| Constellation Research

HPE bets AI, edge, supercomputing workloads will drive growth

Editor in Chief of Constellation Insights
Constellation Research

Larry Dignan is Editor in Chief of Constellation Insights at Constellation Research, where he leads editorial coverage focused on enterprise technology, digital transformation, and emerging trends shaping the future of business. He oversees research-driven news, analysis, interviews, and event coverage designed to help technology buyers and vendors navigate complex markets with clarity and context. ...

HPE outlined a three-year strategy that has its three fastest growing businesses--edge computing, high performance computing and artificial intelligence—representing more than 50% of the company's revenue by fiscal year 2026.

The strategy and outlook were outlined at HPE's Securities Analyst Meeting in New York. CEO Antonio Neri and interim CFO Jeremy Cox provided noted that the HPE can expand its total addressable market by almost $100 billion over the next four years due to AI use cases.

"HPE’s strategy is aligned to significant market trends around edge, hybrid cloud and AI – all of which create profitable market expansion opportunities," said Neri. "Customers continue to validate our strategy turning to us to power critical business transformations. And even in this micro economic environment, we continue to see them prioritize in data first digital transformation initiatives. And those initiatives increasingly include AI which is invigorating today's IT spending."

HPE's other big bet is hybrid cloud and HPC that can be delivered as a service. HPE is projecting revenue growth of 2% to 4% for fiscal year 2024 through fiscal 2026. However, it's big bets--AI, HPC and hybrid cloud--will grow faster over that time frame. HPE also said that it will return 65% to 75% of free cash flow to shareholders over the next three years, up from the 50% to 60% range today.

For fiscal 2024, HPE is expecting revenue growth to be 2% to 4% with non-GAAP operating profit growth of 3% to 5%. Fiscal 2024 non-GAAP earnings will be between $1.82 a share and $2.02 a share. Fiscal 2023 revenue growth will be 4% to 6% with non-GAAP earnings of $2.11 to $2.15 a share.

Not surprisingly, HPE's strategy has a heavy dose of Greenlake with a mix of subscription and consumption revenue streams, Aruba (Intelligent Edge) and supercomputing and AI infrastructure delivered as a service. HPE is betting it can take share as well as grow the total market.

Here's a look at the components of HPE's growth plans.

Intelligent Edge and Networking

HPE's Intelligent Edge unit is on track to deliver $5 billion in fiscal 2023 revenue and drive the highest profitability.

According to the company, it will expand its market by gaining share in campus and branch networking, expanding in the data center and entering new security and 5G markets.

HPE also said that it will bet on network-as-a-service, which will leverage AI-driven analytics as well as automation for large enterprises and mid-market companies.

Hybrid Cloud

HPE's Hybrid Cloud unit combines storage and compute as-a-service offerings including HPE Greenlake Private Cloud and software. HPE Greenlake is going to carry the unit and already accounts for 70% of the annual recurring revenue for the company.

Constellation Research analyst Dion Hinchcliffe recently published a report outlining how CXOs are moving to private cloud models for cost savings. In a nutshell, public cloud providers haven't been passing on savings and encouraging enterprises to move workloads such as AI on premises.

HPE expands GreenLake services amid private cloud renaissance

According to the company HPE Greenlake has 27,000 unique customers and ARR growth of 35% to 45%.

AI

Supercomputing and AI is HPE's best shot for expanding its market. HPE is betting that its AI platform software, infrastructure and supercomputing powered by Cray will turbo charge the business.

As HPC scales, HPE will get more leverage and be able to shift more toward IP rich offerings and software.

HPE plans to expand into ModelOps as well as DataOps and manage clusters.

HPE launches GreenLake for LLMs, aims to democratize Cray supercomputing for AI training

According to Justin Hotard, Executive Vice President and General Manager of High Performance Computing, AI and Labs at HPE, it's very early in generative AI use cases in the enterprise.

"Customers are investing in LLMs for broad commercial applications, but they're not deployed yet in the enterprise," said Hotard. "The enterprise buildout will be massive, but it's just beginning. There will be technical use cases, scientific models, financial and trading and those use cases will go on and on."

Neri added that most enterprises are looking to leverage LLMs for productivity and then focus on tuning. From there, they will look for generative AI to drive revenue.

AI is also expected to drive demand for HPE's compute due to tuning and inference workloads.

Constellation Research analyst Holger Mueller said:

"It is good to see HPE getting more revenue drivers, it previously shrank its offerings down to too much Greenlake. Its HPC portfolio has been strong all the time, so it is good to see it becoming its rightful visibility - the question now is - can they get the traction beyond the HPE/Cray installed base and take market share. The AI offering is equally interesting, more importantly viable - so it really comes to Antonio Neri & team to execute and go to market."

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A look at Tesla's method to the innovation madness

Larry Dignan

Editor in Chief of Constellation Insights
Constellation Research

Tesla is sacrificing operating margins for market share with its electric vehicles and that reality is making it look like just another car maker. But the big picture looks more innovative.

Ultimately, the Tesla debate will be settled by what the company becomes. Tesla will either merely be an auto manufacturer or be seen as a technology company. For now, operating margins in the third quarter were 7.6%, down from 17.2% a year ago.

While this Tesla debate ensues, there are a bevy of innovation lessons to ponder for the rest of us. Here are some of the innovation takeaways from Tesla's earnings conference call.

It's about the data. It's always about the data. Musk realizes that Tesla is really a data company. It sold EVs to collect data and build autos with full self-driving (FSD) capabilities. Tesla said in an investor presentation: "Our large installed base of vehicles continues to generate anonymized video and other data used to develop our FSD Capability features."

Musk elaborated on Tesla's earnings call. "Our vehicles are now driven over 0.5 billion miles with FSD beta, full self-driving beta, and that number is growing rapidly," said Musk.

Data doesn't matter without compute. Tesla is building out AI infrastructure at a rapid clip. "We recently completed a 10,000 GPU cluster of (Nvidia) H100s. We think probably bring it into operation faster than anyone’s ever brought that much compute per unit time into production, since training is the fundamental limiting factor on progress with full self-driving and vehicle autonomy," said Musk.

Tesla has also built Dojo, a supercomputer for vision video processing and recognition. Will this AI compute be a service at some point?

Keep it simple or be ready to pay the price for complicated. Tesla shares are under pressure largely due to Musk's comments about the Cybertruck, which has 1 million reservations even though the vehicle looks as if a DeLorean and Pontiac Aztec had a love child.

Musk on the earnings conference call moved to temper Cybertruck expectations. He said:

"I’ve driven the car. It’s an amazing product. I do want to emphasize that there will be enormous challenges in reaching volume production with Cybertruck, and then in making Cybertruck cash flow positive. This is simply normal for when you’ve got a product with a lot of new technology or any new vehicle, brand new vehicle program, but especially one that is as different and advanced as the Cybertruck, you will have problems proportionate to how many new things you’re trying to solve at scale. So, I just want to emphasize that while I think this is potentially our best product ever and I think it is our best product ever, it is going to be -- require immense work to reach volume production and be cash flow positive at a price that people can afford."

Some Cybertruck scale won't appear until 2025, but that timeline is Musk's best guess at this point. "It's not a demand issue, but we have to make it and we need to make it at a price that people can afford," said Musk.

The original business may just be the beginning. Amazon started as a bookstore and now it is a retail giant and cloud computing provider. Uber was a glorified taxi service and now it is about mobility as broadly defined as possible. Tesla is killing margins on its cars to gain share, but in the future, it can extend into multiple businesses including robotics and AI services as well as mobility via a fleet of autonomous vehicles.

If you view Tesla's EV business as just a precursor to other businesses, Musk's strategy to lower prices doesn't look too shocking. After all, you need to make your innovation affordable to collect the data needed for the next phases of the business. Musk said:

"If interest rates remain high or if they go even higher, it’s that much harder for people to buy the car, they simply cannot afford it. And we are tracking Model Y to be the bestselling car on earth, but not just in revenue, but in unit volume. If you compare that to the other vehicles that are number two and number three and whatnot, they cost much less than our car...

The thing that must be solved is to make the car affordable or the average person cannot buy it."

Companies need to evolve. Tesla's more interesting businesses have little to do with cars. The company's Optimus robot effort is notable as is its energy storage business, which along with services contributes more than $500 million in quarterly profit.

In the third quarter, Tesla's energy generation and storage business had revenue of $1.56 billion, up 40% from a year ago. Services and other revenue were $2.17 billion, up 32%. And total automotive revenue was $19.62 billion, up 5% from a year ago.

"We’ll continue to invest significantly in AI development, as this is really the mass game changer. And I mean success in this regard in the long term I think has the potential to make Tesla the most valuable company in the world by far. If you have fully autonomous cars at scale and fully autonomous humanoid robots that are truly useful, it’s not clear what the limit is," said Musk.

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SAP's 2023 outlook steady, S/4HANA revenue nears €4 billion annual run rate

Larry Dignan

Editor in Chief of Constellation Insights
Constellation Research

SAP said its third quarter cloud revenue growth was 16% and the company reaffirmed its outlook for 2023.

The enterprise software giant is in the middle of migrating customers to its SAP S/4HANA platform, so cloud revenue is closely watched.

SAP delivered total third quarter revenue of €7.74 billion, up 4% from a year ago. Cloud revenue was €3.47 billion, up 16% from a year ago. Of that sum, SAP S/4HANA cloud revenue was €914 million, up 67% from the same quarter a year ago, and approaching a €4 billion annual revenue run rate. Software license revenue fell 17% in the third quarter compared to a year ago.

As for profit, SAP reported a profit of €1.27 billion after tax. SAP ended the quarter with 106,495 employees, down slightly from a year ago.

CEO Christian Klein said the third quarter results highlight how it is accelerating its cloud growth and focusing on AI and innovation.

SAP said 2023 cloud revenue will be between €14.0 billion and €14.2 billion with total cloud and software revenue of €27 billion to €27.4 billion. A non-IFRS operating profit between €8.65 billion to €8.95 billion are expected. The guidance is in constant currencies.

Key items from the SAP conference call

RISE with SAP customers now top 4,300.
"We are removing the data silos with RISE with SAP and build one strong data layer to allow us to steer the business 360 with real-time data. RISE and GROW are also very exciting opportunities for SAP. The two offerings result in net new customers and an installed base maintenance conversion of more than 2x," said Klein.
"Business transformation is much more than the pure technical migration of ERP legacy landscapes to the cloud. It's key to connect end-to-end processes and the entire data and system landscape to drive tool transformation. In 2021, we acquired Signavio, covering the process perspective, and in Q3, we announced our intent to acquire LeanIX to cover the overall enterprise architecture perspective, making sure processes, systems and data are yielding the wide outcome for every SAP customer. Together, LeanIX, Signavio and SAP Cloud Application Lifecycle Management create a unique business transformation suite," said Klein.
Klein added that he met with Microsoft CEO Satya Nadella in Berlin. "Microsoft is extremely interested on how can we join forces to also further combine our data. And what is also very important in the B2B world, I already mentioned it. I mean, in the B2C end, you can ask ChatGPT for a question for speech and you get a proposal for a speech. In the B2B world, accuracy and data quality is of utmost importance," said Klein.

Here are the details behind SAP's cloud revenue.

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IBM, AWS expand partnership, watsonx headed to AWS Marketplace

Larry Dignan

Editor in Chief of Constellation Insights
Constellation Research

IBM will make its watsonx.data available on Amazon Web Services as a managed SaaS service available in AWS Marketplace. In addition, IBM Consulting will expand its AWS partnership to train 10,000 consultants on AWS generative AI services, use cases and best practices.

To start, IBM Consulting said its exclusive AWS partnership will focus on the following:

Contact Center Modernization with Amazon Connect, which will include summarization and categorization for voice and digital interactions with generative AI.
Platform Services on AWS, which will use generative AI to manage IP Ops, automation and platform engineering.
Supply Chain Ensemble on AWS, a virtual assistant designed to optimize inventory, cut costs, streamline logistics and assess risk.

The broadened partnership with AWS is a nice win for IBM, which is looking to make its watsonx platform more widely available. IBM said it will make watson.ai and watsonx.governance available on AWS by 2024. For AWS, the deal with IBM Consulting will add throughput in the enterprise.

Constellation Research analyst Holger Mueller said:

“Enterprises need to use AI to their advantage – but need help to implement it – so AI cloud vendors and system integrators expand their alliances to serve enterprises better. The IBM and AWS partnership is of interest due to the focus areas and possible prebuilt offerings. As a CxO looking for these use cases these partnerships are good news. It remains to be seen how long the exclusivity will hold but this is a coup for IBM.

More important than the service announcement is that IBM Is making watsonx available as first citizen on AWS Marketplace. It makes sense to start with watsonx.data – as data is the foundation of AI and joint customers will have to start there. It's good to see watsonx.ai and watsonx.governance following suite in 2024."

Other key parts of the IBM and AWS partnership include:

IBM Consulting will integrate AWS generative AI services into its IBM Consulting Cloud Accelerator.
IBM is one of the first AWS partners to use Amazon Bedrock.
With the addition of watsonx.data to the AWS Marketplace, IBM is expanding its footprint on AWS. The two companies have committed to making it easier for joint customers to use IBM's data, AI and security software on AWS.

More:

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Nvidia, Foxconn aim to build AI factories, collaborate on EVs, robotics

Larry Dignan

Editor in Chief of Constellation Insights
Constellation Research

Nvidia and Hon Hai Technology Group (Foxconn) outlined a broad partnership to create so-called "AI factories" that will be based on Nvidia GPUs to transform data into AI models and tokens. The two companies will also develop systems for autonomous vehicles and robots.

If you boil down the Nvidia and Foxconn announcements, AI factories and other efforts will highlight what's possible on the Nvidia platforms. In other words, Nvidia's efforts with Foxconn rhyme with what Microsoft and Google have done with Surface and Pixel, respectively. Nvidia with Foxconn will have a showcase for its accelerated computing platforms, GH200 Grace Hopper Superchip and AI Enterprise software. The Foxconn partnership will enable Nvidia to show the art of the possible with standardization on its stack.

The announcement was made by Nvidia CEO Jensen Huang at Hon Hai Tech Day. The companies outlined electric vehicle plans on Nvidia's platform separately. Related:

Foxconn will also help Nvidia seed the market for its Drive Hyperion 9 autonomous vehicle platform and Drive Thor automotive system on a chip, Isaac autonomous mobile robot system and Metropolis video analytics platform for smart cities. Foxconn plans to design custom systems for all of Nvidia's products.

According to the companies, Foxconn's AI factory based on Nvidia's platform will enable it to train models for workflows and run simulations before building physical systems. In theory, these simulations would boost Foxconn's efficiency and operating margins.

Constellation Research analyst Holger Mueller said the Foxconn and Nvidia partnership could boost scale for AI workloads in manufacturing and OEM settings. He said:

"A few years back the future of Nvidia was not clear as the cloud vendors were using proprietary approaches to run AI. That is all history with Nvidia GPUs being added in all public cloud data centers across the world. Nvidia is now ready to partner with manufacturing and OEM providers – all to put out more of its platforms. The partnership with Foxconn is to be seen in this light – Foxconn standardizes Nvidia platforms and OEMs them to its customers. If Nvidia succeeds with this move it will increase footprint, relevance and likely growth by magnitudes."

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NetSuite launches new licensing model, generative AI features

Larry Dignan

Editor in Chief of Constellation Insights
Constellation Research

NetSuite is launching a new licensing model that will enable enterprises to use task-specific licenses for employees that don't need full access to the platform. NetSuite said it will initially roll out the new licensing plan for NetSuite Warehouse Management.

Details about the licensing model weren't immediately available, but NetSuite said a warehouse employee who only needed NetSuite access for receiving, put away, picking and shipping would have a license only for that functionality without a full subscription. NetSuite typically charges an annual license fee for core platform, optional modules and number of users. There's also a one-time implementation fee.

NetSuite, a division of Oracle, announced the new licensing model at its NetSuite SuiteWorld 2023 conference. The tweak is notable since that warehouse worker would typically be licensed as a full user. As a result, enterprises are more likely to forgo that license for a front-line worker. The bet is NetSuite can democratize use of its platform and its more than 37,000 customers can get a productivity bump.

Along with the new licensing model, NetSuite rolled out a bevy of features and generative AI capabilities across its suite. Here's a look at the additions.

Generative AI tools powered by Oracle's Cloud Infrastructure were launched across NetSuite.
NetSuite Text Enhance to personalize content for any text in NetSuite for finance, human resources, supply chain, sales and customer support to name a few.
NetSuite Planning and Budgeting gets predictive algorithms that monitor and analyze plans, forecasts and variances.
NetSuite bill Capture, which will capture and categorize expenses and curb manual bill entry.
NetSuite Analytics Warehouse will use AI to consolidate and centralize data from multiple sources and visualize it in dashboards. NetSuite Analytics Warehouse is built on Oracle Analytics Cloud and Oracle Autonomous Data Warehouse.

In addition, NetSuite built out its financial and accounting features and launched NetSuite EPM, which will be available within the next year. NetSuite Planning and Budgeting and NetSuite Account Reconciliation will be sold separately and as part of EPM. Here's the rundown:

NetSuite EPM launched with automated account reconciliation to streamline closing processes and reporting.
NetSuite Capital launched as a embedded service focused on improving cash flow, reviews, pricing, invoicing and accounts receivable.
NetSuite Pay rolled out across the platform to onboard merchants and integrate payment processors with pre-negotiated rates and fees.
The company launched a new e-invoicing tool to optimize payment and cash collection reduce costs and streamline invoicing compliance.
NetSuite added Transaction Line Distribution, a tool that can split transactions across departments and subsidiaries.
The company outlined NetSuite Benchmark 360, a tool to benchmark enterprises in their industry and region.

NetSuite also targeted field service operations with the launch of Field Service Management, which offers scheduling and dispatch communications, inventory and asset management. The company also added tools to support subscription-based business models.

On the customer front, NetSuite announced Cohere as a customer along with others and said it will expand in Spain and Brazil.

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Customer experience vs. efficiency and cost cutting: Which one wins?

Larry Dignan

Editor in Chief of Constellation Insights
Constellation Research

Customer experience has taken a back seat to cost cutting, declines in service and inflation and it's unclear whether new technologies such as generative AI can bail enterprises out.

That's my take on the Accenture Life Trends 2024 report, which is a handy read on macro and cultural trends. While Accenture's report focuses on consumers, the points about customer experience can easily apply to enterprise technology. Enterprises have been passing costs on to customers, but we're reaching the point where that's no longer going to fly.

Here are a few points from the Accenture report as well as my take and related reports Constellation Research.

Profit priorities trump customer experience. Accenture found that 37% of people worldwide think many companies are prioritizing profit over customer experience. And 40% of CxOs say they plan to raise prices to pass costs to customers. Accenture's report also found that customers feel less valued by poor customer service.

My take: CX is critical but it's clear there's going to be a widening gap in companies that keep it a priority. The idea that profits follow customer experience was fine when growth was easier to come by. Now efficiency is the mantra amid higher interest rates and margin squeezes for companies. Companies taught consumers that they should value something more than a mere transaction. Most surprising thing to me: Consumers apparently bought into the idea that brands were about more than the transaction. Follow the money people.

Here's the conundrum: Enterprises across all industries will have to become way better at customer service and do it cheaply. Related research: Connecting Experiences From Employees to Customers

Generative AI to the rescue--maybe. Accenture, which by the way will make a lot of revenue from consulting on generative AI projects, said conversational interfaces will change the game for digital interactions. Generative AI could be known as the great customer engagement enhancement. Accenture found that 39% of people aged 18-34 are excited about conversational answers over standard Internet searches.

My take: Accenture expects large language models (LLMs) to change the relationship between people and brands and I'd agree. What's unclear to me is whether the enterprises behind the big brands have the data to offer something unique with an LLM. Even more unclear is whether enterprises will be able to navigate internal silos to make sales, marketing and service cohesive. And even more unclear is whether vendors can provide a generative AI magic bullet with fun names, domain specific LLMs and add-ons that add up.

Humans are getting wise to technology's pitfalls. Accenture noted that nearly a third of consumers say technology has complicated their lives as much as simplified it. The upshot is customers are tightening the reins on tech use by removing notifications, limiting screen time and removing apps.

My take: It's about time someone followed me and put their phone on silent. Brands will have a tough time adapting if consumers decide to prune digital channels. However, you can color me skeptical about humans downgrading their tech relationships. What people say they do with technology is vastly different than what they actually do. The notifications are still in charge.

Constellation Research's take

Constellation Research analyst Liz Miller said:

"While the report recasts the customer experience dilemma in the new extreme brightness that is generativeAI, it fails to issue a stark warning: None of these tools will solve for inauthentic, poorly crafted and value-less engagements. The reality of customer experience, even before the boom of GenAI, is wrapped in that adage: Garbage in, Garbage out. All AI will do to this process is accelerate the capacity to deliver, ignore and dispose of the garbage.

What far too many brands get horribly wrong is they believe Customer Experience is a technology, a function or a mantra that can be distilled into a pithy wall cheer like “Be Customer Obsessed!” If that is what CX is to a brand, no AI, no data, no technology stack can save CX…and in total blunt talk, that type of wasted budget should be cut.

CX is an enterprise-wide team sport that so deeply understands the customer and the decision glidepaths that bring that customer into a posture of durable profitability that the only decisions that can be made are those that work in the service of either accelerating or deepening that lasting bond between brand and buyer. CX isn’t customer service. CX isn’t marketing. CX isn’t packaging. CX is all of this and more. CX is the durable, profitable, authentic, and contextual relationship between a brand and its customers, partners and the market.

Without a true customer experience strategy that is embraced by the entire organization, orchestrated and connected by data and customer intelligence, no amount of GenAI can save that bottom line. Cost cutting will be the only path to survival. But, if an organization has thought of CX as more than a rallying cry of convenience, more thought and attention can be paid to HOW generativeAI can address including those conversations around why that ice cream bar is just a bit smaller now or costs a little bit more."

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PepsiCo has its technology, process game down

Larry Dignan

Editor in Chief of Constellation Insights
Constellation Research

This post first appeared in the Constellation Insight newsletter, which features bespoke content weekly.

PepsiCo's second quarter earnings were better than expected, but the real story is that its transformation efforts for processes, supply chain, technology and business services have gone so well it has good visibility into 2024.

The company's quarterly report featured top and bottom line results ahead of estimates, a solid third quarter outlook and this tidbit about 2024. For the year ahead, PepsiCo in prepared remarks noted that the company will be at the upper end of its long-term ranges for organic revenue growth of 4% to 6% and earnings per share growth in the high single digits.

Companies usually don't provide their annual outlooks until they report first quarter results in January and February.

Analysts quickly asked PepsiCo CEO Ramon Laguarta and CFO Hugh Johnston what gave the company confidence in a 2024 outlook given a variety of wild cards ranging from the financial health of the consumer to inflation to the effect of obesity drugs on snacking and beverage sales. The short answer is that PepsiCo has been using technology and process improvement to drive costs lower.

Johnston said:

"We've put even higher focus than we've had in the past on driving productivity and driving out unnecessary costs using the tools that we've discussed, the investments in digitalization, the investments in global business services, the investment in driving out overlaps within the organization. Because that work has been going on for a longer period of time, I think that gave us an earlier line of sight into what we would expect our cost outcome to be for next year."

Laguarta added that PepsiCo is seeing "long-term structural tailwinds of our categories" including demographics, urbanization and a lifestyle that's revolving around snacking.

Simply put, it's easier to forecast business when you have your costs under control and continual efficiency improvement. PepsiCo has an initiative called pep+ (PepsiCo Positive) that features product innovation, new markets and a lot of cost management. In a nutshell, PepsiCo has been carrying out the following transformation efforts.

Cost management through supply chain and distribution efficiencies.
Identifying waste throughout its value chain.
Leveraging global business services to cut general and administrative expenses.
Using analytics, process mining and data to speed up decisions, optimize routes and execute in stores.
Modernizing IT systems across businesses and countries.

That transformation is enabling PepsiCo to adapt and execute no matter what the market brings.

In February at the Consumer Analyst Group of New York (CAGNY) conference, PepsiCo outlined its transformation. Laguarta noted that PepsiCo set out in 2019 to become more agile and efficient while innovating in its categories. The company invested in e-commerce and direct-to-consumer and tools that improve how PepsiCo works.

Laguarta said PepsiCo has been delivering $1 billion in productivity savings a year for the last four years by consolidating and connecting systems, leveraging automation amid labor shortages and optimizing routes. Laguarta said:

"We've invested a lot in AI, we've invested a lot of Internet of Things, automation, et cetera, to drive the output. I would maybe go deeper into what I think is one of the most important competitive advantages of our company is the fact that we get to the point of sale ourselves. And we've been investing in technology and information for our salesmen to optimize the portfolio with precision store by store. So, we can read who lives around that store, who buys in that store, and our salesmen have that information to optimize the planogram on that particular store to maximize the throughput. And that has been a pretty powerful tool.

I think we're only scratching the surface."

As for the tech stack, PepsiCo has appeared as a reference account for Salesforce, SAP, ServiceNow and Snowflake among others.

PepsiCo is also a Celonis customer and has used process mining for multiple processes including accounts receivable, sales orders, distribution and inventory to name a few. PepsiCo is also migrating to SAP S4/HANA and was a featured customer at SAP Sapphire 2023. Johnston said in February at the CAGNY investment conference that "we're all going through the upgrade as SAP is moving to the cloud, moving to S/4HANA."

That migration isn't unique in consumer product goods since SAP is forcing the cloud move, but Johnston noted there are benefits in that you have more harmonized data for future platforms and analysis for supply chain, logistics and store optimization. "There's a ton of power once you get the data right," he said.

Here are two slides that sum up PepsiCo's core transformation technologies.

More from the buy side:

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Domino's Pizza eyes generative AI, Microsoft and Uber tech to drive growth

Larry Dignan

Editor in Chief of Constellation Insights
Constellation Research

Domino's Pizza is known as a tech savvy company that has been ahead of the mobile and data curves and now it plans to leverage integration with Uber Eats, revamp its loyalty program and reinvent its customer experience and boost productivity with generative AI.

The company has been transforming from a pizza maker with delivery service to a food delivery platform. CEO Russell Weiner said on Domino's Pizza's third quarter earnings call that its "initiatives are designed to create significant shareholder value in the months and years ahead."

According to Domino's, these new experiences will "lead to loyal customers who will provide considerable lifetime value for our brand and our company." Domino's has more than 6,700 US stores and about $4.5 billion in annual sales with two-third of revenue coming from digital channels.

Here's a look at what Domino's is cooking up:

Revamped loyalty program. For firms like Domino's loyalty programs are key to drive customer engagement. The company changed its Domino's Rewards levels to drive more consumption by lowering spend thresholds and the point system to redeem items. "This change will make us even more competitive in the carryout segment where ticket tends to be lower," said Weiner, who added that the data shows higher engagement.

Domino's also said that customers who use the company's e-commerce platform will automatically earn an Emergency Pizza.

Also see: Starbucks’ new CEO: ‘We can enhance our tech stack to lower costs and reinvest’

Uber Eats integration. In July, Domino's and Uber announced they would integrate platforms. The idea was to drive sales through delivery orders. For Domino's the move was a reversal given it had previously shunned delivery aggregators. In its regulatory filings, Domino's cited delivery aggregators as competitors along with traditional rivals.

Weiner said that "our integration into the Uber Eats platform is proceeding as planned." Uber Eats will be to deliver from Domino's US stores by the end of the year. He said:

"We expect this initiative will drive incremental delivery volume from new customers, increase our share of the pizza delivery market and create stronger economics for our company and franchisees. This will begin in a measurable way in the first quarter of 2024. We want to exceed the expectations that the incremental customers will get through Domino's Rewards and Uber Eats."

Right now, Weiner said it is piloting the integration to work out "the handshake between two really large platforms." "We already deliver more pizzas than anyone in the country, and so as we take on these incremental orders, we just need to make sure that technology works. That's what we're doing now and then certainly making sure the staffing is right, and we're working with Uber and our franchisees to do that," said Weiner.

Microsoft partnership on generative AI. In October, Domino's announced it is partnering with Microsoft on generative AI to "create the next generation of pizza ordering and operations technology."

Weiner said:

"Our teams are focused on two important goals: first, transforming customer experiences by enhancing the ordering process through personalization and simplification; and then second, streamlining operations and quality control with more predictive tools."

These projects are expected to drive sales starting in the fourth quarter and 2024 and drive a more efficient model for the company.

For Domino's, the Microsoft partnership is also about choosing to buy rather than build. Domino's historically had invested in technology at the expense of product innovation. Today, Domino's wants to be more product focused with proprietary technology driving competitive advantage. Weiner said:

"As you look back in the history of Domino's, we certainly have built more things internally when it comes to competitive points of difference. I think we've always said, you can't outsource a competitive point of difference. There's going to be a competitive point of difference with generative AI solutions, and we think we've got the resources and the pizza expertise internally.

What we've got with Microsoft is the best in the field externally. And so, you take those two things together, and it's not just cost, it's also an impact."

"This is kind of a hybrid here, best-in-class, both best-in-class pizza, best-in-class AI."

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JPMorgan Chase: Why we're the biggest tech spender in banking

Larry Dignan

Editor in Chief of Constellation Insights
Constellation Research

JPMorgan Chase executives were asked a simple question during its third quarter earnings conference call: What's the benefit of spending the most on technology in the banking industry? The answer illustrates how every company is a tech company to stay relevant and customer engagement has to span multiple channels.

The banking giant is known as a big spender on technology. Some of this spending is to maintain infrastructure, but a lot of it is tied to automating processes, engaging customers and investing in artificial intelligence. For the AI strategy at JPMorgan Chase, see our recent customer story. View full PDF

Here are some of the reasons JPMorgan thinks it's wise to spend heavily on IT.

Customer engagement. CFO Jeremy Barnum answered the technology spending question with a digital customer lens. JPMorgan Chase has more than 53 million mobile consumer banking customers. Barnum noted that digital engagement is higher than the overall growth in customer accounts. Digital-only customers remain a small percentage of the overall customer base.

Barnum said:

"What are the benefits of being the biggest tech spender? I just think it's sort of mandatory right? I mean, we're a big and very technology-centric business, and the world is competitive. And everything is changing. Younger generations have different expectations, and we have to be nimble, and we have to be on our front foot. And otherwise, we risk getting severely disrupted."

Competition. JPMorgan Chase CEO Jamie Dimon said the bank has to invest in technology to stay relevant. He said Wells Fargo is an obvious competitor, but there are non-traditional rivals too like Apple, Stripe, Chime and Dave too. "There’s a lot of people coming up with these businesses in different ways. Some have been quite successful, like Stripe in payments. And so, we want to be very good and very competitive," said Dimon.

AI and the customer experience. Dimon was asked about JPMorgan Chase's AI investment and whether the bank could control the front-end customer experience. Dimon said AI is a tool that goes well beyond being the front-end of an app.

Dimon said:

"Banks have an extraordinary amount of proprietary data in addition to a large language model of public data. AI is an extraordinarily good tool to use. And there are multiple types of AI. So, we use AI for risk, fraud, marketing, prospecting. The management team is getting better and better at using data to do a better job of reducing errors, to serve clients better and to have a salesperson with co-pilots. We simply have to do it. Does it create opportunity for disruptors to come in? Yeah, of course. That’s always been true with technology, but we'll be quite good at it."

Spending going forward. Barnum said the company is still going through the budget process for the year ahead, but IT spending will likely be up. However, much of that technology spending is for futureproofing as well as increasing returns. "We're always very focused on cost. You can be rest assured of that. That discipline internally is as aggressive as ever as we go through the budget cycle. But there are long-term plays," said Barnum.

Data to Decisions Future of Work Innovation & Product-led Growth New C-Suite Tech Optimization Next-Generation Customer Experience Digital Safety, Privacy & Cybersecurity ML Machine Learning LLMs Agentic AI Generative AI AI Analytics Automation business Marketing SaaS PaaS IaaS Digital Transformation Disruptive Technology Enterprise IT Enterprise Acceleration Enterprise Software Next Gen Apps IoT Blockchain CRM ERP finance Healthcare Customer Service Content Management Collaboration GenerativeAI Chief Information Officer Chief Executive Officer Chief Technology Officer Chief AI Officer Chief Data Officer Chief Analytics Officer Chief Information Security Officer Chief Product Officer

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