Magic Quadrant for European Offshore Application Services

Transcription

1 Magic Quadrant for European Offshore Application Services Gartner RAS Core Research Note G , Ian Paul Marriott, Gianluca Tramacere, Allie Young, Helen Huntley, Partha Iyengar, Arup Roy, 20 November 2008 The Magic Quadrant for European Offshore Application Services positions companies involved in globally delivered application service initiatives and presents the current provider landscape. WHAT YOU NEED TO KNOW Please read Findings: Recent Satyam Events and Their Impact on Published Gartner Magic Quadrants for recent information about Satyam s financial status that may impact the analysis contained in this Magic Quadrant. The Magic Quadrant for European Offshore Application Services analyzes the market for application services delivered in a global delivery model (GDM). The relative positioning of service providers in this year s Magic Quadrant is based on factors that Gartner has determined to be most relevant to this market and model. For 2008, Gartner has again analyzed service providers of globally delivered (offshore) application services in two separate Gartner Magic Quadrants, one for North America and the other for Europe. Some providers appear on only one Magic Quadrant; other providers appear on both the North American and European Magic Quadrants. We believe that two reports are needed because we continue to see variances in these two markets regarding the maturity of the respective markets, buyer adoption levels and vendor competition levels. Therefore, although providers strive for globally common processes and methodologies, a provider s placement may be different on one Magic Quadrant than on the other. In addition, as this market continues to evolve, future analysis may offer one global perspective versus regional perspectives, as we have done this year. Expertise in the global delivery of application services requires a combination of technical skills and competencies in the life cycle of application services (architecture, design, development and management) via a labor resource pool that is strategically located to offer clients holistic, integrated access to on-site, onshore, nearshore and offshore service delivery. A service provider s GDM relies on processes, methodologies, and project and program management to effectively leverage geographically dispersed resources in performing core technical application service skills on behalf of clients. Additionally, a service provider s sales and marketing strategies are essential to communicate to the marketplace; current and prospective clients must understand the unique skills and relationship approaches that differentiate a provider in a fast-evolving and hypercompetitive application service market. To assist application service buyers, Gartner developed the Magic Quadrant for European Offshore Application Services (see Figure 1). Application service buyers must assess which service providers bring the appropriate application competencies, global service locations, institutional and business cultures, and skill bases that meet their specific business and application service needs. Each year, we emphasize that buyers shouldn t simply evaluate service providers that appear in the Leaders quadrant. All selection processes are enterprisespecific; consequently, providers positioned in each of the different quadrants Leaders,

2 2 Challengers, Visionaries or Niche Players should be evaluated carefully for your particular requirements. For example, a provider in the niche category may prove to be more appropriate for the requirements of certain application service buyers and their organizational needs than a provider in the Challengers or Leaders quadrant. MAGIC QUADRANT Market Overview In the past year, competition in the application service market has accelerated, with a provider s global delivery capabilities and processes being a cornerstone of positioning. Just as globalization has had an increasing impact on commerce and economic activity worldwide, globalization has also changed the IT services market. Specifically in the area of application services, global delivery often referred to as offshore services is transforming competition from the standpoint of a provider s ability to access skills broadly, support varying client needs for geographic and time zone coverage, deliver scale and flexibility, and provide variability in pricing options. All of these aspects of global delivery depend on a provider s ability to: Set a strategy for global expansion and execute on that strategy Capitalize on and perfect its global delivery infrastructure Hire, train/retrain and retain skilled workers in multiple geographies Optimize global processes, tools, methodologies and resources Communicate its value to the market and win business Figure 1. Magic Quadrant for European Offshore Application Services ability to execute challengers Note: EDS and HP have been evaluated separately because the acquisition was not final within the analysis time frame. Source: Gartner (November 2008) leaders IBM Accenture Tata Consultancy Services Infosys Technologies Capgemini Satyam Computer Services Wipro Technologies HCL Technologies Cognizant Logica Atos Origin CSC EDS Siemens SIS HP TietoEnator niche players visionaries completeness of vision As of November 2008 For this year s offshore application service Magic Quadrant, Gartner analysts identify four main forces that have had a profound impact on this market and that directly or indirectly shaped our views for analyzing competitors and their progress: Interconnected and globalizing economies Broad and widespread economic pressures/woes Increasing pressure for IT to support the business More valid service provider options globally than ever before At the most basic level, these forces describe the new challenges for both the demand side and the supply side of the market. For user organizations, the imperative for buyers of IT services to carefully select service providers that can assist them in meeting these challenges is critical. For service providers, these forces define a market that is full of opportunities to assist buyers by supporting business applications, but also a market fraught with new competitive challenges and risks, and a market that puts a premium on business value, transparency, flexibility and cost efficiency. The Magic Quadrant is copyrighted November 2008 by Gartner, Inc. and is reused with permission. The Magic Quadrant is a graphical representation of a marketplace at and for a specific time period. It depicts Gartner s analysis of how certain vendors measure against criteria for that marketplace, as defined by Gartner. Gartner does not endorse any vendor, product or service depicted in the Magic Quadrant, and does not advise technology users to select only those vendors placed in the Leaders quadrant. The Magic Quadrant is intended solely as a research tool, and is not meant to be a specific guide to action. Gartner disclaims all warranties, express or implied, with respect to this research, including any warranties of merchantability or fitness for a particular purpose Gartner, Inc. and/or its Affiliates. All Rights Reserved. Reproduction and distribution of this publication in any form without prior written permission is forbidden. The information contained herein has been obtained from sources believed to be reliable. Gartner disclaims all warranties as to the accuracy, completeness or adequacy of such information. Although Gartner s research may discuss legal issues related to the information technology business, Gartner does not provide legal advice or services and its research should not be construed or used as such. Gartner shall have no liability for errors, omissions or inadequacies in the information contained herein or for interpretations thereof. The opinions expressed herein are subject to change without notice.

3 Pertinent to this year s offshore application service Magic Quadrant, these forces point to the hypercompetition in the application service market. Global service delivery has become a critical competitive element of service providers to support clients business applications and their globalization efforts. Service providers able to deliver greater cost take-out or cost efficiencies, and to leverage a vast global labor pool on behalf of clients business needs, will have a competitive advantage. However, with so many service providers pursuing application service opportunities and promoting their offshore competencies, the competitive landscape is crowded (for example, the analysis considered more than 100 vendors); skills and scale alone are insufficient to achieve a position of market leadership and the necessary revenue growth to sustain such a position. Therefore, in this year s Magic Quadrant for European Offshore Application Services, Gartner analysts relied on both quantitative (revenue) and qualitative measures to select the provider list to be considered. Some providers that appeared in the 2007 Magic Quadrant but are not in this year s study remain viable players; but with a er revenue bar for inclusion, these providers did not meet the requirements. Therefore, we emphasize that a change in one service provider s position does not necessarily indicate weakness in its individual performance or quality of service, but rather in a comparative review, its competition may be making more aggressive moves. For example, a company that has been in the Magic Quadrant in previous years but does not appear on this year s Magic Quadrant may be performing well for its clients, but it may not have met the er quantitative targets set for inclusion in this particular research effort. Similarly, an organization that moves from the Challengers to the Niche Players quadrant may be doing well in its own right, but comparatively is not moving as quickly or aggressively as other competition. (see the section below, Inclusion and Exclusion Criteria ). Market Trends The European market for offshore application services has grown significantly during the past 12 months, and the European market s growth rates continue to outpace those of the North American market. This provides a significant opportunity to providers, and this has been reflected in the amount of investment made in Europe (by the pure-play offshore providers, in particular) to expand their opportunities for globally delivered application services. Although the U.K. remains the dominant purchaser of globally delivered application services in Europe, enterprises from a growing number of regions including the Nordics, Benelux, Germany and France are taking advantage of globally delivered services. In addition, as Western European buyers seek the optimum providers for their organizations needs, many nearshore and even onshore countries are emerging as alternative (or additional) locations for service provision. In the European market, it is essential for providers to not only establish operations in key buying centers but also be able to address the local language and cultural demands of the buyer, in addition to the critical business operating practices of the individual markets. To this end, it has proved beneficial for nondomestic providers to ensure a critical mass of local hires. For some providers, the option of acquiring a European-based organization has to be seriously considered to advance this strategy. The complexity of supporting Pan-European operations dictates that it is no longer viable to have an India-centric strategy. As a result, although some traditional providers are still trying to build critical mass in India, all providers must invest further in nearshore or possibly low-cost onshore European delivery centers. In the course of our research for this Magic Quadrant, which included briefings by service providers and input from service providers clients, and in our ongoing offshore research, Gartner analysts identified several key forces at work shaping the offshore application service market today. Some of these forces have been present and evolving for some time, whereas others are new or taking on new meaning; we believe these represent the most influential forces that shape the competitive dynamics today. Hypercompetition and revenue growth among application service providers: Given the rapid rate of global expansion, double-digit application service revenue growth for providers, and increasing pace of competitive change among service providers in today s application service market, it is not surprising that service providers market position is being constantly challenged. This is reflected in very aggressive competition for new business, but is also seen in some position changes in the Gartner Magic Quadrant from year to year. Despite economic uncertainty and some changes in IT spending, which Gartner tracks closely, the global delivery of application services from external providers continues to grow. Continued strong adoption of the offshore/global delivery model: service providers report record revenues and new contract signings for application services in a GDM. Beyond traditional European markets such as the U.K. and the Netherlands, clients are increasingly receptive to offshore delivery and expect a global delivery option to be presented; although a cautious approach is needed, the offshore stigma that once prevailed is largely a nonissue, even in countries such as Germany and France. The bar is being raised for all service providers promoting offshore service delivery. While clients initially accepted offshore application services for cost savings, they expect that a provider s GDM will now also meet s for value, quality, skills, predictability and reliability. Service providers are investing in processes, tools and methodologies to make their services seamless. Furthermore, many providers are revamping their approaches for global delivery centers by aligning centers/skills by vertical expertise; this can afford a follow the sun support model as well as diversification of skills and risk in a more leveraged global model. Market convergence is occurring, but buyers must differentiate the many provider options: Although the tenure, experience and size of traditional service providers give them a significant advantage, the marketplace is also endorsing the offshore providers capabilities by signing deals of significant size with India-based providers as well as other providers from emerging countries. This leads Gartner to make the bold claim that the offshore service providers have been the catalyst for a major shift in the IT services market and outsourcing competitive landscape. For some time, offshore providers operated below the radar of many enterprises, pursuing small-scale project work and staff augmentation services. However, now that the leading Indian providers, in particular, have extended their range of services across the whole spectrum of application services and into infrastructure and have more visibility and expectations from financial analysts, they have been competing boldly for larger 3

4 4 outsourcing deals sometimes outside of their original comfort zones. The convergence in the market has resulted in most provider types now offering an offshore value proposition, but the result is a significant challenge for every provider to differentiate itself and have clearly unique value propositions for application services and their GDM. For buyers, this means that lines between traditional service providers and offshore providers are converging. Looking beyond India to expanding global opportunities and footprints: For service providers, this is the new reality, with significant implications for their business. First, the globalization of economies has broadened service providers opportunity to serve more clients in more geographies with application services. This means that many providers are taking concerted steps to systematically build out local presence in more strategic country locations (particularly in Europe), establishing sales and marketing, but also new delivery capabilities that serve those new markets India is no longer the only delivery source. Second, the shift from an India-centric offshore delivery strategy to a global stage has meant that many providers are already far along in proactively evolving a delivery footprint to become a truly global one by building out delivery centers in other countries/regions China, Russia and Brazil, as well as Latin America, Eastern Europe and Asia. Gartner predicted that the bilateral onshore-offshore model would give way to integrated, global delivery networks. Some providers are trailing in this regard; what we wrote last year in the Magic Quadrant analysis has come true: Providers that aren t on the accelerated curve to fully integrate and systematically invest in and advance their GDMs are quickly losing ground. We believe that service providers with concerted investments in strategically building out a multicountry, globally integrated delivery model will dominate in the future. For buyers of services, this means that there is an increasingly complex array of global delivery and country options available. Greater sophistication in service providers sales and marketing strategies and messages for application services/ solutions: In a year s time, it has become apparent which providers have made great strides to refine and hone their clientfacing skills. Greater clarity and sophistication in marketing messages, competitive values and vision statements for application services are supported by concrete actions of hiring local sales skills, verticalizing offerings and even reorganizing (often by global vertical competencies) for more-effective reach of clients. Ultimately, this attention to market-facing issues is mandatory to achieve differentiation in this crowded market. Despite investment and senior executive-level attention to this critical aspect of their business, clear differentiation in the market eludes many providers. For buyers, the evaluation process will likely get more complex because there is less differentiation in the market. Buyers of services will need to interpret more-sophisticated messages to determine where and how service providers can truly assist them. Greater attention to innovative pricing strategies and options: Service providers in this year s research reported emphasis on demonstrating new value to clients by offering alternative pricing options, including aligning pricing with business outcomes through outcome-based pricing. This reflects service providers success in moving their offshore application service portfolio from a strictly cost-focused value proposition to one of more meaningful business alignment and impact. The past criticisms of the offshore providers being effective only in low-risk, hourly-labor-based pricing schemes are no longer the case; many service providers actively promote alternative relationship models where they will assume risk and accountability for application performance tied to business metrics. Accelerating pace of acquisitions and partnering: The big news acquisition completed in August 2008 was the HP acquisition of EDS, which has implications for two key providers in the offshore application service market as they will seek to integrate their global delivery centers and position themselves as one of the world s largest IT services firms. Many other service providers are relying on targeted acquisitions to support their global expansion, gain critical skills, and enter into new vertical markets or solutions areas. The market has matured, but due to the pace of competitive activity, most providers will need to rely on an acquisitive strategy to some extent to move quickly enough to capitalize on growth opportunities. Although partnering and subcontracting will be used to fill skill gaps or address scale requirements, these forms of skills provisioning are less reliable and arguably less satisfactory to clients (er costs are inevitable when a third party is used). Continuing evolution of service providers service portfolios: The range and depth of service providers application skills are impressive and continue to grow. ERP, Web services, consulting, application testing and application modernization services are among the most prominent growth areas in this year s discussions. However, there is also momentum for application service providers to expand into infrastructure services and business process areas. In contracts where bundling of services is required, these added services are now mandatory; however, they are not covered in this Magic Quadrant. Research Process Gartner s Magic Quadrant process involves conducting primary research, including obtaining client references as well as each service provider s representation of its organization. Additional analysis is conducted by Gartner analysts direct contact with enterprise buyers throughout the year. All these sources of information are carefully analyzed with a heavy emphasis on client feedback. As a result, many individual categories have client reference criteria factored into the scoring. Gartner considers client feedback to be one of the most-critical measures of a service provider s success. Gartner evaluates service providers on their ability to execute and on their completeness of vision. When the two sets of criteria are evaluated together, the resulting analysis shows how well the provider performs an array of services relative to its peers, and how well it s positioned for the future. This evaluation is a snapshot in time. Over time, the competitive nature of the offshore application service provider market affects the relative position of the evaluated companies. In addition to understanding the positions in this Magic Quadrant, enterprises must conduct due diligence and check references. They must ensure that their business cultures are synergistic or at least compatible with the service provider s culture. The mostcritical criteria for project success are a provider s capability to work within an enterprise s business culture and to work with an enterprise s people to effect the organizational changes that are essential to a successful initiative. Evaluation criteria for selecting service providers should reflect your company s desired business objectives, and should align with your enterprise and sourcing requirements.

5 Market Definition/Description This Magic Quadrant focuses on the application services delivered via a GDM (offshore/nearshore service model). Several definitions below help to shape the scope of the Magic Quadrant. Table 2. Completeness of Vision Evaluation Criteria Evaluation Criteria Weighting Market Understanding 5 Application-related IT service revenue: This isolates IT services (defined below) that are specifically related to the life cycle of application development (AD) and support: Design, development, testing and integration AD, deployment and integration Application maintenance and management IT service revenue: All IT-related services to design, build, enhance, operate and manage clients IT environments, such as: Consulting (business and IT) Development and integration IT management (infrastructure, applications and help desk) and process management Marketing Strategy Sales Strategy Offering (Product) Strategy Business Model Vertical/Industry Strategy Innovation Geographic Strategy Source: Gartner no rating no rating no rating low Offshore services: Offshore services denote any type of IT-enabled service that involves nondomestic creation of services for domestic consumption. (Context: Offshore services is an overarching term to describe the incorporation of globally dispersed creation and consumption of IT-enabled services. In reality, service delivery in a globally sourced model includes a combination of domestic and nondomestic resources. The location of resources and a mode of delivery are implied in the term offshore services. ) Global delivery and global delivery model: Global delivery is the ability of an organization s service provider (internal or external) to source skills from several global locations. This disparate set of resources must come together seamlessly, with process maturity, and must operate in a secure and scalable global infrastructure supported by significant investments to mitigate or manage risk. A GDM encompasses the assets and competencies of a service provider (internal or external) applied to delivering services using a combination of domestic and offshore service locations and resources. Assets and competencies include investments in IT skills and labor resources, tools, policies and procedures, methodologies, infrastructure, management, human resource functions, and delivery processes. (Context: The terms global delivery and global delivery model have become common as offshore services move beyond traditional geography-centric delivery. Although the term offshore services focuses on the location of service resources, the terms global delivery and global delivery model focus on the technical skills, process rigor, tools, methodologies, overall structure and strategies for seamlessly delivering IT-enabled services from global locations.) Application Service Delivery Application services are delivered in the following categories: Application outsourcing: A multiyear or annuity contract involving the purchase of ongoing application management services from an external service provider (ESP). The ESP supplies the people, processes, tools and methodologies for managing, enhancing, maintaining and supporting custom and packaged software applications. Application outsourcing (AO) strictly focuses on the application layer, isolating the services delivered in support of the life cycle of applications, typically defined by service levels and ongoing performance metrics. Discrete/project-based: A contract involving the purchase of application-related services for custom or packaged software, including one or more of the following: design, development, integration or implementation. Project-based application services are different from AO because they re purchased for a specified scope of work, to be executed within a finite timeline. Staff augmentation: A contract to provision technical workers to supplement client-application-related responsibilities. Typically, these services are contracted on a time and expense basis, in which the labor/hour rate is the key metric. Clients are responsible for the risk and management responsibility of the overall effort. Inclusion and Exclusion Criteria The criteria for inclusion of service providers for these Magic Quadrants are based on a combination of qualitative and quantitative measures. Quantitative Criteria for the 2008 Offshore Application Service Magic Quadrants: Service providers whose application-related IT services revenue is a minimum of: $200 million in Europe Service providers whose application service revenue delivered in an offshore/nearshore model (Gartner s global delivery model definition) is a minimum of: $100 million in Europe Service providers with a minimum of 30 offshore application service clients within Europe Service providers with a minimum of 2,000 for offshore application service head count

6 6 Qualitative Criteria: Overall market interest and visibility as determined by serious consideration for selection from enterprise clients Gartner analysts interactions that reveal interest in specific service providers for offshore/global service delivery The service provider serves multiple industries with a broad base of application services Added Vendors added: From the 2007 Magic Quadrant version, no new service providers were added. Dropped Vendors dropped: From the 2007 Magic Quadrant version, the following providers were dropped: Deloitte, Mastek, Perot, T-Systems and Xansa. Magic Quadrant Evaluation Criteria and Weights Gartner analysts evaluate service providers on the quality and efficacy of the processes, systems, methods or procedures that enable IT provider performance to be competitive, efficient and effective, and to positively affect revenue, retention and reputation. Ultimately, service providers are judged on their ability to successfully capitalize on their vision. The following are the evaluation criteria for this year s offshore application service Magic Quadrant along the two primary axes of Vision and Execution, along with the weights assigned to each parameter. Evaluation Criteria Ability to Execute Gartner analysts evaluate service providers on the quality and efficacy of the processes, systems, methods or procedures that enable IT provider performance to be competitive, efficient and effective, and to positively impact revenue, retention and reputation. Ultimately, technology providers are judged on their ability and success in capitalizing on their vision. Evaluation Criteria Definitions and Weights Product/Service: Core services offered by the provider that compete in/serve the defined market. This includes current product/service capabilities, quality, feature sets and skills, whether offered natively or through agreements/partnerships as defined in the market definition and detailed in the subcriteria. the state of the art in the organization s portfolio of services. Subcategories include (1) assessment of the service provider s practice area profile (that is, financials, resources, use and attrition), and (2) analysis of strategy and organization. Sales Execution/Pricing: The service provider s capabilities in all presales activities and the structure that supports them. This includes deal management, pricing and negotiation, presales support and the overall effectiveness of the sales channel. Market Responsiveness and Track Record: Ability to respond, change direction, be flexible and achieve competitive success as opportunities develop, competitors act, customer needs evolve and market dynamics change. This criterion also considers the provider s history of responsiveness. Subcategories include (1) specific client feedback, and (2) the vendor s demonstrated ability to adjust to market conditions. Marketing Execution: The clarity, quality, creativity and efficacy of programs designed to deliver the organization s message to influence the market, promote the brand and business, increase awareness of the products, and establish a positive identification with the product/brand and organization in the minds of buyers. This mind share can be driven by a combination of publicity, promotions, thought leadership, word of mouth and sales activities. Customer Experience: This evaluation criterion was weighted zero or No Rating because elements of customer experience were included within each of the other evaluation criteria. Gartner research has shown that client feedback is one of the most important indicators of potential success in working with a service provider; hence, collectively, feedback had a weighting across both axes of this Magic Quadrant analysis. Operations: The ability of the organization to meet its goals and commitments. Factors include the quality of the organizational structure, including skills, experiences, programs, systems and other vehicles that enable the organization to operate effectively and efficiently on an ongoing basis. Subcategories include (1) the organizational and business model, and (2) the global delivery model (downstream capabilities). Table 1. Ability to Execute Evaluation Criteria Evaluation Criteria Product/Service Overall Viability (Business Unit, Financial, Strategy, Organization) Weighting Subcategories include (1) assessment of specific services in the key application service arena including packaged or custom applications or specialty areas such as testing, and (2) analysis of technical knowledge and skills. Overall Viability (Business Unit, Financial, Strategy, Organization): Viability includes an assessment of the overall organization s financial health; the financial and practical success of the business unit; and the likelihood of the individual business unit to continue to invest in the service, offer the service and advance Sales Execution/Pricing Market Responsiveness and Track Record Marketing Execution Customer Experience Operations Source: Gartner (November 2008) no rating

7 Completeness of Vision Gartner analysts evaluate service providers on their ability to convincingly articulate logical statements about current and future market directions, innovations, customer needs and competitive forces, as well as how they map to the Gartner position. Ultimately, providers are rated on their understanding of how they can exploit market forces to create opportunity for the provider. Evaluation Criteria Market Understanding: Ability of the provider to understand buyers needs and translate these needs into products and services. Vendors that show the est degree of vision, listen and understand buyers wants and needs, and can shape or enhance those wants with their added vision. Subcategories include (1) the service provider s knowledge and articulation of key market direction and trends, and (2) the analysis of the service provider s executive leadership (including caliber, thought leadership, continuity and operational capabilities). Marketing Strategy: A clear, differentiated set of messages consistently communicated throughout the organization and externalized through the Web site, advertising, customer programs and positioning statements. Sales Strategy: The strategy for selling services that uses the appropriate network of direct and indirect sales, marketing, service and communication affiliates that extend the scope and depth of market reach, skills, expertise, technologies, services and the customer base. Subcategories include (1) the service provider s strategies for partnerships and alliances and (2) vision for creating new and/or additional application service business Offering (Product) Strategy: A service provider s approach to its offerings development and delivery that emphasizes differentiation, functionality, methodology and feature set as they map to current and future requirements. Table 2. Completeness of Vision Evaluation Criteria Evaluation Criteria Weighting Market Understanding Marketing Strategy Sales Strategy Offering (Product) Strategy Business Model Vertical/Industry Strategy Innovation Geographic Strategy Source: Gartner (November 2008) no rating Business Model: This evaluation criterion was weighted zero or No Rating, because Gartner s position is that the underlying business model is embedded in the following criteria: operations; overall viability (including business unit, financial, strategy and organization); service offering; vertical/industry strategy; and geographic strategy. Vertical/Industry Strategy: The service provider s strategy to direct resources, skills and offerings to meet the specific needs of individual market segments, including verticals. Innovation: Direct, related, complementary and synergistic layouts of resources, expertise or capital for investment, consolidation, defensive or pre-emptive purposes. Geographic Strategy: The service provider s strategy to direct resources, skills and offerings to meet the specific needs of geographies outside the home or native geography, either directly or through partners, channels and subsidiaries, as appropriate for that geography and market. Leaders Leaders are performing well today, have a clear vision of market direction and are actively building competencies to sustain their leadership positions. Challengers Challengers execute well today for the portfolios of work they select, but have a less-defined view of market direction. Consequently, they may be the next generation of service providers, or they may not be aggressive and proactive enough in preparing for the future. Visionaries Visionaries articulate important market trends and direction. However, they may not be in a position to fully deliver and consistently execute. They may need to improve their optimization of service delivery. Niche Players Niche players focus on a particular segment of the market, as defined by such characteristics as functional area, vertical industry, client size or project complexity. Their ability to execute is limited to those focus areas and, therefore, is assessed accordingly. Their ability to innovate may be affected by this narrow focus. Vendor and Accenture Accenture s heritage strength is business-led solutions; it will also compete head-to-head on price with offshore pure-play providers in cost-based competitive deals as needed. New initiatives have been introduced within the offshore structure in the past year that are designed to strengthen Accenture s Global Delivery Network (GDN): verticalization of India-based resources, a new solutions architect role to aid sales and pricing strategies, and closer alignment of CSI and management resources in delivery centers 7

8 8 Accenture continues to evolve its GDN as integral to its go-tomarket sales and delivery strategy: 93% of Accenture s top 100 clients utilize Accenture s GDN for some level of service delivery (up from 70% one year ago). Some clients perceive that Accenture lags behind its competition in terms of typical offshore/onshore resource ratios; greater communication with clients on the leverage of its offshore resource pool for application projects is needed. With the rise of multitower IT outsourcing, Accenture must develop clearer marketing/sales messages and offerings to explain to clients how it will deliver value with its GDN through integrated applications and infrastructure capabilities. Accenture is perceived in the market as a large, premiumpriced service provider that may be inflexible to work with. In cautionary economic times, this opens the door for offshore competitors to aggressively position themselves ahead of Accenture for cost-sensitive buyers seeking flexible partners. Atos Origin While its investment in enhancing the portfolio of global delivery capabilities continues, Atos Origin also focuses on migrating its business toward a fixed-price model to support an aggressive leverage of near/offshore resources (ideally 60% to 70%). Atos Origin s portfolio of application services is balanced toward both projects and full management services. It focuses on a wide spectrum of technology. Customers cite Atos Origin s flexible approach in managing the relationship and understanding the technical and business requirements. This is supported by a focus on process excellence. Atos Origin must continue to promote its brand in India to further reduce staff attrition, which remains er than its major competitors. While its investment in Morocco is ideally suited to target the French market, Atos Origin also needs to further enhance the depth and breadth of its capabilities outside of India. To support its future growth, Atos Origin needs to clearly communicate how it can pursue and manage leads related to global deals. Further growth leverage can also be achieved in areas such as application testing. Areas for improvements cited by customers include the ability to manage resources at the beginning of the offshore delivery project (when a ramp-up is often necessary) and communication around its full capabilities and the benefits delivered. Capgemini Capgemini s strong European focus and coverage, combined with a clear commitment to the development of a fully integrated GDM, gives it a clear appeal for clients with a European presence or preference for an EU-based provider. Aggressive plans exist to double offshore resources during the next two years, through a combination of organic and inorganic means. If executed, this should allow Capgemini to gain critical mass in a number of locations in addition to India. Capgemini has invested heavily in the sales and marketing of its Rightshore initiatives, and it has worked hard at instituting consistent tools and methodologies across its delivery centers to ensure more seamless, integrated support for clients. Capgemini still has the largest proportion of its offshore/ nearshore resources located in India, and many of these are from the Kanbay acquisition. While Capgemini has added scale to each of its non-indian offshore/nearshore delivery locations in 2008, its ability to achieve credible scale will be key to its ongoing success. Clients cite a lack of proactivity in suggesting alternative approaches to improving support and driving down cost (indicative of immaturity in global delivery). Capgemini must better leverage its continental European presence as a differentiator when compared with its Indian competitors. Growing investments by its competitors in Europe will increasingly dilute Capgemini s European heritage benefits. Cognizant Cognizant has successfully transferred its U.S. model of focusing on establishing strong and deep relationships with a small(er) number of clients to Europe. The creation of a nearshore center in Eastern Europe (Budapest) will allow Cognizant to become more attractive to customers in Continental Europe and address one of its key shortcomings in its European strategy that is a lack of nearshore resources. Cognizant has won a few blue-chip accounts in Europe that have helped it establish its brand awareness as an EU provider of offshore application services. The European presence for Cognizant is concentrated in the U.K. and, although growing, the penetration into mainland Europe has not yet been as successful. Although not the sole path to growth, an alliance approach in the largest market in mainland Europe (Germany) is risky. Alliances in the offshore services world have historically been difficult to manage and derive value from. Unless it continues to invest in capabilities designed to address the needs of the European market, it will be a challenge for Cognizant to replicate its U.S. success, which was driven to a large extent by its hybrid U.S./India business model, in the diverse European market where it does not enjoy that advantage.

9 CSC CSC can rely on a wide portfolio of application services. Its recent focus on leveraging its technical skills, global delivery capabilities and vertical experience to develop business solutions has the potential to support positive growth in the future. Beyond expanding the size of its nearshore/offshore capabilities, CSC is focusing on creating a global delivery network aimed at underlining the unique application capabilities of each center. CSC s aim is to link the delivery centers through common tools, processes and methodologies. Customers feedback pointed to CSC s strength in offshore application service engagements in terms of technical skills, compliance with contracted deliverables, process focus, trust and communication. While the creation of a global delivery network is sound, CSC will need to ensure that the transition to a homogeneous approach to delivering services is executed efficiently and in a timely way. Discipline and rigor are necessary but will also challenge CSC s reputation for flexibility in the market. CSC s experience, reputation and skills in globally delivered application services are not equally recognized across Europe. As such, to further grow in Europe and mirror its position in countries such as the U.K., CSC needs to focus on investing in sales, marketing and front-end delivery capabilities in some key markets such as Germany or Italy. Areas for improvement mentioned by customers include innovation, proactive delivery of service improvements and resource management. Finally, CSC would also benefit from enhancing its brand in application services outside of its key European markets. EDS EDS has consolidated and transformed its Best Shore global delivery approach by consolidating offshore centers into industry-aligned Global Competency Centers (GCCs) in various geographies. EDS focuses on the total cost of operations (which it calls EDS Designed for Run ) and overall quality for client applications as a component of its full stack service integration. EDS has created horizontal practices in Microsoft, Oracle, SAP and testing that are integrated with its industry teams. This further supports its vertical integration and orientation strategy and delivery. EDS needs to further market and demonstrate specific application capabilities through its integrated design to run approach that will aid clients in planning and implementing downstream business agility. EDS largely appears on shortlists for infrastructure-centric outsourcing, but clients have been reluctant to consider EDS for large application-only deals, especially implementation services. Continued commitment and focused strategy on the application business is necessary to prove to European clients that EDS is serious about growing its application business. EDS is investing significantly in an industry approach via its GCCs, but application clients largely are still focused on immediate cost savings, which will drive them to do shortterm planning focused on cost containment and reduction, not necessarily industry competencies. HCL Technologies HCL continues to leverage its integrated operations management framework to grow its application service revenue. HCL has a targeted sales strategy in pursuing deals that focus on business value delivery as opposed to driving volume. HCL s clients recognize it for its flexibility in adapting to changing business needs; this helps in developing a stronger relationship with its clients. HCL has been slow in building out a network of nearshore development centers to serve the European market; this will potentially inhibit its speed of growth in situations where a nearshore presence is required or would be a strong differentiator. Although HCL is positioning itself as a transformation partner, it still needs to gain the confidence of many of its larger clients to execute upstream application services and consultingtype work; to this end, clients believe that HCL should be more proactive and assertive in communicating on potential opportunities to lower costs or to innovate on current solutions. HCL has traditionally been viewed as a strong infrastructure service provider, and its application service revenue has historically been significantly lower than that of its peers. It must aggressively expand its application service marketing, to establish a strong and differentiated value proposition. HP HP senior leadership has articulated a new HP application strategy that is consistent with its overall service/outsourcing strategy and has a global road map for implementation. Global service delivery is enhanced by HP Centers of Excellence (COEs) that are linked, and are aligned with industry or technology domains and initiatives to industrialize HP s application services in areas like testing, modernization and management services. HP has established a broad and robust GDM with a significant presence for European clients; 80% of HP s global delivery centers are in cost-advantaged locations. 9

10 10 Although HP shows commitment to application outsourcing, clients are not yet consistently shortlisting HP for application services only deals due to lack of market awareness and presence. Clients cite weakness in HP s ability to have adequate numbers of skilled on-site application resources and the need for greater adherence to ized, repeatable methods for service delivery. While HP s service business is promoting an offshore application growth strategy, HP s corporate message emphasizes product before services. This places application services behind HP product services, where it may become lost in the overall HP brand. IBM In the past year, IBM evolved its global application service delivery processes and methodologies to ensure a consistent delivery experience for clients and dedicated industry-specific offshore centers. IBM s focus on globally integrated capabilities has led to increasing levels of industry-specific solution work and technical focus being done in dedicated offshore centers; in the past year, IBM s nearshore European delivery operations have exhibited this dedication and focus on key technologies (SAP and Web development, for example). IBM s market-led approach for services has been enhanced by a new application service consultant (ASC) role that helps align clients business needs with IBM s full service offerings and offshore resourcing needs. IBM s penetration and leverage of offshore/nearshore service delivery for business application solutions is lower overall compared with its competition; opportunities exist to increase its levels of offshore service mix. Clients perceive that IBM could be more proactive in postimplementation initiatives to leverage automation to enhance reliability, reduce costs and improve efficiency; and to introduce ideas for innovation to consistently drive more value in offshore application service engagements. Clients report that IBM is generally slower to respond and less flexible in its contracting approaches compared with some of its competitors that have fewer management approval layers, allowing more agility. Infosys Technologies Infosys continues to strengthen its global delivery capabilities through aggressive build-out of delivery centers and improvements in global delivery processes and methodologies. The strong Infosys brand image coupled with a ly scalable hiring process has allowed Infosys to manage the challenges of attrition and competition for resources better than some of its peers. Infosys has reorganized its business units in Europe to deepen its vertical-oriented transformational capabilities in an effort to broaden its customer base. Infosys inflexibility in pricing may slow its growth, especially in a tightening macroeconomic environment, unless it is successful in pursuing a er percentage of larger, and er-value, deals. Infosys has not yet successfully leveraged its -end consulting business to support and extend its application service business through its global delivery network. Infosys has been slow to take advantage of inorganic growth opportunities when compared to its direct competitors; failure to use strategic acquisitions may jeopardize Infosys growth requirements. Logica Logica s heritage in a wide range of application services is recognized in Europe, especially in key markets such as the U.K., France and the Netherlands. Its renewed focus on leveraging an industrialized and process-oriented delivery model is likely to cement its position in Europe. Logica s investment in capturing outsourcing services, and proactively driving the globalization agenda of its key accounts by leveraging its consulting resources, offers the potential for future growth. Customer feedback indicates motivated and qualified resources focused on addressing the deal while managing customer satisfaction. Customers also report that Logica s services offer value for money. Following organic and inorganic growth, Logica will be expected to execute its One Logica vision in a timely and rigorous way, where ized tools and processes can support profitability while enhancing a seamless customer experience. Logica s plan to enhance its global delivery capabilities (doubling the current head count of 4,000 by the end of 2009) needs to be supported by a focus on branding, and career development aimed at efficiently managing staff attrition. This will be particularly necessary to protect skills in key technologies. Customer interaction points to innovation, resource management, adherence to the customer security s, and continuity in management resources as areas for improvement.

11 Satyam Computer Services Satyam has a targeted vertical strategy, and its domain competency and successful penetration in the manufacturing and automotive sectors distinguish it in the market versus other India pure-play providers. Satyam aligns to changing customer expectations through a consulting-led approach for its business solutions and via centers of excellence in specific locations. Clients cite flexibility, experience and know-how of enterprise applications and commitment toward customer satisfaction as positive attributes. Transformation and innovation are not primary brand attributes of Satyam; although Satyam is investing in capabilities to position it as a transformation partner, it is still work in progress. Satyam s joint development and go to market approach leveraging partners for developing new service capabilities runs a risk of failure because of misaligned objectives of the partners and conflicting interests. Some Satyam clients cite a lack of proactiveness, lack of innovation and staffing issues (such as the turnover of key project people) as common problems. Moreover, Satyam lacks brand visibility in Europe, and it would need to be much more aggressive in order to boost its business in the European region. Siemens SIS Siemens SIS maintains a strong focus on application services and on the integration of global capabilities within its delivery model. Its global delivery capabilities include valuable and experienced SAP skills. Siemens SIS s alignment to the main vertical markets of its key accounts (including Siemens) offers the potential to position its application services and solutions closer to the business of the customer and, as a consequence, achieve organic growth by upselling. Customers interaction underlined Siemens SIS s ability in terms of compliance with the contract, technical and process adherence, and willingness to solve problems in a timely manner. Siemens SIS s alignment to its key accounts could hinder the potential for new business because new potential customers will remain cautious about the quality of capabilities made available to them. This may challenge Siemens SIS s ability to compete for deals with new accounts outside of its core markets. While Siemens SIS can rely on a wide set of application service capabilities, these are often known only to existing customers. Customer-centric initiatives around marketing and innovation are not likely to create awareness and growth outside of the established customer base. Areas for improvement mentioned by customers include understanding of the client business pressure points, the management of skills and continuity of management resources. Tata Consultancy Services TCS has continued to win large new contracts in application services and application outsourcing on a global basis. Combined with its depth and breadth of capability, this has ensured continued revenue leadership among the Indian providers. TCS continues to make targeted acquisitions to grow its presence in new markets and supplement its skills in industry domains, and it has recently reorganized to strengthen its vertical growth strategy. Customers cite TCS s responsiveness, flexibility in engagements, commercial arrangements and service delivery as strengths of TCS. Clients indicate some inconsistency in proactively offering alternative delivery approaches, such as increased automation, and in taking steps to improve efficiency and drive down cost. TCS must demonstrate greater ability to provide deep industry/ domain expertise across a broad range of industry verticals; while, in some areas, domain expertise was strong, clients in some industries cite gaps in market understanding or depth of resources with vertical understanding. With continued strong growth and recent organizational changes, TCS will face challenges in maintaining consistency and quality across its broad industry, service and geographical coverage areas. Hiring and training the sheer amount of resources it needs to sustain and grow the business will also be challenging. TietoEnator Despite its relatively small size, TietoEnator has a strong, established presence in offshore application services in the Nordic market. The introduction of a new CEO has reinvigorated TietoEnator s focus around global delivery, now seen as a key strategic area for investment. Recent results of this investment are the acquisition of Fortuna Technologies, an Indian telecom engineering company and the opening of a new delivery site in Belorussia. TietoEnator maintains a strong reputation for customer intimacy and focus on service delivery quality, key elements to achieve customer satisfaction in TietoEnator s domestic market. Beyond its core Nordic market, TietoEnator has very low European market penetration. Future growth will need to be supported by an aggressive marketing and branding investment. 11

12 12 Although its plan to transform the organization into a global delivery entity is sound, this journey has started late. Beyond growing the head count in near/offshore locations, TietoEnator will need to focus on internal change management in order to fully leverage the newly created nearshore and offshore capabilities. In its transformation toward a globally integrated company, TietoEnator must focus on achieving a seamless alignment of service delivery tools, processes and methodologies. Wipro Technologies Wipro has made strong investments in its industry-vertical focus, and it now has a significant number of domain consultants across its broad vertical coverage area. Continued investments in a broad range of countries are now building a balanced portfolio of GDN locations from which to support clients. These investments include an additional drive to establish delivery centers in Europe, the Middle East and Africa, often as a direct result of contract awards. Wipro has extended its local hiring practices in both consulting and sales to boost its local presence, knowledge and appeal. Although strong process capability underpins Wipro s appeal as a provider, an overly rigid approach to process quality raises concerns regarding its ability to deliver flexibility to its clients; some clients also cite a lack of proactive communication on project plans and delivery issues. Wipro s new executive structure, which includes joint CEOs (announced in April 2008) will take time to perfect and demonstrate effectiveness. Although Wipro has successfully established its technology and process credentials in the market, more work is required to build the perception of its business acumen with C-level executives. Vendors Added or Dropped We review and adjust our inclusion criteria for Magic Quadrants and MarketScopes as markets change. As a result of these adjustments, the mix of vendors in any Magic Quadrant or MarketScope may change over time. A vendor appearing in a Magic Quadrant or MarketScope one year and not the next does not necessarily indicate that we have changed our opinion of that vendor. This may be a reflection of a change in the market and, therefore, changed evaluation criteria, or a change of focus by a vendor.

13 13 Evaluation Criteria Definitions Ability to Execute Product/Service: Core goods and services offered by the vendor that compete in/serve the defined market. This includes current product/service capabilities, quality, feature sets and skills, whether offered natively or through OEM agreements/partnerships as defined in the market definition and detailed in the subcriteria. Overall Viability (Business Unit, Financial, Strategy, Organization): Viability includes an assessment of the overall organization s financial health, the financial and practical success of the business unit, and the likelihood that the individual business unit will continue investing in the product, will continue offering the product and will advance the state of the art within the organization s portfolio of products. Sales Execution/Pricing: The vendor s capabilities in all pre-sales activities and the structure that supports them. This includes deal management, pricing and negotiation, pre-sales support and the overall effectiveness of the sales channel. Market Responsiveness and Track Record: Ability to respond, change direction, be flexible and achieve competitive success as opportunities develop, competitors act, customer needs evolve and market dynamics change. This criterion also considers the vendor s history of responsiveness. Marketing Execution: The clarity, quality, creativity and efficacy of programs designed to deliver the organization s message to influence the market, promote the brand and business, increase awareness of the products, and establish a positive identification with the product/brand and organization in the minds of buyers. This mind share can be driven by a combination of publicity, promotional initiatives, thought leadership, word-of-mouth and sales activities. Customer Experience: Relationships, products and services/programs that enable clients to be successful with the products evaluated. Specifically, this includes the ways customers receive technical support or account support. This can also include ancillary tools, customer support programs (and the quality thereof), availability of user groups, service-level agreements and so on. Operations: The ability of the organization to meet its goals and commitments. Factors include the quality of the organizational structure, including skills, experiences, programs, systems and other vehicles that enable the organization to operate effectively and efficiently on an ongoing basis. Completeness of Vision Market Understanding: Ability of the vendor to understand buyers wants and needs and to translate those into products and services. Vendors that show the est degree of vision listen to and understand buyers wants and needs, and can shape or enhance those with their added vision. Marketing Strategy: A clear, differentiated set of messages consistently communicated throughout the organization and externalized through the Web site, advertising, customer programs and positioning statements. Sales Strategy: The strategy for selling products that uses the appropriate network of direct and indirect sales, marketing, service and communication affiliates that extend the scope and depth of market reach, skills, expertise, technologies, services and the customer base. Offering (Product) Strategy: The vendor s approach to product development and delivery that emphasizes differentiation, functionality, methodology and feature sets as they map to current and future requirements. Business Model: The soundness and logic of the vendor s underlying business proposition. Vertical/Industry Strategy: The vendor s strategy to direct resources, skills and offerings to meet the specific needs of individual market segments, including vertical markets. Innovation: Direct, related, complementary and synergistic layouts of resources, expertise or capital for investment, consolidation, defensive or pre-emptive purposes. Geographic Strategy: The vendor s strategy to direct resources, skills and offerings to meet the specific needs of geographies outside the home or native geography, either directly or through partners, channels and subsidiaries as appropriate for that geography and market.