X-as-a-Service: Impact on the Global Sourcing Market

“X-as-a-Service”
Impact on the Global Sourcing Market

Prepared for Dr. Dwayne Whitten, Texas A&M University
Presented by Stanton Jones

October 24, 2012

Copyright © 2012 Information Services Group, Inc. All Rights Reserved. No part of this document may be reproduced
in any form or by any electronic or mechanical means, including information storage and retrieval devices or systems, without prior written permission from ISG, Inc.

Agenda 2

1. About ISG
2. State of the Market: Q312 TPI Index
3. “X-as-a-Service”
► Impact on the sourcing agenda
► What we’re seeing in the market
► Where we’re headed

Copyright © 2012 Information Services Group, Inc. All Rights Reserved 2

About ISG


The Power of One: ISG-One ISG Services Tools

ISG is a leading technology insights, market intelligence and advisory services
company, offering clients one source for support in driving operational effectiveness.

The world’s leading
sourcing data and
advisory firm.
the power
A premier of One
independent
technology The premier independent
advisory serving the TM
provider of business and IT
U.S. public sector benchmarking, performanc
e improvement, data and
analytics services.

Unrivaled Depth of Experience ISG Services Tools

ISG focuses exclusively on helping clients achieve operational excellence.
Our depth of experience is unrivalled.
scale
We advise on over 25% of the Sourcing Markets Annual TCV Awarded.
Having advised on over $330 billion in contract value, no other advisory
firm comes close to our level of market engagement and experience.

value
75% of our clients are either repeat or direct referrals. Our clients come back
to us time and time again for critical market insight and advice around their
strategic operational imperatives.

clients
75% of the Forbes Global 100 are ISG clients. We advise the world’s largest
blue chip firms through some of their most critical business operations
transformation projects.

market voice
The TPI Index® is the premier source of quarterly insight and is considered
the authority on trends and developments in the global sourcing industry.

State of the Market


At A Glance

3Q12 ACV 3Q Y/Y 3Q Q/Q YTD ACV YTD Y/Y
Scorecard ($B)* Change Change ($B)* Change
Global Market $ 4.8 -6% -10% $ 14.8 3%
New Scope $ 3.2 16% -19% $ 9.8 2%
Restructurings $ 1.6 -33% 17% $ 4.9 6%
Mega-Relationships $ 1.5 1% -26% $ 4.5 51%
ITO $ 3.2 -13% 8% $ 9.2 -3%
BPO $ 1.6 12% -32% $ 5.6 17%
Americas $ 1.6 -11% -8% $ 5.4 2%
EMEA $ 2.5 -12% 14% $ 6.9 -8%
Asia Pacific $ 0.7 55% -51% $ 2.4 72%


Top Service Providers Year-to-date
The 15 top service providers based on YTD 2012 ACV* awarded globally.

ITO Providers BPO Providers
ACV ACV
Accenture Accenture
CGI CGI
HCL HCL
HP HP
IBM IBM
Infosys Infosys
Mahindra Satyam Mahindra Satyam

Atos Genpact
BT ISS
Capgemini Johnson Controls
CSC Jones Lang Lasalle
Dell Mitie
Fujitsu Serco
TCS Sodexho
T-Systems Xchanging

Note: Service providers in alphabetical order; no rankings implied.
Placements based on 2012 YTD commercial contract awards sourced from ISG contracts database.

Multi-sourcing is now the norm
Over 80% of companies that source ITO on a significant scale do so with
multi-sourcing strategies; this significantly increases the complexity through
increased technical and relationship interfaces.

Increase in multi-sourcing

Delivery Models
Increasingly, both clients and providers want to move to more
standardized delivery models…


“X-as-a-Service” and the sourcing agenda


X-as-a-Service and the sourcing agenda

InSourcing Selective Strategic Gain Sharing
Sourcing Sourcing
Q: Where Does “X-as-a- Function
Strategies

InSource Optimization Single Broad Scope Value Sharing

Service” Fit?
Supplier
Single Vendor
Joint Venture
Multi-vendor
Subsidiary
Tiered-vendor Model
Single Geography Multi-geography Rural
Staff Augmentation Project Based Managed Service

Contractor Onshore Near Shore Offshore Hybrid
Tactics

Assumed Risk Shared Risk Source the Risk
Maintain Complete Control Shared Control Relinquish Operating Control
Operating

Outsourced Models Staff Augmentation Model Insourced Models
Models
Target

Global
Extended Operations Centre of Virtual Traditional
Centre Captive Sourcing Onsite Offshore Captive Insourced
Centre Excellence

Transition Transformation Realignment
Scope &

Models
Change

Applications Infrastructure Processes Hybrid Sourcing Model
Centralized Organization Decentralized Organization Shared Services Hybrid Model
A: It doesn’t!
Bundling
Options

Development Technology Business Development &
Maintenance Technology Tower
Lifecycle Platform Process


The answer first…
► Cloud technology is evolutionary – the democratization of IT, via
standardized and shared platforms, is revolutionary.
► This revolution is having an increasingly dramatic impact on the sourcing
agenda: both external engagement models and internal operating models.
► SaaS is rapidly entering the enterprise via HR, sales and corporate email; the
promise of IaaS is losing ground to utility infrastructures.
► SaaS buyers value: features and mobile, with unintended consequence of
decreased reliance on IT; IaaS buyers value: provisioning speed with
unintended consequence of modernization.
► Security, commercial terms and business case are key adoption barriers.


The standardization and hybrid nature of cloud is creating dramatic
changes in external engagement models…

 Contracting for IaaS, and especially
SaaS, requires input from several
traditional towers, usually including
both BPO and ITO.
 Features and service levels are highly
standardized; creating a significant
change in the traditional contracting
process.
 High level of interaction with legal and
procurement; helping the client what
can (and can’t) be negotiated.
 Comparing base to business case often
apples & oranges.
 ITSM and DR often ignored.


Increasingly, we’re having contracting discussions with our clients, helping
them to understand new options created by the movement to as-a-service.
Transition &
Contractual Relation Transformation Operations

Cloud
Client
Provider
Client*

Cloud
Integrator
Provider
Client*

Cloud
Integrator Integrator**
Provider

* Delivery of potential services that are not included in standard cloud offering
** Responsibility for full service, including elements not included in standard cloud offering

What we’re seeing in the market


Assessing the Level of Cloud Adoption

1 Percentage of ISG Advised
Contracts with Cloud in Scope

27%
2 Number of Industrywide
Contracts with Cloud in Scope*

20% ↑100% 300e
9% 220
110

2010 2011 2012 YTD 2010 2011 2012e

3 ISG Quarterly Provider Survey: Cloud Computing
Provider Pipeline
► Half have cloud scope in 25% of their pipeline opportunities
► Cloud-based opportunities are up over previous periods
► All providers expect cloud services to grow faster than traditional ITO,
predominantly in the U.S. market

*ISG Contracts Knowledgebase®

Recognizing the Realities of Cloud Deployment

Cloud
Strategy

Cloud Deployment Models
Public Cloud Private Cloud
Shared Infrastructure Dedicated Infrastructure

Opportunity Perceived Risk Caution!
• Economies Security & data Does not fully
of Scale privacy concerns realize cloud’s
• Standard promise
• Modern

Converged / Utility / Dynamic
IaaS SaaS BPaaS
Computing

Cloud Service Models


Opportunities and Challenges in the Provider Community

Traditional Multinational
Providers

Expansion of existing ITO
business
India-heritage
Pure-play SaaS and IaaS Providers
Integrating acquisitions
Providers
Application
Unbound by legacy 1 transformation and
constraints modernization
2
5
Security and privacy Solution Reliance on infrastructure
concerns Assessment partners

4 Mid-market
Traditional Software 3 Hosting Providers
Companies
Innovative shared hosting
Existing relationship with platforms
IT and procurement
Supporting large, complex
Cannibalization of license clients
revenue streams


What we’re seeing in the market

Software-as-a-Service

Infrastructure-as-a-Service


What we’re seeing in the market: SaaS
HR, CRM, ITSM and email lead the way; SAP as-a-service has moved
into the mainstream…
►Strong demand for Workday and Oracle Fusion (SaaS):
 ≈75% of US HR clients using SaaS on periphery.
 Half of HRO clients are evaluating Workday or Oracle Fusion –
adoption still remains low however. Sunk cost in Oracle and SAP as
well as immaturity of SaaS outside US are primary reasons.
►Demand for cloud-based email and collaboration picking up:
 Microsoft 365 picking up steam over Google Apps.
 More interest in contracting directly than via a SI.
►ServiceNow continues to displace traditional on-premises ITSM
platforms; internal “all advisor” discussions picking up considerably.
►SAP as-a-service: client brings license, provider transforms to service

What we’re seeing in the market: SaaS
Majority of time spent on SaaS deals today: feature comparisons,
evaluating standard commercial terms, creating business case.

SaaS Vision Value to ‘Buyer’ ISG Asks
Rapid access to new capabilities High Who will test?
Mobile enabled High Multi-device support?
Decrease reliance on IT High What about ITSM?
Eliminate upgrades Medium Are quarterly releases forced?
Eliminate customizations Medium Will retained staff configure?
Reduce TCO Medium Business case 5+ years?
Faster to implement Medium Can legacy be sunsetted?
Pay per user Low How much required up front?
More secure than current Low Produce artifacts/auditable proof
Easy to integrate Low Are external systems API enabled?


What we’re seeing in the market: IaaS
We’re seeing the promise of “as-a-service” giving way to gradual
transition to dedicated, standardized & virtualized infrastructures…

►Renew, restructure, recomplete infrastructure clients want to evaluate
new delivery models and expect cloud-like features to be a significant
portion of new service.
►Reducing provisioning times from weeks to hours/days is #1 priority.
►However, final agreement typically has very little cloud. Here’s why:
 Apps not considered upfront ; significant modernization required
for legacy apps to run on shared platforms.
 Retained org does not have skills, or see value, in self-provisioning.
 Lack of business case; clients don’t know how much they use today.
 Inability of provider to educate client on strategic benefits of shared
platforms, and the relationship between different delivery models.

What we’re seeing in the market: IaaS
In general, the provider approach we see with new infrastructure
deals is transition + transformation, using a tiered model…
1
Physical Virtual Physical Virtual

Windows/Linux Windows/Linux Unix

Filter based on 2
application, database, platform, util
ization, etc.

Determine service tier.
3
Platinum Gold Sliver Bronze

Forklift Standardize Public
Private Shared
(no change) (virtualize) (IaaS or SaaS)
Apps that require Virtualized infrastructure – Commodity applications Test/Dev for IaaS; HR, CRM,
dedicated typically based on that can be modernized Email for SaaS
infrastructure, or are VMWare reference and standardized
too risky to transform architecture (e.g. SAP as a service) 4

% of portfolio % of portfolio % of portfolio % of portfolio


What we’re seeing in the market: Adoption Barriers
While clients desire ‘x-as-a-service’ models, and providers are
delivering standardized, shared platforms, key challenges exist:

►Security
 IT organizations are not ready to let go; multi-tenant platforms
remain a huge hurdle.
 Policies and guidance have not yet caught up.
►Commercial Terms
 Standard outsourcing terms around audit and liability may not apply.
 Compliance with EU Data Privacy Directive another huge hurdle.
►Financials
 Implementation costs may be similar to on-premises.
 TCO benefit does not kick in until a major upgrade is avoided.

Where we’re headed


Where we’re headed: SaaS Before

PR, Comp,
BPO HR: Sourced to

Ben
Client HR Provider X
eBonded Tools Software:

Run, Integrate
ITO ADM: Sourced to Client-

& Build
ITSM

Provider X Owned Tier
1 ERP
Client IT

Hosting
ITO Infrastructure:

& DR
Sourced to Provider Y

The pre-SaaS service model is typical for many multi-tower clients.


Where we’re headed: SaaS After

PR, Comp, Be
n
eBonded Tools
BPO HR: Sourced to
Client HR Provider Z

Integrate, Con
SaaS

figure, DR
ITSM

Provider

Hosting
& Run
Client IT SaaS Provider

The post SaaS model not only displaces providers, but functions shift as well.


Where we’re headed
Cloud’s disruptive effects on sourcing will accelerate, especially for the sourcing
market’s traditional IT providers.

Less
Disruptive
Trends

IaaS will lag in favor of dedicated, standardized and
virtualized infrastructure services

Cloud growth will be choppy at the enterprise level with
SaaS leading the way in HR, CRM and collaboration

Traditional IT providers face significant pressure from well-
known software vendors, nimble mid-market players and
emerging pure-play infrastructure and SaaS providers
Buyer type shifting from the IT department to the functional
business units, especially SaaS-based HR and CRM
Highly
Disruptive
Trends


X-as-a-Service: Impact on the Global Sourcing Market

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