0. The Future of IT Services
The Gartner Scenario for IT Services Providers: The Future of IT Services
The Future of IT Services
Bryan Britz
Managing Vice President
June 2014
Eric Rocco
Rob Addy
Brian Britz
Patrick Sullivan
Cathy Tornbohm
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1. Torrential Changes and a Confidence Crisis will Reshape Service Provider Landscape
70%
"My business and its IT organization are being engulfed by a torrent of digital opportunities. We cannot respond in a timely fashion, and this threatens the success of the business and the credibility of the IT organization."
CIOs will change their technology and sourcing relationships in the next 2 to 3 years for a variety of reasons.
46%
51%
Agree
Need to work with new categories of partners, e.g.:
As we enter 2014, economists expect a mixed year, with many advanced economies finally recovering from protracted downturns, and growth slowing in some developing countries. Every industry and every geography is being radically reshaped by digital opportunities and threats. Arguably, the traditional, physical-asset-heavy and primary industries are even more affected than high-tech companies. Examples include agriculture companies that can help predict and optimize yields in near real time; sports companies that blur the boundaries with healthcare organizations; logistics companies that can price financial risk in real time better than banks can; and governments that can go beyond asking what citizens want, observing and responding to their needs in real time.
Current enterprise IT is not set up to easily deliver on these digital dreams. In our CIO survey, we tested respondents' agreement with a very strong statement about how challenging it is to keep up with the pace of change; 51% agreed. 70% of CIOs expect to change their technology and sourcing relationships in the coming years. 46% of CIOs recognize that they need to work with new categories of partners. Beyond not being ready now, 42% of CIOs believe that their IT organizations do not have the right skills and capabilities in place to get ready for the future.
The picture is clear for service providers. Your clients are struggling to keep up with change. They are strongly considering changing the providers they work with as part of responding to this change. Market share will shift to service providers able to help clients respond to the business and IT opportunities and challenges that are overwhelming more than half of organizations today. We will introduce top level thinking in this “Future of IT Services Scenario” that will aid service providers in converting this picture into an opportunity rather than a threat.
Mobility
Cloud
Digital Agency
Source: Gartner December 2013)
n = 2,339
Big Data
Analytics
Social
Taming the Digital Dragon: The 2014 CIO Agenda (G )

2. The 3rd Era of Enterprise IT
IT Craftsmanship
IT Industrialization
Digitalization
Focus
Technology
Processes
Business Models
Capabilities
Programming, system management
IT management, service management
Digital leadership
Engagement
Isolated, disengaged internally and externally
Treat colleagues as customers, unengaged with external customers
Treat colleagues as partners, engage external customers
Outputs & Outcomes
Sporadic automation and innovation, frequent issues
Services & solutions, efficiency & effectiveness
Digital business innovation, new types of value
The year 2014 will be one of dual goals: responding to ongoing needs for efficiency and growth, but also shifting to exploit a fundamentally different, digital paradigm. Ignoring either of these is not an option. The behaviors we mastered in the second era of enterprise IT are potential hindrances to exploiting digitalization. We need to develop new capabilities.
In 2014, CIOs face the challenge of bridging the second and third eras. They have to build digital leadership and bimodal capability, while renovating the core of IT infrastructure and capability for the digital future.
"The Y2K crisis was, in part, a result of shortsightedness on the part of the mad inventors. The same risk is inherent in the third era, where the pace of innovation may lead to longer-term brittleness. The third era must build on the learnings of the previous two." Chris Howard, managing vice president and distinguished analyst, Gartner

3. Top Trends Cloud Privacy and Security Awareness Cognitive Automation
Anti-Globalization Policies and Protectionism
Internet of Things
Gen Y Leaders
Analytics
Economic Fluctuations and Rise of Emerged Emerging Markets
Mobile
Social
Portfolio Rationalization
Business Buying Center Shift
Just-In-Time Service Supply Chain Ecosystems
Crowd Sourcing
Consumerization
Digital Business Transformation
Reducing Labor Arbitrage Advantage
Business Outcome-Based Value and Pricing Models
Disruptive New Competitor Types
Magnitude of impact
Re-Insourcing 3

4. New World Providers will Win
Industrialized
Outcome-based Consumption
New World
Capabilities Access
Social
Mobile
Digital Business Transformation
Consumerization
Information
Unexpected Sources of Growth
Cloud
Contracted for Effort
Old World
Dedicated Assets
IT services providers will adapt to significant changes, including the growing influence of business leaders in technology investment decisions. Providers must be perceived by clients as having deep industry understanding of the business needs and requirements of the solutions they offer in those industries.
Assisting clients in digital business transformation will be a driving factor in the majority of IT services opportunities. Consumerization and its impact on buyer expectations for consumer quality service experiences will reshape provider evaluation and selection criteria. Consequently, finding and capitalizing on unexpected sources of growth is the strategic issue facing all service providers. We have noted that the Nexus of Forces is more than the individual technologies. Many service providers still approach this opportunity in a siloed solution orientation. We see the Nexus of Forces forming the very fiber that defines next generation services. Services of tomorrow will lean upon scaled and industrialized delivery models that provide clients access to services that are consumed to drive specific business outcomes.
Labor-Based

5. CIO’s Top Technology Priorities in 2014 Continue to Bridge Old and New Worlds
Ranking Based on How Many CIOs Cited Each as a Top-Three New Spending Priority for 2014
Renovate the Core
Exploit the New
It is clear that, in addition to new opportunities like big data and mobile, a lot of new spending is going into improving core systems and capabilities. The clear signal is that the major new categories of spending are split between two important imperatives. The first is to renovate the core of IT — in other words, to ensure that the infrastructure, main IT applications and services (such as ERP and solution development) are fit for purpose. Part of this is a function of the investment cycle, but part is about getting "digital ready." This requires understanding and creating a detailed vision of what digital innovations in the business are likely to take place, and making sure that core services are ready, or at least that they can be made ready fast.
The second imperative is to exploit new digital trends, including the ability to mine a greater volume, velocity and variety of information (big data); the ability to engage customers, employees and the crowd in a more compelling and coordinated manner using mobile, social and other channels; and, more generally, to deeply innovate the business models based on these digital possibilities. Both imperatives are important, and it is essential to pursue them in parallel. Getting stuck on renovating the core only is too slow, and those who skip this step and overly focus on exploiting the new digital trends will find themselves dreaming digital dreams that are unachievable or unsustainable.
IT service providers will continue to find opportunities that straddle the old and new worlds. Many service providers will find it challenging to be engaged in both exploiting the new and renovating the core, despite possessing capabilities to deliver against both outcomes. Successfully growing in both imperatives requires stronger vision and value articulation than exists in service provider portfolios today.
Source: Gartner December 2013)
n = 2,339
Taming the Digital Dragon: The 2014 CIO Agenda (G ) 15

6. Bi-Modal IT Emerges Traditional Mode Nonlinear Mode Agile development
Innovative partners
Lightweight "Just good enough" governance
Managed risk
Multidisciplinary teams
Waterfall development
Known vendors
Strong governance
Minimized risk
Technology teams
Stuck in the middle
"Fit for no one"
To capture digital opportunities, CIOs need to deal with speed, innovation and uncertainty. This requires operating two modes of enterprise IT: conventional and nonlinear.
There are inherent tensions between doing IT right and doing IT fast; doing IT safely and doing IT innovatively; and working the plan and adapting. The second era of enterprise IT has been all about planning IT right and doing IT right, being predictable and creating value, while maximizing control and minimizing risk. In short, it has been about running IT like a business within a business.
However, the third era — digitalization — poses additional challenges, such as the following "nonlinear" needs:
The need to absorb disruptive new business models enabled by new digital technologies
The need to scale up and down in Internet time
The need to react fast to capture business moments
The need to flex painlessly to support business model innovations
The need to explore and evolve solutions that are surrounded by uncertainty
Conventional IT doesn't do well under such conditions. In fact, trying to capture these needs with one mode of IT is impossible. Since the needs present a bimodal distribution, so must the capabilities to deliver on them. CIOs must develop an additional mode of IT to be deployed under three circumstances:
Nonlinear speed: when there is a need for low latency and/or highly accelerated development
Nonlinear innovation: when there is a need for a high level of disruptive innovation
Nonlinear direction: when there is a need to continually readjust to deal with high levels of uncertainty
Traditional Mode
Nonlinear Mode 27

7. Service Providers Must Expand their Sphere of Influence and Impact
38% of IT Spending is Decentralized; 62% is Centralized
IT spending buying centers across industries have steadily shifted away from the central IT function and to business buying centers. Most service providers have primarily oriented their sales and relationships models to align solely to IT leaders, such as the CIO. Service providers of the future will articulate value in business terms such as key process outcomes and impact to key performance indicators (KPIs). Doing so requires deep vertical industry knowledge, and new go-to-market models. This trend is unlikely to abate in the near term.
“Market Trends: The Rising Importance of the Business Buyer — Fact or Fiction?” (G258700) describes the 3 year trend for the decentralization of spending across vertical industries. In many industries, more than 10% of IT spending has moved from centralized spending. The key organizations that have benefited are operations, finance, marketing, and sales. Our research continues to point to front office functions taking more direct control of spending and broader modernization initiatives. Our prediction that by 2016, marketing organizations will source 80% of their technology needs externally, disintermediating internal IT in “Predicts 2013: Digital Marketing Pushes Marketing Executives to a More Strategic Role” is one of the most clear statements of the continued decentralization of IT- related spending we expect to see in coming years. To capture growth, service providers will need to expand their sphere of influence and overhaul their traditionally held beliefs on the key value propositions and drivers of client value. Providers must also be selective in where they target. Few can afford to cover 100% of the buying centers for IT.
Source: Gartner (June 2013)
n = 1,523
IT Metrics: A Critical Evaluation of Decentralized IT Spending and Digital Enterprise Readiness (G ) 7

8. Physical “things” exploding growth into 2020
Installed “things” by 2020
Internet of Things
30B
Assumption: The component cost of IoT-enabling consumer things will approach $1, and "ghost" devices with unused connectivity will be common.
Personal Devices
7.3B

9. Digital Business Scenario: The Car Crash
1.Smart Phone detects sudden deceleration.
6. Estimates for repairs sent to smart phone from different companies. Negotiations ensue to get best price and delivery.
8. Smart phone notifies next of kin via text messages and Facebook.
2. Smart phone interrogates passenger clothing for vital signs.
7. Meanwhile, smartphone interrogates nearby video cameras to collect digital evidence of the car crash as it occurred.
9. Smart phone sends information portfolio to law firms for assessment.
3. Smart phone sends information to medical emergency first responders and opens up communications lines for survivors..
4. Smart phone interrogates vehicle systems for damage report.
5. Damage report sent to fire, police, towing, and insurance companies.

10. Service Provider Approaches to Digital Business
Digitization through technology
Nexus of forces applied to add value
Evolution of “Renovate the Core” from a technology perspective
Run to Digital Transformation
Evolutionary approach to business transformation
Renovate the core to achieve business operational improvement to improve profitability of business operations
Advise to Digital Transformation
Business strategy transformational approach to Digital Business
Top down redesign of entire functional areas to achieve competitive business differentiation and grow revenue 10

11. Digital Use of "Crowds" as an "Accessory"
Strategic Planning Assumption: By 2015, big data demand will reach 1 million jobs in the Global 1000, but only one-third of those jobs will be filled.
By 2017, over half of consumer goods manufacturers will employ crowdsourcing to achieve fully 75% of their consumer innovation and R&D capabilities.
Why?
Flags
Consumer goods companies in touch with customers
Better crowdsourcing technology
Affinity for culture and style of the consumer
Increase in crowdsourcing applications in online consumer goods platforms in
Crowdsourced revenue boost
What to do?
CIOs must focus on building the right culture to support bottom-up contribution. Without it — and without employees who care — these initiatives are likely to fail.
Key Issue: What key predictions will affect business and IT growth strategies?
In the next 12 to 18 months, the North America and EMEA regions will be the most active in leveraging big data and therefore we expect the most significant job demand to happen in these regions. In North America and EMEA, the reliance on professional service will be more significant compared with emerging economies (source: our research shows that that as the productivity of a country increases, the reliance on professional services increases while internal services decrease slightly). The implication is not simply that North America and EMEA will need more big data jobs because they spend more IT money, but that they will need to prorate the number of jobs higher than BRIC countries. However, the potential in Asia/Pacific and Latin America economies will be more significant, especially considering the adoption of mobile and location services.
Authors: Don Scheibenreif and Michael Shanler

12. Digitalization's Effect on Labor Grows
Strategic Planning Assumption: By 2015, big data demand will reach 1 million jobs in the Global 1000, but only one-third of those jobs will be filled.
By 2020, the labor reduction effect of digitalization will cause social unrest and a quest for new economic models in several mature economies.
Why?
Flags
Another "Occupy Wall Street" type of movement by the end of 2014
Bartering-based systems and voluntary roles rise by 2015 in areas such as patient care.
Digitization <> more jobs
Kodak's 130,000 people versus Instagram's 13
Lower labor Content
Lower pay per hour
What to do?
CEOs and boards must avoid using old economic models in the new digital reality.
Key Issue: What key predictions will affect business and IT growth strategies?
In the next 12 to 18 months, the North America and EMEA regions will be the most active in leveraging big data and therefore we expect the most significant job demand to happen in these regions. In North America and EMEA, the reliance on professional service will be more significant compared with emerging economies (source: our research shows that that as the productivity of a country increases, the reliance on professional services increases while internal services decrease slightly). The implication is not simply that North America and EMEA will need more big data jobs because they spend more IT money, but that they will need to prorate the number of jobs higher than BRIC countries. However, the potential in Asia/Pacific and Latin America economies will be more significant, especially considering the adoption of mobile and location services.
Authors: Gregor Petri

13. Service Industrialization Meets Consumerization
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Added Benefits Enablement 2 3 5 7 Pm Au Ai Pe
Process Maturity
Automation
Advanced Insights
Personalization
Cost Reduction Enablement

14. Prevention-Based Mass Configurability
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Your Needs ? ? ? ? ? ? ? ? ? ? ? ? 2 Pm
Process Maturity 3 Au
Automation 5 Ai
Advanced Insights 7 Pe
Personalization ? ? ? ? ?
Others Like You
May We Suggest

15. The Next “Next Gen” of Managed and Professional Services
Next Generation Industrialization
Future Advancements in the Next, Next Gen 2 3 11 17 Pm Au Dp Sb
Process Maturity
Automation
Dynamic Pricing
Sub-branding 5 7 13 19 Ai Pe Jt Mt
Advanced Insights
2008
Personalization
Just in Time Supply
Micro-transactions
2013
2018
2025

16. “Digital Business” is an unstoppable and irresistible catalyst for change. Change that will affect the fundamental foundations and baseline assumptions of every business. The very essence of what you do, who you serve, how you behave, the value you deliver and how you get paid will change forever. The Digital Business revolution is underpinned and enabled by the macro technology forces of Cloud, Social, Analytics, Mobility and the Internet of Things. Not every business fundamental will need to change to the same degree, nor will every technology driver have a role to play in every business scenario. Businesses that decide to “wait and see” are likely to become an irrelevance.
Change on this scale has never been seen within the modern industrialized world. Agility is no longer an optional differentiator. It is now a mandatory business requirement. Major established brands will fall. New brands will emerge. Industry segmentations and product classifications will become moot. Yesterday’s consumer product company will become tomorrow’s corporate content provider. That is, before it re-invents itself and re-evolves into a pre-emptive collective servicing organization the week after that. There is no steady-state operation. Standing still means falling behind. Those that fall behind may never catch up.
Customer experience is everything. As the number of inter-connected touch points across the physical and virtual worlds increases, the potential to disappoint or delight increases exponentially. Cross-interaction consistency and real-time value perceptions will drive pseudo-loyalty and transient affection. Customer satisfaction metrics are unhelpful and misleading relics of the past.
Technology and Service Providers need to determine and demonstrate how their offerings can underpin, support, enable and accelerate the Digital Business revolution to remain relevant to their customers. Digital Business requires providers to totally change the way they do things while helping their customers to do the same thing at the same time. This presents significant challenges with equally significant opportunities and risks. Traditional buyers will have a role to play. But a new breed of buyers is emerging and providers must address their wants and desires if they are to earn the right to help in the transition…