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

1. The Gartner Scenario for IT Services Providers: The Future of IT Services March 26, 2013 Eric Rocco @GARTNER_INC

2. Gartner at a Glance 902Analysts World's Largest Community of CIOs 290,000ClientInteractions 13,000 Client Organizations 72% ofFortune 1000 Clients in 85Countries 74% ofGlobal 500 Vertical Coverage inNine Industries 10,200 MediaInquiries 5,500Benchmarks 64Conferences 1,700Consulting Engagements 500Consultants

3. The Gartner Scenario for IT Services Providers: The Future of IT Services March 26, 2013 Eric Rocco

4. The Big Squeeze: Achieving Sustainable, Value-Based Differentiation 3

5. Gartner's IT Services Research Agendas Focus of This Scenario Technologies Markets Advice for Buyers Advice for Providers Business ProcessServices Key Constituencies Key Constituencies • CIOs • IT Managers • IT Procurement • Sourcing Teams • Vendor Managers • Product Management • Strategy and Planning • Analyst Relations • Professional Services ApplicationServices IT Services Market Sourcing and Services InfrastructureServices Customers Competitors 4

6. 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? 5

7. IT Services Market, 2013 and BeyondKeys to Thriving During Unprecedented Change Industrialized NewWorld CapabilitiesAccess Outcome-Based 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! Social Mobile Identifying Growth Improving Competitiveness Information Adapting to Change Cloud IT Silos OldWorld Dedicated Assets LaborBased 6

8. $100 investment allocation In 2013, Where the Money Gets Spent Reveals Key Service Opportunities 2013 Top 10 IT Budget Priorities How to Exploit the Related Services Opportunities: • Benefits Realization • Life Cycle Solutions • Speed • Insights • Co-innovation Note: darker shade indicates Nexus of Forces Gartner's Annual IT Budget Survey Gartner, February 2013 N = 1,523 78% of respondents are IT manager or more senior 7

9. The Market Will Not Grow Uniformly — Market Segments Will Collide and Morph Infrastructure Outsourcing Expanded 2012 Market Size ($Millions) Cloud Services Projects IT Services Market5.2% CAGR Outsourcing Product Support 2012-2016 CAGR = $5 billion in 2012-2016 absolute growth Size of bubble 8 Source: Gartner (February 2013)

10. Top Three Recommendations for IT Services Market Participants IT Budget Stagnation Modernizations • Stop undifferentiated bland marketing messages • Reinvent the service portfolio • Determine if your business model is based on scale or specialization Risk Aversion Nexus of Forces IT Services Market Opportunity "IT is the business" Builders Are Still Here Competitive Rivalry Need for Speed Industrialization Substitutes 9

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 10

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! 11 11

13. Industry-Level SWOT Analysis for Infrastructure Services Strengths Weaknesses • 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 • Stable annuity revenue • Renewal rates/retention • Understanding of customer environments and implementations • Solid technical competence • Delivery process maturity Opportunities Threats • Alternative providers/new entrants • Reducing service lock-in potency • Service commoditization • Insufficient investment funds • Increasing customer expectations • Spiraling delivery costs • 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 12

14. Hardware reliability improvements Green Communities and forums Stack wars Diversity initiatives Lower barriers to trade Automation Real-time telemetry Artificial intelligence Generation Y Generation Y + 1 Predictive analytics Prevention- based services Buzzword fatigue Big data Governmental austerity Video Mobile Data residency regulations Closed systems Virtualization The "Apple Effect" Demographic time bomb Globalization Demand for cost savings Increased competition Consumerization CapEx to Opex shift Death of the megadeal Expanding CSP portfolios Different-nation is difficult Service lines are blurring Cloud adoption "Stalking horse" entrants Strategic partnerships Multi-sourcing "Good enough" is good enough Shorter contracts Provider consolidation Lock-in fear Portfolio rationalization Reducing labor arbitrage advantage Different buyers Multi-sourcing service integrators BYOD

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

16. Top Three Recommendations forInfrastructure Services Providers Crippling cost base Customer demand for capex to opex shift • Differentiate using value. Reinforce with references • Restructure portfolio to heighten focus and impact • Modernize delivery factories as fast as you can Corporate inertia Overly reactive portfolio Infrastructure Services Provider Success Proprietary lock-in/ Barriers to customer churn New entrants/ Alternative providers Automation- driven efficiency Price pressure 15

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 16

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. 17

19. Industry-Level SWOT Analysis forApplication Services Strengths Weaknesses • 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 • 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 Opportunities Threats • Alternative providers/new entrants • Service commoditization • Providers have limited relationship or credible with new buying centers • Insufficient investment funds for new or potential differentiation • 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 18

20. Application Services Bridge the Legacy and Future Application Portfolio Application Services CurrentApplicationPortfolio(Legacy) FutureApplication Portfolio CurrentApplicationPortfolio Analytics SaaS PackageApps CustomModules • 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 19

21. 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."

22. Top Three Recommendations for Application Services Providers Cost-Focused Buyer Behavior Nexus of Forces • Establish credibility and build trust to grow relationships with business buyers • Invest in intellectual property and asset-based solutions • Emphasize business value and application extensions to transform client's existing application portfolio Modernization Hypercompetition Application Services Provider Success IP-Based Solutions Commoditization LimitedBudgets BusinessBuyers 21

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 22

24. 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!

25. Industry-Level SWOT Analysis for Business Process Services Strengths Weaknesses • 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 • 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 Opportunities Threats • 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 • 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 24

26. BPO Delivery Models Are Shifting Traditional BPO Delivery BPaaS People-for-Process BPO UserPlatform BPO Provider Platform BPO BPaaS People and Process Workflow Provider Provider Provider Provider Process Enhancement Technologies and Services Provider takes overyourplatform Provider's platform Provider Application Layer In-house In-house Provider Provider In-house Infrastructure or Provider Taxonomy of BPO Architectures 25

27. Key Business Process Services Predictions 5x$ "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."

28. Top Three Recommendations for Business Process Services Providers Processes Modernization 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 Sustainability of Differentiation Sophisticated business services Business Process Services Provider Success Verticalized Solutions Commoditization of Labor Arbitrage Analytical Insights End-to-End Process Redesign 27

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 28

30. The Gartner IT Services Scenario: Achieve Sustainable, Value-Based Differentiation 29

31. Top Three Recommendations for IT Services Providers 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 30

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