the inflection point of consulting and systems integration - insights from the tbr 4q12 it services...

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TECHNOLOGY BUSINESS RESEARCH, INC.

The Inflection Point of Consulting and Systems Integration: Insights from TBR’s 4Q12 IT Services Vendor Benchmark

Technology Business Research Quarterly Webinar Series

April 30, 2013

TBR

2 TBR Quarterly Webinar Series | 4.30.13 | www.tbri.com | ©2013 Technology Business Research Inc.

PSBQ 4Q12 Research Highlights and Outlook: Webinar Presenters

Bryan BelangerAnalyst, Professional Services [email protected] @bbelangerTBR

Ramunas SvarcasSenior Analyst and Engagement Manager,Professional Services [email protected]@rjsTBR

mailto:[email protected]




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• The Professional Services Practices continually covers 35 vendors, publishing quarterly and semiannual reports. • Of those vendors, 30 are included in our IT Services

Vendor Benchmark.o TBR reports are unique due to their deep, holistic

analysis of leading vendor businesses.o Financial modeling and TBR insights help customers

build a better understanding of vendor business models.o TBR reports and webinars are designed to be responsive

to client timelines, to be clear and concise, and to provide insights across multiple layers of an organization.

o TBR’s strategic assessment provides an impartial reality check on how vendors are performing in regard to their strategic objectives and the overall market.

Clients are gaining advantages and are better understanding revenue opportunities through our reports and their personal relationships with TBR.

PSBQ 4Q12 Research Highlights and Outlook: Webinar Overview

TBR’s IT Services Vendor Benchmark delivers unique insight and value through in-depth analysis in a concise, consumable format

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PSBQ 4Q12 Research Highlights and Outlook: Key Trends

Professional Services Vendor Trends for 4Q12

Portfolio: As the industry reaches its inflection point, pent-up demand will release for C&SI services that support emerging technology adoption.

People: Traditional offshore-centric vendors are accelerating onshore hiring to address this pent-up C&SI demand.

Performance: Buyers are trimming consulting and systems integration (C&SI) budgets in the near term to minimize costs and preserve margins.

The C&SI industry is nearing an inflection point, at which near-term cost takeout needs give way to emerging technology implementations

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C&SI revenue is contracting as vendors focus on BPO and AO services that offer near-term cost reduction: • Total trailing 12-month C&SI revenues contracted 2.5% year-to-

year in 4Q12 for the 30 vendors covered in the benchmark. • C&SI revenue growth decelerated for the fifth consecutive

quarter in 4Q12. Long-term growth leaders will offer portfolios capable of addressing demand for near-term cost takeout and long-term emerging technology adoption.

Professional Services Vendor Trends for 4Q12 — Performance

PSBQ 4Q12 Research Highlights and Outlook: Performance

C&SI revenue will contract in 2Q13 as IT services spending remains focused on outsourcing projects that support operational efficiency goals

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Average trailing 12-month C&SI revenue growth trailed all other service lines in 1Q13 as buyers in the U.S. and Europe continue to extend decision cycles for long-term transformational projects to cope with macroeconomic uncertainty.


Soft spending for transformational C&SI projects due to uncertainty overshadows demand drivers in the space

11.6%

0.6%

10.5% 10.6%

16.1%

5.9%

8.5%

2.6%

$3,290 $3,312

$1,253

$1,386 $1,435 $1,519

$2,736

$2,806

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

18.0%

$-

$500

$1,000

$1,500

$2,000

$2,500

$3,000

$3,500

4Q11 4Q12 4Q11 4Q12 4Q11 4Q12 4Q11 4Q12

C&SI BPO AO ITO

YTY

Gro

wth

Reve

nue

in $

mill

ions

TTM LOB REVENUE AND TTM LOB REVENUE GROWTH TBR

SOURCE: TBR

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India-centric vendors drive C&SI expansion by investing in onshore talent, and analytics, cloud and mobility solutions, while technology-centric vendors’ growth benefits from small revenue bases and niche solutions expertise.


New market entrants, including a mix of India-centric vendors and technology firms, outpace MNC peers in C&SI revenue growth

Growth driven by acquisition

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$35 $37 $38 $44 $47

$169 $173 $171 $181

$192

0%

10%

20%

30%

40%

50%

60%

$-

$50

$100

$150

$200

$250

$300

1Q12 2Q12 3Q12 4Q12 1Q13 Est.Advanced Services Advisory ServicesAdvisory Services YTY Growth Advanced Services YTY GrowthPSP Average TTM C&SI YTY Growth

Cisco Services will deepen its technology expertise and expand emerging market and channel investments to sustain leading C&SI growth


Cisco Services C&SI Segment Revenue, Growth, and Overall Benchmark Average C&SI Growth

SOURCE: TBR RESEARCH

Segm

ent R

even

ue (I

n $

Mill

ions

)

Year-to-year Revenue Grow

th

High-value, differentiated

technology expertise

Small revenue base relative to

MNC peers

Emerging market

infrastructure opportunity

Tap new markets through channel partners

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Demand for C&SI projects related to analytics, mobility and cloud continues to grow, but such projects remain small in scope and offer limited contribution to revenue.

As discretionary budgets fully recover and enterprises become “buried” under increasingly complex IT ecosystems, demand will grow for vendors that can provide end-to-end C&SI services supporting analytics-, cloud- and mobility-fueled IT transformation.

Professional Services Vendor Trends for 4Q12 — Portfolio

PSBQ 4Q12 Research Highlights and Outlook: Portfolio

As market conditions improve, clients will seek third-party support to generate business value from long-term IT transformation projects

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Analytics and other emerging technology adoption offers a long-term C&SI growth opportunity for vendors that are investing in services capability.

SOURCE: TBR

PSBQ 4Q12 Research Highlights and Outlook: Industry Change

Vendors investing ahead of demand for emerging technology C&SI services benefit as clients aggressively deploy discretionary budgets on large-scale projects supporting IT transformation.

At the inflection point, small POC projects in areas such as analytics will give way to bundled, high-revenue transformation engagements

Reve

nue

Gro

wth

/Por

tfol

io

Inve

stm

ent A

ctivi

ty

Current Market Scenario

Future Market Scenario

Low

High

Inflection Point

Vendor Investment ActivityC&SI Revenue Growth

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C&SI growth will accelerate when customer demand for emerging technology-enabled transformation aligns with vendors’ portfolio capabilities.


Vendors’ investments in emerging technology C&SI solutions will align with demand, fueling rapid industry revenue expansion

Inflection

Point

Legacy C&SI Market Drivers

Future C&SI Market Drivers

Customer Demand

Vendor Investment

Cost-drivenFunctionality-focusedISV partnerships are keyConsolidation, optimization,

efficiencyLow-cost leverageT&M pricing

Business value IT transformation

Vertically drivenEmerging technologiesGlobal deliveryScalable IP assetsOutcome-based pricing

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IBM invests in vertical-specific, emerging technology-enabled C&SI solutions to fuel long-term GBS growth and profitability


• IBM GBS and IBM Research collaborate to create IP such as Advanced Analytics for Asset Performance Optimization

• Continued traction with Smarter Planet portfolio

• Customer-centric and front-office transformation agendas

• Leveraging partners to commercialize Watson into healthcare-specific analytics solutions

• Unveiled MobileFirst• Acquired Star Analytics• Continues to invest in end-

to-end cloud and social business technology and C&SI capability

Emerging Technologies

Vertical-specific

Solutions

Scalable IP Assets

Business Value Focus

IBM GBS C&SI Investment Strategy and Recent Initiatives

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Vendors realize the growth and profit potential of the C&SI inflection point and are optimizing global resource deployments to ensure competitiveness. • Software and hardware vendors are building global C&SI

practices to wrap services around technology offerings. • MNCs are investing in technology-specific CoEs and opening local

delivery centers in emerging regions. • India-centric vendors are aggressively building an on-site

presence through M&As and targeted hiring.

Professional Services Vendor Trends for 4Q12 — People

PSBQ 4Q12 Research Highlights and Outlook: People

Vendors across the IT services spectrum will optimize resource footprints to ensure competitiveness for C&SI deals in the long term

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India-centric vendors will accelerate onshore recruitment in mature regions to compete for C&SI-led strategic IT transformation deals

Change 4Q11 to 4Q12

Total Headcount Attrition Utilization

Operating Margin

Direction 4Q12

Total #

% Low-cost

Onshore

#Total Ons

horeLow- cost Total Ons

horeLow- cost

Expected Marg

in

Actual

Margin

Actual (%)

SIs with Support

& Maint.

Dell Svcs 13.6%

HP Svcs 10.0%

IBM GS 18.5%

T-Systems 2.4%

SIs

Accenture 14.5%

Atos 3.2%

Capgemini 7.1%

CSC 5.6%

Xerox Svcs 11.2%

India-centric

Vendors

Cognizant 18.3%

HCLT 19.8%

Infosys 25.7%

TCS 27.3%

Wipro ITS 20.8%

Based on Metrics, Expected Profit Change =

Profit Results and Correlating Changes in Headcount Metrics

Key: 4Q11 vs. 4Q12 Improvement Deterioration No change SOURCE: TBR GLOBAL DELIVERY MARKET LANDSCAPE SPRING 2013

All five India-centric vendors covered in TBR’s 4Q12 Global Delivery Market Landscape Study registered year-to-year onshore headcount growth.

India-centric vendors will continue to add on-site staff, particularly in C&SI, to counter visa regulations and compete more favorably for consulting-led deals.

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37,430 38,710 40,270 42,200 44,380

218,890 217,280

214,040

212,210 210,350

-10%

-5%

0%

5%

10%

15%

20%

25%

0

50,000

100,000

150,000

200,000

250,000

300,000

4Q11 1Q12 2Q12 3Q12 4Q12

Total other GDML onshore C&SI headcount India-centric vendor onshore headcountIndia-centric vendor onshore headcount YTY growth Total other GDML onshore C&SI headcount YTY growth

India-centric vendors will utilize acquisitions and delivery center openings to expand their local market C&SI bases in the U.S. and Europe during 2013.


Despite their small revenue bases, India-centric vendors are aggressively adding on-site C&SI resources relative to MNC peers

India-centric Vendor Onshore C&SI Headcount and Growth versus Industry Peers

Ons

hore

C&

SI H

eadc

ount

Year-to-year Headcount G

rowth (%

)

SOURCE: TBR GLOBAL DELIVERY MARKET LANDSCAPE SPRING 2013

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TCS, Infosys and Wipro ITS accelerated onshore C&SI recruitment in 4Q12, as onshore C&SI headcount grew for all 5 India-centric providers

PSBQ 4Q12 Research Highlights and Outlook: Industry Change

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

4Q11 4Q12 4Q11 4Q12 4Q11 4Q12 4Q11 4Q12 4Q11 4Q12

Cognizant HCLT Infosys TCS Wipro

TCS is countering visa restrictions and positioning for long-term C&SI growth by developing new centers and recruiting laterals in the U.S. and Europe.

India-centric Vendor Onshore C&SI Headcount and Growth

Ons

hore

C&

SI H

eadc

ount

Year-to-year Headcount G

rowth (%

)

SOURCE: TBR GLOBAL DELIVERY MARKET LANDSCAPE SPRING 2013

Opened TCS Solutions Center in Minnesota, recruiting laterals with mobility and analytics expertise

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As enterprises continue to adopt big data, cloud and mobility solutions, and technology shifts from the IT function to business lines and the CxO level, demand will grow for advisory and implementation services providers that can help translate technology capability and bid data outputs into strategic initiatives that create business value.

Translating new technology into business value will require C&SI support, and vendors are repositioning C&SI capabilities to address this demand

C&SI OPPORTUNITY

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PSP Research Current Topics 1Q13 Report Key Themes• Vendor Reports:o Accenture o Atoso Capgeminio Cognizanto CSCo Dell Serviceso Fujitsuo HP Serviceso IBM Global

Serviceso Infosyso TCSo Wipro ITS

• Benchmarks: Management Consulting, HITS, Public Sector, Software Alliance

What priority markets are vendors targeting for healthcare IT services growth, and how are they investing in portfolio and delivery capabilities to address these markets?

What are the key delivery differentiators separating the delivery models of industry leaders and laggards? What markets hold priority for global delivery expansion? What dominant strategies are vendors using to invest in these markets?

How are leading IT services providers building Software as a Service (SaaS) portfolios? What differentiates leaders and laggards in the space? How does SaaS fit into vendors’ overall cloud services strategies?

Vertical Growth

Strategy: Healthcare

Vendor Global Delivery Strategy

Software as a Service

PSBQ 4Q12 Research Highlights and Outlook: 1Q13 Key Topics

Vendors will optimize delivery models to manage margins while investing in high-growth verticals and service lines to drive revenue growth in 2013

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Questions?

PSBQ 4Q12 Research Highlights and 2013 Outlook

TBR


For further information, please contact:

Lindy Hanson James McIlroyDirector, Professional Services Practice Vice President, [email protected] [email protected]

Bryan BelangerAnalyst, Professional Services [email protected] @bbelangerTBR

Ramunas SvarcasSenior Analyst and Engagement Manager, Professional Services [email protected]@rjsTBR

Twitter: @TBRincSlideShare: www.slideshare.net/TBR_Market_InsightYouTube: www.youtube.com/user/TBRIChannel






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TECHNOLOGY BUSINESS RESEARCH, INC.

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