Herculean Buyers, Lions, And Hydra — Do You Want One Throat To Choke, Or Reps That Understand The Products They’re Selling?

Duncan Jones

The proposed acquisitions of SuccessFactors by SAP, and of Emptoris by IBM got me thinking about the impact on buyers of market consolidation, in respect of the difference between dealing with independent specialists versus technology giants selling a large portfolio of products and services. Sourcing professionals talk about wanting “one throat to choke,” but personally I’ve never met one with hands big enough to get round the neck of a huge vendor such as IBM or Oracle. Moreover, many of the giants organize their sales teams by product line, to ensure they fully understand the product they are selling, rather than giving customers one account manager for the whole portfolio who may not understand any of it in sufficient depth. Our clients complain about having to deal with just as many reps as before the acquisitions. They all now have the same logo on their business card, but can’t fix problems outside their area, nor negotiate based on the complete relationship. It seems that buyers end up like Hercules, wrestling either with a Nemean lion   or with a Lernaean hydra.

The acquirers' press releases tend to take it for granted that customers will be better off with the one-stop shop. Bill McDermott, co-CEO of SAP, said, “Together, SAP and SuccessFactors will create tremendous business value for customers.” While Lars Dalgaard, founder and CEO of SuccessFactors, talks about “expanding relationships with SAP’s 176,000 customers.” Craig Hayman, general manager of industry solutions at IBM, said, “Adding Emptoris strengthens the comprehensive capabilities we deliver and enables IBM to meet the specific needs of chief procurement officers."

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Stormy Weather's Ahead For The IT Services Industry?

Fred Giron

Infosys recently published strong fiscal Q3 results as revenue growth and operating margins were boosted by a falling rupee (down a sharp 11% sequentially). For the full year, however, the company revised its forecasts in dollars from 19% to 16% for FY2012 (April 2011 to March 2012) on account of a slowing business in Europe.

Forrester expects marginally slowing growth in the global IT services market, dropping from about 7% growth in 2011 to 6% growth in 2012 (read Andy Bartels’ tech market outlook for 2012 here). Most of the slowdown effect will come from the debt crisis in Europe. Growth in emerging markets like AP should remain strong in 2012 (read my report with Andy Bartels here), although this growth will not be large enough to offset a slowdown in mature markets.

I look forward to having updates from Wipro, TCS, and HCL this week to see if we can “generalize” Infosys’ guidance to the overall IT services industry. Until now, Indian IT companies’ growth and margins have been protected thanks to a weakening rupee. I believe that this situation combined with slower growth in the US and Europe will lead to a price war between vendors as they try to build volume.

What does this mean? As economic uncertainty looms in 2012, I believe IT services companies will have to accelerate their transformation toward software capital intensive models. In my upcoming report (“Solutions Accelerators — A Reality Check” to be published in April 2012), I will look at how far they have gone in this transformation and what the key success factors are going forward. Stay tuned.

Match Cloud Expectations With Customer Realities In The New Year

Bill Martorelli

Few would dispute that cloud computing has a huge potential for making IT service expenditures more cost-effective and flexible. But as is often the case, what is now possible is not necessarily practical or even desirable from the standpoint of the buying customer in terms of both accommodating longstanding preferences as well as specific contractual terms.

For example, consider these aspects of cloud computing:

  • Variable pricing means unpredictable in spending. One of the lessons of the early utility models of the early 2000s was that customers’ preference for predictable expenditures often trumped variability based on consumption. The same is true today with even more inherently fungible cloud services. Moreover, a sudden, wholesale shift from capital spending to expense spending is impractical for many customers.
  • Rapid provisioning taxes customer lead times. Rapid provisioning, one of cloud computing’s principal calling cards, presents huge advantages compared to server provisioning times measured in months, but customer provisioning systems cannot usually take full advantage of provisioning times measured in mere minutes.
  • Pricing based on resource units can bring challenges. For example, testing-as-a-service allows customers to pay on the basis of test cases executed, but few customers are as yet ready or comfortable paying in this manner.
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Lack Of Vision And Planning Prevent Organizations In Emerging Markets From Technology Leapfrogging

Fred Giron

When I moved to India about two years ago, I arrived with my own expectations regarding emerging markets. One of them was that the lack of legacy IT applications and infrastructure would make these markets an ideal place for new technologies and delivery models like as-a-service to thrive. In other words, organizations in emerging markets would “leapfrog” to new technologies without going through some of the prior technology investments witnessed in developed markets. Unfortunately, the reality is not that simple.

One of the key takeaways of my recent reports (Australia, China, India Set The Pace For Asian IT Services and The Changing Face Of ASEAN IT Services — to be published in January 2012) is that most of the growth in emerging countries will come from traditional IT services such as ERP implementation, infrastructure deployment, and system integration. Against common belief, emerging services — including cloud and mobility — will represent less than 20% the total annual growth in emerging markets in 2015.

I see several reasons for this:

  • Lack of governance and planning. An IT department’s role is merely one of provider of applications and infrastructure, whose main objective is to react to business needs.
  • Lack of internal skills. Client organizations do not have the adequate skills internally to take on complex transformational projects involving new technologies such as virtualization, business analytics, and mobile enterprise application integration platforms.
  • Lack of IT services culture. Most client organizations in emerging markets leverage external skills to help them with basic tasks such as hardware maintenance and software deployment.
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IBM's Acquisition Of Emptoris Further Reduces IT Sourcing Professionals' Options

Duncan Jones

Just over a week after SAP published its intention to buy Success Factors, IBM announced yesterday that it will acquire Emptoris, one of the leading ePurchasing suite vendors. My colleague Andrew Bartels has described in his blog some of the implications for other vendors in the ePurchasing market:

http://blogs.forrester.com/andrew_bartels/11-12-15-ibms_acquisition_of_emptoris_moves_it_squarely_into_the_epurchasing_software_market_watch_out_for_f

My interest is in what the acquisition means for sourcing professionals, not just the CPOs who might be Emptoris customers, but the IT sourcing professionals setting strategies for dealing with major suppliers such as IBM and SAP.

·         Emptoris customers should give IBM the benefit of the doubt, for now. Craig Hayman, General Manager of IBM’s Industry Solutions division, assured me that he would take great care not to damage Emptoris’s strengths, the ones that attracted him to the company, as they did you, its customers. Emptoris consistently does well in Forrester Wave™ evaluations, not only for its functionality but also its focus on sourcing and procurement, its emphasis on ensuring customer success, and its consistent record of innovation. The good news is that Hayman doesn’t underestimate the challenges of integrating Emptoris into IBM, but is confident he can overcome them. It will take a couple of years before we can judge his success.

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SAP Buys SuccessFactors, Accelerates Cloud Strategy with Addition of Leading HCM Cloud App

Liz Herbert

Today, SAP announced plans to acquire SuccessFactors, a leading human capital management (HCM) cloud platform with more than 15 million subscribers. This greatly accelerates SAP’s move into the cloud and makes it a provider of one of the world’s leading cloud solutions. SAP plans to operate SuccessFactors as a separate company.

For SuccessFactors customers, this will create more integration opportunities between their best-of-breed cloud HCM solution with SAP’s suite of enterprise applications products, in-memory computing platform HANA, and mobile computing platform Sybase.

For SAP customers, this creates an immediate opportunity to buy an innovative, proven, fast-growing cloud solution from their strategic enterprise software partner. Today, there is only a small overlap between SAP customers and SuccessFactors customers — meaning most SAP customers do not currently use SuccessFactors (and vice versa).

While there are great opportunities and synergies with this acquisition, it also runs the risk of potential downsides for customers: pricing and contract terms are likely to change and the pace and direction of innovation could slow down as the provider moves from a nimble, niche supplier to a new parent company with many competing initiatives.

Are You Ready For China's Outsourcing Market?

Gene Cao

Dear Forrester Community,

I would like to take couple of minutes to introduce myself and the research topics I’m working on. I came to Forrester through the acquisition of Springboard Research and specialize in helping Vendor Strategy Professionals understand trends in IT services and outsourcing in Greater China.

With my latest research paper, “Driving Outsourcing Success In China,” I want to help vendors raise awareness on the Chinese outsourcing market, which will grow at 17% CAGR over the next five years. Nonetheless, entering this lucrative market will pose several challenges for international newcomers. In my research, vendor strategists will find insights about:

  • Growth opportunities.
  • Introduction to the market dynamics with drivers and inhibitors.
  • Possible go-to-market approaches for outside vendors entering into China's IT services market.

I'd love to hear from you. Feel free to share your own experiences and ideas with me. Are there other questions that you would like me to address in my upcoming research?

Yours,

Gene Cao, Senior Analyst

Key Areas To Consider In SaaS Contract Negotiation

Liz Herbert

With the Sourcing and Vendor Management Forums coming up next week in Miami and at the end of the month in London, our team is busy finalizing content and rehearsing sessions. Personally the hottest question I have continued to get since the keynote I did last year on SaaS sourcing is the question of SaaS pricing and contract negotiation. So, what can you expect in the track session “Negotiating Cloud Pricing and Contracts” for those of you who can join us?

New data from the Q3 2011 services survey showing:

  1. SaaS is disrupting spend on traditional services. Nearly half of the firms we surveyed say that “as-a-service” spending has reduced spending on traditional on-premises IT spend. And, these firms also say that it will have a noticeable disruptive impact. Out of the firms who say “as-a-service” spending will reduce spending on traditional spend, 30% say this disruption will be 6% or more.   
  2. SaaS adoption has expanded into IT applications and industry-specific applications. Firms are now using SaaS for an increasingly wide range of solutions: horizontal applications like CRM and HR and collaboration applications like email still dominate the trend but now 13% of firms use SaaS for IT software such as asset management and 10% of firms use SaaS for industry-specific solutions such as insurance claims management.
  3. Firms are centralizing their approach to SaaS sourcing and vendor management. The recently gathered data shows a strong trend towards centralized SaaS strategy and formal multi-year plans around SaaS. Not surprisingly, this data also shows that firms expect to see a decrease in unsanctioned, business-led buying.  
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Sourcing & Vendor Management: A Key Driver In The Customer Experience Ecosystem

Christopher Andrews

This is a guest post from Kerry Bodine, a Forrester vice president and principal analyst serving Customer Experience Professionals. Kerry will deliver a keynote on the critical role Sourcing & Vendor Management Professionals play in customer experience at Forrester's Sourcing & Vendor Management Forum on Nov. 7-8 in Miami and Nov. 30-Dec. 1 in London.

Many customer experience initiatives don't meet their full potential — or worse, fail completely — because companies don’t have a complete picture of the dynamics that go into creating it. In order to break from their tunnel vision, companies need to understand their customer experience ecosystem: the complex set of relationships among a company’s employees, partners, and customers that determines the quality of all customer interactions.

In their quest to seek out the root causes of customer experience issues, companies often overlook the impact of sourcing and vendor management (SVM) professionals — often referred to as “procurement” by the rest of the organization. That’s too bad, because these decision-makers influence the customer experience in two key ways.

They influence which technologies and tools will be purchased. Some of these technologies are used internally. One example is: customer relationship management software, which enables employees across the organization to better understand customers and their ongoing relationships with the company. Other tools — like content management systems — directly affect the information that customers can access through digital touchpoints like the Web and mobile devices.

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Supplier Risk And Performance Management Takes Center Stage At Emptoris’s Customer Event

Duncan Jones

Having attended Oracle’s customer event a couple of weeks ago, I wasn’t sure I’d be able to make it to Emptoris’s Empower event this year, but I'm glad I was able to attend. The quality of the external speakers, the access to Emptoris execs, the content mix (high-level procurement trends and implementation best practices), the plentiful opportunities to chat with customers, partners, and employees — all these made it an extremely valuable couple of days.

A key event theme was the urgent need for procurement leaders to improve their risk monitoring and mitigation processes. For instance, according to Deloitte Consulting’s 2011 CPO survey, nearly 60% of respondents believe their risk exposure is higher than a year ago. Emptoris’s President & CEO Patrick Quirk explained his company’s response, with an ambitious roadmap to convert the acquired Xcitec product (now called Emptoris Supplier Lifecycle Management)  into a comprehensive supplier risk and performance management suite (SRPM), in line with our description of this category: FAQs About Supplier Risk And Performance Management Software.

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