Do You Want IT With That?

Not all IT projects are strategic, but these days, most strategic projects involve IT.

One measure of just how central IT transformation programs have become to companies is the five-year, $600 million agreement McDonald’s made recently with Capgemini, the global IT integrator.

The deal was significant for three reasons. First, in recent years, companies have shied away from large integration deals, because the concentration of business on a single vendor creates a delivery risk. That McDonald’s went ahead and took the plunge signals not just their confidence in Capgemini but their sense of the urgency, as well as the importance, of the job.

Second, McDonald’s required the French-headquartered company to work with Sapient, a global marketing and consulting company headquartered in Boston. This suggests that despite the urgency, the company is not taking a passive role in planning its digital future, and is instead insisting on best-of-breed solutions.

Third, the deal matters because the Sapient requirement seems to have propelled Capgemini to acquire Lyons Consulting Group, a company with a similar skillset to Sapient. This indicates that Capgemini hasn’t given up on the concept of being a one-stop IT shop.

For smaller IT service firms, the message is clear: the corporate world is serious about digital transformation. This means that companies are willing to make major investments to ensure transformation happens. It also means that as IT service firms try to anticipate their large clients’ demands, major systems integrators such as Capgemini are now willing to pay top-dollar for firms that have crucial, specialized expertise. At the moment, data analytics, artificial intelligence, user interface design (UX), gamification and digital marketing are at the top of the charts now, but the exact line-up keeps shifting.

What doesn’t matter so much is the region the integrator calls home. Having a physical presence in a market makes a difference in account management, but where the work is done now is largely immaterial. However, there are two important exceptions. First, some finance work is hyper-local; high-speed algorithmic securities trading means that trading firms now compete over microseconds. Second, in the US, the possibility of tighter visa requirements for foreign workers may encourage some offshore IT service companies to buy, or ally with, an American firm it can use as a beachhead.

How can a mid-market IT company maximize its value in the current environment?

• Concentrate on one particular area. The most valuable mid-size companies typically focus on one platform, delivery methodology, technology, or vertical.
• Grow your roster of big clients. Fewer but bigger clients are looked on more favorably than a long list of small fry.
• Keep an eye on the capabilities that are in demand. If your expertise is going out of fashion, you must evolve to meet the owner’s changing needs.
• If you can’t grow the expertise you need, buy it or become partners with someone who has it.

IT integration services are constantly consolidating and yet the industry has yet to mature as new firms keep popping up to take their place. Even with the advent of machine learning and artificial intelligence, that’s not going to change for a long time. This may be good news for mid-market integrators, but only if they perceive their competitive strengths correctly, and draw the right inferences from that assessment.