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

$946.6 B Worldwide IT Services Market $776.5 B

Globally Delivered Services are estimated to be of total IT services market today

9% ~$70bn ~$120bn $150bn Globally Delivered Services* 2009 2013 *Gartner estimate —

not a Gartner forecast

By 2013, Globally Delivered Services will represent an estimated

13.0% to 16.5%

the total IT services market of

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') Reduce the Operating Costs of IT Enhance IT to Support Business Operations Enable Business Strategy Change or Transformation 16% 16% 28% 0 5 10 15 20 25

Percentage of Respondents = US Buyer Top Driver

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 39%

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

= US Buyer

Occurs More Often 0 20 40 60

Percentage of Respondents

Occurs With the Same Frequency Occurs Less Often 80 N = 1073 Survey: Q4 2009, Economic Impact on IT Services Buying 100

Buyer Adoption: How Global Services Delivery Has Evolved

Growth Creation Growth Maturity I - Onsite "Staff Aug" II - Offshore III - Global Sourcing IV - "Just" Sourcing?

India "Emerging Megavendors" Global Sourcing is Mainstream Country & "Value Chain" Competition Fully Integrated global process optimization CMM Level 5 "Body Shopping " Y2K From “Offshore” to “Nearshore and Offshore” 1979 1998 2008 2020?

Time

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 All Others 73%

Worldwide IT Services, 2009 Market Share Leaders ($776.5B)

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% NTT Data (7.2%) 1% NEC (4.5%) 1% SAIC (6.3%) 1% Source: Gartner IT Services Market Share Analysis, 2009 - (X%) indicates provider's annual growth:

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

Asia/Pacific:

Australia China India Indonesia Malaysia New Zealand Philippines Singapore Thailand Vietnam Note: Reflects new Gartner Country analysis, October 2009

Consider These Three Main Factors to Optimize Country Diversification

Providers Marketing/ Brand Global Delivery Model Skillsets Methodologies Credible Scale Industry/Domain Expertise IT Industry Labor Pool Education/IT Alignment IP Protection

Country Success

Language Skills Technology Skills Industry Associations Country Legal System Cultural Compatibility Infrastructure Costs 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 Custom BPO~HR~ Logistics~F&A IT Consulting Custom Solutions ERP~SCM~CRM~BI App. Develop.

& Integration

Enterprise One-to One

CRM Call Center Transaction Processing App. Mgmt.

Data Center Outsourcing Desktop Management Network Services Help Desk Outsourcing

Management

Remote Managed Services Hosting/ Collocation Storage on Demand

Creation

Vertical/Process Specific Business Process Utility Horizontal Business Process Utility SaaS Cloud-Based Business Process Services

Delivery

Cloud-Based Application Services

Shared One-to Many

Infrastructure Utility Network Utility

Access

Cloud-Based Application Infrastructure Services Cloud-Based System Infrastructure Services

IT Efficiency

Summary: Marketplace Trends We See in Global Services Sourcing Today

Supply Side

Multicountry options Global provider landscape Increasing range of services Resource management Alternative Delivery Models

Demand Side

Balanced portfolio of country choices Provider selection complexity Portfolio optimization in a global model Global sourcing competencies 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.