magic_quadrant_for_data_cent_259902.pdf

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Magic Quadrant for Data Center Outsourcingand Infrastructure Utility Services, EuropePublished: 16 July 2014

Analyst(s): Claudio Da Rold, Gianluca Tramacere, Frank Ridder, DD Mishra, Gregor Petri

Collectively, the top 17 providers deliver DCO services and IUS worth $20.3billion in Europe. Gartner assesses these providers and their offerings interms of execution and strategic vision. Sourcing executives can use thisanalysis to choose a provider from this important and fast-changing market.

Strategic Planning AssumptionBy 2015, low-cost cloud services will cannibalize up to 15% of top outsourcing players' revenue(see "Gartner's Top Predictions for IT Organizations and Users, 2012 and Beyond: Control SlipsAway").

Market Definition/DescriptionThis Magic Quadrant focuses on management services for mainframe and centralized serverenvironments. It evaluates the abilities of 17 service providers to deliver data center managedservices across Europe including data center outsourcing (DCO) and infrastructure utility services(IUS), which are often enabled by remote infrastructure management services and increasinglyinclude cloud computing components.

Future growth in data center services will come from new industrialized infrastructure offerings suchas IUS and infrastructure as a service (IaaS), while growth and margins for traditional services willface further pressure (for more details, see "How Key Trends in the Data Center InfrastructureOutsourcing Market Will Affect Your Business"). We therefore include in this evaluation, cloud IaaSand platform as a service (PaaS) offerings (see Note 1) that are part of IUS offerings, and datacenter managed services.

As in previous years, this Magic Quadrant excludes simple, dedicated Web hosting and colocationservices and providers that entirely subcontract their services.

Definitions

Data Center

Gartner defines a data center as a centralized environment that provides support for computerequipment in a secure facility. This includes the underlying network infrastructure and the processesand organization that support the environment. These generally include the following:

System operations

Tape operations

Print operations

Second-level data center support

Production control

Backup and recovery processes

Technical support (operating systems and subsystems)

Performance analysis and capacity planning

Storage management

System security and contingency planning

Asset procurement and third-party management

Data Center Outsourcing

DCO is a segment of IT outsourcing (ITO), which always includes an IT management service and issegmented into data center, desktop, network and enterprise application outsourcing.

ITO can include a portfolio of product support and professional services that external serviceproviders bring together to provide clients with IT infrastructure, enterprise application services, orboth, to ensure the success of the service recipient's mission.

Infrastructure Utility Services

Gartner defines IUS as outsourced, industrialized, asset-based IT infrastructure managed services(that is, below the functional business application layer). These services are defined by serviceoutcomes, technical options and interfaces, and are paid for based on resource usage, allocation,or number of users served.

Remote Infrastructure Management (RIM)-Based Service Delivery

RIM is a delivery model that providers often embed in DCO. This is an acceptable approach forDCO relationships that are based on a client- or third-party-owned data center, and when a singleservice provider delivers RIM. In that case, the client signs a single service contract with one serviceprovider for the whole set of DCO services. In that type of contract, the main provider is responsiblefor end-to-end service delivery, including management and control of the hosting subprovider.

Geographies

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Gartner's geographical definitions for this Magic Quadrant are as follows:

Europe: The combination of Eastern Europe and Western Europe

Western Europe: Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy,the Netherlands, Norway, Portugal, Spain, Sweden, Switzerland and the U.K.

We divide Western Europe into the following subregions:

Western Europe, Northwest: Ireland and the U.K.

Western Europe, Northeast: Denmark, Finland, Norway and Sweden

Western Europe, Central West: Belgium, France and the Netherlands

Western Europe, Central East: Austria, Germany and Switzerland

Western Europe, South: Greece, Italy, Portugal and Spain

Eastern Europe: Albania, Bosnia and Herzegovina, Bulgaria, the Czech Republic, Croatia,Estonia, Hungary, Latvia, Lithuania, Macedonia, Moldova, Montenegro, Poland, Romania,Russia, Serbia, Slovakia, Slovenia, Turkey and Ukraine.

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Magic QuadrantFigure 1. Magic Quadrant for Data Center Outsourcing and Infrastructure Utility Services, Europe

Source: Gartner (July 2014)

Vendor Strengths and Cautions

Accenture

Accenture provides consulting, system integration (SI), outsourcing and software globally. Of itstotal revenue for fiscal year 2013 of $28.6 billion (up 3%), its outsourcing revenue (from application,


business process and infrastructure services) amounted to $13.2 billion (up 7% from 2012).Accenture pursues opportunities in which infrastructure outsourcing initiatives focus on businessand IT transformation, or underpin application and business process service delivery especially ifthe accounts are managed by its industry business units and leverage its own software unit.Accenture uses mostly client- or partner-owned infrastructure, because it owns only one datacenter (in Germany). We estimate that the DCO/IUS business is approximately 10% of Accenture'sIT outsourcing business.

Strengths

Accenture increasingly focuses on transformational deals, where value and performanceexpectations center on a mixed environment of legacy and cloud-based solutions that need tobe integrated and managed. Accenture's strategy aligns well with Gartner's adaptive sourcing

layers (innovate, differentiate, run),1 and its strength will increasingly be based on driving its

infrastructure service line as a platform for digital business and customized, differentiatingsolutions.

Accenture's asset-light strategy means that it avoids traditional, static legacy deals orientedtoward swapping assets (human and physical) and cost reduction, and those that are purelyabout increasing scale. Accenture has deep business understanding and relationships that cansupport growth and, potentially, enable it to deliver an effective business-oriented solutionsplatform (facilitated by efficient data center services, which are increasingly focused on datacenter optimization and automation), cloud platform implementation (IaaS, PaaS, SaaS) and

hybrid environment integration and management.2

Clients praise Accenture for expertise in infrastructure service integration and transformation, itscollaborative approach and a strong pool of competencies. They also appreciate Accenture'sexpertise in senior account management, its ability in data center rationalization and its focuson service management.

Cautions

Accenture offers a range of infrastructure services under two main business models (withdifferent potential for industrialization),

3 plus an emerging one, through its recently established

infrastructure services direct sales force. Client deal qualification and strategic choices(investments, solutions, infrastructure performances and service levels) are now driven by thenewly established infrastructure services organization (bringing together consulting andoutsourcing services). This organization owns end-to-end responsibility (not profit and loss) toaddress the risk of fragmentation that can be driven by individual key accounts and parallelchannels and this will change, over time, the way that Accenture will downselect the deals tobid on.

Only 8% of Accenture's managed SAP clients use its utility solutions, which reflects a limitedadvancement of industrialized services for a provider that is mostly focused on customizedsolutions. Market and price pressures force Accenture to further industrialize its services andenhance its currently standard SLAs, which are in line with RIM but low for critical services, as


higher SLAs are available for more customized services at a premium price. Accenturemeasures customer satisfaction at the level of the whole client relationship, and cannot provideevidence of customer satisfaction measures for this particular service line which limits thetuning of its industrialized infrastructure services portfolio.

Clients report that Accenture needs to improve its reaction time in critical situations, and shouldfine-tune communication between teams and further drive automation in infrastructuremonitoring. They would also like to see Accenture increase its drive toward automation andcloud-oriented offers, reduce the number of major outages, and more proactively pushinnovative ideas.

Atos

Following its second fiscal year after acquiring Siemens IT Solutions and Services (SIS), Atosreports that it has achieved its objectives of improved operating margin (now at 7.5%) and cashgeneration, and a 5.5 times market cap increase since 2008. Atos is a European company based inFrance, and its brand is strengthening as the second-largest European IT services provider withoverall revenue of $11.4 billion (up 0.6% from 2012). It is pursuing an aggressive strategy through2016 to increase European leadership in managed services and cloud service deployment, and

to grow both organically and through focused acquisitions4 to become a more global cloud-based

service provider. Atos currently serves over 1,850 European DCO clients, from which it generatesrevenue of $2,450 billion. It expects to generate cloud-based service revenue of $1 billion worldwideby 2016, with the cloud accounting for 50% of its managed service business by 2020.

Strengths

Atos has strong planning and execution capabilities, demonstrated throughout its successfulmerger with SIS and by its continuing role as service integrator for the Olympics andParalympics. Atos has communicated a coherent message to the market in terms of positioningits role as a "business technologist," and is working with partners such as EMC and VMware(Atos' partners in its cloud brand, Canopy), Siemens (planned joint investments), Microsoft andsome research institutions. Atos maintains a sound vision for the evolution of its DCO and IUSservices, and for evolving toward delivering these services in a hybrid model through its Canopycloud services, which are mostly operated from its Indian delivery centers. In 2013, Atos grewits DCO and IUS business by approximately 2% above the market average despite significantprice erosion.

Atos continues to push industrialization and quality in its delivery, with a range of initiativesincluding Zero Incident, Top One Tier (TOP) which is based on quality, innovation and talent and end-to-end implementation of lean programs. Key roles, such as a head of operationsfor managed services in each Atos business unit, a dedicated project/transformation unit and aglobal security services unit, have been established. As part of a renewed data centerconsolidation process, the logical data center structure is moving toward four standardized

layers.5 Despite consolidating, Atos reports a visible improvement in customer satisfaction

compared with last year and this has been confirmed by its references.


Clients praise Atos for its reliability, the availability of skilled resources and its flexible solution-oriented approach. They also appreciate its proactive drive toward automation and IU/cloudsolutions, its service and account management skills and its expertise in data centerrationalization.

Cautions

Despite growth in this service area, Atos' overall business growth has been flat (roughly 2.8%below the market average) despite its existing innovation initiatives, such as Canopy, Zero Emailand Yunano (a joint venture with YonYou of China, still not expanding its SaaS client base fastenough). This shows that Atos despite its current efforts must still increase its ability totransform front-end innovation into winning service offerings, efficient delivery and revenue flow.This challenge is shared with many other organizations in the digital era, but IT providers mustexcel here to be perceived as digital leaders.

Atos' business is still too concentrated in Europe, a market where limited growth is expected.Regions of higher growth, such as the Americas and Asia/Pacific, contribute less than 20% ofits data center revenue. Most utility customers are still concentrated in Belgium, Germany,France and the Netherlands (over 70%). Canopy recently established four global hubs, in NorthAmerica, Singapore, the Netherlands and Germany, which should start to show traction with aset of new cloud offerings branded as Canopy but actually delivered by the company's SI andmanaged services (MS) lines.

Clients want Atos to further improve its knowledge transfer, management and retention, and toincrease its performance in terms of process adherence. They would also like Atos tostrengthen its focus on transition management, reduce the number of outages (even ifremediation and escalation were judged very positively) and fine-tune its resource and third-party management.

Capgemini

Capgemini Group posted 2013 revenue of $10 billion, a small decrease compared with the previousyear. European DCO revenue represented about 80% of the company's $2.3 billion in infrastructureoutsourcing revenue. In 2014, Capgemini is pushing two major themes for its infrastructure servicesbusiness: globalization (one global delivery unit for all infrastructure services), and simplification(including a data center consolidation program). Capgemini is also continuing its drive toward ahigher degree of industrialization. To support that, it has created a dynamic services business unitthat groups together its cloud and integration services.

Strengths

Capgemini grew its DCO business only slightly during 2013, but is showing a better approachto deal qualification and is improving its data center services competitiveness, bookings andmargins. As more organizations aim to become digital enterprises, Capgemini's strong heritagein system development and applications can be a differentiating capability, as long as its movetoward offshoring and industrialization does not impede its agility and customer intimacy.


Capgemini's strategic focus on integration services and cloud brokerage is a pragmaticapproach that capitalizes on the company's knowledge in SI and application services. Its cloudbrokerage services are now separate from its traditional and established managed servicesactivities, allowing for a more focused go-to-market strategy and reducing direct competitionwith the commodity side of the market. In light of this new focus, Capgemini's relationship withMicrosoft, HP and EMC has provided it with greater efficiency and competitiveness.

Clients praise Capgemini for performance in service management and infrastructure stability, itscustomer orientation and its ambition to focus on clients' business environments. They alsoappreciate Capgemini's strong performance in outage resolution, its strict adherence toprocedures and its focus on account management.

Cautions

Compared with others in this Magic Quadrant, Capgemini was late to market with itsindustrialized offerings (for example, IaaS, SAP Run, Oracle Run), so its investment in rampingup a higher degree of industrialization in complex service environments needs to happenquickly including implementation of SAP Run 3.0 with expected support for Hana in mid-FY14, and more workflow automation. In fact, its volume growth in 2013 has been mainframe-based, showing the need to accelerate its migration toward cloud-based utility services.

Due to a strong focus on its improvement initiatives, Capgemini is currently more focused onservice delivery restructuring than service portfolio innovation. A major part of its improvementinitiatives are about global delivery extension, at a time when competitors are already focusedon automation something that Capgemini should take up much more aggressively than in thepast. While improvements will have an overall positive effect, these projects have to bemanaged with care in order to avoid further reducing customer satisfaction.

Clients report that Capgemini needs to enhance the transparency of its pricing mechanism andreinforce its ability to bring escalation to third parties. They would also like Capgemini to moreforcefully propose automation and IU/cloud solutions, drive innovation and fine-tune itsresource management process.

CGI

CGI acquired Logica during 2012, but the new company still has less brand recognition than maybe expected from its post-acquisition size ($10 billion in revenue). In 2013, 56% of CGI bookingscame from outsourcing; geographically, 12% each came from the U.K. and France, 15% from theNordic countries, 43% from North America and 18% from rest of the world. In addition to itstraditional integration activities, CGI is running programs to standardize its services globally and addnew services in areas of high innovation, and is striving for a more global go-to-market approach a route that many of its competitors started on several years ago.

Strengths

After acquiring and merging with Logica, CGI kept its focus on client proximity and maintains abroad spectrum of vertical solutions that it could leverage to cross-sell, and meet the market


requirements for, business outcomes and end-to-end services on top of DCO, IUS and cloudIaaS services. To support these services, CGI can rely on its business consulting practice andapplication and integration capabilities. CGI is accelerating its consolidation in the Nordic regionand the U.K., driven by its centralized Global Leadership Council that controls investments ininfrastructure services covering IS strategy, common processes, management toolsets, designand technology investments.

CGI's infrastructure propositions and cloud services have better traction in North America(where it is FedRamp- and Third Party Assessment Organizations-accredited) the U.K. and theNordic countries than in mainland Europe, and this provides a good opportunity for expansion.CGI investments aim to expand its cloud IaaS solutions, standardize management tools andexpand its offerings through brokerage and partnering (for example, with Microsoft forExchange, Lync, SharePoint as a service and delivering burst capability into Microsoft Azure inthe Nordic region and the U.K.).

Clients praise CGI for its flexible and customer-focused approach, its service managementexpertise and reliable data center operations performance. They also appreciate CGI's flexibleapproach toward contract and relationship management and the quality of its skills in lower-cost locations.

Cautions

CGI has a geographically oriented structure. Different presidents are accountable for each of itsseven geographic segments, four of which include European countries. Although this structureenables a focused go-to-market approach, the regional autonomy increases the risk ofinconsistent delivery and the need for service industrialization and operational consolidation inorder to reduce costs and increase competitiveness and margins in Europe. This also reducesthe ability to address Pan-European or global deals that span multiple European countries,which significantly limits its visibility in the largest deals in the addressable CGI market. CGI'sprojects for integration and global delivery harmonization appear to be slow in gaining traction;so far, only two-thirds of its delivery centers run on a harmonized toolset. Different IUS/IaaSofferings run in different countries, and a few global customers are being served by severalvirtually independent service organizations; offshore leverage is also behind its competitors inEurope.

During 2013, renegotiation and not renewing unprofitable deals has caused CGI's EuropeanDCO revenue to decrease 14%, with an even greater impact on the number of activecustomers. Other leading key performance indicators also declined, including customersatisfaction and SLA attainment. With more than half of its DCO revenue coming from Europe,achieving more prominent visibility and leveraging an integrated service offering will be criticalto reversing its revenue decline in the region. Since CGI's DCO/IUS business in North Americaalso declined by 23% (in revenue), CGI must carefully examine and fix the root causes of thisnegative trend.

Clients reported that CGI should strengthen its ITIL performance, especially in key processessuch as problem and change management (including escalation path), and be more proactive.They would also like CGI to strengthen its tools and process expertise (especially for escalation


management), and more proactively promote continuous improvement and innovation throughits IU solutions.

Cognizant

Cognizant is an IT services provider with revenue of $8.8 billion, whose DCO business is estimatedat 5% of its global revenue; its DCO and IUS business in Europe is estimated as representingalmost a quarter of the global DCO/IUS revenue. Cognizant focuses on three levers that areintended to drive this part of its business: simplification, building progressive solutions and runningpredictable operations. Its infrastructure services portfolio includes transformation services,managed services and consulting and professional services.

Strengths

Cognizant's infrastructure business in the U.S. has shown high-double-digit growth during2013; in Europe, it is a newcomer to this Magic Quadrant with more than $100 million ofestimated business in the DCO/IUS segment (significantly up from 2012 levels). Cognizantinvests in DCO and develops IP (intellectual property) in areas such as hybrid IT, automationand service management (its OnTarget and Cloud360 platform). Its cloud and utility servicesinclude private and multitenant IaaS for direct connectivity into customer environments withintheir data center infrastructure. Cognizant is also investing in its next-generation cloud serviceofferings, and infrastructure from VDC, while developing industry-aligned solutions (such asdigital asset or clinical trials management).

Cognizant follows a transformational, application and IP-driven strategy toward infrastructureindustrialization. Its strategy theme "Simplification, Be Progressive and Run PredictableOperations" is sound and reflected in its key strengths. Its integrated business end-to-end SLAapproach for European midsize or large businesses could also prove fruitful. These newapproaches must be balanced with the more traditional approaches based on RIM, andprevious generations of ITO deal renewal or consolidation which are still providing the largestDCO opportunity in Europe.

Clients praise Cognizant for its partnership approach, and its focus on exploring potentialservice improvements and on managing service delivery and cost fluctuations. They alsoappreciate Cognizant's depth and breadth of services, its focus on contract management from pricing to statement of work (SOW) and SLAs and its data center rationalizationexpertise.

Cautions

Cognizant maintains a small base in its DCO/IUS segment, but much of its data center businessestate is partner- or customer-owned. Cognizant would benefit from strengthening its messagewith the European market to create greater visibility as a DCO and IUS provider. In particular,successful case studies could help raise customer confidence in Cognizant as a European DCOand IUS player. Cognizant's business solutions approach is sound and can be a good lever forthat.


Cognizant's Virtual Data Center is currently built on Savvis' white-label offering. From thatperspective, the rise of managed hosting players in the outsourcing and managed IT servicesspace may heighten competition or reduce Cognizant's ability to grow quickly driving itsevolution toward a multiplatform approach. The increasing complexity coming from multiplecloud technologies and APIs, driven by customer choices and Cognizant's partnering decisions,will need to be managed wisely to avoid increasing pricing with limited business value.

Clients report that Cognizant needs to improve its assessment of clients' requirements to avoidovercommitting and challenging its ability to deliver, and should reinforce the depth and breadthof its key client interfaces. They would also like Cognizant to further aim at deploying standardmethodologies, reinforce its tools expertise, drive for innovation and continuous improvement,and fine-tune its management of third parties.

CSC

In 2013, CSC focused strongly on cost optimization, which positively impacted its margin. Itgenerated $14.5 billion in total revenue, showing a slight growth of almost 2%. Its DCO strategyspans traditional and more industrialized solutions packaged into a global solution portfolio and next-generation solutions with capability-based network access. CSC's cloud strategy focuseson empowering clients' IT to become a cloud service broker. CSC is a full service provider with abroad value proposition across infrastructure, application and business process layers.

Strengths

CSC's DCO strategy is shifting from an approach based on outsourcing and cloud-weightedofferings, toward an integration approach across managed services, cloud and IUS whereservice integration and migration is a key theme. A visible proof point is CSC's 4Q13 acquisitionof ServiceMesh, a cloud management company. This will further support the cost optimizationjourney that CSC started after the new CEO arrived in 2012. The strategic shift and migration:from a larger and more diverse installed base of legacy clients' data centers, to an asset-light,service-integration-oriented, and partner-based value-added delivery is a major endeavor forthe new CSC strategy, and is critical to its success.

CSC invests in its portfolio mainly to enable more and enhanced "as a service" solutions such as cloud IaaS, infrastructure utilities for ERP and mainframe as a service. CSC is alsoshifting to a more partner-based model, illustrating its deep restructuring and strategicrealignment away from a highly commoditized model toward more value-added services. Twonew key partnerships for that journey are with AT&T, for network and cloud services, and withHCL Technologies for sharing India-based resources and collaboration on applicationmodernization programs.

Clients praise CSC for the quality of its technical skills, its expertise in security services and itsfocus on service reliability. They also appreciate CSC's performance around contract andaccount management with a focus on SOW and governance as well as its leverage ofautomation and adherence to robust methodologies.


Cautions

Despite big growth in storage utility, and minor mainframe growth, CSC's cloud and utilityservices are still relatively small compared with its traditional services' installed base. Its shareof managed virtual servers is at the low end across all competitors in this Magic Quadrant. Theacquisition of ServiceMesh and its new partnerships with AT&T and HCL Technologies areexpected to create a much stronger momentum in this area. It might also help CSC to increaseits win rate, which would help it to grow its DCO business more aggressively.

CSC is still completing the restructuring of its business in Europe (including its delivery centers)and improving its margin with those initiatives, but Gartner estimates that its revenue showed adouble-digit decline in 2013, due to strategic renegotiations and exiting from various DCOcontracts. CSC's customer references' satisfaction dropped significantly compared with lastyear. CSC is adding some smaller clients, based on a cloud subscription model, and also visiblyincreasing its storage services. Overall, CSC is not yet active enough to position itself as a "fastinnovator" in the innovation layer of Gartner's adaptive sourcing model, which might weaken itsposition as a potential value-added service integrator.

Clients report that CSC needs to streamline its internal decision-making process and clarify itscommercial model to clearly differentiate its cloud offering from the traditional outsourcingproposition. They would also like CSC to reinforce its focus on transition management, furtherdrive innovation, accelerate the adoption of IU offerings and strengthen its tools expertise.

Fujitsu

Fujitsu's DCO business is $4.2 billion-strong up $145 million from 2012, due to significant growthin North America and moderate growth in Asia/Pacific (its biggest region). In Europe, Fujitsu'sbusiness shrank by double digits from 2012, to $1.1 billion. This revenue comes from more than1,700 clients, mostly in the U.K., Spain, Finland and Germany. Fujitsu's DCO services span remoteinfrastructure management, managed hosting, cloud IaaS and colocation services.

Strengths

Fujitsu is driving a deep restructuring program in Europe to transform from a multiregional to aglobal provider. This transformation is supported by a new sales organization that is mandatedto pursue larger multinational and global deals. A big part of the restructuring program is theestablishment of a Global Delivery organization, which is long overdue. Based on this, Fujitsuhas earned strong growth in North America, which goes a long way to establishing its credibilityas a global DCO provider. Fujitsu continues to invest in its DCO services, following its deliveryof cloud services to Spain and Portugal during 2013 with the expansion of its data centerfootprint during 2014 with three new data centers in Italy, France and the Netherlands.

Fujitsu is investing in a "single pane of glass" approach to managing and controlling cloud andtraditional services, with its Cloud Integration Platform, and covering different types of servicearchitectures. This approach looks promising (though not yet proven with evidence), and willhelp Fujitsu to further leverage its cloud solutions in DCO and IUS deals. Fujitsu is one of thefew providers with an industrialized offering around both main ERP platforms, SAP and Oracle.


Clients praise Fujitsu for its focus on service delivery and governance, as well as its adherenceto key processes such as incident and change management. They also appreciate Fujitsu'sfocus on automation, its robust processes including escalation and outage management and its attention to SOW and service governance.

Cautions

Fujitsu's European business decreased significantly (12.7%) in 2013 (versus 2012), due toprice erosion, customer portfolio cleanups and pushing more industrialized services to clients.At the same time, customer satisfaction dropped significantly compared with last year. Fujitsu'sindustrialization journey appears to be temporarily refocused on its global delivery arbitrageprograms (its European staff was cut in half from 2011 to 2013). Fujitsu would benefit fromstrengthening its focus on automation, where its approach appears less intense than that of itscompetition. Today, automation happens mainly in new accounts, less so in Fujitsu's hugeinstalled base. Virtualization levels are at the market average, and offshore RIM is still below themarket average.

Fujitsu invests in two different cloud approaches, Fujitsu Cloud IaaS Trusted Public S5 (Xen-based) and Fujitsu Cloud IaaS Private Hosted (VMware-based), and is planning further additionsto its cloud virtualization stack. This cloud portfolio appears varied and fragmented and mightbe challenging to manage, with the complexities and economies of scale for each cloudsolution. The majority of Fujitsu's IUS clients are in Finland, where its offering started, andJapan, where its cloud service originates. Fujitsu would benefit from a more balanced marketpenetration.

Clients report that Fujitsu needs to avoid focusing only on the status quo, ongoing service andlegacy stability. They want to see the company do this by enhancing its drive to develop aservice strategy and further enhance its performance in transitioning from project into operation.They would also like Fujitsu to be more proactive in driving innovation and to fine-tune itsperformance around account and third-party management.

HCL Technologies

HCL Technologies, an offshore service provider, continues with an aggressive growth path in bothEurope and North America. In 2013, it generated over $500 million in European DCO revenue fromaround 70 clients. HCL keeps strongly focused on industrialization and cloud, positioning itself as aprovider focused on responding to the needs of the enterprise of the future while addressing theshift from labor to technology arbitrage.

Strengths

HCL continues to achieve strong growth in the European market and has consolidated itsposition as a market disrupter, particularly due to its successful pursuit of second-generationoutsourcing deals. HCL's strategy of focusing on enhancing customer knowledge is practicaland can both elevate its visibility and attract customers by driving value at lower cost.


HCL has committed ongoing investment to supporting industrialization in service delivery andportfolio management. As a result, it currently relies on a growing range of utility and cloud-based services that are underpinned by IP and related tools, allowing them to manageworkloads across different platforms. HCL's infrastructure migration experience can also act asa springboard for application modernization opportunities.

Clients praise HCL for its customer orientation, flexibility in solution design and the quality of itsremote support services. They also appreciate HCL's performance in contract management,especially with regard to SOW and service governance.

Cautions

HCL's aggressive market approach toward infrastructure deals that come up for renewal willgrant fast market share returns, but reach its limit once clients' digital innovation agendas takeoff which will require HCL to demonstrate significant technology, vertical and end-to-endbusiness process expertise to deliver competitive enhancements and business outcomes. Thisis an area where HCL's visibility and mind share leaves significant room for improvement. Also,HCL's reference returns have been less positive than in the preceding year, requiring it todevelop a better balance between growth and customer satisfaction.

While leveraging third parties for data center space in Europe is an established approach,HCL's lack of a physical data center presence will force it to manage all risks through third-party supplier contracts in a growing installed client base. Furthermore, its reliance onmanaging the sites of clients or third parties will hinder its ability to pursue its automation andindustrialization agenda.

Clients reported that HCL needs to further strengthen the depth of its project management skillsand focus on clarifying the scope and related cost of potential additional projects/services. Theywould also like HCL to further leverage the automation and IU-based solutions, strengthen itsservice performance to limit outages (including improvements around escalation and time toresolution) and fine-tune its third-party management.

HP

HP is through the second year of a multiyear turnaround effort. In 2013, it laid out a strategy ofdelivering solutions for the "new style of IT," which shifts its focus toward a portfolio of integratedsolutions and services. As part of this effort, HP's Enterprise Services (ES) business (which includesDCO) has continued to shrink as unprofitable contracts have been dismissed or renegotiated. InHP's fiscal year 2013, out of a global revenue of $112.3 billion (down 6.7% on the previous year) ES

represented $23.5 billion (down 6.8% on the previous year)6 or approximately 29% of its global

revenue, and declined in both growth and earnings from operations which were down from 4.2%in 2012 to 2.9% in 2013. DCO represents a key component of HP's $14.7 billion in global ITOrevenue (down 7% on the previous year) and draws on significant capabilities, including over390,000 managed servers (up 9% on 2012) and a very large mainframe base in terms of millions ofinstructions per second (MIPS). In common with other leading providers, HP is focused on thechallenging transition from a traditional outsourcing approach to one that involves moreindustrialized services, and on managing a hybrid of traditional and cloud-based services.


Strengths

HP's solid footprint in the European market (over 180,000 servers and 60 data centers includingsix twin data centers), depth and breadth of global DCO capabilities and solid ITOtransformation plans enable it to compete for large-scale and truly global DCO deals. Weestimate that HP has slightly grown its European DCO revenue, despite being in the midst ofrestructuring and the severe price pressure in Europe. The new "One HP" strategy plays to thestrengths of HP ES as the foundation of the company's managed services and solutions. Thiswill require extending the ES portfolio toward an integrated set of end-to-end offerings drivenby a vertical view of customer business requirements and supported by products, services andsolutions across the entire company. To cover the whole cycle of advice, transformation andmanagement from a customer's business outcome perspective, HP ES is planning to leveragemore consulting capabilities.

HP continues to migrate customers onto Enterprise Cloud Services (ECS) (recently renamed HPHelion Managed Cloud Services) and to invest in DCO, and is focused on improving andconsolidating its data center facilities developing a seamless delivery and managementapproach from mainframe to cloud infrastructure services, and expanding its portfolio of data-center-enabled projects, solutions and services. HP has a strong focus on global delivery, witha balanced combination of local, nearshore and offshore resources that deliver DCO servicesthrough its global delivery approach. HP has already closed more than 60 low-density datacenters globally, consolidating many hundreds of clients in the process. In parallel, HP plans toopen three new data centers in EMEA.

Clients praise HP for its knowledge and technical expertise, geographic reach and serviceresilience performance. They also appreciate HP's service management, which is underpinnedby robust processes, its focus on leveraging automation and its expertise around data centerrationalization.

Cautions

In 2013, HP was executing its restructuring plan. This, coupled with strong unit price pointreductions in the European market, has stressed HP's services margin despite a significantreduction in its global workforce. Although HP's cloud offerings are starting to gain sometraction, its level of server virtualization is still above market average. HP would therefore benefitfrom accelerating the ramp-up of its cloud services and driving growth through its value-addofferings, targeting new groups such as small or midsize businesses (SMBs) and furtherlowering prices. The complexity of its consolidation and restructuring plans has further (slightly)challenged customer satisfaction, and this creates commercial pressure and contractrenegotiations so existing and prospective clients should continue to monitor the effect ofHP's restructuring on the quality of its service delivery.

While improving over time under the "One HP" initiative, HP still appears to be a complexorganization that sometimes struggles to bring its strengths together in end-to-end solutions.For example, during the transition from its previous generation of IUS offerings (started in 2006in Europe) toward new managed cloud services, HP's infrastructure utility offering for SAP has


largely lost traction and left most of the growth in this key market to its competitors. Therefore,despite its parallel investment in cloud computing and the related consulting capabilities, HPlooks more conservative in enabling clients to move to industrialized, hybrid environments. HPis involved in a large number of cloud commodity deals, but doesn't own enough integratedsolutions to make a sharp move into value-add, end-to-end and vertically oriented solutions.This may lead to erosion of its "wallet share" and encourage customers to favor other providersthat offer lower-cost solutions or deliver added value, albeit at higher prices. Several clientshave reported that HP has lost some of its financial flexibility due to the restructuring, whichmay create difficulties in some outsourcing deals.

Clients reported that HP needs to further clarify the characteristics and reach of its cloud-oriented offerings, help the client dissipate potential doubts around service scope, and aim tooffer a "single HP" interface. They would also like HP to increase its drive on innovation especially related to automation and reinforce its management of resources and third-partyproviders.

IBM

In 2013, 38% of IBM's $99.8 billion revenue came from its Global Technology Services (GTS)division, where nearly two-thirds of revenue is generated by the Strategic Outsourcing practice.DCO remains the foundation and largest segment of this business. IBM is the largest globalcompetitor in this market, with the largest volume of data centers in Europe (over 100) and thelargest MIPS installed base. This makes IBM a mainframe management powerhouse, for which itenjoys significant proprietary advantages. While IBM continues to optimize its back-endinfrastructure service delivery engine, it is also driving an aggressive application strategy focused oncloud orchestration and operational value enablement. IBM reported an impressive cloud andinnovation acceleration in 2013, with revenue growth in cloud (up 69%), business analytics (up 9%),mobile (up 69%), social business (up 45%) and security (up 19%); Global Services outsourcingsignings and backlog increased by 28% and 4.7%, respectively. Despite that, IBM's overall revenueis decreasing (down 4.6%) as net cash from operations (down 10.7%), market capital (down 7.6%)and capital expenditure (down 12.5%) show the undeniable challenges that industrialization andcloud transformation bring to large vendors.

Strengths

IBM's strategy incorporates social, mobile, cloud and analytics, and it leverages its depth andbreadth of services to execute on this. Its strong focus on big data and analytics is directedtoward becoming a dominant player in the analytics business, by leveraging IBM's deepknowledge of traditional DCO to master new solutions and delivery models. In doing so, IBMexecuted on a cloud, analytics and investment plan totaling $7 billion, which includes its bigdata and analytics acquisitions, its cloud acquisition with SoftLayer (at $2 billion), thedevelopment of Watson cognitive-computing-based offerings in Watson Group (at $1 billion),BlueMix (at $1 billion), and a global cloud data center expansion plan (at $1.2 billion). IBM ispushing SoftLayer in almost every outsourcing offering (either for cloud IaaS or bare-metalimplementation).


IBM continues to broaden its focus on traditional DCO into delivering utility and managed cloudservices that are coupled, as far as possible, with higher-level application and business processservices. In doing so, IBM is leveraging its acquired cloud capabilities to address the need forservice industrialization. In 2013, IBM replaced its previous SmartCloud Enterprise (SCE)offering with SoftLayer. Applying analytics to large-scale data center operations offers IBM thepotential to make significant quality of service improvements while pursuing a more verticalizedsolution approach (for example, the potential to deliver to multiple customers through itsInnovative Solutions for Finance (ISFF) relationship with Dexia).

Clients praise IBM for the depth and breadth of its technical resources, its service resilience andresponsiveness in stabilizing service after incidents, and its process adherence. They alsoappreciate IBM's operational performance, its data center rationalization expertise and strongskills in transition management.

Cautions

The planned transition of existing SCE clients from the previous IBM IaaS service to SoftLayerhas been completed; IBM does not intend to migrate existing clients for managed services builton top of cloud (previously termed SCE+ and now renamed IBM Cloud Managed Services,which spans x86, AIX and Tier 1 transactional storage). The networks of IBM and SoftLayer arebeing interconnected and the service portfolio is evolving to provide a consistent set ofmanaged service options; however, the integration between these different technologies andlayers (IaaS and PaaS) remains a challenging work in progress in terms of end-to-endperformances, SLAs, processes and integration points. This highlights the general challenge ofindustrializing the management of a hybrid traditional IT and cloud environment, which isparticularly important to IBM and other large outsourcers. Clients should carefully considerwhere to deploy workloads and ensure that the provider can integrate services seamlessly inorder to be assured of the desired outcomes. Lack of integration may slow down the effect ofindustrialization and leave some customers locked into nonstrategic technology platforms.

Revenue growth is a requirement for a high-profile organization such as IBM, but, despite itsleading position, this is difficult to achieve in a market where prices are declining, growth hasmoved from traditional to industrialized services, buyers are increasingly multisourcing, andcompetition is increasing from both large and small competitors. Although large closed dealsare expected to produce revenue in 2014, IBM did not grow its DCO business (and overallstrategic outsourcing practice) during 2013. It needs to further accelerate the delivery ofindustrialized vertical solutions, increase the empowerment and capabilities of clientmanagement teams, and drive greater customer satisfaction to enable wallet renewal andexpansion.

Clients reported that IBM needs to develop a more flexible relationship management approach,and to strengthen coordination and communication among different IBM teams to drive fastertechnical changes or incident analysis. They would also like IBM to increase its flexibility inmanaging contracts and to become more proactive in driving innovation, especially throughindustrialized IU solutions.


Orange Business Services

Orange Business Services (OBS) is the enterprise services branch of global communications serviceprovider Orange (formerly France Telecom). It follows a hybrid strategy: both offering its own(increasingly cloud-based) IT services, and brokering third-party and public cloud services byproviding trusted secure access. Its new business unit, Orange Cloud for Business, offers servicessuch as its Flexible Computing-branded IaaS offering and vertical propositions such as FlexibleComputing Sant (a healthcare solution). In 2013, OBS's overall revenue declined mainly due tothe sale of its eTrail trading unit but it has aggressive plans for cloud revenue growth during 2014and 2015. While current revenue from the Orange group is not accounted for in the reportedrevenue of OBS, the share of Orange Cloud for Business services within the Orange group issubstantial and increasing.

Strengths

OBS considers DCO and IUS to be strategic and has made solid moves and investments into astandardized and industrialized DCO portfolio. Its IaaS-based business has grown steadily to$235 million. It also maintains a portfolio of cloud services, from vertical offerings in areas suchas healthcare, to horizontal offerings in areas such as workspace or contact center, and on-siteoffers (such as private cloud facilities) for customers such as the European Space Agency. Ithas also invested in service improvements related to customer deployments into its datacenters, and in some dedicated customer environments, consequently showing animprovement in customer satisfaction. It has a global RIM structure with major delivery centersin Egypt, Mauritius, India, Brazil and France.

Being a communications provider, Orange has definite capabilities to bundle communicationsand brokered cloud services in its offerings. OBS has significantly increased its cloud servicescustomer base and has expanded its network of data centers in Europe, Asia/Pacific and NorthAmerica: through investment in its own data centers (such as in France, Poland or Romania), orthrough partnerships and alliances in regions such as North America and Asia/Pacific. OBS alsoincreasingly positions itself as an infrastructure and network partner to asset-light serviceproviders such as Accenture, Wipro and Infosys.

Clients praise OBS for its flexible approach to contract management, its responsiveness andthe quality of its technical skills. They also appreciate OBS's robust service deliverymethodology (inclusive of good SLA management) and operational expertise, its focus onaccount management and on driving continuous improvement through industrialized IUsolutions.

Cautions

Orange owns limited capabilities to help customers migrate onto its cloud-based managedservices, forcing them to leverage external partners (Infosys, Wipro and Unisys, for example).This may be a reason why the reported transformation cost per deal is considerably above theindustry average. It might also be a reason for the stable customer satisfaction levels during thepast three years, which could benefit from an acceleration of process standardization and


improvements in speed of execution. Orange shows limited visibility on the international DCOdeals in its pipeline, with 78% of its target deals in France and few deals over $10 million.

Development of new offerings (Flexible Computing Advanced, workspace as a service, PaaSand cloud brokerage/integration) is expected to make Orange more price competitive and ableto deliver a more complex service setup. However, while Orange maintains a comprehensiveIaaS portfolio, its overall share of managed virtual machines is on the low side. Compared withother participants in this Magic Quadrant, Orange maintains a lower-than-average offshoredelivery center resource percentage for its DCO and IUS delivery, which might challenge itsprofitability if it is not compensating for this disadvantage with higher investments inautomation.

Clients reported that OBS needs to deepen its service delivery bench, fine-tune escalationmanagement and become more explicit in linking value to the services delivered. They wouldalso like OBS to strengthen its expertise in remote service delivery methods, and to be moreforthcoming with innovative solutions and ideas.

Steria

Based in France, Steria has offices in Europe, India, North Africa and Southeast Asia. In 2013, itsrevenue was $2.3 billion (4% versus 2012), and its profitability is under pressure with netincome as percentage of revenue plummeting to 0.5%, from 2.2% in 2012. More than 20% of itscapital is owned by Steria's employees. Steria's strategy is aimed at creating cloud offerings such as cloud security solutions (its RightSecurity Services offerings) while investing to reinforceits remote infrastructure management practice. It remains focused on key industries, such as thepublic sector, financial services and the utility sector. Overall ITO revenue for 2013 is estimated at$1 billion, down 3% compared with 2012.

Strengths

Steria did not provide updated information to Gartner this year, and we estimate it generatedflat revenue in this specific service area. The company's board recently announced its intentionto accept a friendly takeover proposal by system integrator Sopra (which had revenue of $1.34billion in 2013, up 5.9%), and this has been further supported by the positive acceptance of theSupervisory Board of the Employee Shareholding Fund (FCPE), which owns 20.9% of votingrights. This move appears to be the board's answer to the strategic challenges that Steria hasexperienced. In the meantime, Steria continues to maintain a pragmatic focus on executing onits data center consolidation and process industrialization plans.

Steria's strategy concentrates on its key accounts and vertical markets in individual countries,enabling it to use data center operations and services as enablers to increase its wallet share by exploiting a full portfolio of services. Its use of professional services capabilities, which hasprobably supported moderate growth in the past, could be strengthened by the Sopraacquisition and will give the new company an opportunity to rationalize its portfolio byprogressively separating its commodity and higher-value services on a larger scale (2013 proforma revenue of the two combined entities is $3.6 billion).


Clients praised Steria for its transparency about the commercial aspects of deals in supportof a focus on relationship management, rather than only contract management. They alsoappreciate Steria's focus on process adherence and performance in key areas such astransition and escalation management.

Cautions

Steria's penetration of the European data center market remains patchy, with good presence inthe U.K. and France, but significant gaps in countries such as Germany and Switzerland and inSouthern Europe. Steria's limited visibility outside its key markets hinders its potential toexpand through Pan-European deals. The need to align the company's current sales skills withits new portfolio and objectives will challenge Steria's ability to fulfill its plans for consolidationand to increase adoption of homogeneous cloud-oriented DCO offerings. The merger withSopra if successful is not expected to change the company's data center penetration,given that Sopra is mostly a software and system integrator.

Although understandable in terms of a strategic requirement, Steria's plan to consolidate itsdata center estate considerably by 2015, will challenge this account-based provider's ability toexecute seamlessly without compromising client satisfaction. Despite recent investment, Steriacontinues to rely on limited economies of scale and leverage in terms of nearshore and offshorecapabilities, while its industrialized offerings have yet to gain visible traction.

Clients reported that Steria needs to be more efficient in implementing agreed changes in atimely manner, and that it clarifies (and does a better job of managing) the involvement of thirdparties. They also want Steria to promote its cloud-oriented offerings more aggressively and toreinforce its data center consolidation performance.

Tata Consultancy Services

The global IT infrastructure services revenue of Tata Consultancy Services (TCS) reached $1.6billion during fiscal 2013 (approximately 12% of TCS's overall revenue), with over 60% derived fromDCO services, and 45% of that coming from Europe. TCS registered growth of 35% in DCO/IUSrevenue worldwide during 2013, and faster-than-average growth in Europe. TCS is vendor-agnosticand delivers its services from its 18 RIM locations and 24 data centers across the world.

Strengths

TCS's industrialized model drives an ITIL approach to automation (driving savings beyond laborarbitrage), business service management (connecting infrastructure performance to businesskey performance indicators) and cloud infrastructure services. Its approach to automation is togain practical traction while moving from IT service management fixed scripts, that requireheavy maintenance, into reusable "knowledge objects" such as events automation, provisioningautomation and system management "run book" automation. Time will confirm the real scale-upand reusability of this approach across multiple customers, architectures, tools and applicationenvironments.


TCS's DCO and IUS business in Europe grew very fast during 2013, the second consecutiveyear of very high double-digit growth, with additional large opportunities in its 2014 pipeline.TCS leverages its low cost, a client expansion approach and its industrialized service approachto achieve these levels of growth leading to an above-the-market-average share of managedvirtual machines. It has also strengthened its European sales and solutions personnel toincrease its share of second-generation outsourcing deals, which incumbents are increasinglylosing to newcomers.

Clients praise TCS for its flexible "can do" attitude, adherence to process governance and thecommitment of its resources. They also appreciate TCS's cooperative approach towardcontract and relationship management, its performance in resource management and itswillingness to promote the potential benefits of automation.

Cautions

TCS is growing rapidly in continental Europe, but still from a smaller base as most of itsbusiness is in the U.K. To continue this trend, TCS would benefit from stronger localization andcommunications, especially successful case studies across Europe, which would also help toverticalize its value proposition and support the increasingly business-driven buying trends.TCS is investing to create local transition capabilities and to develop some local deliverycapabilities (for the U.K. government, for example), but is still behind major competitors in termsof local presence and mind share.

TCS owns one data center in the U.K. and is starting to selectively invest in data center estate;nevertheless, all other managed data centers are either provided by third parties or customers.Globally, five of these data centers are colocated with TCS (there being one of these in U.K. aswell). Its IUS/IaaS delivery growth is still in single digits and most of its activity remains focusedon RIM, with a low level of revenue per managed server typical of a very asset-light approachto DCO/IUS.

Clients reported that TCS needs to fine-tune its management of third parties, become moreoutspoken in prompting changes or improvements, and take decisions more openly on thebasis of its expertise. They would also like TCS to focus on reducing the number of outages,enhancing its data center rationalization skills and promoting innovation through industrializedIU solutions.

Tech Mahindra

Tech Mahindra achieved $302 million in worldwide DCO revenue in 2013, 20% of which is related toits European operations. Its current strategy relies on two proprietary data centers in the U.S. andAsia/Pacific, and one in Europe, with telecommunication partnerships providing the remainingfacilities. Tech Mahindra's Integrated Remote Operating Centers (iROCs) supporting Europeanoperations are based in India and Northern Ireland. Current European partnerships include BT(mostly in the U.K.) and investments for new partnerships with NTT in Sweden for cloud-basedservices, and with Equinix for hosting services in Germany.


Strengths

Tech Mahindra has achieved positive double-digit growth in the European data center OSmarket and appears committed to reinforcing its geographical footprint and increasing thedepth of its local technical capabilities in Europe. This is proven by its recent acquisition ofBASF Business Services Holding and its deal with Volvo, which, if resolutely leveraged, willprovide a boost in key geographies. In addition, Tech Mahindra's focus on large deals and itsdeclared willingness to consider "asset heavy" opportunities could support further growth.

Tech Mahindra's focus on supporting the data center transformation of its clients whileleveraging key industrialization ingredients, such as automation, is sound and will prevent itfrom falling into the commodity competition. Its historical relationship with Telco providersallows Tech Mahindra to leverage cloud IaaS and hosting capacity (from players such as AT&T,BT, CenturyLink/Savvis, Equinix and NTT), as a platform from which to deliver more complexdata center management services.

Clients praise Tech Mahindra for its flexible approach to relationship management and itsprompt response to new tasks. They also appreciate Tech Mahindra's focus on accountmanagement, its ability to define SOW and governance, and its management of third partiesinvolved in the deal.

Cautions

Tech Mahindra maintains a low visibility in the European DCO market. Its current footprint andbusiness size is also very small compared with all competitors, and is not likely to be boostedby its current win-rate performance. Tech Mahindra will be expected to continue to invest in itssales and marketing strategy, to expand its brand awareness in Europe, but also to engage withpotential customers at the right level while quickly identifying the transformational pressurepoints that need to be addressed.

Tech Mahindra is still largely dependent on the telecom sector for the bulk of its revenue, butthis installed base remains under threat as telecom and hosting companies are moving towardoffering managed services themselves. In addition, Tech Mahindra's European propositionseems to be focused much more on end-user services than the data center, while its portfolioof industrialized solutions appears to be in its infancy with no competitive IU for SAP offeringso far.

Clients reported that Tech Mahindra needs more ability in resource management, a greaterfocus on service and relationship governance, and to simplify its internal administration. Theywould also like Tech Mahindra to reinforce its adherence to chosen methodologies andprocesses including escalation management and to proactively drive innovation.

T-Systems

T-Systems considers DCO and cloud as its core business and continues to strategically invest byextending its offerings through: a cloud integration and brokering layer; onboarding new partners,such as Deutsche Brse Cloud Exchange and salesforce.com; and continuous investment in itsdynamic services on Dynamic Cloud Platform (DCP). T-Systems' overall revenue for 2013 was


slightly down, due to last year's sale of T-Systems Italia and an increased focus in 2013 onprofitability growth through highly automated services instead of growth from its traditional DCOservices. The aim of its partnership with parent company Deutsche Telekom, for key cloud-basedbusiness-to-business-to-consumer solutions, is to help the retail, automotive, healthcare and utilityindustries reach out to consumers using advanced networking technologies, mobile and machine tomachine. This partnership may support higher growth rates in the future.

Strengths

T-Systems' strong focus on aligning its portfolio with cloud evolution remains strong, and isproven by the overall level of R&D allocated and by its focus on its Dynamic Services portfolio which supports midsize and large organizations. More than 2,300 cloud deals in 2013 showthe increasing traction, especially in Germany, of cloud-based services. T-Systems is shiftinginvestment toward cloud-based, industrywide services in areas such as machine to machine,automotive and healthcare, and increasingly marketing these through or with its parentcompany (Deutsche Telekom) as individual product offerings not only as enterprisewideoutsourcing propositions. This is a logical continuation of the standardization, industrializationand productization approach that T-Systems took as one of the first DCO providers.

T-Systems continues its margin improvement initiatives and in 2013 consolidated its datacenter estate, which led to closing 17 data centers. It is committed to a further reduction ofinfrastructure costs until 2018. Further consolidating delivery from 71 data centers today into11 twin-core data centers in the future, and moving toward more automated IaaS and Linux-based systems is T-Systems' approach to controlling costs, staying competitive andensuring the global availability of cloud services throughout EMEA and toward the Americasand Asia/Pacific. By doing this, its European strategic data center delivery is concentrated intoseven European countries (Austria, France, Germany, the U.K., Netherlands, Spain andSwitzerland) in an attempt to balance reach and economics. Top client retention, achieved in2013, and good results from quality improvement programs demonstrate the company'sstrength in terms of delivery built on industrialized services.

Clients praise T-Systems for its client and solution centricity, its focus on service resilience andits ability to address the quest for service industrialization. They also appreciate T-Systemsexpertise in data center rationalization, including transition management, their robustmethodologies and their focus on account management.

Cautions

T-Systems needs to find its way back to higher growth as the only way to support marginincreases in a market of falling prices. Its recently announced restructuring initiatives assume afurther decline in the short term and a return to growth in later years. Clients need to lookcarefully into those restructuring plans, to understand the effect on their own deals. Customersnot yet ready for a high degree of industrialization for their infrastructure services might beespecially challenged. Also, T-Systems' loss of market traction can be attributed to two maincauses: competitors reducing the lead T-Systems had in industrialized systems, by mergingautomated cloud services into its DCO offerings; and a reluctance to do deals involving staff


transfer, rather than offshore-based providers that are still expanding their Europeanworkforces.

Helped by its early start into industrialization, T-Systems has a higher percentage ofindustrialized and cloud-based services in its portfolio than most of its competitors. Despitethat, most of its volume growth in 2013 has been in mainframe and the migration of existingSAP clients to DCP. Driving customers toward even more standardization may prove difficult,due to the acceleration toward digital business innovation where T-Systems lacks the fullbreadth and scale of consulting, value-added services and fast innovation services that arerequired by the market and owned by major competitors.

Clients reported that T-Systems needs to improve its proactivity, aim for a more homogeneousinternational skills bench, and optimize resource management for complex endeavors. Theywould also like T-Systems to more aggressively explore automation and industrialized IUsolutions, enhancing their focus on innovation and industry relevance.

Unisys

EMEA is the third region for Unisys in terms of DCO revenue, after North America (41%) and Asia/Pacific (25%, and mostly focused on government contracts). Unisys' strategic direction is to createa managed, hybrid cloud multisourcing platform for the delivery of IT "as a service." This indicatesthat Unisys maintains a good opportunity to grow in Europe, especially if it can positively leverageand expand its recent investments in cloud capabilities (currently focused on the U.K.). Its currentEuropean installed base includes over 20 clients.

Strengths

In 2013, Unisys achieved its fifth consecutive year of profitability and cash-flow generation, withdebt reduction of $1 billion. This sustained financial performance has enabled investmenttoward cloud brokerage and management offerings, management tools and sales andmarketing competencies. In its pursuit of growth, Unisys can rely on a pragmatic strategydivided across four areas of operation spanning from large global organizations (whereUnisys can be part of a multisourcing approach) to midsize multinationals, Tier 1 nationals (fullscope potential) and OEMs (for end-user services).

Unisys' vision is to differentiate its go-to-market message and vision by focusing on its "PeopleComputing" approach. In doing so, Unisys is shaping its service design to utilize cloudtransformation and platforms with a customer-driven approach and a key focus on extension ofa mission-critical concept. This is intended to enable and support the innovation agenda of itsclients. The approach enables Unisys to target a wide range of organizations, with a "sweetspot" of between 2,000 and 200,000 users, but with the potential to serve smaller organizationsof around 500 users with its Virtual Desktop Infrastructure offering.

Clients praise Unisys for its speed of resolution, service orientation and technical expertise.They also appreciate its expertise in data center rationalization and the quality of its resources,including staff and processes leveraged from low-cost locations.


Cautions

In Europe, Unisys is still mainly known as a provider of hardware and the related supportservices. Overcoming this perception will be a challenge, given its persistent limited visibility asa DCO provider in Europe. Unisys' DCO-related revenue has been decreasing for the past twoyears in Europe, and reversing that trend will be hindered by a low profile in large Europeandeals. Also, as many governments in Europe remain very cautious about cloud computing,Unisys' core value proposition may have difficulty gaining momentum and driving growth in theshort term.

Unisys owns data centers that are strategically positioned in the U.K., Sweden and theNetherlands, but significant gaps exist in key markets such as France and Germany wherelack of presence is a noteworthy negative differentiator against competitors. This lack ofpresence can hinder the growth in adoption of the company's user-oriented service concept,which starts with an Enterprise Service Catalog (VantagePoint), prepopulated with standardentries that customers can build upon, and security offerings such as the Forward platform(secure portioning for mission-critical workloads on private cloud) or Stealth (for securing dataand workloads).

Clients reported that Unisys needs to reinforce its focus on relationship management, enhanceits escalation management and fine-tune its resource management. They would also like Unisysto proactively drive continuous improvement and innovation for example, through exploringautomation and to fine-tune its resource management process.

Wipro

Based in India, Wipro is an IT services provider with 2013 revenue of $6.9 billion whoseinfrastructure services business accounts for approximately 29% of its revenue. Wipro's DCO andIUS business contributes around $718 million in the U.S. and the EU, with Europe representingalmost 33% of that. Wipro's DCO and IUS strategy consists of two main themes: one is "positioningas a transformation leader," which includes its savings, winning and transformation strategy; andthe other is "standardize at the core and differentiate at the front," which includes Wipro's go-to-market strategy, delivery and new solution area. Wipro focuses its infrastructure services onhorizontal offerings for six key industries: energy and utilities, retail and transportation,manufacturing and high-tech, pharmaceuticals and health services, media and telecom, andbanking and financial services.

Strengths

Wipro had another year of double-digit growth, at 29.7%, for its DCO and IUS business inEurope, partially resulting from an increased investment in sales and focusing on easingmigration to industrialized and cloud-based infrastructure solutions.

Apart from its focus on service delivery optimization (cost at the core), Wipro is building a stronggo-to-market approach aimed at leveraging industry expertise (value at the core) not just indelivery but also in sales. This investment includes additional sales resources, solutionarchitects for large accounts and special incentives for renewal deals. Wipro is building


partnerships with IPsoft for autonomics and CiRBA for migration support to strengthen itssourcing strategy across next-generation DCO deals and stand-alone offerings.

Clients praise Wipro for its ability to run a stable environment, its flexible approach and its focuson exploring the potential for continuous improvement. They also appreciate Wipro's ability toresolve outages in a timely manner, its drive to leverage automation and the quality of itsaccount management and global delivery skills.

Cautions

Overall, Wipro's penetration of the European market is limited compared with most of thecompetitors in this Magic Quadrant. Traction of IaaS-based offerings is still limited, and its utilityofferings are still based on a pricing/commercial approach to variability over the length of thecontract which needs more flexibility and options. More than half of Wipro's outsourcingbusiness manages equipment that is located in customer-owned data centers, and this maysomewhat limit Wipro's opportunity to further standardize, industrialize or, potentially, sharethese across customers.

Wipro will have to keep pace with technological changes and build resilience to fast-track itsinnovation. It must also communicate its value to customers by ramping up the right skills,which will also further improve the customer experience.

Clients reported that Wipro needs to reinforce its on-site data center skills, further enhance itsproject management bench and reinforce its understanding of the business. They would alsolike Wipro to intensify its focus on continuous improvement and innovation (especially aroundindustrialized IU solutions), and reinforce its industry insight.

Vendors Added and Dropped

We review and adjust our inclusion criteria for Magic Quadrants and MarketScopes as marketschange. As a result of these adjustments, the mix of vendors in any Magic Quadrant orMarketScope may change over time. A vendor's appearance in a Magic Quadrant or MarketScopeone year and not the next does not necessarily indicate that we have changed our opinion of thatvendor. It may be a reflection of a change in the market and, therefore, changed evaluation criteria,or of a change of focus by that vendor.

Added

This year, three new service providers have been added to the Magic Quadrant, because they havemet the requested inclusion criteria:

Cognizant

Tech Mahindra

Unisys


Dropped

Telefnica has been dropped from the providers in this year's Magic Quadrant as a consequence ofits sale of Telefnica Czech Republic. Due to this sale, Telefnica no longer fulfills Gartner'sinclusion criteria for this Magic Quadrant; namely, having operations in at least three Europeanregions and having at least 10% of its DCO revenue in at least three countries.

Inclusion and Exclusion CriteriaThis Magic Quadrant focuses on management services for mainframe and centralized serverenvironments. It evaluates each service provider's capabilities, across Europe, to deliver data centermanaged services and IUS. Cloud IaaS and PaaS offerings that are part of IUS offerings and datacenter managed services are included in this evaluation. As in previous years, this Magic Quadrantexcludes simple, dedicated Web hosting and colocation services.

Included are service providers that:

Demonstrate that they provide DCO services as a sole-source direct provider (although directownership of a data center is not required for inclusion). This excludes data center servicesdelivered entirely by partners or subcontractors.

Show that they manage nonmarginal data center delivery capabilities in at least three Europeanregions.

Generate no more than 70% of their total European DCO and utility services revenue in any onecountry in Europe, because this Magic Quadrant evaluates Pan-European capabilities.

Generate a minimum of 10% of their European DCO and utility services revenue in at least threeEuropean countries (not all part of the same subregion).

Generate at least $50 million in annual DCO and IUS revenue in Europe.

Excluded are service providers that:

Deliver data center services entirely through partners or subcontractors.

Focus exclusively on pure hosting services, such as colocation or simple/dedicated hosting.Also those that take a purely rental approach to data center capabilities.

Engage in DCO service relationships that only manage clients' data center resources remotelyor that are not bundled for example, when a client has one contract with a hosting providerand a second contract with a RIM provider.


Evaluation Criteria

Ability to Execute

Gartner evaluates providers on the basis of the quality and efficacy of the processes, systems,methods and procedures that enable their performance to be competitive and that benefit theirrevenue, retention and reputation. We judge providers on their ability to capitalize on their vision,their success in doing so, and their European foothold in terms of resources, coverage, seamlessdelivery within different countries, and ability to meet clients' requirements.

Ability to Execute is judged by seven main criteria. Each criterion is described below and theirrespective weightings are shown in Table 1.

Product/Service

For this criterion we evaluate each provider's service delivery capabilities and the services offered.We give special consideration to practice-area profile and service capabilities in Europe, servicedefinition, effective resourcing and transition management. The categories of service considered areas follows:

Practice area profile and service capabilities, with a focus on:

Overall European DCO revenue, client numbers and staff allocated

Data center location, ownership (provider, client or third party) and size; control centerlocation and size

Management team and position in the corporate structure

Number of MIPS and servers supported

Core services and SLAs, with a focus on:

The management of SLAs, including the provision of core and ancillary data centerservices, such as full facilities management, remote management, customer on-sitesupport, capacity/configuration planning and consulting on consolidation

Typical SLAs offered for services and procedures for defining, reviewing, measuring andreporting SLAs

Penalties or incentives that are tied to SLAs, including measurement of customersatisfaction

Resourcing and transition management, which measures:

Effective provision of relevant resources to customers

Effective tools and procedures to assist with resource allocation

Specific transition tools and methodologies for IUS and cloud transitions


Practices in place to recruit, train and retain qualified staff, and the key skills of thoseresources

With a view to the next two years in relation to transition management and staff, we also inquire intothe service provider's:

Ability to integrate staff from client organizations through competitive job offers, achieved byaddressing (in different countries) factors such as salary and benefits packages, retraining,career progression opportunities, and minimized disruption to employees due to job relocation

Typical process and project plans for transition, as well as procedures for shifting workloads tothe service provider's facility

Feedback from clients on their experiences with transition projects and day-to-day service

Overall Viability

This criterion includes an assessment of the overall financial health of the provider's organization,the financial success of its data center operations, and the likelihood that the individual data centerbusiness unit will continue investing to support state-of-the-art delivery of the organization'sportfolio of services.

In particular, we consider:

Growth in the volume per unit (MIPS and/or servers) and revenue in the DCO segment duringthe past three years

The outlook for this outsourcing segment of the business, including expectations for growth,and decline or stability of revenue, margins, units and unit prices

Sales Execution/Pricing

For this criterion we assess each provider's capabilities in all presales activities and the structurethat supports them. We consider teams in charge of deal management, pricing and clarity of scope.

We also interview clients to gather feedback about their experiences with the provider in the areasof negotiation and pricing.

Market Responsiveness/Record

For this criterion we assess each provider's ability to respond, change direction, be flexible, andachieve competitive success as opportunities develop, competitors act, customers' needs evolveand the market dynamics change.

We also ask clients for feedback on their service provider's flexibility, continuous improvement andinnovation.


Marketing Execution

For this criterion we assess the clarity, quality, creativity and efficacy of programs designed todeliver an organization's message to influence the market, promote its brand and business,increase awareness of its services, and establish a positive association in the minds of buyersbetween it and its services and brands.

Customer Experience

For this category we evaluate reference customers' overall satisfaction with the service and therelationship, taking into account other Gartner-client interactions. We obtained access to referencecustomers by asking each provider to identify five European reference customers for its DCOservices. We required their selection of reference customers to observe the geographic distributionneeded to participate in the study and the different industries addressed. We also asked forsamples of global reports on SLAs, customer satisfaction and other relevant measures during thepast 12 months.

In particular, we consider the important elements of a successful DCO customer experience. Theseinclude client satisfaction, incentive plans for account teams, and continuous improvementprocesses in place both centrally and within the account management team.

Operations

For this category we assess each provider's ability to meet its goals and commitments, includingcontractual service delivery obligations to clients. Factors include the quality of the organizationalstructure, skills, experiences, programs, systems and other vehicles that enable the service providerto operate effectively and efficiently on an ongoing basis.

In particular, we consider communication processes, quality control and assurance processes,relationships, contract and service delivery management, continuous improvement plans,methodologies especially relating to ITIL processes and other certifications available for allsites and specific data centers or clients.

We speak to the service providers about their main procedures (operational, transitional and relatingto program management, relationship management and change management) and ask theirreference customers for feedback about those procedures.

We also ask the providers to supply information about the facilities and services they provide, theprincipal system platform they manage and their locations, capabilities, resources, disaster recoveryplans, physical and IT security, and backup procedures.


Table 1. Ability to Execute Evaluation Criteria

Evaluation Criteria Weighting

Product or Service High

Overall Viability High

Sales Execution/Pricing Medium

Market Responsiveness/Record Medium

Marketing Execution Low

Customer Experience High

Operations Medium

Source: Gartner (July 2014)

Completeness of Vision

Gartner evaluates service providers on their ability to articulate logical statements convincinglyabout the market's current and future direction, innovations, customer needs and competitiveforces, and on how well these correspond to Gartner's position. Ultimately, we rate providers ontheir understanding of how they can exploit market forces to create opportunities for theirorganizations.

Completeness of Vision is judged using eight main criteria. Each criterion is described below andtheir respective weightings are shown in Table 2.

Market Understanding

For this category, we assess each provider's corporate view of the data center services andoutsourcing market in Europe. We evaluate how each provider is trying to address the mainrequirements of European clients. We also look at the main effect that new technologies, deliverymodels and services are likely to have on each provider's business and delivery models in the shortand medium term.

In particular, we consider each provider's:

Vision for DCO and utility services, including IaaS- and PaaS-enabled offerings

Plans to differentiate itself from its major competitors

System for segmenting and analyzing the target market to drive marketing and sales

Plans to position these services within a broader offering


Marketing Strategy

For this criterion we assess each provider's main marketing messages relating to DCO services inEurope.


Current and future value propositions for DCO, IUS and cloud infrastructure services in Europe

The importance of DCO services within the broader portfolio of IT services

Channels for internal and external communications

The differentiation of a provider's message from its competitors' messages

Sales Strategy

For this category we require each provider to illustrate its overall sales strategy for DCO (forexample, direct selling versus indirect selling via partners, allies and channels), its reactive answersto RFPs as compared with its proactive activities, its stand-alone offerings as compared withofferings bundled with other services, and its dedicated sales force as compared with its generalsales force.


A high-level sales organization chart to illustrate the provider's go-to-market strategy

The number of dedicated personnel in Europe

The number of offers issued during the past 12 months, as well as the number in the pipeline

Countries covered by direct, local teams, as opposed to centralized teams

Client retention rate (driven by the ease of doing business with the provider and its focus onrelationship management)

Offering (Product) Strategy

For this criterion we require each provider to specify the most important aspects of the serviceoffering that differentiates it in the market and delivers value to its clients.

In particular, we consider each provider's:

Ability to integrate client assets, including data centers in Europe

Ability to transfer data center staff from client to provider in each European country

Approach to combining standard service elements into customized service delivery to provideflexible, low-cost and cloud-enabled service offerings


Business Model

For this criterion we asked each provider for a high-level description of its business model for DCOservices, and how this fits within its overall business model. In particular, we consider eachproviders' abilit

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