IT Services & Robotics, Opportunities Ahead

NTT Data (TSE:9613), the IT Services arm of Japan Telco provider NTT (Nippon Telegraph and Telephone) has included robotics as part of their medium term management policy and strategy.

 

Salients

  • Price Reduction Environment – While it has been in existence for decades, the multi-billion dollar IT Services industry remains highly fragmented and major players have emerged either incorporating IT Services as part of their portfolio (IBM, HP, Fujitsu, etc) or actually specializing almost exclusively in IT Services (CGI, Atos Origin, Capgemini, TCS, etc). Because of current market fragmentation, IT Services providers have a tendency to aggressively compete on pricing, which allows them to maintain margins at a relatively low level.
  • Robotics Related Services to Sustain Growth – Because Robotics & Intelligent Operational Systems (RIOS) are essentially electromechanical, mobile computing systems, they are very similar to IT systems. As a result, IT Services corporations are naturally well positioned to capture and develop RIOS opportunities, and companies like NTT Data now include robotics as part of their strategic focus.

 

Analysis

  • High Margin, High Potential Services – Within a highly competitive environment, differentiating by including Robotics & Intelligent Operational Systems (RIOS) among an IT Services business’ core competencies and service portfolio will have immediate benefits including:
    • Strategic Positioning – IT Services businesses traditionally engage and sell mostly to CIOs and IT Managers: in many cases they support and/or maintain back office functionalities (BPO, Managed Services, pay, HR, etc) even if they can be present for front office engagements (e.g CRM) as well. By working on RIOS projects, IT Services businesses will give themselves the opportunity to engage a new class of executives such as COOs (Operations), work more closely with Supply Chain leaders and ultimately target the soon-to-come Chief Robotics Officer (stay tuned for Myria’s report on the rise and defining characteristics of the Chief Robotics Officer).
    • Closer to Clients’ Businesses: for large scale applications (in manufacturing, logistics, agro-farming, etc), deploying RIOS solutions and integrating them with other business systems (often IT Related systems) requires much synchronization. For IT Services firms, it will be about going “down to the robots”, applying their already strong know-how about other business processes. However, going down to the robots also means getting closer to more strategic (front office) operations, and therefore owning a larger part of the value chain at their clients’ businesses.
  • Where IT Services Connect the Dots between Business Systems and RIOS – Many applications exist with scalable RIOS solutions ready to deploy: for manufacturing it means, for example, connecting production capabilities (the actual robots manufacturing goods) and customer demands (e-commerce portal, CRM aggregating clients’ orders, etc) and not stopping at a “factory dashboard” helping to assess and forecast demand. One step further would be customizing goods being manufactured based on unique client requirements (this does exist in a few applications already: your smartphone being engraved with your own name); for logistics it means not only forecasting demand to adjust stock but also balancing stock and having robotics solutions preparing orders on demand; for agro-farming it means adapting harvesting/watering/seeding based on market pricing, demand and requests to better match market expectations. Other vertical sector examples exist (healthcare, energy, etc).
  • A Competitive Environment to Become – Many large IT Services players have already been exploring the links between IT and RIOS (starting with M2M – Machine to Machine –, cloud enabled machines to enhance computing power as well as data management applications, et al). While the skills required to fully enter the RIOS market as a major player together with the fact that the RIOS market still lacks hardware leaders to streamline platforms present short term challenges, IT Services organizations own over 80% of the “CEO to Machines” value chain. For that reason, approaching existing clients with off the shelf RIOS Services will be relatively simple and straight forward. As a result, most sizeable IT Services players will compete in the same fashion, making this market segment highly competitive: the sooner positioning is established, the better.
  • Filling the Gap between IT and RIOS with High Customization Level – RIOS value is closely linked to the flexibility of the solutions. It certainly can be driven by hardware elasticity to an extent (sensor or actuator customization upon end-user requirements) but incorporating a variety of soft functionalities and services makes flexible hardware platforms more practical (customizable) and, therefore, more viable (an agricultural drone watering a field based on the varied needs of specific portions of the crop, for example). In manufacturing, where many IT Services providers now operate, improved customization incorporating RIOS strategically is also possible. Additionally, soft customization can add a new layer of data collection from RIOS hardware sensors back to management systems. This is a field in which IT Services companies already excel.

    IT Services have long geared their value propositions toward their ability to customize off the shelf products, adapt them for large clients’ specific needs and secure long term relationship with clients by owning, indirectly, soft customization capabilities. Being able to offer a wide variety of soft functionalities integrated with the most viable RIOS hardware solutions will become a core value add for IT Services business as well as a near-term market differentiator.