infrastructure services market, Atos is wrestling with declining demand for managing on-premise assets while trying to carving out a differentiated proposition in the cloud-first world.
The company acknowledges that it faces headwinds in areas such as data centre, mainframe and network operations (all areas where it expects spending to decline in the coming years), but sees strong potential in hybrid cloud orchestration (already close to 20% of its infrastructure services revenue) and IoT services.
The biggest part of Atos’ infrastructure business today is workplace services and here the company is moving away from typically low-margin device management plays to broader engagements focused on enhancing the user experience. Atos talks about combining traditional service level agreements with experience level agreements (XLAs), which are designed to provide a more accurate reflection of the user’s experience. For example, a reduction in the number of incidents being reported may either indicate an improvement in service quality of suggest that disillusioned users have given up caring.
Understanding the context is key, and Atos aims to do this by looking at direct user feedback through a 1-to-5 satisfaction rating, and it is also starting to also measure other aspects such as staff absenteeism and service adoption in order to provide the customer with a more holistic view of workplace performance. It is an interesting move at a time when providing a compelling employee experience has become a board-level priority for organisations in the war for talent. Atos also states that this approach has played a key role in renewing some of its largest workplace deals in the last 12 months.
One of the company’s most intriguing recent moves was its partnership with Google to provide wraparound services for the latter’s Cloud Platform. The alliance has made some solid progress in the ten months since it was fanfared, with the two companies have secured more than 20 deals so far, and Atos having certified more than 300 technical staff on Google Cloud. The pipeline also looks healthy, with some potential opportunities worth several hundred million dollars.
Farewell AM, hello micro services
Atos admits that just a few years ago, its applications services business (a key part of the Business and Platforms Services division) had “flat-lined”. Declining revenue from on-premise apps management and implementation had hit its traditional revenue streams hard.
However, a change in focus on supporting the migration of applications workloads to the cloud and the development of new digital apps, has restored momentum. Sales were up 5% last year, and it’s a rate that the company expects to maintain over the next three years.
It picks out three main growth drivers. Enhancing the digital customer experience through more industry-specific consulting as well as a greater focus on areas such as omni-channel and personalization. Again, the acquired Syntel capability has added more to the mix in this area, and one client example is Home Depot, where Atos helped to drive a 25% increase in online sales, after applying data analytics to improve demand forecasting and smoothing the coordination between stores and distribution centers.
The second is cloud-related services, where it will continue to reposition as an integrator that helps clients to compose micro services and APIs. And the third is digital engineering and analytics, which covers the Codex suite and also its platform plays with Mindsphere (the Siemens IoT platform) and SAP. Atos is emerging as one of the most active players in the S/4 HANA implementation market, and has completed one of the largest rollouts to date at Illumia, an Italian utility with 300,000 customers.
Some final thoughts
The Boston event was in part designed to shine further light on the development of Atos’ business in North America, following the Syntel acquisition. Atos acknowledges that it remains a relatively unknown brand in the US, but with more than 12,000 employees in the region, it has the scale to punch at an increasingly heavy weight with clients in the manufacturing, banking and healthcare sectors among others.
While the company remains primarily a services business, it has accumulated some compelling IP through its recent M&A activity, such as a platform to support the modernisation of 911 emergency communication handling (from Unify) and the SyntBots intelligent automation platform gained from Syntel. It is also one of a small group of companies in the world that are working on bridging the gap between high performance computing (a legacy of the Bull acquisition) and the brave new world of quantum.
The move to a more vertical approach and offering makes a lot of sense. It is clearly the best way to address the market as the lines of business are increasingly influential in the IT decision cycle. It is an important move for Atos, which remains a “technology oriented” company. The success of this change will depend on how effectively it is embedded in the approach to sales. The sales organisation was verticalized a few years ago, but there remains work to be done to drive the company’s evolution over the next three years.