Euro Outsourcing Markets

A Research Report by EquaTerra

Taking the Pulse of the
European Outsourcing
Market
An EquaTerra exclusive for

Get to what matters.


EquaTerra 2Q10 Global Pulse Surveys. Results for
Computer Weekly

Introduction Summary Findings
EquaTerra is pleased to offer to Computer Demand growth for third-party business and ITO services
Weekly readers a custom, European focused weakened in 2Q10 according to EquaTerra European
advisors polled. While inherent outsourcing demand
edition of the results from its 2Q10 EquaTerra
remains positive and is growing overall, many buyers
global business and information technology remain cautious in their efforts, especially when it comes to
(IT) services Pulse survey. Through the Pulse making upfront investments and entering into complex deal
survey research programme, EquaTerra arrangements. Economic uncertainty in the UK and in the
has developed a highly informative gauge Eurozone economies weighed heavily on buyers’ decision
that provides quarterly insights into trends making processes and added to their reticence to make
and projections in the outsourcing and large investments or launch perceived risk change efforts.

third-party business and IT service markets, Buyers continue strenuous efforts to reduce operating costs
gleaned from its own field advisors and and overhaul service delivery models, with internal process
leading global service providers. EquaTerra’s improvement and alternative delivery models like shared
services gaining in importance as change agents. Cloud
advisors are the leading experts on business
computing models, especially Software as a Service (SaaS),
and IT services, assisting buying organisations are generating significant interest among buyers both as
actively exploring or undertaking shared a complement to and in lieu of traditional outsourcing,
services, outsourcing, offshore and other but most buyers are still assessing cloud computing
service delivery alternatives. opportunities and defining overall strategies.

This special edition of the Pulse survey results focuses on Business and IT service providers polled in 2Q10 were
trending in the use of third party business and IT services less optimistic on current and near-term demand for
usage in the Western European markets. Results cover outsourcing. While overall market demand continues to
market activity during the second quarter of 2010 as well as grow, the time and effort it takes to close deals on favorable
market demand and top trend projections for the balance terms and conditions remains high. Improving existing
of 2010 into 2011. These global Pulse results are further contract profitability is challenging as is expanding scope
augmented with research findings from the 2010 roll-up of with existing clients. Demand for non-outsourcing services
EquaTerra’s European ITO service provider performance and like consulting and packaged software services remains
satisfaction (SPPS) studies. weak for most providers. While all providers cite long-term
opportunities to make money from buyers’ cloud computing
initiatives, it is unclear which providers will benefit the
most and how much these new revenue streams will offset
declining traditional systems integration work and potentially
the loss of some traditional outsourcing business.

EquaTerra controls distribution of the Pulse survey reports, which are intended for internal use and select delivery to
EquaTerra clients, prospects and other marketplace representatives such as Computer Weekly. Questions or comments
regarding these surveys should be directed to Stan Lepeak, Managing Director of EquaTerra Global Research, at
stan.lepeak@equaterra.com or +1 203 458 0677.

Copyright © EquaTerra 2010. All rights are reserved. EquaTerra 2Q10 Global Pulse Surveys. Results for Computer Weekly - Page 2

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Table of Contents
I. Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
II. Summary Findings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
III. Current European Market Demand Conditions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
European Market Demand and Market Trends Update . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Figure 1 - Change in Demand by Model . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
European ITO Adoption and Future Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Figure 2 - European ITO Adoption Rates. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Figure 3 - European ITO Buyers Future Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Figure 4 - European ITO Buyer Satisfaction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Economy’s Impact on Outsourcing Demand . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Figure 5 - Economic Environment’s Impact on Outsourcing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
IV. Current European Market Deal Characteristics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Multi-sourcing Trending in Europe . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Figure 6 - Multi-sourcing Trending . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Figure 7 - Addressing Multi-sourcing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Cloud Computing Update . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Figure 8 - Advisors: Buyer Cloud Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Figure 9 - Buyer Cloud Skills . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
V. Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

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Current European Market Demand Conditions
European Market Demand and Market Trends Update
Change in demand growth for BPO, ITO and other third-party business and IT
services remained sluggish in the second quarter of 2010 according to EquaTerra
European advisors polled.

• Forty percent of European advisors, a decrease of five percent from 1Q10,
indicate that overall third-party business and IT service demand levels were
up in the quarter. This level is well below the average 53 percent “up” rating
over the life of the advisor Pulse surveys.

• Just three percent of European advisors, down from 10 percent 2Q09,
indicate that demand levels declined in the quarter, with the balance citing
no changes in demand growth levels.

• Overall, 50 percent of EquaTerra advisors polled globally in the 2Q10 Pulse
indicate demand was up.

EquaTerra advisors were polled on demand levels across four different categories
of business and IT services. These categories are BPO, ITO, other types of third-
party IT services (e.g., consulting, systems integration and project-based work) and
internal process improvement efforts (i.e., deploying expanded shared service of
offshore captive operations). Figure 1 illustrates the relative change in demand for
these service delivery models compared to the last quarter.

• Forty-eight percent of European advisors indicate that demand for ITO grew
quarter over quarter while 31 percent identified an increase in demand for
BPO.

• Twenty-two percent of European advisors cite an increase in demand for
non-outsourcing, third-party IT services, an increase of five percent from
last quarter. Demand for these more discretionary services has been weak
over the past several quarters in Europe, especially for commercial software
systems integration and implementation services.

• Sixty percent of European advisors cite a growing demand for internal
process improvement efforts, such as expanding deployment of shared
service centres. This level is up eight percent from last quarter. Overall, 63
percent of EquaTerra advisors cite an increase in demand for internal process
improvement efforts.


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Change in Demand by Model

22%
31%
48%
60%

Up
78% Flat
63%
Down
48%
40%

6% 5%

BPO ITO Other IT Svcs Internal Imp.
Figure 1

Service providers polled were less bullish regarding new deal pipeline growth
projections continuing a trend that started in the last quarter of 2009.

• Sixty-two percent of service providers polled cite pipeline growth in the
quarter, down nine percent quarter over quarter and three percent year over
year. This level is just above the survey average of 58 percent.

• Just four percent of service providers cite a decline in pipeline growth, with
the balance citing no changes in pipeline growth levels.

Service providers were less optimistic than in recent quarters about future
outsourcing demand growth.

• Fifty percent of service providers polled expect an increase in demand next
quarter, down seven percent quarter over quarter and 13 percent year over
year. This level is well below the survey average of 63 percent. This marks
the third straight quarterly decline in the percentage of service providers
indicating they expect near term future pipeline growth.

• Nine percent of service providers expect demand levels to decline next
quarter, with the balance citing no changes in demand growth levels next
quarter.

The reasons cited by service providers for this slowing in outsourcing demand
growth are similar to those identified by EquaTerra advisors. Buyers are more
carefully weighing all their options, including internal process improvement
or doing nothing for the time being. More buyers are pushing for hard – and
sometimes too hard – bargains from service providers, especially around pricing.
Providers, sensitive to their own profitability and averse to taking on too risky deals
or clients, are pushing back on these demands. In some cases buyers find they do
not have serious provider competition for their business based on current desired
terms and conditions. Most service providers indicate that growing business in
existing accounts, where positive relationships already exist and capabilities have
been proven, remains more preferable, lower risk and a higher priority in today’s
market.


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The ongoing strong demand for internal process improvement efforts, coupled
To learn more:
with a slowing in the rate of growth for outsourcing, highlights that organisations
Outsourcing Buyer Behavior Today – today more often continue to implement change programmes using internal
An Insight From EquaTerra’s UK Pulse resources. Buyers are still bringing in external resources but under more stringent
Survey terms and conditions. This trend has been evidenced in the market over the past
ITO Continues to Heat Up in the several quarters and manifests stronger buyer desires to implement change as
Nordics cost effectively as possible, especially in the short run.

Widespread Innovation It is widely accepted that outsourcing can enable process improvement, as well
Disappointment Drives the Need for as reduce costs in the long run. Buyers in today’s market, however, are highly
Actionable Intelligence sensitive to short-run expenditures and in some cases are delaying or deferring
outsourcing efforts that require any sort of upfront investments or significant
resources to implement. More experienced and sophisticated buyers are placing
greater scrutiny on the skills that third-party providers can bring to bear, especially
beyond labour arbitrage. Skilled and general labour shortages, however, will
negatively impact buyer ability to expand internal change efforts, particularly as
the scale and scope of these efforts grow.

European ITO Adoption and Future Plans
The EquaTerra Pulse surveys assess third party business and IT services directional
market trends and demand patterns on a quarterly basis. The Pulse research
studies are complemented and extended by the more in-depth and annually
conducted service provider performance and satisfaction (SPPS) studies. The
SPPS studies cover both the ITO and BPO markets. In Europe, EquaTerra conducts
the ITO SPPS studies on an annual basis in the following markets: Belux, Germany,
Netherlands, Nordics (Denmark, Finland, Norway, Sweden) and the UK.

The SPPS market study programme surveys and interviews buyers that are
currently outsourcing. Only key outsourcing decision makers - CXO’s and their
direct reports - are targeted in the study. The research provides direct insights
into buyer opinions on service provider performance levels, and also assesses and
interprets general outsourcing demand and activity trends.

Figure 2 from the 2010 European roll-up of the ITO SPPS studies illustrate overall
market adoption rates for the three major ITO categories tracked: application
management, end-user management, and infrastructure management. These
findings show the pervasiveness of ITO in the European market and complements
the Pulse findings indicating steady market growth levels.


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European ITO Adoption Rates
Application Management Infrastructure Management

%

7%

7
%

End User Management

Process outsourced
4 %
5 % Plans to outsource
Not outsourced, no plans

Figure 2

Figure 3 from the 2010 European roll-up specifically addresses buyers’ future
investment plans relative to their ITO efforts. Over 50 percent of buyers actively
engaged in ITO indicate they will certainly or probably outsource more. Just nine
percent of European organisations engaged in ITO plan to outsource less going
forward
Fi r
European ITO Buyers Future Plans

9%
21% We are certain to outsource more
9%
We will probably outsource more

There will be no change in the
existing situation
We will outsource less
28%
33% We can not say at this point

Figure 3

Finally and most importantly, the European ITO SPPS studies assess buyer
satisfaction with the performance of their services providers across a range of key
performance indicators (KPI’s). Buyers self-assess their satisfaction levels on a six
point scale and then these scores are aggregated and converted to a 100 percent
scale. Figure 4 shows the overall scores for each of the major KPI categories.


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European ITO Buyer Satisfaction
KPI Avg. Score
General Satisfaction 68%
Quality 73%
Price 67%
Risk 62%
Relation(O) 71%
Relation(S) 65%
Innovation 56%
Flexibility 59%
Met Expectations 64%
Transition 64%

Figure 4

Overall satisfaction levels remain positive and have increased incrementally over
the past several years. Satisfaction levels vary significantly across markets, service
providers and individual ITO process areas. Contact EquaTerra research for more
details on the SPPS studies including how to access the complete study results.

Economy’s Impact on Outsourcing Demand
Turning back to the quarterly Pulse survey results we now assess how current
economic conditions are impacting European buyer outsourcing demand levels.
While there was hope that the global economic recession bottomed out in late
2Q09, recent economic turmoil in Europe, ongoing high unemployment levels,
difficult debt situations for both consumers and countries, concerns over a slowing
China economy, and declining stock markets have cast some doubt over the
strength of the economic recovery in western countries and markets. As a result,
economic conditions continue to heavily impact buyer usage and preferences for
third-party services and the manner in which they consume these services.

EquaTerra polled advisors and service providers on how current economic
conditions are impacting outsourcing demand levels (see Figure 5).

• Just 36 percent of European advisors polled feel that market conditions are
driving more outsourcing. This level is down 10 percent from last quarter and
22 percent from 2Q09. Advisors and service providers generally are aligned
in their scoring of this response.

• Fifty-five percent of European advisors, compared to 41 percent overall
for the 2Q10 Pulse, indicate that economic conditions are causing buyers
to slow or rethink outsourcing decisions. This level is up nine percent from
last quarter and up 17 percent from 2Q09. While buyers more often still
are deferring rather than cancelling outsourcing initiatives, the number
seeking alternatives to traditional outsourcing as a change agent is growing.
Buyers that pursue outsourcing are placing keen focus on the viability of the
business case and on the cost and risk elements of their efforts.


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Economic Environment’s Impact on Outsourcing

11% 9% 11% 13%
22% 19%

43% 41% 38%
32% 36% 55%

46% 45% 46% 47% 50%
36%

Europe 1Q10 All Advisors Service Europe 2Q10 All Advisors Service
1Q10 Providers 2Q10 Providers
1Q10 2Q10
Driving more outsourcing
Slowing/ rethinking outsourcing plans
Little/no impact
Figure 5

European advisors offered the following additional comments on how the current
economy is impacting outsourcing and third-party service usage.

To learn more: – “Markets and buyers are jumpy. It is hard for buyers to make big or quick
decisions.”
What Will Increased Regulation Mean
For Outsourcing in the Financial – “Major initiatives are being reduced to piecemeal activities.”
Services Sector? – “Buyers are still aggressive in their use of third-party service providers but
(Attempting to) Legislate Call Centre are moving beyond legacy outsourcing models. There is more interest in
Best Practices offerings that bundle IT and services, more interest in more standardised
and turn-key solutions, and growing interest in cloud computing and
Outsourcing Buyers: Ready or NOT for SaaS. So they are using third-party providers, just not always the same
the Economic Upturn? usual suspects and under the same models.”

Current European Market Deal Characteristics
Multi-sourcing Trending in Europe
The growth of multi-sourcing – or the use of multiple outsourcing service
providers to manage the same or adjacent functions and processes at the
enterprise level – is an almost inevitable by-product of buyers’ increased use of
outsourcing. It is also being driven by the increased number of viable service
providers competing for business in any particular market segment. While this
trend is partially offset by market consolidation and individual service providers
developing broader and more diverse service footprints, the general trend remains
that buyers are working with more service providers in the same functional,
geographic and business unit segments. The growth of alternative cloud and SaaS
service providers will increasingly contribute to the rise of multi-sourcing going
forward.

While multi-sourcing is inevitable, some buyers are consciously pursuing the
model in search of a “best-of-breed” service provider delivery mix. Best of
breed, however, is often more appealing on paper than in reality, given the
additional challenges, costs and complexity of sourcing and managing a multi-


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provider environment. Some buyers are considering multi-sourcing after being
disappointed with the results from integrated outsourcing efforts in which a
single provider was tasked with delivering services across a broad – in many
cases too broad – set of processes, functions and/or geographies. Specifically
to emerging areas such as cloud and SaaS, buyers will find that the benefits are
potentially greater and more rapidly achieved if they focus on more bundling,
by consolidating infrastructure and application service outsourcing into a single
“private SaaS” initiative, for example.

Buyers must keep in mind that not all providers and provider relationships are
created equal. Some service providers play a more strategic role while others
perform more tactical services. It is critical that the efforts and resources placed
in managing a provider relationship are commensurate with the importance
and value the provider brings to the relationship. While this sounds intuitive,
EquaTerra often finds a disconnect in this respect. Indeed, EquaTerra research has
consistently found higher levels of buyer satisfaction when the strategic/tactical
relationship continuum is in aligned between a buyer and its service provider.

This quarter’s Pulse surveys examined multi-provider outsourcing trends from two
angles. Figure 6 illustrates trending in the general use of multi-sourcing and at
what level in the organisation service provider relationships are being established
and managed.

• Twenty-four percent of service providers and 30 percent of European
advisors indicate that buyers more frequently today are establishing multi-
sourcing relationships at the corporate level.

• Service providers are slightly more likely than European advisors (43 percent
compared to 40 percent) to indicate that buyers are doing less multi-
sourcing and proactively consolidating service providers. Advisors in Europe
are more likely than those in the Americas (40 percent compared to 14
percent) to cite a conscious buyer effort to reduce the number of providers
being utilised.
1

Multi-sourcing Trending

19%
40% 43%

44%
30% 24%

37% 30% 33%

All Advisors Europe Advisors Service Providers
Establishing relationships at the functional/bus. unit level
Establishing multi-sourcing relationships at the corporate level
Less multi-sourcing/proactively consolidating service providers

Figure 6


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Next, advisors and service providers were asked how buyers are accounting
for the complexities of multi-sourcing during the sourcing process (see figure
7). While many buyers have arrived at their current multi-sourced state in an
unplanned or at least uncoordinated fashion, buyers are increasingly aware that
each new outsourcing deal can increase multi-sourcing complexity. The key is how
buyers are responding – or not – to this awareness. There was general consensus
between advisors and service providers on how buyers are responding.

• Seventy-one percent of service providers and 50 percent of European
advisors indicate that buyers are short-listing providers differently, for
example by attempting to limit using too many providers.

• Twenty-five percent of European advisors and 24 percent of service providers
indicate that buyers are aware of complicating issues related to multi-
sourcing but are not doing anything differently.

• Thirty-five percent of European advisors (compared to just 17 percent in
the Americas) indicate that buyers are budgeting more for outsourcing
governance to better address multi-sourcing complexities. EquaTerra
supports any changes that ensure more focus and attention on the
outsourcing governance function and organisation.

One EquaTerra advisor offered the following comment on buyer multi-sourcing
trending. “Buyers are starting to ask questions prior to RfPs being issued on the
potential risk of multi source vs. single source. They are also educating themselves
on the management of a multi-vendor environment and proactively working
the issues upfront. This being said, they are very reluctant to give it all to one
provider.”
EquaTerra also finds more buyers building outsourcing governance centres of
excellence (COEs) to help support multi-provider relationships. Often it’s the IT
group that is leading the way with the most experience of multiple-provider
governance, both from a contractual, solution and governance perspective.
Enterprise level COEs, or at a minimum outsourcing councils are being set-up
to oversee the enterprise portfolio of relationships, share best practices, lessons
learned and more.


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Addressing Multi-sourcing
To learn more:

Best Practice in Governing Shortlisting providers differently
Outsourcing Contracts: Establishing
Budgeting more for outsourcing
and Managing a Centre of Excellence governance

The Pros, Cons and Market Trending Buyers aware of complicating issues but
not do anything differently
for Multi-sourced ITO
Not generally addressed as part of the
How to Optimise Complex, Multi- sourcing process
Provider Outsourcing Contracts Don't worry about it when sourcing - it's an
outsourcing governance issue

Ramifications really not that serious

0% 50% 100%
Service Providers All Advisors Europe
Figure 7

Cloud Computing Update
The collective technologies and services that make up cloud computing are
having a great impact on the IT marketplace overall and the business and IT
service markets in particular. Depending on how cloud computing is defined
and interpreted, it is either evolutionary, revolutionary or more likely somewhere
in between. It is clear, however, that cloud computing is positively (e.g., faster,
cheaper, more flexible, at least initially) changing the means through which buyers
gain access to third-party IT infrastructure, application software, and IT and
business services.

Minimally buyers need to proactively determine their own cloud strategies that
direct when and how to engage cloud services and assess how they will impact
other software and service initiatives. Key to this strategy is assessing a willingness
to accept the more standardised platforms, processes and models implied
through the use of cloud computing offerings, as well as clearly examining real
and perceived risk factors associated with cloud computing, such as those related
to data and application security. Buyers that dawdle in defining and executing a
cloud strategy will inevitably find – like during the early days of the Internet – that
end-users are actively engaged with cloud services whether or not any corporate
blessing or direction has been given.

When discussing cloud computing, it is important that all parties involved are
working from a common definition. EquaTerra and the market typically define four
“layers” of cloud computing.

• IaaS (Infrastructure as a Service): Infrastructure traditionally provided by
servers, desktops and network equipment delivered over the Internet instead
and scaled up or down as needed.

• PaaS (Platform as a Service): Software development, storage and hosting
accessed as a service over the Internet.


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• SaaS (Software as a Service): On-demand applications provided through
an Internet browser, eliminating the need to install, run and maintain
programmes on internal systems.

• BPaaS (Business Process as a Service): BPO provisioned using a cloud
computing model, bundled with SaaS/PaaS/IaaS and delivered over the
Internet.

The other dimensions of cloud computing relate to whether services are provided
in an individual or shared environment (e.g., public cloud, private cloud or hybrid
cloud).

This quarter’s Pulse survey first looked at the observed adoption rates among
buyers across the four layers of cloud computing (see Figure 8). Service providers
in general identified more aggressive cloud computing investment levels than did
EquaTerra advisors though there was consensus on prioritisation of investments
across the four cloud computing layers.

• SaaS is seeing the most investment and activity with 53 percent of service
providers and 14 percent of European advisors citing buyer interest and
active deployment efforts already undertaken. Eighteen percent of service
providers and 29 percent of European advisors indicate buyers have interest
and are launching efforts within 12 months.

• Thirty-nine percent of service providers, but no European advisors, indicate
that buyers have interest and active deployment efforts already undertaken
for BPaaS efforts.

The difference between the expected and absolute investment levels has to do
with the size and scope of initiatives (i.e., definitional differences on what is a pilot,
prototype and in production) and the degree that efforts are of a size to merit
advisor support. It is also important to differentiate between opportunistic point
investments and the execution of a cloud computing strategy. As one EquaTerra
advisor noted, “Most buyers already have some form of SaaS, but they are not
actively pursuing it as an overall strategy.”
Fi ure 8 Eu o e Ad isors Bu C ou Computi

Advisors: Buyer Cloud Investments
100%
6% 17% 14% 6%
80% 22%
29% 47%
60% 50%

40% 56%
48%
20% 47%
33%
17% 10%
0%
IaaS PaaS SaaS BPaaS
No significant interest/no near term (<12 months) investment plans
Interest but no significant near term investment plans
Interest, launching efforts within 12 months
Interest & active deployment efforts already undertaken
Figure 8


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Perhaps most relevant to buyers in the short term are their capabilities to assess,
understand and take advantage of cloud computing opportunities. Despite
the potential of cloud computing, if buyers cannot successfully execute on its
implementation, then its adoption could create more problems than it solves.
Service providers and EquaTerra advisors were asked to rank typical buyers’ skills to
perform five different sets of activities related to cloud computing, using a one-to-
five scale where one represents very unskilled and five represents very skilled (see
Figure 9). Results show there is clearly room for improvement in typical buyer skill
levels.

• The highest score given by European advisors 2.05 on the one to five scale
was assessing the near term maturity of cloud computing and its viability to
support enterprise computing needs.

• European advisors scored understanding the technical underpinnings of
cloud computing - how it works at 1.89 while service providers scored this
skill slightly lower.

• Coming in at the bottom of the rankings were skills relating to both sourcing
and managing cloud computing initiatives.

It is not necessarily surprising that buyers possess limited cloud computing skills
given the immaturity and fast moving nature of the market. The situation is not
dissimilar to the early days of the Internet when buyers struggled to define and
execute on strategies to exploit its business potential. It is critical, however, for
buyers to leverage past experiences, particularly with outsourcing, to accelerate
ramping up cloud computing skills and expertise. Many problems associated with
outsourcing deals and major enterprise system initiatives arise from inadequate
buyer business case, sourcing, transition and governance capabilities. This, too, will
likely prove to be the case with cloud computing efforts.

Buyer Cloud Skills

Assessing near term cloud maturity & its viability
to support enterprise computing needs

Understanding the technical underpinnings-how
it works

Mapping cloud options to enterprise systems &
outsourcing

To learn more: Sourcing/structuring cloud initiatives &
engagements
Cutting Through the Fog: What You Navigating/assessing cloud vendor/SPs' markets
Should Know about Cloud Computing and landscapes

and How to Get Started Managing/governing cloud initiatives &
engagements
Delivering on the Benefits of Cloud-
Based Services: When to Call in the 1.00 2.00 3.00 4.00 5.00
1=Very unskilled, 5=Very skilled
Experts
Service Providers All Advisors Europe Advisors
Cloud Computing; Avoiding the Pitfalls
Figure 9
The Rise of Cloud and Software as a
Service (SaaS) – an Opportunity or a
Threat to Service Providers?


www.equaterra.com


Conclusion
EquaTerra offers the following conclusions from the 2Q10 Pulse survey:

• European BPO and ITO market demand continued to grow in 2Q10 but at
the same sluggish pace witnessed last quarter. Inherent outsourcing demand
and service provider pipelines continue to grow faster than the volume
of deals being consummated as the pace of deal flow and buyer sourcing
efforts remains uneven and often disrupted. This is a result of more cautious
buyers that are very hesitant to make any major upfront outlays to support
outsourcing efforts or enter into larger, more complex and uncertain deal
arrangements.

• European buyers remain aggressive about reducing and keeping down
operating costs, continuing to overhaul service delivery models, trends that
are positive for long-term outsourcing growth. Buyers continue to employ
internal process improvement efforts or alternative service delivery models,
like shared service centres, as a complementary or alternative means to
outsourcing to enable these change efforts.

• The use of multi-sourcing or multiple outsourcing service providers in
adjacent and complementary functional areas continues to grow. While this
is inevitable given the ongoing growth of outsourcing, it is important that
buyers work diligently to balance the benefits of best-of-breed sourcing
scenarios with the added cost and complexity of managing them. The
growth of cloud computing opportunities to complement, extend, and in
some cases supplant traditional outsourcing will further drive more multi-
sourcing, at least in the short to medium term, as new service providers
come to market.

• Buyer interest in cloud computing and its derivatives, as a complement or
alternative to traditional outsourcing and commercial enterprise software
models, continues to grow. Most buyers are dabbling in one or more
elements of cloud computing, but are not yet managing these efforts under
a formal cloud computing strategy. Cloud computing adoption in general
is progressing a bit slower in Europe than in North America. Defining and
executing such a strategy as soon as possible are important to ensure
coordination and prioritisation of the most relevant cloud computing efforts
in addition to maximising the value from the investment long term. Buyers
must work to improve their cloud computing skills to support these efforts
and ensure their success.


www.equaterra.com


About EquaTerra Contact Us
EquaTerra sourcing advisors help clients If you would like to know more about EquaTerra please contact us.
achieve sustainable value in their IT and
BeLux The Netherlands
business processes. Our advisors average more Pegasuslaan 5 Postbus 75090
than 20 years of industry experience and have 1831 Diegem (Brussels), Belgium 1070 AB Amsterdam, Netherlands
supported more than 2,000 transformation Tel: +32 (0)2 709 29 32 Tel: +31 (0)88 002 2900
and outsourcing projects across more than 60 infobelux@equaterra.com infonl@equaterra.com
countries. Supporting clients throughout the
Americas, Europe, and Asia Pacific, we have China Sweden (Nordic HQ)
deep functional knowledge in Finance and Level 31, Jin Mao Tower, 88 Shi Ji Avenue Strandvägen 7a
Accounting, HR, IT, Procurement, Real Estate Pudong, Shanghai 200120, China 114 56 Stockholm, Sweden
Tel: +86 (0)21 28909093 Tel: +46 (0)8 662 30 67
and Facilities Management and other critical
infochina@equaterra.com infonordics@equaterra.com
business processes. EquaTerra helps clients
achieve significant cost savings and process
Finland (Baltics and Russia) United Kingdom
improvement with internal transformation, Mannerheimintie 12b, 5th Floor 150 Minories, London EC3N 1LS
shared services and outsourcing solutions. FIN-00100 Helsinki, Finland United Kingdom
www.equaterra.com Tel: +358 (0)9 2516 6368 Tel: +44 (0)845 838 7500
infofinland@equaterra.com infouk@equaterra.com

Germany Americas
Herriotstrasse 1 Three Riverway, Suite 1290
60528 Frankfurt, Germany Houston, TX 77056
Tel: +49 (0)69 67733423 United States of America
infogermany@equaterra.com Tel: +1 713 470 9812
infoamericas@equaterra.com
India
Level 4, Rectangle No.1,
Commercial Complex D4, Saket,
New Delhi 110017, India
Tel: +91 (0)11 4051 4227
infoindia@equaterra.com

Copyright © EquaTerra 2010. All rights reserved. The prior written permission of EquaTerra is required to reproduce all or any part of this
document, in any form whether physical or electronic, for any purpose. 3148EU_July2010.


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