Gartner Survey Reveals that Organic Growth Is Top Priority for IT Outsourcing Providers in 2011
Analysts to Examine Cloud Services at the Gartner’s Outsourcing Summits 2011, September 12-14 in Orlando and September 26-27 in London
Egham, UK - Growth is back on the agenda for IT outsourcing (ITO) providers, according to a recent survey by Gartner, Inc. Sixty-two percent of respondents identified growth as the top strategic goal this year, with aggressive marketing plans and investments in cloud, utility and “as a service” offerings.
“It is clear that providers are optimistic despite considerable uncertainty in the global economies,” said Rolf Jester, vice president and distinguished analyst at Gartner. “However, we predict the ITO services market will reach $313.2 billion in 2011, a growth of 6.9 percent from 2010, and will reach 4.6 percent compound annual growth rate through 2015.”
Gartner conducted an online survey in the first quarter of 2011 among 47 ITO providers, accounting for 62 percent of the total ITO market. The respondents represented the full range of providers, all major geographies and all types of ITO services including infrastructure (data center, desktop, storage and network), applications and cloud services.
“Many ITO providers are intending to commit serious marketing funds and target new accounts to outgrow the market,” said Bryan Britz, research director at Gartner. “The survey found that at least 50 percent of outsourcing providers said they’ll be spending 2 to 5 percent of revenue on marketing in 2011, which is higher than the historical norm for marketing expenditure as a percent of revenue (which has tended to be 1 percent to 3 percent for IT services providers). At the same time, ITO providers continue to invest significantly more in sales than marketing as demonstrated by two-thirds of providers indicating sales expenses are greater than 6 percent of revenue.”
With growth on the agenda, ITO providers will prioritize the pursuit of new clients. Forty-five percent of all ITO providers indicated that winning new clients is the top priority for 2011. At the same time, they recognize that the bulk of this year’s actual revenue growth will continue to come from existing accounts. Overall, between 66 percent and 70 percent of expected growth in 2011 will be generated by existing clients.
In terms of the ITO providers’ strategy on delivery models (such as utility services, cloud services and “as a service”) the survey found that broadly-defined “cloud” investments are top priorities for 2011 — especially investments in infrastructure utility or infrastructure as a service, but also private, community or government cloud services and software as a service. Between 60 and 64 percent of providers nominated cloud investments in the top three ITO investment priorities for 2011.
Gartner also asked providers to identify the percentage of ITO deals that will include delivery models as part of the contract. Overall ITO providers are realistic about their expectations for cloud deals in the current year and in 2012. The average percentage of deals expected to include cloud services and utility services or “as a service” delivery models is 18 percent for data center deals in 2011, growing to 24 percent in 2012.
However, ITO providers are conservative in their views of how the cloud phenomenon will affect their ITO deals by 2015. Only 34 percent of respondents said that their data center ITO deals will incorporate cloud/utility/as-a-service by 2015, but 26 percent don’t believe they will be involved in any of these deals.
Similarly, the growth implications from cloud-based services evoke mixed reactions among ITO providers. Fifty-six percent of ITO providers expect these alternative delivery models will drive overall ITO revenue growth by 2015, while 29 percent believe it will essentially cannibalize some ITO revenue.
“There is no going back to business-as-usual for ITO providers,” said Allie Young, vice president at Gartner. “Traditional business models are being turned inside out: it has started with the new business models and cloud ecosystem, and these trends will continue to impact the outsourcing business. “Providers that ignore those trends could find themselves stuck with yesterday’s delivery models and high cost structures as the market moves on around them.”
For additional information, see the Gartner report “Market Insight: Your IT Outsourcing Competitors Are Aiming for Growth, and So Should You,” available on Gartner’s website at http://www.gartner.com/resId=1762416.
The broader series of reports related to Gartner’s findings from the IT Outsourcing vendor survey are also available on Gartner’s website. They include:
“Vendor Survey Analysis: Competitive Comparisons, IT Outsourcing Contracting and Sales Performance, 2011”: www.gartner.com/resId=1752220.
“Vendor Survey Analysis: Competitive Comparisons, IT Outsourcing Growth Initiative Priorities, 2011”: http://www.gartner.com/resId=1752320.
“Vendor Survey Analysis: Competitive Comparisons, IT Outsourcing Profitability, 2011”: http://www.gartner.com/resId=1752318.
“Vendor Survey Analysis: Competitive Comparisons, IT Outsourcing Staffing Effectiveness and Strategies, 2011”: http://www.gartner.com/resId=1752222.
“Vendor Survey Analysis: Competitive Comparisons, Utility Services, Cloud Services and ’as a Service’ Portfolio Strategies, 2011”: www.gartner.com/resId=1752219.
Gartner analysts will discuss the adoption of cloud services at the Gartner Outsourcing & Vendor Management Summit 2011, September 12-14 in Orlando and the Gartner Outsourcing & IT Services Summit 2011, September 26-27 in London.
About Gartner’s Outsourcing Summits 2011
The Summits represent an intensive program designed to prepare outsourcing professionals for the next economic cycle and develop new approaches to service aggregation and management. Gartner analysts will provide practical guidance to help organizations advance their sourcing strategy and governance competencies in order to deliver more business value. In addition, Gartner analysts will help organizations understand the options for cloud services and evaluate their readiness to adopt them.
Additional information about the Summit in Orlando is available at http://www.gartner.com/technology/summits/na/outsourcing/Members of the media can register for the event by contacting Christy Pettey at email@example.com.
For more information about the Summit in London, please visit www.europe.gartner.com/outsourcing. Members of the media can register by contacting Laurence Goasduff at firstname.lastname@example.org.
Additional information from the event will be shared on Twitter at http://twitter.com/Gartner_incusing #GartnerOut.
Gartner, Inc. (NYSE: IT) is the world’s leading information technology research and advisory company. Gartner delivers the technology-related insight necessary for its clients to make the right decisions, every day. From CIOs and senior IT leaders in corporations and government agencies, to business leaders in high-tech and telecom enterprises and professional services firms, to technology investors, Gartner is a valuable partner to 60,000 clients in 11,500 distinct organizations. Through the resources of Gartner Research, Gartner Executive Programs, Gartner Consulting and Gartner Events, Gartner works with every client to research, analyze and interpret the business of IT within the context of their individual role. Founded in 1979, Gartner is headquartered in Stamford, Connecticut, U.S.A., and has 4,500 associates, including 1,250 research analysts and consultants, and clients in 85 countries. For more information, visit www.gartner.com.
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