Offshore and cloud service providers upset IT outsourcing’s top tier

While IBM and Accenture still command a majority of the IT services markets, the combination of offshore-centric and as-a-service competition has proven to be an ‘all-out assault’ on traditional providers.

The most recent top 25 list of IT service providers from outsourcing analyst firm HfS Research leads with a couple of the usual suspects, with IBM and Accenture in the No. 1 and 2 spots, with 7.8 percent and 5.1 percent market shares, respectively.

But not far behind are India’s Tata Consultancy Services (TCS), at No. 5, offshore-centric Cognizant in 8th, and as-a-service Amazon Web Services (AWS) already in the No. 12 spot. HfS is calling it a “full-scale assault” on the traditional providers.

The 2016 list reveals the formation of what HfS Research says is now a three-tiered outsourcing market, made up of traditional IT services providers (like Big Blue), offshore centric firms, and IT-as-a-service providers (like Google and AWS).

The IBMs and Accentures have been losing market share. The offshore suppliers have been gaining. And the cloud providers have been doubling their small slice of the market.

“The traditional players have been struggling for a while. The outsourcing business—particularly any application heavy work, but increasingly infrastructure management has been under attack from the offshore providers for a long time,” says Jamie Snowden, executive vice president of research operation for HfS Research.

The offshore providers swooped in to provide the same or similar services cheaper with traditional provider expanding their own overseas operations to close the pricing gap. “The evolution of these firms will be to concentrate on what they do best: invest in technology itself, so devise or buy [into] better automation and cognitive computing technology,” says Snowden. “Most of these providers sell services primarily to large enterprises, so it seems likely that a big chunk of enterprise IT spend will stay with them or with the offshore providers.”

Many large customers are pursuing cloud deals for of their infrastructure or commoditized application services. But, as Snowden points out, the Googles and AWS’s can’t orchestrate the kind of complex application delivery many of these customers require for mission critical systems.

While many offshore firms have continued to grow at double-digit rates, that arbitrage-fueled expansion is likely to slow as the relative importance of labor costs decreases. “The mid-tier of offshore firms will start to compete more aggressively on price and the larger firms will have to become more like traditional firms — firstly by changing the mix of skills they have and also leveraging technology they have built or invested in,” Snowden says. “The business model will be based more on IP they own and less reliant on lots of cheap labor.”

Whether cloud providers will maintain their current growth rates is unclear. “The big debate in this space — particularly around AWS — is whether infrastructure-as-a-service is a commodity service or not,” Snowden says, pointed out that AWS and others have been adding more services to their offerings. Traditional providers would like it to remain a commodity offering—on that they can use as part of their own hybrid cloud deals.

Among the top 10, IBM’s IT services business continued to decline (about 10 percent in 2015) but maintained good operating margins and won big deals. Big Blue has “all the ingredients: of a great managed hybrid cloud story, says Snowden, but has yet to combine them. Of the big traditional players, Accenture has best maintained its growth and margins and “has been smart in making deals with AWS and Microsoft,” Snowden says. Fujitsu has some great hybrid and cloud offerings, Snowden says, but remains a largely Japanese story.

Meanwhile, HP and CSC, who recently announced plans to merge, were under attack by offshore rivals. TCS, the most successful offshore firm on the list, was one of those winning deals. CapGemini’s iGate acquisition, nimbleness, and responsiveness to market demands contributed to its growth But like Atos, it’s ranking was impacted due to the euro-dollar exchange rate, said Snowden. NTT Data built and maintained its position via acquisition and its recent purchase of Dell Services should boost its position next year. Although Cognizant recently revised its growth expectations in 2016 is the offshore firm with the most success recently; Snowden says the company has “strong thought leadership and delivery capabilities.”

One surprise lower on the list was Infosys at No. 14. “Ten years ago, they were the standout provider, but struggled post-recession to really find right strategy,” says Snowden. However, he adds, the company’s 2016 growth has been impressive and Infosys leaders appear to be moving in the right direction—away from the labor arbitrage model.

Next year, Snowden says he expects to see the pure cloud providers even higher on the list. “AWS could reach top 10 next year and top five within three years,” he predicts. At the same time traditional IT outsourcers will be taking service integrator roles. “The integrators will provide a platform as a conduit for their own services and from an ecosystem of other suppliers – cloud pure-play providers, ISVs, VARs,” says Snowden.

“We have already seen many firms launching hybrid cloud management platforms that deliver managed clouds from multiple partners via a single integrated cloud platform: HP’s Helion Network, Accenture Cloud Platform, Infosys’s Cloud Ecosystem Hub, Cognizant’s Cloud 360. This activity has intensified, with firms announcing additional partnerships and supported technologies. The next five years will see this continue with services (and software) increasingly being delivered via these pre-integrated platforms.

The outsourcing firms that don’t make this transition—those not at the heart of one of these rich cloud ecosystem—will drop down the value chain providing services to the integrators.”

Source: cio.com -Offshore and cloud service providers upset IT outsourcing’s top tier

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IT Outsourcing in European Banking and Capital Markets – Service Provider Landscape with PEAK Matrix™ Assessment 2014

Globally, BFSI is the largest vertical in terms of the total share in ITO spending. Of the global BFSI ITO activity in the last five years, Europe accounted for the highest wallet share. Further, within ITO transactions, Application Outsourcing (AO) accounted for a majority of the engagements.

The European banking and capital markets industry is currently going through an evolution. While the industry has been dominated by large-sized service providers, it is witnessing an emergence in tier-2 regional service providers. Demand for AO services is on the rise in Continental Europe region while Nordics and Germany remain underserved with scope of generating higher demand in near future. Further, the European banks and financial firms continue to operate in an uncertain regulatory environment and a strong move towards digitization which constitute the majority of the IT investments in the region. Chief Information Officers (CIOs) in Europe are looking at leveraging the next-generation services, such as social media, mobility, analytics, and cloud, to achieve cost arbitrage while enhancing customer experience and meeting regulatory compliance. As both European buyers (banks and capital markets firms) and global service providers seek to design solutions for these challenges, it is essential to understand the specific changes in the market environment, and devise an effective approach to adapt accordingly.

In this research, we analyze the current trends and the future outlook for large, multi-year application outsourcing relationships for the European banking and capital markets sector. We have assessed 20 banking AO service providers and 18 capital markets AO providers in Europe for their capabilities in providing these services in the region. These providers were mapped on Everest Group Performance | Experience | Ability | Knowledge (PEAK) Matrix, which is a composite index of a range of distinct metrics related to each provider’s capability and market success. In this report, we focus on:

  • The landscape of service providers for banking and capital markets AO in Europe
  • Assessment of the service providers on a number of capability-related dimensions
  • Characteristics of Leaders, Major Contenders, and Emerging Players on Everest Group banking and capital markets AO PEAK Matrix for Europe
  • “Star Performers” of 2014, providers with the strongest forward movement over time – in terms of both market success and capability advancements
  • Implications for capital markets buyers and service providers

PEAK Matrix for ITO in Capital Markets in Europe

SCOPE OF THE ANALYSIS

  • Banking and capital markets ITO market overview (global with a focus on Europe)
  • Market trends and activity for large AO relationships in European banks and capital markets firms
  • European banking and capital markets AO service provider landscape
  • European banking and capital markets AO PEAK Matrix characteristics

PEAK Matrix for ITO in Banking in Europe

CONTENT

This report analyzes IT applications outsourcing in the banking and capital markets subverticals in Europe with a focus on large (TCV > US$25 million), annuity-based, multi-year (over three years) relationships:

  • Banking and capital markets ITO market overview:
    • Global IT outsourcing market size and vertical split
    • Banking and capital markets IT market split
    • Banking and capital markets transactions split by geography
    • IT transaction trends in Europe for banking and capital markets
  • European banking and capital markets AO overview and service provider landscape:
    • Transaction trends in banking and capital markets AO in Europe
    • Delivery capability assessment at key locations in Europe
    • Market share analysis by different categories of service providers
    • Market share analysis by banking and capital markets lines of business
    • Delivery capability assessment based on scale, scope, domain investments, delivery footprint, and buyer satisfaction
    • Market success assessment
    • Everest Group Performance Experience Ability Knowledge (PEAK) Matrix for banking and capital markets AO in Europe
    • Star Performers in the 2014 European banking and capital markets AO PEAK Matrix
  • Europe banking and capital markets AO PEAK Matrix characteristics :
    • Market share and scale
    • Scope characteristics
    • Delivery footprint
    • Market activity
  • Service provider capabilities in digital themes

Everest Group has a complimentary four-page PEAK Matrix preview document for this service provider landscape report.

Read more at: IT Outsourcing in European Banking and Capital Markets – Service Provider Landscape with PEAK Matrix™ Assessment 2014