Euro Outsourcing Markets
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Euro Outsourcing Markets Euro Outsourcing Markets Document Transcript

  • A Research Report by EquaTerra Taking the Pulse of the European Outsourcing Market An EquaTerra exclusive for Get to what matters.
  • Get to what matters. EquaTerra 2Q10 Global Pulse Surveys. Results for Computer Weekly Introduction Summary Findings EquaTerra is pleased to offer to Computer Demand growth for third-party business and ITO services Weekly readers a custom, European focused weakened in 2Q10 according to EquaTerra European advisors polled. While inherent outsourcing demand edition of the results from its 2Q10 EquaTerra remains positive and is growing overall, many buyers global business and information technology remain cautious in their efforts, especially when it comes to (IT) services Pulse survey. Through the Pulse making upfront investments and entering into complex deal survey research programme, EquaTerra arrangements. Economic uncertainty in the UK and in the has developed a highly informative gauge Eurozone economies weighed heavily on buyers’ decision that provides quarterly insights into trends making processes and added to their reticence to make and projections in the outsourcing and large investments or launch perceived risk change efforts. third-party business and IT service markets, Buyers continue strenuous efforts to reduce operating costs gleaned from its own field advisors and and overhaul service delivery models, with internal process leading global service providers. EquaTerra’s improvement and alternative delivery models like shared services gaining in importance as change agents. Cloud advisors are the leading experts on business computing models, especially Software as a Service (SaaS), and IT services, assisting buying organisations are generating significant interest among buyers both as actively exploring or undertaking shared a complement to and in lieu of traditional outsourcing, services, outsourcing, offshore and other but most buyers are still assessing cloud computing service delivery alternatives. opportunities and defining overall strategies. This special edition of the Pulse survey results focuses on Business and IT service providers polled in 2Q10 were trending in the use of third party business and IT services less optimistic on current and near-term demand for usage in the Western European markets. Results cover outsourcing. While overall market demand continues to market activity during the second quarter of 2010 as well as grow, the time and effort it takes to close deals on favorable market demand and top trend projections for the balance terms and conditions remains high. Improving existing of 2010 into 2011. These global Pulse results are further contract profitability is challenging as is expanding scope augmented with research findings from the 2010 roll-up of with existing clients. Demand for non-outsourcing services EquaTerra’s European ITO service provider performance and like consulting and packaged software services remains satisfaction (SPPS) studies. weak for most providers. While all providers cite long-term opportunities to make money from buyers’ cloud computing initiatives, it is unclear which providers will benefit the most and how much these new revenue streams will offset declining traditional systems integration work and potentially the loss of some traditional outsourcing business. EquaTerra controls distribution of the Pulse survey reports, which are intended for internal use and select delivery to EquaTerra clients, prospects and other marketplace representatives such as Computer Weekly. Questions or comments regarding these surveys should be directed to Stan Lepeak, Managing Director of EquaTerra Global Research, at stan.lepeak@equaterra.com or +1 203 458 0677. Copyright © EquaTerra 2010. All rights are reserved. EquaTerra 2Q10 Global Pulse Surveys. Results for Computer Weekly - Page 2
  • www.equaterra.com Get to what matters. Table of Contents I. Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 II. Summary Findings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 III. Current European Market Demand Conditions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 European Market Demand and Market Trends Update . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Figure 1 - Change in Demand by Model . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 European ITO Adoption and Future Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Figure 2 - European ITO Adoption Rates. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Figure 3 - European ITO Buyers Future Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Figure 4 - European ITO Buyer Satisfaction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 Economy’s Impact on Outsourcing Demand . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 Figure 5 - Economic Environment’s Impact on Outsourcing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 IV. Current European Market Deal Characteristics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 Multi-sourcing Trending in Europe . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 Figure 6 - Multi-sourcing Trending . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 Figure 7 - Addressing Multi-sourcing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 Cloud Computing Update . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 Figure 8 - Advisors: Buyer Cloud Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 Figure 9 - Buyer Cloud Skills . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 V. Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 Please note: this PDF also includes embedded bookmarks to help better navigate through the document. For a list of bookmarks, please click on the “Bookmarks” tab to the left of this PDF. Copyright © EquaTerra 2010. All rights are reserved. EquaTerra 2Q10 Global Pulse Surveys. Results for Computer Weekly - Page 3
  • www.equaterra.com Get to what matters. Current European Market Demand Conditions European Market Demand and Market Trends Update Change in demand growth for BPO, ITO and other third-party business and IT services remained sluggish in the second quarter of 2010 according to EquaTerra European advisors polled. • Forty percent of European advisors, a decrease of five percent from 1Q10, indicate that overall third-party business and IT service demand levels were up in the quarter. This level is well below the average 53 percent “up” rating over the life of the advisor Pulse surveys. • Just three percent of European advisors, down from 10 percent 2Q09, indicate that demand levels declined in the quarter, with the balance citing no changes in demand growth levels. • Overall, 50 percent of EquaTerra advisors polled globally in the 2Q10 Pulse indicate demand was up. EquaTerra advisors were polled on demand levels across four different categories of business and IT services. These categories are BPO, ITO, other types of third- party IT services (e.g., consulting, systems integration and project-based work) and internal process improvement efforts (i.e., deploying expanded shared service of offshore captive operations). Figure 1 illustrates the relative change in demand for these service delivery models compared to the last quarter. • Forty-eight percent of European advisors indicate that demand for ITO grew quarter over quarter while 31 percent identified an increase in demand for BPO. • Twenty-two percent of European advisors cite an increase in demand for non-outsourcing, third-party IT services, an increase of five percent from last quarter. Demand for these more discretionary services has been weak over the past several quarters in Europe, especially for commercial software systems integration and implementation services. • Sixty percent of European advisors cite a growing demand for internal process improvement efforts, such as expanding deployment of shared service centres. This level is up eight percent from last quarter. Overall, 63 percent of EquaTerra advisors cite an increase in demand for internal process improvement efforts. Copyright © EquaTerra 2010. All rights are reserved. EquaTerra 2Q10 Global Pulse Surveys. Results for Computer Weekly - Page 4
  • www.equaterra.com Get to what matters. Change in Demand by Model 22% 31% 48% 60% Up 78% Flat 63% Down 48% 40% 6% 5% BPO ITO Other IT Svcs Internal Imp. Figure 1 Service providers polled were less bullish regarding new deal pipeline growth projections continuing a trend that started in the last quarter of 2009. • Sixty-two percent of service providers polled cite pipeline growth in the quarter, down nine percent quarter over quarter and three percent year over year. This level is just above the survey average of 58 percent. • Just four percent of service providers cite a decline in pipeline growth, with the balance citing no changes in pipeline growth levels. Service providers were less optimistic than in recent quarters about future outsourcing demand growth. • Fifty percent of service providers polled expect an increase in demand next quarter, down seven percent quarter over quarter and 13 percent year over year. This level is well below the survey average of 63 percent. This marks the third straight quarterly decline in the percentage of service providers indicating they expect near term future pipeline growth. • Nine percent of service providers expect demand levels to decline next quarter, with the balance citing no changes in demand growth levels next quarter. The reasons cited by service providers for this slowing in outsourcing demand growth are similar to those identified by EquaTerra advisors. Buyers are more carefully weighing all their options, including internal process improvement or doing nothing for the time being. More buyers are pushing for hard – and sometimes too hard – bargains from service providers, especially around pricing. Providers, sensitive to their own profitability and averse to taking on too risky deals or clients, are pushing back on these demands. In some cases buyers find they do not have serious provider competition for their business based on current desired terms and conditions. Most service providers indicate that growing business in existing accounts, where positive relationships already exist and capabilities have been proven, remains more preferable, lower risk and a higher priority in today’s market. Copyright © EquaTerra 2010. All rights are reserved. EquaTerra 2Q10 Global Pulse Surveys. Results for Computer Weekly - Page 5
  • www.equaterra.com Get to what matters. The ongoing strong demand for internal process improvement efforts, coupled To learn more: with a slowing in the rate of growth for outsourcing, highlights that organisations Outsourcing Buyer Behavior Today – today more often continue to implement change programmes using internal An Insight From EquaTerra’s UK Pulse resources. Buyers are still bringing in external resources but under more stringent Survey terms and conditions. This trend has been evidenced in the market over the past ITO Continues to Heat Up in the several quarters and manifests stronger buyer desires to implement change as Nordics cost effectively as possible, especially in the short run. Widespread Innovation It is widely accepted that outsourcing can enable process improvement, as well Disappointment Drives the Need for as reduce costs in the long run. Buyers in today’s market, however, are highly Actionable Intelligence sensitive to short-run expenditures and in some cases are delaying or deferring outsourcing efforts that require any sort of upfront investments or significant resources to implement. More experienced and sophisticated buyers are placing greater scrutiny on the skills that third-party providers can bring to bear, especially beyond labour arbitrage. Skilled and general labour shortages, however, will negatively impact buyer ability to expand internal change efforts, particularly as the scale and scope of these efforts grow. European ITO Adoption and Future Plans The EquaTerra Pulse surveys assess third party business and IT services directional market trends and demand patterns on a quarterly basis. The Pulse research studies are complemented and extended by the more in-depth and annually conducted service provider performance and satisfaction (SPPS) studies. The SPPS studies cover both the ITO and BPO markets. In Europe, EquaTerra conducts the ITO SPPS studies on an annual basis in the following markets: Belux, Germany, Netherlands, Nordics (Denmark, Finland, Norway, Sweden) and the UK. The SPPS market study programme surveys and interviews buyers that are currently outsourcing. Only key outsourcing decision makers - CXO’s and their direct reports - are targeted in the study. The research provides direct insights into buyer opinions on service provider performance levels, and also assesses and interprets general outsourcing demand and activity trends. Figure 2 from the 2010 European roll-up of the ITO SPPS studies illustrate overall market adoption rates for the three major ITO categories tracked: application management, end-user management, and infrastructure management. These findings show the pervasiveness of ITO in the European market and complements the Pulse findings indicating steady market growth levels. Copyright © EquaTerra 2010. All rights are reserved. EquaTerra 2Q10 Global Pulse Surveys. Results for Computer Weekly - Page 6
  • www.equaterra.com Get to what matters. European ITO Adoption Rates Application Management Infrastructure Management % 7% 7 % End User Management Process outsourced 4 % 5 % Plans to outsource Not outsourced, no plans Figure 2 Figure 3 from the 2010 European roll-up specifically addresses buyers’ future investment plans relative to their ITO efforts. Over 50 percent of buyers actively engaged in ITO indicate they will certainly or probably outsource more. Just nine percent of European organisations engaged in ITO plan to outsource less going forward Fi r European ITO Buyers Future Plans 9% 21% We are certain to outsource more 9% We will probably outsource more There will be no change in the existing situation We will outsource less 28% 33% We can not say at this point Figure 3 Finally and most importantly, the European ITO SPPS studies assess buyer satisfaction with the performance of their services providers across a range of key performance indicators (KPI’s). Buyers self-assess their satisfaction levels on a six point scale and then these scores are aggregated and converted to a 100 percent scale. Figure 4 shows the overall scores for each of the major KPI categories. Copyright © EquaTerra 2010. All rights are reserved. EquaTerra 2Q10 Global Pulse Surveys. Results for Computer Weekly - Page 7
  • www.equaterra.com Get to what matters. European ITO Buyer Satisfaction KPI Avg. Score General Satisfaction 68% Quality 73% Price 67% Risk 62% Relation(O) 71% Relation(S) 65% Innovation 56% Flexibility 59% Met Expectations 64% Transition 64% Figure 4 Overall satisfaction levels remain positive and have increased incrementally over the past several years. Satisfaction levels vary significantly across markets, service providers and individual ITO process areas. Contact EquaTerra research for more details on the SPPS studies including how to access the complete study results. Economy’s Impact on Outsourcing Demand Turning back to the quarterly Pulse survey results we now assess how current economic conditions are impacting European buyer outsourcing demand levels. While there was hope that the global economic recession bottomed out in late 2Q09, recent economic turmoil in Europe, ongoing high unemployment levels, difficult debt situations for both consumers and countries, concerns over a slowing China economy, and declining stock markets have cast some doubt over the strength of the economic recovery in western countries and markets. As a result, economic conditions continue to heavily impact buyer usage and preferences for third-party services and the manner in which they consume these services. EquaTerra polled advisors and service providers on how current economic conditions are impacting outsourcing demand levels (see Figure 5). • Just 36 percent of European advisors polled feel that market conditions are driving more outsourcing. This level is down 10 percent from last quarter and 22 percent from 2Q09. Advisors and service providers generally are aligned in their scoring of this response. • Fifty-five percent of European advisors, compared to 41 percent overall for the 2Q10 Pulse, indicate that economic conditions are causing buyers to slow or rethink outsourcing decisions. This level is up nine percent from last quarter and up 17 percent from 2Q09. While buyers more often still are deferring rather than cancelling outsourcing initiatives, the number seeking alternatives to traditional outsourcing as a change agent is growing. Buyers that pursue outsourcing are placing keen focus on the viability of the business case and on the cost and risk elements of their efforts. Copyright © EquaTerra 2010. All rights are reserved. EquaTerra 2Q10 Global Pulse Surveys. Results for Computer Weekly - Page 8
  • www.equaterra.com Get to what matters. Economic Environment’s Impact on Outsourcing 11% 9% 11% 13% 22% 19% 43% 41% 38% 32% 36% 55% 46% 45% 46% 47% 50% 36% Europe 1Q10 All Advisors Service Europe 2Q10 All Advisors Service 1Q10 Providers 2Q10 Providers 1Q10 2Q10 Driving more outsourcing Slowing/ rethinking outsourcing plans Little/no impact Figure 5 European advisors offered the following additional comments on how the current economy is impacting outsourcing and third-party service usage. To learn more: – “Markets and buyers are jumpy. It is hard for buyers to make big or quick decisions.” What Will Increased Regulation Mean For Outsourcing in the Financial – “Major initiatives are being reduced to piecemeal activities.” Services Sector? – “Buyers are still aggressive in their use of third-party service providers but (Attempting to) Legislate Call Centre are moving beyond legacy outsourcing models. There is more interest in Best Practices offerings that bundle IT and services, more interest in more standardised and turn-key solutions, and growing interest in cloud computing and Outsourcing Buyers: Ready or NOT for SaaS. So they are using third-party providers, just not always the same the Economic Upturn? usual suspects and under the same models.” Current European Market Deal Characteristics Multi-sourcing Trending in Europe The growth of multi-sourcing – or the use of multiple outsourcing service providers to manage the same or adjacent functions and processes at the enterprise level – is an almost inevitable by-product of buyers’ increased use of outsourcing. It is also being driven by the increased number of viable service providers competing for business in any particular market segment. While this trend is partially offset by market consolidation and individual service providers developing broader and more diverse service footprints, the general trend remains that buyers are working with more service providers in the same functional, geographic and business unit segments. The growth of alternative cloud and SaaS service providers will increasingly contribute to the rise of multi-sourcing going forward. While multi-sourcing is inevitable, some buyers are consciously pursuing the model in search of a “best-of-breed” service provider delivery mix. Best of breed, however, is often more appealing on paper than in reality, given the additional challenges, costs and complexity of sourcing and managing a multi- Copyright © EquaTerra 2010. All rights are reserved. EquaTerra 2Q10 Global Pulse Surveys. Results for Computer Weekly - Page 9
  • www.equaterra.com Get to what matters. provider environment. Some buyers are considering multi-sourcing after being disappointed with the results from integrated outsourcing efforts in which a single provider was tasked with delivering services across a broad – in many cases too broad – set of processes, functions and/or geographies. Specifically to emerging areas such as cloud and SaaS, buyers will find that the benefits are potentially greater and more rapidly achieved if they focus on more bundling, by consolidating infrastructure and application service outsourcing into a single “private SaaS” initiative, for example. Buyers must keep in mind that not all providers and provider relationships are created equal. Some service providers play a more strategic role while others perform more tactical services. It is critical that the efforts and resources placed in managing a provider relationship are commensurate with the importance and value the provider brings to the relationship. While this sounds intuitive, EquaTerra often finds a disconnect in this respect. Indeed, EquaTerra research has consistently found higher levels of buyer satisfaction when the strategic/tactical relationship continuum is in aligned between a buyer and its service provider. This quarter’s Pulse surveys examined multi-provider outsourcing trends from two angles. Figure 6 illustrates trending in the general use of multi-sourcing and at what level in the organisation service provider relationships are being established and managed. • Twenty-four percent of service providers and 30 percent of European advisors indicate that buyers more frequently today are establishing multi- sourcing relationships at the corporate level. • Service providers are slightly more likely than European advisors (43 percent compared to 40 percent) to indicate that buyers are doing less multi- sourcing and proactively consolidating service providers. Advisors in Europe are more likely than those in the Americas (40 percent compared to 14 percent) to cite a conscious buyer effort to reduce the number of providers being utilised. 1 Multi-sourcing Trending 19% 40% 43% 44% 30% 24% 37% 30% 33% All Advisors Europe Advisors Service Providers Establishing relationships at the functional/bus. unit level Establishing multi-sourcing relationships at the corporate level Less multi-sourcing/proactively consolidating service providers Figure 6 Copyright © EquaTerra 2010. All rights are reserved. EquaTerra 2Q10 Global Pulse Surveys. Results for Computer Weekly - Page 10
  • www.equaterra.com Get to what matters. Next, advisors and service providers were asked how buyers are accounting for the complexities of multi-sourcing during the sourcing process (see figure 7). While many buyers have arrived at their current multi-sourced state in an unplanned or at least uncoordinated fashion, buyers are increasingly aware that each new outsourcing deal can increase multi-sourcing complexity. The key is how buyers are responding – or not – to this awareness. There was general consensus between advisors and service providers on how buyers are responding. • Seventy-one percent of service providers and 50 percent of European advisors indicate that buyers are short-listing providers differently, for example by attempting to limit using too many providers. • Twenty-five percent of European advisors and 24 percent of service providers indicate that buyers are aware of complicating issues related to multi- sourcing but are not doing anything differently. • Thirty-five percent of European advisors (compared to just 17 percent in the Americas) indicate that buyers are budgeting more for outsourcing governance to better address multi-sourcing complexities. EquaTerra supports any changes that ensure more focus and attention on the outsourcing governance function and organisation. One EquaTerra advisor offered the following comment on buyer multi-sourcing trending. “Buyers are starting to ask questions prior to RfPs being issued on the potential risk of multi source vs. single source. They are also educating themselves on the management of a multi-vendor environment and proactively working the issues upfront. This being said, they are very reluctant to give it all to one provider.” EquaTerra also finds more buyers building outsourcing governance centres of excellence (COEs) to help support multi-provider relationships. Often it’s the IT group that is leading the way with the most experience of multiple-provider governance, both from a contractual, solution and governance perspective. Enterprise level COEs, or at a minimum outsourcing councils are being set-up to oversee the enterprise portfolio of relationships, share best practices, lessons learned and more. Copyright © EquaTerra 2010. All rights are reserved. EquaTerra 2Q10 Global Pulse Surveys. Results for Computer Weekly - Page 11
  • www.equaterra.com Get to what matters. Addressing Multi-sourcing To learn more: Best Practice in Governing Shortlisting providers differently Outsourcing Contracts: Establishing Budgeting more for outsourcing and Managing a Centre of Excellence governance The Pros, Cons and Market Trending Buyers aware of complicating issues but not do anything differently for Multi-sourced ITO Not generally addressed as part of the How to Optimise Complex, Multi- sourcing process Provider Outsourcing Contracts Don't worry about it when sourcing - it's an outsourcing governance issue Ramifications really not that serious 0% 50% 100% Service Providers All Advisors Europe Figure 7 Cloud Computing Update The collective technologies and services that make up cloud computing are having a great impact on the IT marketplace overall and the business and IT service markets in particular. Depending on how cloud computing is defined and interpreted, it is either evolutionary, revolutionary or more likely somewhere in between. It is clear, however, that cloud computing is positively (e.g., faster, cheaper, more flexible, at least initially) changing the means through which buyers gain access to third-party IT infrastructure, application software, and IT and business services. Minimally buyers need to proactively determine their own cloud strategies that direct when and how to engage cloud services and assess how they will impact other software and service initiatives. Key to this strategy is assessing a willingness to accept the more standardised platforms, processes and models implied through the use of cloud computing offerings, as well as clearly examining real and perceived risk factors associated with cloud computing, such as those related to data and application security. Buyers that dawdle in defining and executing a cloud strategy will inevitably find – like during the early days of the Internet – that end-users are actively engaged with cloud services whether or not any corporate blessing or direction has been given. When discussing cloud computing, it is important that all parties involved are working from a common definition. EquaTerra and the market typically define four “layers” of cloud computing. • IaaS (Infrastructure as a Service): Infrastructure traditionally provided by servers, desktops and network equipment delivered over the Internet instead and scaled up or down as needed. • PaaS (Platform as a Service): Software development, storage and hosting accessed as a service over the Internet. Copyright © EquaTerra 2010. All rights are reserved. EquaTerra 2Q10 Global Pulse Surveys. Results for Computer Weekly - Page 12
  • www.equaterra.com Get to what matters. • SaaS (Software as a Service): On-demand applications provided through an Internet browser, eliminating the need to install, run and maintain programmes on internal systems. • BPaaS (Business Process as a Service): BPO provisioned using a cloud computing model, bundled with SaaS/PaaS/IaaS and delivered over the Internet. The other dimensions of cloud computing relate to whether services are provided in an individual or shared environment (e.g., public cloud, private cloud or hybrid cloud). This quarter’s Pulse survey first looked at the observed adoption rates among buyers across the four layers of cloud computing (see Figure 8). Service providers in general identified more aggressive cloud computing investment levels than did EquaTerra advisors though there was consensus on prioritisation of investments across the four cloud computing layers. • SaaS is seeing the most investment and activity with 53 percent of service providers and 14 percent of European advisors citing buyer interest and active deployment efforts already undertaken. Eighteen percent of service providers and 29 percent of European advisors indicate buyers have interest and are launching efforts within 12 months. • Thirty-nine percent of service providers, but no European advisors, indicate that buyers have interest and active deployment efforts already undertaken for BPaaS efforts. The difference between the expected and absolute investment levels has to do with the size and scope of initiatives (i.e., definitional differences on what is a pilot, prototype and in production) and the degree that efforts are of a size to merit advisor support. It is also important to differentiate between opportunistic point investments and the execution of a cloud computing strategy. As one EquaTerra advisor noted, “Most buyers already have some form of SaaS, but they are not actively pursuing it as an overall strategy.” Fi ure 8 Eu o e Ad isors Bu C ou Computi Advisors: Buyer Cloud Investments 100% 6% 17% 14% 6% 80% 22% 29% 47% 60% 50% 40% 56% 48% 20% 47% 33% 17% 10% 0% IaaS PaaS SaaS BPaaS No significant interest/no near term (<12 months) investment plans Interest but no significant near term investment plans Interest, launching efforts within 12 months Interest & active deployment efforts already undertaken Figure 8 Copyright © EquaTerra 2010. All rights are reserved. EquaTerra 2Q10 Global Pulse Surveys. Results for Computer Weekly - Page 13
  • www.equaterra.com Get to what matters. Perhaps most relevant to buyers in the short term are their capabilities to assess, understand and take advantage of cloud computing opportunities. Despite the potential of cloud computing, if buyers cannot successfully execute on its implementation, then its adoption could create more problems than it solves. Service providers and EquaTerra advisors were asked to rank typical buyers’ skills to perform five different sets of activities related to cloud computing, using a one-to- five scale where one represents very unskilled and five represents very skilled (see Figure 9). Results show there is clearly room for improvement in typical buyer skill levels. • The highest score given by European advisors 2.05 on the one to five scale was assessing the near term maturity of cloud computing and its viability to support enterprise computing needs. • European advisors scored understanding the technical underpinnings of cloud computing - how it works at 1.89 while service providers scored this skill slightly lower. • Coming in at the bottom of the rankings were skills relating to both sourcing and managing cloud computing initiatives. It is not necessarily surprising that buyers possess limited cloud computing skills given the immaturity and fast moving nature of the market. The situation is not dissimilar to the early days of the Internet when buyers struggled to define and execute on strategies to exploit its business potential. It is critical, however, for buyers to leverage past experiences, particularly with outsourcing, to accelerate ramping up cloud computing skills and expertise. Many problems associated with outsourcing deals and major enterprise system initiatives arise from inadequate buyer business case, sourcing, transition and governance capabilities. This, too, will likely prove to be the case with cloud computing efforts. Buyer Cloud Skills Assessing near term cloud maturity & its viability to support enterprise computing needs Understanding the technical underpinnings-how it works Mapping cloud options to enterprise systems & outsourcing To learn more: Sourcing/structuring cloud initiatives & engagements Cutting Through the Fog: What You Navigating/assessing cloud vendor/SPs' markets Should Know about Cloud Computing and landscapes and How to Get Started Managing/governing cloud initiatives & engagements Delivering on the Benefits of Cloud- Based Services: When to Call in the 1.00 2.00 3.00 4.00 5.00 1=Very unskilled, 5=Very skilled Experts Service Providers All Advisors Europe Advisors Cloud Computing; Avoiding the Pitfalls Figure 9 The Rise of Cloud and Software as a Service (SaaS) – an Opportunity or a Threat to Service Providers? Copyright © EquaTerra 2010. All rights are reserved. EquaTerra 2Q10 Global Pulse Surveys. Results for Computer Weekly - Page 14
  • www.equaterra.com Get to what matters. Conclusion EquaTerra offers the following conclusions from the 2Q10 Pulse survey: • European BPO and ITO market demand continued to grow in 2Q10 but at the same sluggish pace witnessed last quarter. Inherent outsourcing demand and service provider pipelines continue to grow faster than the volume of deals being consummated as the pace of deal flow and buyer sourcing efforts remains uneven and often disrupted. This is a result of more cautious buyers that are very hesitant to make any major upfront outlays to support outsourcing efforts or enter into larger, more complex and uncertain deal arrangements. • European buyers remain aggressive about reducing and keeping down operating costs, continuing to overhaul service delivery models, trends that are positive for long-term outsourcing growth. Buyers continue to employ internal process improvement efforts or alternative service delivery models, like shared service centres, as a complementary or alternative means to outsourcing to enable these change efforts. • The use of multi-sourcing or multiple outsourcing service providers in adjacent and complementary functional areas continues to grow. While this is inevitable given the ongoing growth of outsourcing, it is important that buyers work diligently to balance the benefits of best-of-breed sourcing scenarios with the added cost and complexity of managing them. The growth of cloud computing opportunities to complement, extend, and in some cases supplant traditional outsourcing will further drive more multi- sourcing, at least in the short to medium term, as new service providers come to market. • Buyer interest in cloud computing and its derivatives, as a complement or alternative to traditional outsourcing and commercial enterprise software models, continues to grow. Most buyers are dabbling in one or more elements of cloud computing, but are not yet managing these efforts under a formal cloud computing strategy. Cloud computing adoption in general is progressing a bit slower in Europe than in North America. Defining and executing such a strategy as soon as possible are important to ensure coordination and prioritisation of the most relevant cloud computing efforts in addition to maximising the value from the investment long term. Buyers must work to improve their cloud computing skills to support these efforts and ensure their success. Copyright © EquaTerra 2010. All rights are reserved. EquaTerra 2Q10 Global Pulse Surveys. Results for Computer Weekly - Page 15
  • www.equaterra.com Get to what matters. About EquaTerra Contact Us EquaTerra sourcing advisors help clients If you would like to know more about EquaTerra please contact us. achieve sustainable value in their IT and BeLux The Netherlands business processes. Our advisors average more Pegasuslaan 5 Postbus 75090 than 20 years of industry experience and have 1831 Diegem (Brussels), Belgium 1070 AB Amsterdam, Netherlands supported more than 2,000 transformation Tel: +32 (0)2 709 29 32 Tel: +31 (0)88 002 2900 and outsourcing projects across more than 60 infobelux@equaterra.com infonl@equaterra.com countries. Supporting clients throughout the Americas, Europe, and Asia Pacific, we have China Sweden (Nordic HQ) deep functional knowledge in Finance and Level 31, Jin Mao Tower, 88 Shi Ji Avenue Strandvägen 7a Accounting, HR, IT, Procurement, Real Estate Pudong, Shanghai 200120, China 114 56 Stockholm, Sweden Tel: +86 (0)21 28909093 Tel: +46 (0)8 662 30 67 and Facilities Management and other critical infochina@equaterra.com infonordics@equaterra.com business processes. EquaTerra helps clients achieve significant cost savings and process Finland (Baltics and Russia) United Kingdom improvement with internal transformation, Mannerheimintie 12b, 5th Floor 150 Minories, London EC3N 1LS shared services and outsourcing solutions. FIN-00100 Helsinki, Finland United Kingdom www.equaterra.com Tel: +358 (0)9 2516 6368 Tel: +44 (0)845 838 7500 infofinland@equaterra.com infouk@equaterra.com Germany Americas Herriotstrasse 1 Three Riverway, Suite 1290 60528 Frankfurt, Germany Houston, TX 77056 Tel: +49 (0)69 67733423 United States of America infogermany@equaterra.com Tel: +1 713 470 9812 infoamericas@equaterra.com India Level 4, Rectangle No.1, Commercial Complex D4, Saket, New Delhi 110017, India Tel: +91 (0)11 4051 4227 infoindia@equaterra.com Copyright © EquaTerra 2010. All rights reserved. The prior written permission of EquaTerra is required to reproduce all or any part of this document, in any form whether physical or electronic, for any purpose. 3148EU_July2010. Copyright © EquaTerra 2010. All rights are reserved. EquaTerra 2Q10 Global Pulse Surveys. Results for Computer Weekly - Page 16