Magic Quadrant for Data Center Outsourcing, 4Q03
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1 Markets, R. Matlus, W. Maurer, L. Scardino, B. Caldwell Research Note 12 November 2003 Magic Quadrant for Data Center Outsourcing, 4Q03 Gartner's positioning of the 14 external service providers in the North American Data Center Outsourcing Magic Quadrant reveals that experience and attention to a market really do help to create leaders. Core Topic Sourcing: ESP Evaluation and Selection Key Issue How are individual ESPs positioned in the competitive landscape? Note 1 Data Center Definition and Outsourcing Gartner defines data center as the centralized support of computer equipment in a secure facility, the underlying network infrastructure, and the processes and organization that support this environment. Data center outsourcing generally includes the following services: System operations To qualify for this Data Center Outsourcing Magic Quadrant, external service providers (ESPs) needed to show at least $50 million in annual data center outsourcing revenue and 10 North American client references (see Note 1 for data center definition and outsourcing services). Fourteen ESPs qualified and participated, and some of the smaller or regional data center providers did not meet the minimum requirements. Gartner's Data Center Outsourcing Magic Quadrant (see Figure 1) positions the 14 ESPs based on their ability to execute and the completeness of their vision in this service category. The criteria used to evaluate the ESPs is described in "Data Center Outsourcing Magic Quadrant: Vision Criteria" and "Data Center Outsourcing Magic Quadrant: Execute Criteria" (a summary listing of evaluation criteria is shown in Note 2). Tape operations Print operations Second-level data center support Production control Backup and recovery processes Technical support (operating systems and subsystems) Performance analysis/capacity planning Storage management System security/contingency planning Asset procurement and third-party management Gartner Reproduction 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. Gartner shall have no liability for errors, omissions or inadequacies in the information contained herein or for interpretations thereof. The reader assumes sole responsibility for the selection of these materials to achieve its intended results. The opinions expressed herein are subject to change without notice.
2 Note 2 Magic Quadrant Descriptions Leaders are performing well today, have a clear vision of market direction and are actively building competencies to sustain their leadership position in the market. Visionaries have a clear vision of market direction and are focused on preparing for that, but they still can improve in terms of optimizing service delivery. Challengers execute well today, but have a less-defined view of market direction, and therefore, may not be aggressive in preparing for the future. Niche Players focus on a particular segment of the client base, as defined by characteristics such as size, vertical or project complexity. Their ability to outperform or innovate may be impacted by this narrow focus. Gartner does not advise enterprises to select only ESPs in the Leaders quadrant. In some situations, ESPs in the Visionaries, Challengers or Niche Players quadrants may be the right match for an enterprise's requirements. Ability to Execute Figure 1 Data Center Outsourcing Magic Quadrant Challengers (i)structure Northrop Grumman Acxiom Lockheed Martin Systems Management Specialists Infocrossing Leaders Computer Sciences Corp. Perot Systems EDS CGI Unisys Hewlett-Packard IBM Global Affiliated Computer (as of October 2003) Niche Players Visionaries Completeness of Vision Source: Gartner Research (November 2003) Approach Each ESP made a formal presentation to Gartner and provided the required North American client references. In this presentation, the ESPs described their strategic direction and their ability to execute data center outsourcing services. Gartner analysts contacted client references for each of the ESPs and gathered information regarding the enterprises' experiences with their ESPs. The formal presentation and client reference checks, combined with Gartner analysts' knowledge of the market and enterprise requirements, resulted in the final positioning of the ESPs in the Magic Quadrant. Completeness of Vision Criteria The Completion of Vision criteria for ESPs in the Data Center Outsourcing Magic Quadrant is as follows: Strategic plan and vision Stable financials Marketing and sales responsiveness Management experience Contract and deal structure Processes, methodologies and procedures 12 November
3 Expertise in technical support and operational tools Market innovation Ability to Execute Criteria The Ability to Execute criteria for ESPs in the Data Center Outsourcing Magic Quadrant is as follows: Relationship management Effective resourcing Transition management Clarity of services, roles and responsibilities Service-level agreements (SLAs), metrics and measurement programs Facilities, security and disaster recovery Innovation, continuous improvement and quality assurance Pricing acceptance Customer satisfaction and perceived value The Leaders Quadrant Seven ESPs are positioned in the Leaders quadrant. All demonstrated significant depth and breadth of experience and an understanding of the dynamics needed to successfully deliver services. IBM Global, Computer Sciences Corp. (CSC) and EDS are positioned closely and have maintained similar positions in the two previous Full-Service Outsourcing Magic Quadrants (see "Updated Full-Service Outsourcing Magic Quadrant" and "Full-Service Outsourcing Magic Quadrant: The Largest ESPs"). This is indicative of their market share in data center outsourcing services a mature market in which share is gained over time and through positive experiences. IBM, CSC and EDS are the three top revenue producers in data center outsourcing services and have been refining their service delivery approach for many years. Each has a vision for the future of outsourcing services, which has relied heavily on their knowledge of client expectations for the evolution of services. Affiliated Computer (ACS) and Unisys have been positioned as Leaders in the previous two Full-Service Outsourcing Magic Quadrants. They were able to demonstrate continued focus on developing their vision, and their clients supported their execution capabilities. CGI and Perot Systems have moved from the Challengers quadrant to the Leaders quadrant (where they had been located in the previous two Full- Service Outsourcing Magic Quadrants), in large part as a result 12 November
4 of positive feedback from their clients about their execution capabilities. The Visionaries Quadrant Only one ESP, Hewlett-Packard (HP), has been positioned in the Visionaries quadrant. HP has a sound vision for the future of data center outsourcing services, which can be attributed to its emphasis on growth and solid plans for the evolution of its service offerings. Although it has recently been awarded some complex deals with large clients, its execution experience thus far has involved limited scopes of work for small-to-midsize client enterprises. HP's ability to execute was not as strong as its vision for the future. Gartner expects HP to continue to develop and refine its execution capabilities as it matures in the data center outsourcing marketplace. Challengers Quadrant Three ESPs have been positioned in the Challengers quadrant: Acxiom, (i)structure and Northrop Grumman. These ESPs were able to demonstrate that they have a solid base of data center outsourcing clients that are satisfied with the services they receive. The ESPs in the Challengers quadrant have the potential to become market leaders by "raising the bar" on strategic vision and looking beyond incremental service improvements to investment in new delivery models and service offerings to meet their clients' future needs. During this evaluation, Acxiom sold its U.S. West Coast business to Systems Management Specialists (SMS). It's not clear how this move will affect Acxiom's position in the market. Although (i)structure will need to invest more in strategic planning and the evolution of its business and delivery model, it is on a good growth curve. Northrop Grumman is predominately a U.S. federal government ESP, and it will need to continue to develop commercial delivery models and infuse its government business with commercial best practices. Niche Players Quadrant Lockheed Martin, Infocrossing and SMS have been positioned in the Niche Players quadrant. Lockheed Martin has decided to concentrate exclusively on its U.S. federal business. During this evaluation, it sold its commercial business to ACS and acquired most of ACS' U.S. federal business (see "ACS, Lockheed Martin Swap Should Go Smoothly"). This move places it clearly as a U.S. federal niche vendor. Infocrossing is primarily a regional ESP focused on the U.S. East Coast. In 2003, it became more aggressive in its marketing and is attempting to expand to clients 12 November
5 across the United States. SMS sold its middle market IT outsourcing business to Marconi, plc. in June Although SMS was part of Marconi, its growth in data center outsourcing was flat. Some of the former SMS management used a private equity firm to re-purchase the business from Marconi. With this change of ownership and management, SMS has emerged as a credible data center outsourcing ESP. Niche Player quadrant positioning does not imply that these ESPs do not execute well. In fact, they do; however, their ability to outperform the competition or innovate may be affected by their narrower focus. General Findings Data center outsourcing services represent one of the mostmature IT service categories available. In a mature market, one should expect ESPs to understand market dynamics and client requirements and invest in making their services better, faster and cheaper. However, client references reveal some consistent themes that all of the ESPs must take into consideration as they move forward. A majority of the references complained about a lack of innovation across all of the ESPs. Relationship management, a crucial aspect of any outsourcing engagement, was also found to be lacking in several of the deals, again, across all of the ESPs. Acronym Key ACS CSC ESP HP SLA SMS Affiliated Computer Computer Sciences Corp. external service provider Hewlett-Packard service-level agreement Systems Management Specialists Bottom Line: Gartner s Data Center Outsourcing Magic Quadrant is a useful starting point for identifying the external service providers that can deliver the infrastructure and support services required for data center outsourcing, now and in the future. Vendor selection should be based on a detailed evaluation of an enterprise's outsourcing objectives and technical requirements and an ESP's ability to address them. 12 November
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