Industrial and High-Tech leaders must take Capgemini’s growing capabilities seriously after Altran acquisition

The intense consolidation in the services industry continues with old rivals Altran and Capgemini downing their weapons and opting for the sweaty embrace of a merger instead. Already touted by both firms as a game changer for industrial and tech companies, the merger aims to combine the consulting and IT services heritage of Capgemini with the engineering and R&D capabilities of Altran. It’s a push into the competitive and rapidly growing Industry 4.0 market segment, which Capgemini calls “Intelligent Industry,” and it adds design thinking depth to Capgemini’s wider portfolio. Industry and high-tech leaders must take this tie-up seriously as they assess current and future partners to help them drive out industry 4.0 capabilities.

Industry 4.0 leaders are seeking a new champion—Capgemini’s $17 billion heft puts it in the running

At a glance, the tie-up makes perfect sense – offering industry and tech leaders the option to team up with a firm that now has both consulting prowess and experience of industry 4.0 technologies. The Industry 4.0 market, as confused as that term is, is crying out for a champion to help it plug in digital change agents and meaningfully transform enterprises that have struggled to change. Altran brings with it critical capabilities in major transformative technologies in the space—particularly edge computing, IoT, AI, and 5G, the latter picking up increasing proportions of corporate mindshare.

At a fundamental level, Altran offers Capgemini the opportunity to build on a strong existing client base and an extensive track record of delivery that ranges from transforming warehouses for online grocer Ocado to developing 3D-printing solutions that provide automated additive manufacturing capabilities on the International Space Station. Capgemini, with its strong consulting and IT services credentials, can move in and grow engagements in the highly competitive space that relies more than any other on client references and proof of delivery.

If it plays out and the combination realizes potential synergies in short order, the opportunity for Capgemini is considerable. By Capgemini’s estimates, the engineering and R&D market is growing by 9% each year. Outside of exciting digital technologies, the core of Altran’s business is software engineering, which coupled with Capgemini’s business and IT transformation pedigree offers ample opportunities to grow engagements and rethink solutions catering to the growing, albeit highly competitive, Industry 4.0 market.

Altran also helps Capgemini expand its delivery network and talent pool across India and Europe. The larger delivery network offers more advanced offshoring opportunities and access to Asia’s expanding high-tech and manufacturing segments. India’s talent pool adds more heft to Capgemini’s software engineering resources in a punishingly competitive labor market.

Even with new capabilities the market is punishingly competitive, and other firms have already made moves to lure enterprise leaders

Even considering all of these benefits, domination of the industry sector is far from a given. The market is highly competitive and—with this deal contributing—the services ecosystem is at peak consolidation as firms struggle to differentiate themselves from the crowd. In many ways, Capgemini faces the challenge more acutely. The firm is well known in IT services and consulting, but it will need to prove it has the roadmap and strategy to make the acquisition a success. Current and prospective clients of both firms will be waiting to see if this deal is part of a concerted push to build on the Intelligent Industry roadmap or a sign of a firm spending its way into a challenging market.

It’s also fair to say that in many respects, Capgemini is a little late to the party. Its Europe-based rival Atos has already formed a coherent strategy around many of the change agents Capgemini is claiming the acquisition will support, particularly edge computing, quantum, and cloud. Atos’ Syntel acquisition gave it an all-important footprint in the US and increased offshore capability in India—both vital to sustaining the economic and political pressures of the current market. And that’s without comparing Capgemini’s now broader engineering capabilities with the Indian providers, particularly TCS, Wipro, and Infosys. Each of these providers has been building out engineering capabilities for what seems like decades, and each has Industry 4.0 thought leadership backed by existing client references. The acquisition also does little to drive additional scale or engagement in the US for Capgemini, which remains a challenge for the Europe-based provider.

Simply put, the synergies are clear, but Capgemini will need to lay out a very clear strategy for how it will integrate Altran’s business units with the mothership and how clients can benefit from the tie-up. In a rapidly consolidating market, acquisition announcements often leave clients in mild panic given the growing list of disastrous M&A activity. Capgemini’s acquisition of IGATE and track record in M&A is its saving grace in this respect. The firm has made mistakes—but it’s also experienced success, which should reassure some stakeholders.

The Bottom Line: Altran brings with it extensive capabilities, but Industry 4.0 leaders must assess Capgemini’s overall abilities and weigh those against the other firms in this hyper-competitive market.

This acquisition is exciting, but we’ve seen many before it, and we will likely see many more after it. Altran brings with it some heft in key change agents that will be instrumental as the firm pushes its Industry 4.0 framework. We’ll need to see a very clear strategy and roadmap for leveraging the capabilities of both firms to benefit clients and deliver results. It’s easy to talk synergy—justifiably, enterprises should remain cynical about promises and hold out for Capgemini to prove itself.