Trends in Global IT Delivery and Management Sandra M. Notardonato 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. © 2010 Gartner, Inc. and/or its affiliates. All rights reserved. Key Topics: • Market Drivers • Competitive Landscape • Success in Global Sourcing • Future of IT Services 1 Globally Delivered Services Will Outpace Growth of Worldwide IT Services Market Worldwide IT Services Market Globally Delivered Services are estimated to be 9% of total IT services market today $946.6 B $776.5 B ~$70bn 2009 ~$120bn$150bn Globally Delivered Services* 2013 *Gartner estimate — not a Gartner forecast By 2013, Globally Delivered Services will represent an estimated 13.0% to 16.5% of the total IT services market Macro Forces, Issues and Considerations Shaping Global Sourcing Economic Factors • CFOs driving IT cost controls • Cost-focused IT decision-making Accelerates offshore services use Geopolitical Shifts • Globalization, emerging economies • War, terrorist threats, currency flux Geopolitical risks must be considered Government Intervention • Protectionism vs. globalization • Pending industry legislation Monitor changes and legislation Provider Viability • Provider focus on global delivery • Consolidation, hypercompetition Buyer choices, but increased scrutiny Buyer Priorities for Using External Service Providers: Top Drivers Ensure IT Availability/Uptime ('Keep the Lights on') 28% Reduce the Operating Costs of IT 39% Enhance IT to Support Business Operations 16% Enable Business Strategy Change or Transformation 16% 0 = US Buyer Top Driver 5 10 15 20 25 Percentage of Respondents Top Driver N = 1073 Note: Respondents rank ordering of top three drivers Survey: Q4 2009, Economic Impact on IT Services Buying Second Driver Third Driver 30 35 What Changed in the Past Year? Offshore Use Occurs More Often in 47% of US Organizations Renegotiation Of Contracts With ESPs Influence of CFO on IT Services Spending Influence of Procurement Department on IT Services Spending Use of Offshore Services Delivery 47% Use of Technology as a Service Offerings Investment in IT Innovation Development of Captive Centers IT Spending Without Approval or Oversight of CIO or IT Department 0 = US Buyer Occurs More Often 20 40 60 Percentage of Respondents Occurs With the Same Frequency N = 1073 Survey: Q4 2009, Economic Impact on IT Services Buying 80 Occurs Less Often 100 Buyer Adoption: How Global Services Delivery Has Evolved Growth Creation I - Onsite "Staff Aug" Growth Maturity III - Global Sourcing II - Offshore Global Sourcing is Mainstream India "Emerging Megavendors" IV - "Just" Sourcing? Fully Integrated global process optimization Country & "Value Chain" Competition CMM Level 5 "Body Shopping " 1979 From “Offshore” to “Nearshore and Offshore” Y2K 1998 2008 Time 2020? Global IT Services: Market Share Leaders in Fragmented Industry • Low-cost onshore or global delivery is a factor for all major commercial provider's strategies • Top 10 leaders account for 27.3% of market • Average annual growth rate (2009 vs 2008) of top 10 leaders = -2.3% • Average annual growth rate (2009 vs 2008) of all other providers = -4.7% • 92 providers have more than $1 billion in total IT services revenue IBM(-6.6%) 7% HP(-10.4%) 5% Fujitsu (-0.4%) 3% Accenture (-11.8%) 3% CSC (-6.5%) 2% Lockheed Martin (3.1%) 2% Capgemini (-8.7%) 2% All Others 73% Worldwide IT Services, 2009 Market Share Leaders ($776.5B) Source: Gartner IT Services Market Share Analysis, 2009 - (X%) indicates provider's annual growth: NTT Data (7.2%) 1% NEC (4.5%) 1% SAIC (6.3%) 1% Gartner's 30 Leading Locations for Offshore Services (2010) Americas: Argentina Brazil Canada Chile Costa Rica Mexico Uruguay Europe, the Middle East and Africa: Czech Republic Egypt Hungary Ireland Israel Morocco Poland Romania Russia Slovakia South Africa Spain Ukraine Note: Reflects new Gartner Country analysis, October 2009 Asia/Pacific: Australia China India Indonesia Malaysia New Zealand Philippines Singapore Thailand Vietnam Consider These Three Main Factors to Optimize Country Diversification Providers Global Delivery Model Marketing/ Brand IT Industry Skillsets Labor Pool Education/IT Alignment IP Protection Country Legal System Cultural Compatibility Methodologies Credible Scale Industry/Domain Expertise Language Skills Country Success Technology Skills Industry Associations Costs Infrastructure Education System Government Support Politics and Economy Accelerating Trend: China – The Other Global Delivery Center • • China has emerged as one of the most frequently discussed offshore locations in Asia/Pac for global delivery diversification Government support in developing offshore IT services from China strong, through tax incentives (7% tax rate), subsidies, guaranteeing benefits, capital injections - Ministry of Commerce Thousand-Hundred-Ten plan supports growth of outsourcing providers • • • • • • • • Quality of labor pool improving, with plans to train 1.2M new skilled IT workers from 2009 to 2013—areas of expertise in testing, coding, embedded software development, application development, and basic data analysis China’s English proficiency has been on the rise since 2004—today written English considered acceptable, however still marginal in conversation for business needs Infrastructure near global standards—big competitive edge versus India Wage rates competitive, particularly at entry level; lower employee attrition Communist government in China showing stability, focus on high levels of GDP, financial systems improving—needs to improve transparency and reduce corruption Foreign direct investment, trading alliances basis for improving cultural compatibility Financial support from government for vendors that reach CMM certification Progress on IP and data protection, but remains challenge due to lack of enforcement 10 Know Which Relationship/Delivery Approach is Most Suitable Staff Augmentation Project Work Systems integrator BOT Joint Venture Captive Center On-Site Onshore Nearshore Offshore Outsourcing/ Strategic Sourcing There are multiple options for buyers. Relationship choices must link directly to the commercial arrangements (rate cards, SLAs, performance etc.) Changes in the IT Services Competitive Landscape May Impact Your Decisions Hypercompetition • Pick up in demand — but we expect fits and starts • Cost-based decisions • Many providers chasing any opportunity (revenue) • Vendor fundamentals: Profitability, Restructuring, Downsizing, Rebalancing • India-based providers experience slowing growth • New players in services Consolidation • Traditional approaches and organic growth may be insufficient to keep revenue on target • Acquisitions: HP/EDS, Tech Mahindra/Satyam, Oracle/Sun, PWC and Deloitte/BearingPoint, Dell/Perot, Xerox/ACS … and expect more • European companies — likely targets • Providers in solid cash positions will be favored to advance via strategic acquisitions Innovation • Systemic changes in IT sector require responses • Growth rates for new industrialized services — SaaS, Cloud — exceed the market growth rates • Leaders invest to reposition and catch early wave — timing is critical • Management discipline and long-term view to navigate an extended recession New Models Shaping the Future of IT Services Business Value-Add Optimization Business Strategy Consulting Creation Custom BPO~HR~ Logistics~F&A Custom Solutions IT Consulting ERP~SCM~CRM~BI CRM Call Center App. Develop. & Integration Transaction Processing Enterprise App. Mgmt. One-to- SaaS Cloud-Based Business Process Services Cloud-Based Application Shared Services One-toDelivery Many Remote Data Center Managed Services Outsourcing Hosting/ Collocation Infrastructure Desktop Management Utility Storage Network Services on Demand Help Desk Outsourcing Management Value One Vertical/ProcessSpecific Business Process Utility Horizontal Business Process Utility IT Efficiency Network Utility Access Cloud-Based Application Infrastructure Services Cloud-Based System Infrastructure Services Summary: Marketplace Trends We See in Global Services Sourcing Today Supply Side Demand Side Multicountry options Balanced portfolio of country choices Global provider landscape Provider selection complexity Increasing range of services Portfolio optimization in a global model Resource management Global sourcing competencies Alternative Delivery Models Customization/labor-based versus Automation Trends in Global IT Delivery and Management Sandra M. Notardonato 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. © 2010 Gartner, Inc. and/or its affiliates. All rights reserved.