This presentation, including any supporting materials, is owned by Gartner, Inc. and/or its affiliates and is for the sole use of the intended Gartner audience or other authorized recipients. This presentation may contain information that is confidential, proprietary or otherwise legally protected, and it may not be further copied, distributed or publicly displayed without the express written permission of Gartner, Inc. or its affiliates.© 2011 Gartner, Inc. and/or its affiliates. All rights reserved.

March 26, 2013Eric Rocco

The Gartner Scenario for IT Services Providers: The Future of IT Services

@GARTNER_INC

Gartner at a Glance902

Analysts

13,000 Client

Organizations

290,000Client

Interactions

Vertical Coverage

in Nine Industries

5,500Benchmarks

10,200 Media

Inquiries

World's Largest

Community of CIOs

64Conferences

74% ofGlobal 500

1,700Consulting

Engagements

Clients in 85 Countries

72% ofFortune 1000

500Consultants

This presentation, including any supporting materials, is owned by Gartner, Inc. and/or its affiliates and is for the sole use of the intended Gartner audience or other authorized recipients. This presentation may contain information that is confidential, proprietary or otherwise legally protected, and it may not be further copied, distributed or publicly displayed without the express written permission of Gartner, Inc. or its affiliates.© 2013 Gartner, Inc. and/or its affiliates. All rights reserved.

March 26, 2013Eric Rocco

The Gartner Scenario for IT Services Providers: The Future of IT Services

The Big Squeeze: Achieving Sustainable, Value-Based Differentiation

4

Gartner's IT Services Research Agendas

Technologies

ApplicationServices

InfrastructureServices

Sou

rcin

g an

d S

ervi

ces

IT S

ervi

ces

Mar

ket

Markets

Competitors

Customers

Business ProcessServices

Key Constituencies

• Product Management• Strategy and Planning• Analyst Relations• Professional Services

Key Constituencies

Advice for Buyers Advice for Providers

• CIOs• IT Managers• IT Procurement• Sourcing Teams• Vendor Managers

5

Focus of This Scenario

Key Issues Shaping IT Services Strategies

• In challenging economic times, where is the IT services market headed?

• What are the essential factors for building winning service portfolios in:- Infrastructure services- Application services- Business process services?

• How can IT services providers achieve sustainable value-based differentiation?

6

Social

Information

IT Services Market, 2013 and BeyondKeys to Thriving During Unprecedented Change

Identi

fying

Gro

wth

Impr

ovin

g Com

petiti

vene

ss

Adap

ting

to C

hang

e

Outcome-Based

Industrialized

CapabilitiesAccess

NewWorld

Dedicated Assets

Labor Based

IT Silos

OldWorld

Mobile

Cloud

IT services providers — to remain relevant — must bridge legacy offerings and new services based on new technologies, new delivery models and new architectures. New skills and approaches are required just to survive — let alone succeed.Read the full agenda story here!

7

$100 investment allocation

2013 Top 10 IT Budget Priorities

In 2013, Where the Money Gets Spent Reveals Key Service Opportunities

Gartner's Annual IT Budget SurveyGartner, February 2013 N = 1,52378% of respondents are IT manager or more senior

• Benefits Realization• Life Cycle Solutions• Speed• Insights• Co-innovation

Note: darker shade indicates Nexus of Forces

How to Exploit the Related

Services Opportunities:

Cloud Computing (SaaS, PaaS, IaaS)

Virtualization (Server, Desktop, Storage)

IT Modernization

Mobile Technologies

Enterprise Software Modernization

Big Data, Information Management

Data Center Consolidation

Enterprise Software Implementation or Upgrade

Analytics and Business Intelligence

Customer Experience Management

27%

26%

25%

19%

17%

17%

16%

15%

15%

14%

8

9

The Market Will Not Grow Uniformly — Market Segments Will Collide and Morph

0.0% 5.0% 10.0% 15.0% 20.0% 25.0% 30.0% 35.0% 40.0% 45.0%$0

$50,000

$100,000

$150,000

$200,000

$250,000

Consulting

Implementation

IaaS

Infrastructure Outsourcing

Applications Outsourcing

BPaaS

Traditional BPO

Software Support

Hardware Support

2012

Mar

ket S

ize

($M

illio

ns)

2012-2016 CAGR

= $5 billion in 2012-2016 absolute growth

Source: Gartner (February 2013)

IT Services Market5.2% CAGR

Cloud Services

Outsourcing

Projects

Product Support

2012 Market Size ($B)

2012-2016 CAGR (%)

Data Center Outsourcing $73.4 0.6

Enterprise Network Outsourcing $48.8 3.2

End-User Device Outsourcing $32.6 2.7

Hosting $24.4 15.0

Help Desk Outsourcing $17.6 4.1

Colocation $16.1 12.3

Infrastructure Utility Services $14.6 16.0

Infrastructure Outsourcing Expanded

Size of bubble

Top Three Recommendations for IT Services Market Participants

10

IT Services Market Opportunity

Nexus of Forces

Modernizations

"IT is the business"

IndustrializationNeed for Speed

Builders Are Still Here

Competitive Rivalry

Substitutes

Risk Aversion

IT Budget Stagnation

1. Stop undifferentiated bland marketing messages2. Reinvent the service portfolio3. Determine if your business model is based on scale or specialization

11

IT Services Research Road Map

• “Market Insight: Four Likely Scenarios for the Future of IT Services, 2020”

• "Forecast Overview: Public Cloud Services, Worldwide, 2011-2016, 4Q12 Update"

• "Forecast: IT Services, 2010-2016, 4Q12 Update"

• "High-Tech Tuesday Webinar: Cloud or Fog: Clearing the Air Around Cloud Services"

• Market Trends: U.S. Rural Sourcing and Low-Cost Domestic IT Services

• IT Services Market Share• IT Services Vendor Survey

12

Infrastructure Services, 2013Promote Your Value; Prevent Your Customers‘ Pain!

Providers must change now to

survive. Value promotion and prevention-

based services are critical success

factors. The transition will be tough. Some

will fail.Read the full agenda

story here!

12

Industry-Level SWOT Analysis for Infrastructure ServicesStrengths Weaknesses

Opportunities Threats

• Stable annuity revenue • Renewal rates/retention• Understanding of customer

environments and implementations• Solid technical competence• Delivery process maturity

• Large capital investment requirement• Relationships confined to technical

ranks with customer organizations• Overly reactive/passive portfolios• Low level of service innovation• Poor service marketing and messaging

• Prevention-based services• Advances in analytics/automation• Service advocacy initiatives• Redefining the TCO calculation to

include full life cycle operational costs

• Differentiation via their pricing model

• Alternative providers/new entrants• Reducing service lock-in potency• Service commoditization• Insufficient investment funds• Increasing customer expectations• Spiraling delivery costs

13

Automation

Governmental austerity Data residency regulations

Service lines are blurring

Reducing labor arbitrage advantage

Demand for cost savings

Cloud adoption

"Good enough" is good enough

Virtualization

Predictive analytics

Communities and forums

Big data

Increased competition

Expanding CSP portfolios

Multi-sourcing service integrators

Different buyers

Multi-sourcing

Mobile

Prevention- based services

Generation Y

Buzzword fatigue

Green

Lock-in fear

Diversity initiatives Lower barriers

to trade

Generation Y + 1

Demographic time bomb

Globalization

Different-nation is difficult

"Stalking horse" entrantsStrategic

partnerships

Portfolio rationalization

CapEx to Opex shift

Death of the megadeal

BYOD

Provider consolidation

Shorter contracts

Video

Consumerization

The "Apple Effect"

Hardware reliability improvements

Real-time telemetry

Stack wars

Artificial intelligence

Closed systems

"Due to increased automation and reducing incremental benefit from labor arbitrage, the total employed global labor pool for infrastructure outsourcing services will decrease by 15% through 2016."

Key Infrastructure Services Predictions

"Within 3 years, at least 10% of all infrastructure utility (IU) provider revenue will come via third-party compute futures trading exchanges."

Top Three Recommendations forInfrastructure Services Providers

1. Differentiate using value. Reinforce with references2. Restructure portfolio to heighten focus and impact3. Modernize delivery factories as fast as you can

16

Infrastructure Services Provider

Success

Corporate inertia

Customer demand for capex to opex shift

Proprietary lock-in/

Barriers to customer churn

Price pressure

Crippling cost base

New entrants/ Alternative providers

Overly reactive portfolio

Automation- driven efficiency

17

Infrastructure Services Research Road Map

• Market Trends: Product Support Services

• Market Trends: Data Center and Infrastructure Management Services

• Market Trends: User-Centric and Workspace Services

• Best Practices: Next-Generation Service Metrics

• Service Desk 2.0: Productivity Loss Limitation

• TCO Is Dead; Long Live TCO! — Redefining TCO to Demonstrate Full Life Cycle Service Value

• Strategic Options for Service Pricing

18

Application Services, 2013Business-Driven Value Driven From Three Trends

Full life cycle of application services feeds each phase.

Simplification and evolution of the existing application

portfolio.

New implementations require information and

architectural approaches to integrate new and existing

applications.

Industry-Level SWOT Analysis forApplication ServicesStrengths Weaknesses

Opportunities Threats

• Business need for new functionality and innovation brings new buyers

• High rate of revenue retention and potential increase from existing clients

• Broad range market opportunities for focus and competitive differentiation

• Ultracompetitive• IT buyers and procurement forcing cost

focus and furthering commoditization• Limited availability of business and

process expertise • Providers' drive for high margins results

in low risk and investments

• Intellectual-property-based models and solutions for select market segments

• Increased wallet share from full life cycle services and client relationships

• Application of emerging technology to business and existing applications

• Portfolio rationalization/modernization

• Alternative providers/new entrants• Service commoditization• Providers have limited relationship or

credible with new buying centers• Insufficient investment funds for new

or potential differentiation

19

Application Services Bridge the Legacy and Future Application Portfolio

20

CurrentApplication

Portfolio(Legacy)

CurrentApplication

Portfolio

SaaS

PackageApps

Analytics

CustomModules

FutureApplication Portfolio

• Services to manage transition of legacy portfolio and information to future• Business buyers driving new solutions and funding technology• Nexus of Forces technologies will be applied to deliver business innovation• New services built on IP assets and nonlinear delivery models• Applications become the means to deliver business improvements

Application Services

Key Application Services Predictions

"By 2016, 25% of external applicationimplementation spending will be on mobility, cloud, analytics and social computing services."

"By 2016, more than 50% of application modernization efforts will address business demand for enhanced functionality to legacy applications — not cost reduction."

Top Three Recommendations for Application Services Providers

22

Application Services Provider

Success

Modernization

Nexus of Forces

1. Establish credibility and build trust to grow relationships with business buyers

2. Invest in intellectual property and asset-based solutions3. Emphasize business value and application extensions to transform

client's existing application portfolio

CommoditizationLimitedBudgets

BusinessBuyers

IP-Based Solutions

Cost-Focused Buyer Behavior

Hypercompetition

23

Application Services Research Road Map

• SWOT Analyses: Application Services for HP, Capgemini, IBM GBS and Deloitte

• Competitive Landscape: Enterprise Mobility C&SI Services, Major Providers, Worldwide

• Market Insight: Optimize Business Models to Capture Growth From Full Life Cycle Application Services

• Application Modernization: Driven by Business Enhancements

• SWOT Analyses: Application Services for IBM and Accenture

• Competitive Landscape: Application Testing Services

• Market Insight: ERP Implementation Services for Midmarket

Business Process Services, 2013Industry Specialization, Process Automation and Analytics

Streamlined processes will lead to better

practices. Organizations will demand more

standardized services based on assets and

PETS. Read the full agenda

story here!

Industry-Level SWOT Analysis for Business Process ServicesStrengths Weaknesses

Opportunities Threats

• Sticky client base• Business need for cost reduction and

innovation brings new buyers• Potential for good gross margins in

most BPS service types — 20% to 40%

• BPaaS already has market traction

• Incredibly diversified set of business offerings

• Many "novice" buyers don't understand the market, so "poor" deals are done.

• Inability of providers to articulate and move to more asset-based services

• Large market opportunity (> $300B)• Introducing more asset-based IP into

consulting services. • Process-enhancement technologies

and services creating more stickiness, better margins

• Vertical-specific solutions

• Increasing availability of automated tools and cloud-based services will tempt more buyers to bring the capability back in-house.

• Alternative providers/new entrants• Insufficient investment funds for new

or potential differentiation 25

BPaaS

BPO Delivery Models Are ShiftingTraditional BPO Delivery

Taxonomy of BPO Architectures

BPaaSProvider Platform BPO

UserPlatform BPO

People-for-Process BPO

ProviderPeople and

Process Workflow

ProviderProviderProvider

ProviderInfrastructure Provider

In-house

Provider

orIn-house

ProviderProvider's platform

Provider takes over

yourplatform

ApplicationLayer In-house

Process Enhancement Technologies and Services

26

Key Business Process Services Predictions

"By 2016, the average contribution of asset-based consulting (AbC) to business consultancies' total revenue will increase from about 2% now to more than 10%."

"By 2016, the staffing required to deliver BPO services will decrease 25%, on average, per client."

5x$

Top Three Recommendations for Business Process Services Providers

28

Business Process Services Provider

Success

Sophisticated business services

PETS& automation

• Build confidence with prospects via excellent vertical insights• PETS: Invest in a dedicated team to prioritize and promote

technologies • Include analytics into every existing BPO client and new BPO deal

Commoditization of Labor Arbitrage Analytical

Insights

Verticalized Solutions

ProcessesModernization

Sustainability of Differentiation

End-to-End Process Redesign

29

Business Process Services Research Road Map

• Market Trends: Cloud Business Process as a Service Outsourcing Trends

• SWOT: HP, Business Process Outsourcing, Worldwide

• Best Practices for Selecting Knowledge-Based Services From Business Consulting, Knowledge Process Outsourcing and Business Process Outsourcing Providers

• PETS: What the CIO and BPO Buyer Need to Know

• Magic Quadrant Finance and Accounting BPO 2013

• Competitive Landscape: Business Consulting

The Gartner IT Services Scenario: Achieve Sustainable, Value-Based Differentiation

30

Top Three Recommendations for IT Services Providers

31

Monday Morning This Year Longer Term

Stop undifferentiated bland marketing messages

Reinvent the service portfolio

Determine if your business model is based on scale or specialization

Recommended Research:• Marketing Essentials: Seven

Common Mistakes IT Services Providers Make in Differentiation

• Articulating product support value prop

Recommended Research:• Market Insight: The Five Regrets

of the Dying Infrastructure Outsourcing Service Provider

Upcoming Research:• Industrializing Services — From

custom-made tailoring to off-the-peg high street fashion

• Market Trends: The Next Wave of Mobility Services, 2013

Upcoming Research:• Strategic Options for Service

Pricing• Market Trends: Application

Services Strategies to Increase Contribution Margins

• Visit gartner.com/webinars– Today's presentation is available to download on the Attachment

Tab of our webinar portal or will be available shortly on our webinar page

– Check out the schedule of upcoming Gartner webinars (plus on-demand webinars) and don‘t forget to share these resources with your colleagues

• Contact your Gartner account executive with any additional questions, comments or for a complimentary copy of today's presentation

Simple steps for increasing the value of today's webinar experience

33