Information Technology Outsourcing (ITO) Infrastructure Outsourcing Roadmap Market Update Preview January 2007

Transcription

1 Information Technology Outsourcing (ITO) Infrastructure Outsourcing Roadmap Market Update Preview January 2007

2 Summary of key messages IO background IO is a mature market that accounts for approximately 1/3 of the global outsourcing market; four service delivery models are prevalent on the market today IMO background IMO is the relatively new business model on the IO market, its growth is prompted by several technology and market driven factors While majority of IMO revenues are still with traditional suppliers, offshore IMO pure-play suppliers are gaining ground through aggressive use of labor arbitrage RIMO dynamics Remote Infrastructure Management Outsourcing (RIMO) market is growing at a fast rate with larger share of the growth coming from buyers renewing their contracts with significant scope increase (i.e., pilot approach) IMO adoption scenarios IMO market adoption can follow several scenarios, ranging from pure labor-arbitrage to enabler of the enterprise IT transformation and provider of transparency into IT infrastructure

3 Table of Contents Topic Section I: Introduction and overview Section II: Infrastructure Outsourcing background Market size and growth projections Evolution of infrastructure outsourcing (IO) models IO models comparison Section III: Infrastructure Management Outsourcing (IMO) background Catalysts for the evolution of IMO Market share Savings comparisons between IMO and traditional IO Convergence of IO models Section IV: Remote Infrastructure Management Outsourcing (RIMO) market dynamics RIMO market dynamics Renewal Uplift phenomenon Market growth projections Section V: IMO adoption scenarios Market evolution scenarios IMO-enabled IT Transformation scenario Business Value-Added IT Transformation scenario Section VI: Implications for key stakeholders Implications for buyers Implications for suppliers Appendix: Glossary of terms

4 The IO Roadmap report will have over 60 pages of insightful information Market Size Market Dynamics Offshore-ability Market Share Commitment Profile Infrastructure Management Models

5 Infrastructure outsourcing is a mature market in a period of gradual growth Estimated worldwide outsourcing market size 2005; Percentage Worldwide infrastructure outsourcing market growth US$ billion 100% = ~US$328 billion BPO 24% ~4% CAGR % IO ADM 43% Sources: Everest Research Institute analysis; Bernstein Research

6 Multiple models of Infrastructure Outsourcing have emerged over time EXAMPLE DATA CENTER Traditional Infrastructure Outsourcing Infrastructure Tower Outsourcing Application Hosting Services Infrastructure Management Outsourcing (IMO) Infrastructure Managed Services (IMS) Remote Infrastructure Mgmt Outsourcing (RIMO) Transfer of responsibility for entire IT towers (e.g., Data Center) including management and operations Assumption of delivery of several cross-tower functions related to operations and support of an application (e.g., SAP) Assumption of operational responsibility by supplier of certain of end-to-end functions related to the physical IT infrastructure Transfer of responsibility for delivery of Remote Infrastructure Management (RIM) tasks to an external supplier Example: Data Center Outsourcing Example: SAP hosting Example: Managed Backup Service Example: Server Monitoring Outsourcing Management Operations Software Outsourced Application Outsourced function Remote services Outsourced labor/task Hardware Data Center Data Center Network Data Center Data Center

7 with basic differences in pricing, size/scope and the way IT assets and employees are treated Focus of this report Traditional IO IMO Tower Outsourcing Hosting IMS RIMO Scope of contract Complete service delivery Application-related functions and assets End-to-end function productized by supplier Task or fractions of the function Pricing model Output based 1 Output based Mostly output based Mostly input based 2 Size of contract Length of contract Asset ownership Large Large Medium Small Long (5-10 years) Long (3-7 years) Medium (3-5 years) Short (1-5 years) Prerequisite Common Rare or limited Not applicable People transfer Prerequisite Common Not applicable Not applicable 1 Output- based pricing model examples: price by supported server, price per MIPS, etc. 2 Input-based pricing model examples: Time & Materials, price per FTE, etc. Source: Everest Research Institute analysis

8 Several catalysts prompted the emergence of Infrastructure Management Outsourcing Technology trends Emergence of distributed computing fuelled by interoperable platforms (e.g., Intel) allowed platform flexibility, but increased management complexity Open source code prompted value shift from software licensing to software support Remote management tools Remote infrastructure management, diagnostic and troubleshooting tools matured and became a norm in IT organizations Virtualization (server and storage) and backup tools automated functions that historically required proximity to the assets Organizational changes Cost savings efforts increasingly led to centralization of IT infrastructure functions, making IT infrastructure organizations more transparent and more susceptible to outsourcing

9 Offshore suppliers hold a minor share of the IMO market through the RIMO model Infrastructure Management Outsourcing market, 2005 Percentage IMO market shares Percentage 100%=~US$26 Billion 100%= Others US$460M 1 US$720M 2 19% 18% Microland Patni Satyam 2% 3% 4% 3% 6% 11% Traditional suppliers (IMS model) 97% 3% Offshore suppliers (RIMO model 1 ) Infosys HCL 13% 14% 14% 16% TCS 17% 19% Wipro 20% 21% 1 Forrester research, Everest Research Institute 2 Supplier reports; Everest Research Institute FY 2004 FY 2005

10 but lead the growth in the segment Traditional suppliers (IMS model) Offshore suppliers (RIMO model 1 ) Infrastructure Management Outsourcing market growth US$ billion Infrastructure Management Outsourcing market 2010; Percentage 10% CAGR % CAGR 100%= ~US$44 billion 20% % CAGR 80% Source: Everest Research Institute analysis

11 Traditional IO and IMO suppliers will adopt parts of both models leading to partial convergence Traditional IO suppliers IMO suppliers Savings in infrastructure engagements Percent Convergence 100% Original buyer s cost 2 Taking advantage of offshore labor cost arbitrage Savings in traditional IO Offshore labor arbitrage Further benefit of scale through utility computing 10 Scale (e.g. utility computing) 65% Cost after outsourcing 100% 4 Additional benefits of 15 5 cross-tower optimization % Additional benefits 60 of IT transformation 50 3 ILLUSTRATIVE Labor cost Hardware & Software cost Traditional Traditional IO IO and and IMO IMO suppliers suppliers will will partially partially adopt adopt each each other s other s game game Whichever Whichever model model proves proves more more successful successful buyers buyers will will be be the the key key beneficiaries beneficiaries Original buyer s cost Savings in IMO IT infrastructure Transformation Cross-tower optimization Cost after outsourcing Source: Everest Research Institute

12 IMO is still nascent and can develop in several ways with varying degree of value created by suppliers Pure labor arbitrage play IMO as a service line will remain limited to delivering pure labor-arbitrage driven cost benefits without added value Infrastructure Management Outsourcing IMO-enabled IT transformation IMO will establish itself as a viable alternative to enabling IT infrastructure transformation Business value added IT transformation IMO suppliers will leverage their access to operations of multiple towers to develop capabilities to provide business users with added benefit of transparency into IT infrastructure

13 Get the answers today that lead to tomorrow s success Everest Research Institute has the resources, experience, and capabilities to provide companies with the strategic intelligence, analysis, and insight that are crucial to making the right decisions in today s outsourcing marketplace. For more information or to purchase the full report, contact Peter Bowes at pbowes@everestgrp.com. Everest Research Institute Two Galleria Tower Noel Road, Suite 2100 Dallas, TX info@everestresearchinstitute.com Everest India Ground Floor, Tower A Unitech Business Park South City - I, Gurgaon New Delhi National Capital Region India Everest Group 150 E., 52 nd Street, 16 th Floor New York, NY Everest Canada The Exchange Tower 130 King Street West, Suite 1800 Toronto, ON Canada M5X 1E Everest UK Gainsborough House 100 Pall Mall St. James's London, SW1Y 5HP Everest Australasia Level 6, 90 Mount Street North Sydney, NSW 2060 Australia