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GARTNER, INC.
Moderator: David Cohen
February 14, 2019
10:30 a.m. ET
Operator: This is Conference # 8259589new
Male: Ladies and gentlemen, please welcome to the stage, Gartner Group Vice
President of Investor Relations, David Cohen.
David Cohen: Good morning, and welcome to Gartner Investor Day 2019. Thanks to all of
you in the room and on the webcast for joining us today. I know you have
busy schedules, and we appreciate your taking the time to be with us this
morning. Whether this is your first Gartner Investor Day or you've been
following the company for a number of years, we believe you will leave with
a greater appreciation for the indispensable, unrivaled value we offer clients,
the Gartner formula we apply and the long-term, sustained double-digit
growth we drive.
Before we begin, please take note of our safe harbor statement shown on the
screen.
Today, you will hear a compelling story of Gartner and its relevance for
investors seeking long-term, sustained double-digit contract value, revenue,
earnings and free cash flow growth. We will begin with our CEO, Gene Hall,
who will discuss the way that the pace of change is impacting leaders across
all enterprise functions.
Gene will describe Gartner's unique business and our powerful history of
disciplined execution, applying operational excellence to drive growth and
shareholder returns. Mike Harris, our Head of Research and Advisory, will
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share a compelling view of Gartner's value proposition for leaders across all
enterprise functions. He will go deeper into the dynamics that are creating
urgency for our insight, illustrate how our clients get mission-critical value
from Gartner and describe our scalable, continuously improving research
model. Following Mike, our leaders of Global Technology and Business
Sales, Joe Beck and Chris Thomas, will introduce you to their growing teams,
talk about how they are going to market and share with you how they apply
our sales excellence playbook to drive productivity and sustained double-digit
contract value growth.
After a break for lunch, Craig Safian, our CFO, will describe the powerful
combination of the Gartner formula and business model and how they enable
us to drive long-term, sustained double-digit growth in revenue, earnings and
free cash flow. Finally, Gene and Craig will answer your questions. Thank
you, again for joining us today.
(Video Begins)
Male: Enterprise leaders are on a journey of opportunity, risk, and unrelenting
change. Across every business function, the goal is not simply to arrive but to
thrive. The roads that led to success yesterday offer no assurances today and
every decision carries greater uncertainty than ever before.
As their worlds become more interconnected than ever, leaders face decisions
that will impact not only their own organization, but the enterprise as a whole.
And they're turning to Gartner for help. Talent, technology, strategy, critical
building blocks of their success. In every area of their business, Gartner sits at
the intersection of decisions that matter most. We understand the roles, the
challenges, the risks. And we know how to maximize opportunity.
Leaders across every function in every industry, everywhere in the world rely
on Gartner for the indispensible insights, tools, and advice. To help them
address their mission critical priorities, to get ahead of change, to challenge, to
lead, to thrive.
Welcome to Investor Day 2019.
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(Video Ends)
Male: Ladies and gentlemen, please welcome to the stage Gartner's CEO, Gene Hall.
Eugene Hall: Well, good morning, and welcome to Gartner Investor Day.
We're living in accelerated times. Digital disruption, regulatory change,
shifting customer expectations, cybersecurity risks, changing socioeconomic
expectations, geopolitical risks, macroeconomic dislocations. It has never
been a harder time to be a leader, and the rate of change continues to
accelerate. The average tenure of a company on the S&P500 has declined
from 61 years to 18 years and is expected to decline another 12 -- to a mere 12
years by 2027. For enterprises, it's no longer just about incremental
improvements. Their very survival has never been more at risk, and same is
true for their leaders.
Leaders in every major function of the enterprise across every industry and in
every geography need help, and they need it now.
Who do leaders depend on to survive and thrive in this environment? Gartner.
And for investors seeking long-term, sustained double-digit growth, growth in
the top line, growth in free cash flow, Gartner is an unrivaled opportunity.
You look like you needed a break. So today, I'll give you a detailed overview
of our business. You'll get a snapshot of our indispensable, unrivaled value
proposition. I'll outline our vast market opportunity, and I'll share a strategy
to capture that opportunity through our 3 businesses, Research, Conferences
and Consulting, which will fuel long-term, sustained double-digit growth.
Now I'll take a minute to introduce our executive leadership team who is here
with us this morning, starting with those who are going to share the stage later
today. First, we have Mike Harris, who leads our Global Research and
Advisory team. Can we bring the house lights up? You'll hear from Joe Beck
and Chris Thomas, who lead our Global Sales Organization. And most of you
know Craig Safian, our CFO. And the other members of our leadership team
that are here today are Ken Davis, who leads Product and Services, globally;
our Head of Conferences, Alwyn Dawkins; our Chief Information Officer,
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Mike Diliberto, Mike's back there; our Head of Consulting, Scott Hensel; and
our General Counsel, Jules Kaufman, Jules is over here; Robin Kranich, who
leads Human Resources; and David McVeigh, who heads up Marketing.
So during our break and after the presentations, please get to know our team.
All right. So thanks, you can sit down now. And we operate in 3 business
segments: Research, Conferences, and Consulting. Last year alone, Gartner
helped 15,600 enterprises in 100 countries around the world with their
mission-critical priorities. We delivered about $4 billion in revenues. We
provided great jobs to 15,000 associates around the world, and we delivered
market-beating returns for our shareholders.
Few organizations have this level of global impact. The Gartner Conferences
deliver incredible insights to our attendees, while building our brand and
making a profit. This segment represents about 11 percent of our business.
And our mission is to produce must-attend conferences for the communities
that we serve. Our conferences are aligned to the same roles and functions
that we serve in our Research business. And by combining the outstanding
value of our research with unparalleled peer networking and the magic of live
events, every conference we produce becomes the most important annual
gathering for the executives that we serve.
We inspire, educate and equip our attendees for success. And as a result, the
first thing that many executives do at the beginning of every year is to (sign
up) to attend their annual (inaudible).
Gartner Conferences had its best year yet in 2018 with virtually every metric
hitting new highs. We also accelerated our Evanta conferences, which are C-
level invitation-only regional summits. (And this year,) we expect to produce
more than 300 conferences throughout the world, including 70 destination
conferences, covering IT, HR, Supply Chain, Marketing, Sales and Finance.
Across these conferences, we expect to attract more than 100,000 attendees,
including more than 15,000 Chief Information Officers and thousands more
C-level executives in the business functions that we serve. So Gartner
Conferences deliver incredible insights to our attendees while building our
brand and of course, making a profit.
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The Gartner Consulting makes up about 9 percent of our business. Gartner
Consulting supports Chief Information Officers and their teams. We provide
clients a deeper level of involvement through extended project-based work to
help them execute their most strategic initiatives. Gartner Consulting is
highly differentiated. First, we're independent and objective. We don't sell
software. We don't sell hardware, and we don't do implementation services.
In addition, all of our engagements are powered by Gartner Research, the best
content and insights available anywhere.
And we evolved our Consulting strategy to align more closely to Research.
We rolled out a new organization, a new operating model, and this is going to
improve our execution in driving growth and delivering value to clients. We
strengthened our Consulting solutions and offerings. We defined new career
paths, upgraded recruiting capabilities, increased our performance
management processes, all to position this segment for a strong 2019 and
beyond.
So Gartner's Consulting serves as an extension of Gartner Research that
provides clients with a deeper level of involvement through extended, project-
based work to help them execute their most strategic initiatives. Now
Research is our largest and most profitable segment, and it represents about 80
percent of our revenues. Our Research segment sits at the core of Gartner's
indispensable, unrivaled value proposition. Our value proposition addresses
the critical needs of leaders across the major functions in the enterprise.
Now every leader has make-or-break initiatives that disproportionately impact
the ongoing vitality of their enterprise and of course, their personal success.
Critical initiatives like these extend over a period of time. They span multiple
business functions. They extend several layers into the organization, and they
have ongoing, important decision points. So examples of that include
integrating a large acquisition, implementing new financial management
systems or driving digital transformation to achieve competitive advantage.
With the accelerated pace of business, leaders have to make these decisions
faster than ever, and they have to get them right.
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The penalty for getting them wrong is high both for the company and the
individual. Now if that weren't enough, executives simultaneously handle
multiple of these high-impact initiatives. Executives need help getting to the
right decisions. They need someone they can trust, and they need that help
now. Our indispensable, unrivaled value proposition addresses this critical
need. We have more than 2,000 world-class experts on the most important
priorities for business and government leaders.
We create indispensable insights, best practices, peer exchanges and
implementation guides across every major enterprise function. We're
independent, and we're objective. We have an unparalleled community of C-
level peers to complement our expert advice, to share real-world case
examples and to validate major decisions. With the accelerated pace of
business today, business leaders need help in real time. So we deliver critical
insights on demand, and we do this through our cloud-based subscription
service and through the ability to talk one-on-one with our analysts and
advisers, also on demand. We play where the stakes are high, delivering
incredible insights at a price that's extremely low relative to the value. Even
in our largest clients, Gartner costs are a tiny fraction of their budget. There is
no other place that our clients can get such valuable insights on demand and at
a very modest cost.
This is why our clients stay with us, renew at high rates and spend more with
us year after year. Now our indispensable, unrivaled value proposition gives
us a vast market opportunity. We developed a detailed bottoms-up estimate
on that market opportunity. It's based on looking at the actual number of
companies, the specific roles within each company, and the pricing for the
appropriate products for that role. Using this approach, we estimate that the
market opportunity for technology is about $55 billion. The opportunity for
supply chain is about $23 billion. Marketing adds another $25 billion. HR,
$14 billion; Finance, $24 billion; Sales, $38 billion; and Legal and Other adds
another $19 billion.
In total, we estimate that the combined market opportunity for all 9 functional
areas is almost $200 billion. Now this compares to today's contract value of
about $3 billion. This means we can grow at double-digit rates for a very long
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time. Over the past decade, we've developed the Gartner formula to drive
long-term, sustained double-digit growth. The Gartner formula has 4
elements to it: indispensable insight; exceptional talent; sales excellence; and
enabling infrastructure.
And then for all of these, we drive globally consistent execution of best
practices and continuous improvement innovation to sustain and accelerate
our success. Now this is our formula for long-term, sustained double-digit
growth, and it's how we're capturing our vast market opportunity. The Global
Technology Sales, or GTS, represents about 80 percent of our research
contract value. Now we began developing the Gartner formula for GTS back
in 2005. And we've improved in that formula every year. Every year, our
research content becomes more insightful and more indispensable. And we
package these incredible insights in online products that are tailored to the
needs of individual roles.
We hired and developed exceptional talent. We grew our sales force at a
compound annual growth rate of 13 percent per year over the last decade, and
this provided a great foundation for long-term, sustained double-digit growth.
We developed sales excellence with ever-better training, tools and processes,
and we call this the sales excellence playbook. We support our salespeople
with ever-improving infrastructure, such as recruiting, contracting and service
delivery. The result, contract value grew at a compound annual growth rate of
13 percent per year. Now that's a track record of long-term, sustained double-
digit growth.
Consistent application of the Gartner formula is what's driven this sustained
success. Now to achieve this sustained success, our new salespeople need to
learn the sales excellence playbook. We of course have world-class training
programs but learning the sales excellence playbook isn't easy. Now our GTS
salespeople sell to large, medium and small accounts. They're located in
countries around the world. Some are account executives who grow our
existing clients. Some are business developers who sell to prospective clients.
So here's an example for experienced U.S.-based new hires that are account
executives. Now these salespeople take about 3 years to reach full
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productivity. The right-most bar shows third-year productivity indexed to 100
percent. In the first year, they sell about 48 percent of full productivity, as
you can see in the left-most bar. In the second year, it's about 83 percent.
So that's an example of U.S.-based new hires who are account executives.
The other types of new salespeople also have similar learning curves. So the
sales excellence playbook is incredibly effective for driving long-term,
sustained double-digit growth, but it does take time to learn.
Now looking forward, we'll keep developing new innovations and making
continuous improvements to the Gartner formula. We'll focus on relentlessly
consistent execution of best practices that drive success, and we'll continue
getting better, faster, stronger each and every year. You're going to hear more
about GTS from the extraordinary leader of that team, Joe Beck.
Now Global Business Sales, or GBS, represents about 20 percent of our
research contract value. The GBS sales organization supports all the
enterprise functions beyond IT.
Now each of these roles has the same need for our services as an IT. GBS
includes the supply chain practice, which we established at the end of 2009
through the acquisition of AMR. We applied the Gartner formula to supply
chain. We introduced Gartner for Supply Chain Leaders, and our supply
chain business had a compound annual growth rate of 23 percent per year over
the last 9 years. And GBS also includes Gartner for Marketing Leaders,
which we started organically back in 2012.
We applied the Gartner formula to marketing. And our Gartner for Marketing
Leaders business had a compound annual growth rate of 76 percent per year
over the past 6 years. Now GBS now includes HR, Finance, Sales, Legal and
more. So in 2017, we began building foundation for long-term, sustained
double-digit growth in these new enterprise functions. And of course, that
foundation is the Gartner formula.
We developed indispensable insights, combining legacy business content with
relevant Gartner IT content. We delivered these indispensable insights in
products for business leaders across the enterprise. We refer to these products
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collectively as GxL. Gartner for Marketing Leaders is GML. Gartner for
Finance Leaders is GFL. Gartner for Sales Leaders is GSL, and so on. Now
GxL products deliver sustained growth compared to legacy products. They
provide greater value to clients because they're tailored to client's individual
needs. And this, in turn, results in higher prices per user and stronger
retention.
Now beyond better pricing and retention, GxL products provide exponentially
more growth opportunities because we can sell these high-value products
throughout our clients' organizations.
Beyond indispensable insights, we hired and developed exceptional talent.
Last year, we grew our sales force 23 percent. We implemented the same
training, tools and processes as those in GTS that have led to ever-improving
sales excellence there. And we further supported our salespeople with the
same enabling infrastructure that we have in GTS. The salespeople in GBS
have a learning curve in adopting the Gartner formula just like in GTS. To
build the foundation for long-term, sustained double-digit growth in GBS, we
made significant changes. We restructured the organization. We reconfigured
contract terms and conditions. We eliminated discounting. As I just
mentioned, we introduced a new suite of products that we collectively call
GxL. Now these products were rolled out and salespeople trained during the
first half of 2018, as you can see on this chart. One way to think about it is
GBS salespeople and their managers were in their first year with Gartner in
2018. They were like new hires.
Now this chart shows the sales of the new GxL products, HR, Finance, Sales
and Legal, from when we began piloting them in late 2017.
You can see the learning curve as our sales force was trained and gained
experience in selling these new products. Now every GxL product is gaining
momentum. These charts show the cumulative bookings of the new GxL
products. We've indexed the 2018 ending value to 100 so you can more
clearly see the growth trend. HR, Finance, Legal, Sales, they are all
accelerating. As the GBS sales force continues to gain experience selling the
GxL products, we expect that acceleration to continue.
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To summarize, we're applying the Gartner formula across GBS. We're
delivering indispensable insights through our GxL products. We entered 2019
with a richer mix of GxL products, which have higher retention. We have a
23 percent larger sales force with exceptional talent. And that sales force is
further up the learning curve on the sales excellence playbook. And we've
invested aggressively in the enabling infrastructure to support our talented
sales force. This is our path to long-term, sustained double-digit growth in
GBS. So here's what you should take away from my remarks. We're living in
accelerated times. Enterprises need to constantly evolve to get ahead of the
competition.
Leaders across the enterprise need help. They need help with their make-or-
break initiatives, and Gartner is the best source of that help. We have an
indispensable, unrivaled value proposition, a vast market opportunity, and
through consistent execution of the Gartner formula, we know how to capture
that opportunity. We applied the Gartner formula in GTS and delivered long-
term, sustained double-digit results. We're applying the same Gartner formula
in GBS and expect to achieve long-term, sustained double-digit results
beginning in 2019. With a culture of continuous improvement and continuous
innovation, we get better, stronger, faster year after year. And we're in the
best position we've ever been in to provide sustained double-digit growth
across our key financial metrics.
To deepen your understanding of Gartner and our expanded research and
advisory capabilities, I'll introduce Mike Harris. Mike's our Global Head of
Research & Advisory. He's had various leadership positions across the
Research Advisory team for more than 20 years. Mike's a strong leader who's
driven substantial improvements in business results and client value measures.
So Mike?
Michael Harris: Thank you very much, Gene, and good morning, everyone.
Nearly two-thirds of CEOs and CFOs anticipate business model change within
the next 3 years, typically due to digital transformation in reaction to new
growth opportunities and competitive threats in their industries. Now these
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leaders often initiate significant change programs, which have a ripple effect
across the entire enterprise. So other C-suite leaders like heads of marketing,
HR, IT and supply chain then work with their leadership teams and their peers
to modernize the way the entire enterprise runs, changing the very way that
value is generated in the enterprise. Gartner's model is to provide
subscription-based, on-demand, indispensable research and advisory services
to help all functional leaders and their teams navigate precisely these types of
challenges.
Clients find our services so valuable because of a combination of 3
fundamental things -- expert advice, the ability to speak with our over 2,000
global experts on a variety of critical topics. Because that advice gives them
the confidence to make better and continuous decisions. The subscription
model provides ongoing access to the insights needed by leaders and their
teams on a step-by-step basis and on-demand response through already-
published research content, data and benchmarks. Leaders need that insight,
and they need that data.
For example, about two-thirds of marketing leaders say that access to data,
metrics and advice are critical for their role. But you all know there's no
shortage of information out there. Executives try to access as much
information as possible, but that has an opposite effect. They have access to a
huge volume of information, but the sheer volume of it is overwhelming and
often conflicting, increasing the uncertainty about the best path to follow for a
given decision. Now our research shows that executives who are presented
with lots of unsynthesized and conflicting information frequently make the
wrong decision.
Their probability of getting it right is no better than a coin toss. One client of
ours is a senior IT leader in the U.S. federal government. He'd been
overwhelmed with different perspectives on if and how he should move his
applications to the public cloud. And he told us that what he valued most
about working with Gartner was our ability to synthesize the information he
needed and to distill it into a clear action plan and, critically, that the
recommendations that we made were from an independent organization with
no downstream business influencing those recommendations.
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So in an era where information is so abundant, access to truly independent,
unbiased and expert advice on the most critical priorities facing an executive
is extremely valuable. That need for independent, objective advice about how
to run a function to improve the odds of making a good decision better than a
coin toss applies to every functional leadership role across the enterprise. And
these functional heads, they know that their jobs, frankly, and their careers,
are on the line when they're running their function. Every decision counts
about strategy, talent, technology, budget.
And they need to demonstrate performance or frankly, their CEO will replace
them. Because at any given time, more than 1 in 5 C-level executives are in
their first year in role, and 46 percent of all executives underperform relative
to their performance goals for the first 18 months of their tenure as head of a
functional unit. All executives and their teams, whether they're new to the
role or highly tenured, are faced with this constant change and daily complex
challenges that can impact the entire enterprise, and they come to Gartner for
the provocative ideas and pragmatic advice they need.
Now they certainly come to Gartner for technology advice, and technology is
a critical enabler of all enterprise functions, and I'll speak more about that in a
bit. But there are so many other factors within each function where clients
seek Gartner's advice. Let me give you some examples which come from our
own analysis of client interactions across all functions.
Take talent. It is a major challenge for everyone. CEOs have increased the
amount of time that they spend talking about talent on earnings call, with the
most commonly discussed talent issue being culture. Why? Because their
functional leaders are struggling to fill open roles to upgrade the talent pool
and to change the culture of their organizations. For example, fewer than 10
percent of finance leaders today employ data scientists. But within just 3
years, more than 1/4 will employ data scientists, and 60 percent will employ
data specialists. Organizational changes are also constant. In 2018, fully 1/3
of all heads of HR dealt with a company-wide reorg.
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In fact, 99 percent of them have dealt with at least 1 major organizational
change in the past 3 years -- acquisitions, divestitures, CEO transitions and
major launches of new technology or entering new geographies. When HR is
effectively supporting major change initiatives in the organization, the success
rate doubles. And most CEOs expect their HR leader to make these
organizational changes happen faster than they did 3 years ago. Customer
behavioral changes are also creating new challenges.
The number of stakeholders in business-to-business purchasing has roughly
doubled in the last 5 years, creating extended decision-making teams and
increasing the frequency of no decision. At the same time, the average B2B
sales professional has direct customer access for only about 5 percent of the
purchase experience. And these are just a few reasons why marketing and
sales leaders are coming to Gartner to get advice on how to manage the
multichannel customer experience, to build the right content marketing
programs and direct the sales force along very different customer journeys.
Chief supply chain officers have another set of challenges due to changing
consumer behavior. Millennial consumers are demanding a transparent
supply chain across the entire global ecosystem. Corporate social
responsibility and ethical sourcing are now top of mind for supply chain
leaders and CEOs alike, and not only for distinguishing their brand but also
for attracting investors. And every industry is being impacted. Apparel is
being asked about factory conditions and child labor. High-tech needs 0
conflict minerals in their devices. Food and beverage have to prove the source
of supply is safe and ethical, and life sciences has to deal with ongoing
counterfeit risks.
Gartner helps all these companies build sustainable ecosystems and powerful
brands. And then there's regulation. Leaders in every function face board-
level questions when significant regulatory changes take effect. For example,
tax reform here in the U.S. It's had real benefits in reducing corporate tax rates
and repatriating overseas cash, but finance executives seek expert advice on
how to properly communicate these changes in SEC filings and annual
reports. So recently, we republished -- we published a pragmatic set of
research, sharing extracts of 10-K disclosures regarding U.S. tax reform for
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multiple companies, like Schlumberger, eBay and United Rentals, Inc., to help
other companies communicate their own disclosures.
Talent, organizational changes, customer behavior, regulation, all of these
things are underpinned by technology. Our CIO, IT leader and technical
professional clients come to Gartner seeking provocative ideas and
approaches to help them adapt to all of these changes, and they also come to
us for pragmatic advice on how to benchmark their maturity levels and costs
against peers so they can continuously improve their speed, agility and
efficiency. And now, we can help CIOs and their teams better engage with
their C-level peers on issues that extend well beyond IT.
In our GxL products, we include relevant technology research for heads of
sales, customer service, finance, marketing and so on. The content needed to
digitalize those functions and select, implement and manage functional tech.
In our symposium keynote just a few months ago, I said that leaders in all
functions apply technology and information in unique and creative ways to
outperform their peers. For instance, the chief sales officer is not only
involved in the selection of the CRM system, they're often the primary driver.
And while 27 percent of finance teams are currently making use of advanced
analytics, that number is expected to triple within 3 years. In marketing,
technology spending has grown incredibly quickly to where it's now the single
largest area of investment for that function, even more than the labor budget.
So how do we know all this? Because we research all of these functions, and
we quantify and benchmark executive performance to help our clients
outperform their peers.
We conduct literally hundreds of thousands of one-on-one conversations
every year, most held remotely over video and content-sharing conference
calls and some held face-to-face during our conferences. And we analyze the
millions of content pieces searched for and accessed on our Web Site.
Every function across the enterprise has enormous pressure to transform, to
respond immediately to internal changes and external shocks and to
continuously improve their teams to benchmark competitors to stay ahead.
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And they turn to Gartner for the singular combination of expert advice, the
confidence to make better decisions continuously and to get those things on
demand just when they need it. We stay abreast of the latest things that are
happening in enterprises, large and small, in the public and private sectors and
all around the world in every industry. And we shape our content and
resources to meet those needs.
So information overload. Talent and organizational changes, shifting
regulations and customer behavior, they all add up to constant change for
every senior executive, which means that every functional leader is in urgent
need of indispensable insights, advice and tools to achieve their mission-
critical priorities and outperform their competition. The one company that is
best able to address that need Gartner.
Now let me show you how Gartner helps clients by sharing with you a year in
the life of a representative HR executive whom we'll call Maria. So it's week
6 on the job for Maria. She's recently been named the new Chief Human
Resources Officer for XYZ Precision Manufacturing, a multibillion-dollar
company that produces precision metal components for the aerospace,
industrial and agricultural industries. So as Head of HR, she's responsible for
recruiting, talent development, performance management, compensation and
benefits and a host of other activities that are essential for running the
business.
She has managers with teams of people underneath them leading each of those
key areas. Now as she's settling in to her new role, she engages with Gartner
on campus recruiting because she needs a lot of new engineering talent to
support the company's growth plans. So Maria goes to our Web Site, finds
several research reports online, including ones detailing the career aspirations
of Generation Z and how-to guide for building on campus recruiting program.
She reads those 2 in detail and has some questions about how she'd apply this
to her particular environment.
So she e-mails Gartner and says she'd like to speak with one of our experts on
the topic. The next day, she's on a video conference call with the expert we've
identified who shares content on how she can best address her issues. But as
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we all know, priorities change rapidly. So what if the Chief Operating Officer
resigns unexpectedly for health reasons. In that situation, Maria suddenly has
a new and more urgent challenge.
In addition to her other responsibilities, she now has to throw herself full tilt
into finding and hiring a new COO. She needs expert advice, and she needs it
right away. So she turns to Gartner, and we provide her with our succession
management playbook. That helps her identify candidates, work with the
Board of Directors in the hiring process and quickly onboard the successful
candidate.
But in parallel, Maria's understaffed recruiting team is still struggling to hire
that engineering talent needed, since as you know in the U.S., there are
currently more open jobs postings than there are candidates who are actively
looking. So Maria has her Head of Recruiting engage with Gartner to access
our Big Data solution for planning and recruiting, TalentNeuron, which
provides her the analytics her recruiting team needs to understand where to
find the hidden talent pools for the experienced hires the company seeks.
It specifies the compensation and benefit levels that are needed to attract that
talent and, therefore, speeds the average time to hire through more targeted
recruiting activity. And throughout the year, Gartner continues to help Maria
with the ongoing critical functions of her HR operation. In fact, Maria and her
leadership team attend the Gartner conference ReimagineHR to hear the latest
thinking on these topics and in ways that HR can drive leadership
development. But then, what if XYZ Precision Manufacturing announces an
acquisition?
The company now needs to be completely reorganized to integrate teams,
brands and infrastructure to realize anticipated cost synergies. And clearly,
that's not just up to HR. That requires intense coordination with other
functional leaders, such as the CMO and the CIO. Maria still needs advice on
new operating models and how to blend 2 very different cultures. She has to
assess how long to keep the acquired company's brand, how best to transfer
the equity to the newly combined entity and what the new combined corporate
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brand ultimately should be. The CMO also is deeply involved in the
integration.
Now he needs a master data management strategy to manage customer data
sets from both companies because he wants to avoid sending competing
pricing for overlapping products to a single customer and also look for cross-
sell and upsell campaign opportunities. So he brings in the CIO to the
conversation to discuss a master data management strategy. Well, meanwhile,
the CIO also needs to figure out how to consolidate 2 payroll and accounting
systems. Each of these leaders calls on Gartner for help, not just for
themselves but for members of their teams who haven't gone through a major
acquisition before.
By watching prerecorded webinars, reading published content and having one-
on-one conversations with Gartner experts, team members entitled to our
research and advice rapidly accelerate their M&A knowledge base. They can
also better coordinate with other functions all across the company. Now I
could go on, but you get the idea. Functional leaders today have a wide array
of critical operational issues that they have to deal with every day to keep the
business running.
And at the same time, there are multiyear priorities to be managed and
numerous events that crop up unexpectedly that they have to solve very
quickly, either with their own teams or in collaboration with other C-level
leaders in the enterprise. Gartner is there to support them in every case with
provocative, innovative ways to transform their business and solve their most
pressing challenges as well as with pragmatic and practical tools and advice to
help them execute. All delivered on demand through our subscription
services.
So how do we do it? How does Gartner generate the insights and advice for
15,000 enterprises day in and day out for Maria and every other client? Well,
let me first explain how we structure our products such as Gartner for IT
Leaders, Gartner for Sales Leaders or Gartner for Marketing Leaders. We
identify the target client roles including the C-level functional leader and their
leadership teams. So for sales, that would mean the Chief Sales officer, sales
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operations, territory planning, strategy and division heads. Then using extra
market research and the years of knowledge accumulated by researching each
of these roles, we prioritize the content that we produce on the topics that are
most critical for our clients and prospects.
In our recently launched GxL products, we've made several enhancements to
legacy offerings. We brought together all relevant research for each
functional leader, combining content from several leadership councils to
provide the integrated insight the leader and their teams need to execute on
their priorities. We then enrich the products further with technology content
that's relevant for each function such as a CRM for sales and marketing
leaders, for example. And then we've added new additional research to help
drive cross-function priorities such as digital transformation, cost optimization
and talent. And all of this is targeted to individual seat holders with more
service and greater value.
And for every topic that we cover within each product, be it talent assessment
or digital transformation, we ensure that our content is provocative, helping
the client see something differently and take action, such as envisioning a
major digital transformation. And pragmatic, helping clients with practical
guides for how to execute like a job description for a new data science talent
needed to drive that digital transformation. We share content methodologies
across functions for scale and consistency. For example, we've developed
maturity assessments for every function. These help functional leaders and
their teams benchmark how advanced or immature their operations are, and
then identify the specific steps needed to progress, say, from a level 3 to a
level 4. We recently worked with a utility company to benchmark its
operations and figure out how to cut costs by 10 percent company-wide over
the next 3 years. Now because of our benchmarking and proprietary database
of more than 1,000 cost-saving strategies, the company is now on track to hit
its savings targets.
Our clients really value our proprietary benchmarks, like our annual audit fee
benchmark or our methodology to benchmark digital brand performance
called Digital IQ.
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Let's take a look.
(Video Begins)
Female: L2's Digital IQ Index is a tool for brands looking to benchmark their digital
performance relative to peers. The Digital IQ measures brands across 1,250
data points across four dimensions -- site and ecommerce, digital marketing,
social media, and mobile. Brand scores are indexed to an average of 100 and
assigned into one of five classes -- genius, gifted, average, challenged, and
feeble.
Our published research reports provide a robust overview of online
investments across a sector, including best practices in case studies. In the
customized deep dive, our client strategy team delivers brand specific insights
to your organization's leadership team. In the two- to three-hour presentation,
we go a layer deeper into the data, looking at where your brand is strong and
weak and make both strategic and tactical recommendations that feed directly
into your annual roadmap.
The Digital IQ offers brands a way to hold their team and vendors accountable
and provides a framework to shape capital allocation decisions.
(Video Ends)
Michael Harris: I heard a few of you chuckle at the idea of rating a client feeble in the -- on the
IQ scale. And it's a true, that gets client's attention, but it is a fantastic way to
focus our engagement on those areas in greatest need of improvement. There
are other methodologies as well. Consider our best practice methodology.
When people use the phrase, best practice, often what they're really talking
about is common practice, the approach that most organization views for a
function or process. In our approach, we focus on what is truly best practice.
That is what the top 10 percent of organizations do differently to achieve
exceptional results. Methodology involves extensive quantitative analysis of
business results and correlation to specific practices. We then break down
those truly best practices into modular steps that other companies can follow,
which is perfect for disrupting established practices with new insight.
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We're also applying the Magic Quadrant methodology for vendor selection
into areas beyond IT. One of our more popular examples is where we help
supply chain leaders choose third-party logistics providers. And using all of
these models in each of our practices through modular and repeatable methods
affords us operational scale, and more importantly, a consistent platform for
C-level executives and the teams to continuously improve their functions and
continuously adapt to whatever comes next. We built a similarly scalable
platform for service delivery. And as I mentioned earlier, we have hundreds
of thousands of one-on-one conversations with clients every year, and those
clients have access across our areas of expertise.
We use machine learning algorithms to identify the right expert to take a
client's call. The algorithm takes into account an analyst profile, along with
data on all prior advisory sessions that they've had. So we identify the best
available resource for every client question, and then we feed back into the
algorithm the topics that were covered on that call as well as the client's
satisfaction level to direct more calls of a similar nature to the best-equipped
Gartner experts.
And when the decision is complete, we guide the client on what they should
do next. We provide links to relevant research that delve deeper into the
discussion topic or are we direct them to another expert in a related area to
continue the discussion. We do this on common platforms for all functional
areas, enabling a 360-degree view of all the functions in an enterprise. No one
else is able to have this kind of scalable content and advisory service for any
role in the enterprise. And yet, we're doing it across the entire C-suite.
And we're delivering significant results. We literally have thousands of
testimonials from satisfied clients, the clients often noting time saved and
money saved. For example, "Gartner paid for itself in 15 days, saving $2.1
million in inventory alone." Project acceleration is often cited as a key benefit
as this client reported, "The value that Gartner delivered to us was speed,
focus and access to best practices." And I like what this Chief Supply Chain
Officer said and how they succinctly summed up the value that we delivered
by saying, "Gartner offers the total one-stop shop.
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Frankly, we are better because of Gartner." Every team, in every function, in
every enterprise faces dynamic challenges every day. Continuously
improving functional performance is an ever-present need. Layer onto that
disruptive events and transformations and you see why Gartner is such a
valued resource for insight and advice on how to provocatively approach a
challenge in a new and different way or how to pragmatically accomplish
critical activities to save time, money and to speed up the operating tempo of
the organization.
And we continue to build our platform. The content methodologies for
maturity, digital performance and vendor selection, the service technology to
rapidly route client queries to the best available expert and the indispensable
insight to provide unrivaled capability to help all functional leaders and their
teams anticipate, adapt and act.
Now let me turn it back to Gene to introduce our sales leaders. Thank you.
Eugene Hall: Well, thanks, Mike. So you just heard how our research team provides senior
leaders in all major functions across the enterprise with indispensable insights,
advice and tools. These indispensable insights are at the core of the Gartner
formula for driving long-term sustained double-digit growth.
Now I'll introduce Joe Beck, who runs our Global Technology Sales
organization. Joe came to Gartner through an acquisition back in 1997. In the
20-plus years since then, he's held various roles of increasing responsibility
within sales. He's been instrumental in creating and evolving the Gartner
formula. Joe's going to give you a vivid picture of how we're using the Sales
Excellence Playbook to drive long-term sustained double-digit growth. Joe?
Joe Beck: Thank you, Gene. Thank you, Gene, and good morning, everyone. In my role
as Executive Vice President of Global Technology Sales, or GTS for short, I
have the privilege of leading a strong and passionate and best-in-class sales
organization that knows how to leverage our proven practices to drive growth.
Today, I'll talk about why we have just delivered the best year ever for global
technology leaders and how we will continue to deliver strong sales
productivity while growing at double digits.
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First, a brief summary of our Global Technology Sales organization. GTS has
$2.5 billion in contract value, 80 percent of Gartner's total CV, and is
comprised of roughly 3,000 sales professionals, who sell our indispensable
research into nearly 13,000 enterprises in more than 100 countries around the
world. Our strategy continues to be to sell to and serve every level of the IT
organization, from the CIO down to the tech professional. We understand the
business priorities of the team and how they translate into initiatives for every
individual on that team.
Starting with the CIO. Our salespeople work diligently to align our IT
expertise to their specific business objectives. We then expand to the
members of the CIO's direct team, and then broadly into the organization to
help them execute. This proven strategy enables us to deliver incredible value
to unique individuals and then their team members, effectively expanding our
overall opportunity within an account. All of this is substantiated by the fact
that most, a full two-thirds, of our new business comes from existing
accounts. While the results show that this account expansion strategy works,
we have only just scratched the surface.
On average, GTS clients have only 5 or 6 seat holders in their IT organization,
yet there are 7 clearly defined departments in IT with leaders in charge of
each, like the head of data and analytics or the head of security. And in many
of the IT organizations we sell into, there are hundreds of people under each
of those leaders. Even our midsized clients have full teams under those roles.
The opportunity is there on org charts with names and boxes and that's just
with our 13,000 enterprises that are clients today.
We have identified over 138,000 enterprises that can and should be our
clients. If we count enterprises with even just one seat holder, we're only
working in 9 percent of the available enterprises. We know the organizations
to target. We have a winning strategy for selling to them and we can
confidently position our value proposition to every level of the IT
organization. This is why GTS can and will continue to grow at double-digit
rates.
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Every year, we get better, stronger and faster in capturing this opportunity and
our outlook for the future is very strong because the GTS team knows that
Gartner formula inside and out. We have reaped the benefits of this formula
for years and are completely committed to the relentless execution of the
sales-focused plays, specifically indispensable insight, exceptional talent and
sales excellence. Of course, this is all built upon research and advisories' long
track record of continuously meeting the needs of CIOs around the world.
The products we sell target Gartner's provocative and pragmatic insight that
Mike just mentioned to improve the outcomes of any IT organization's
initiatives. And in lockstep with our sales strategy, these products are tailored
to specific roles. Whether a global CIO who's billion-dollar IT transformation
will dictate the future health of their business or the IT leader establishing a
cybersecurity plan for a government in thriving emerging markets or the
working team, managing an ever-expanding cache of business data.
Regardless of their role or their initiatives, when IT leaders face tough
challenges, Gartner has a proven product designed for their role to support
their unique needs. Absolutely no one else provides our level of insight and
advice, no one.
Like our indispensable insights, hiring exceptional talent is a critical element
of how sales leaders execute on the Gartner formula. As you know, this is one
of our largest investments, and we are incredibly selective in our hiring
process. For every 100 sales applicants, we hire fewer than 3 people. And
over the past 10 years, we have increased sales capacity by 13 percent, which
is directly in line with our 10-year CV growth rate. In 2018 alone, we grew
GTS headcount by 15 percent.
GTS is a diverse group with a balanced global footprint. We call on all
industries in every region of the globe in every sized enterprise. Gartner as a
highly collaborative culture, using leading-edge tools and best practices. Our
growth translates to unparalleled upward mobility opportunities for our
people. We offer a truly special kind of sales opportunity that talented and
successful people crave -- a performance-driven compensation plan, the
ability to strategize with C-level executives and work alongside some of the
brightest minds in technology.
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It's not surprising that Gartner is regularly recognized as a best place to work
and that associate referrals lead to an amazing 30 percent of our sales hires.
These are all strategic advantages as we continue to attract top talent for many
years to come.
So we have the indispensable insight. We've got exceptional talent on board.
How do we leverage them to capture that market opportunity? And that's
where the sales excellence part of the Gartner formula comes in. We capture
and continuously improve our best practices over the years, leading to a
dynamic and detailed Sales Excellence Playbook that is designed to ensure we
execute the best practices consistently across the globe.
And when I say Sales Excellence Playbook, I don't mean just any playbook.
Let me draw an analogy. And since I played college football, the analogy I'll
use is an NFL coach's playbook, but not just any coach. Imagine joining a
team and being handed Bill Belichick's Patriots playbook, the one that year
after year leads to playoff and Super Bowl wins. Sure, it's going to take time
to read, learn and master, but you know that everything you need to win the
Super Bowl is in that playbook. That's what the Gartner Sales Excellence
Playbook means to our people.
In fact, let's hear from some of our GTS salespeople on what makes our
proven approach so impactful.
(Video Begins)
Male: (Ray) has a 10-year plan in a spreadsheet that lists how we are going to double
(NCVI) every year and meet the goals long-term for this team. We don't
question whether we're going to meet the plan; we figure out how we're going
to meet it. Get (an org) chart, be a power, confirm value in the client's voice,
use engagement plans, create urgency, and close the business.
Female: The conversations that are required to accomplish that will give you the
insight that you need to understand not only the organizational goals but also
the tactical struggles on the front line. That depth of insight is what you need
to justify a larger investment in Gartner.
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Male: We know what our goal and vision is two years out so we make the territory
plan and design headcount growth to achieve those goals well in advance. We
get a lot of value out of our new AEs because we invest a lot of time up front
with them to help them use the tools that they've developed at Academy and
apply value to each of their clients in the field.
Male: It's clear from day one what the expectations are and the actions that will
deliver results.
Male: This is the greatest place in the world, it's got a great culture, and I love what I
do.
Male: We know there will be bumps in the road but we also know what the right
things are to do to keep getting these results. We tell our new hires, we tell
our team, there's room for growth. There's room to raise the bar and take
things to the next level.
Keep doing those right things and the results will follow.
(Video Ends)
Joe Beck: This level of execution across GTS is why we have achieved meaningful
increases in our sales productivity and double-digit growth year after year.
Our teams know what exactly what to do when it comes to recruiting, training,
using tools and applying best practices. This is GTS' proven approach to
future success. We start by recruiting top talent into territories optimized for
success. And in 2018, our investments in recruiting and territory planning
paid off. Accelerating headcount required significant investments in
recruiters, with systems and training to ensure sales maximize the benefit of
these great resources.
As I mentioned earlier, in 2018, we grew over sales headcount by 15 percent
and reduced the number of open positions to a record low. Open territories
mean that no one is selling into those accounts. So this is a big deal for 2019
and will lead to increased productivity. Innovating this approach was a
multiyear journey for GTS that will yield better results each year.
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We also invested in a world class territory planning function that identifies
exactly the right places to put additional salespeople. This capability is
systematically prioritizing the enterprises where we can capture the most
opportunity, both within existing accounts as well as those enterprises that
don't do businesses with us today. Expanding our sales capacity and
executing on a rigorous recruiting and territory blueprint means better
coverage on our clients and more people engaging with future clients. And to
ensure we nurture and develop our exceptional sales talent, we offer best-in-
class training programs with proven team of tenured trainers across the globe.
In GTS, we know it takes most salespeople 3 years to get to full productivity.
This 3-year ramp, peppered with various training experiences, has been
consistent over time. In the first year, our new hires need to be taught the
playbook. They begin to learn but are not fully productive. In the second
year, they improve their skills along with their confidence and conviction and
sell more. By the third year, they have mastered the playbook and are
producing like a veteran player.
The ramp-up begins with a 6-week sales academy, which is focused on the
best practices for driving retention and growth. This investment in getting
new hires off to a good start is important and has resulted in material
improvements in new hire productivity. And every year, we're piloting
innovative approaches to getting new hires up the learning curve more
quickly. By the time our new salespeople take on a quota-bearing role, they
are set on a path to fully understand the economics of our business and how to
execute sales -- the Sales Excellence Playbook.
We have also committed significantly in sales training throughout their tenure
to ensure the latest best practices are consistently executed throughout the
world. We also know that having the right set of tools is instrumental to
driving productivity and improving that ramp-up Gene talked about. Our
enabling infrastructure allows our sales teams to have access to a robust set of
proprietary sales tools that are specifically architected around our best
practices. In our sales excellence playbook, it is crystal clear about when and
how to use those tools to maximum effect. Used daily, these tools guide new
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and tenured salespeople to the most productive activities for each sales cycle.
The incremental investments we made in tools during 2018 are already
helping us to prioritize and engage with new prospects.
With 36 quarters of double-digit CV growth for Gartner under our belt, our
sales force knows what to do to be successful. Our best practices are
ingrained in every touch point with sales. And with our focus on continual
improvement innovation, we are always updating and evolving our playbook.
This has become a massive advantage for GTS and for Gartner and our
opportunity is to continue to improve execution on what we know works.
All of these chapters in the sales excellence playbook allow us to disseminate
the known best practices across all of our sales teams. We only recruit people
who can deliver on what we know works. We train them on the right things,
and we build tools to make the pathway to success as easy as possible.
Moving into 2019. We have a series of strong advantages, unrivaled solutions
for every environment and every role of an IT organization, from the CIO and
their direct reports down into the organization; strong trust-based relationships
with our existing 13,000 enterprises; we have a tremendous market
opportunity; a proven strategy for growth; and hundreds more salespeople
attacking that opportunity. All of this will enable GTS to grow double-digit
rates in 2019 and beyond. Thank you.
Eugene Hall: So thanks, Joe. Joe just described how we built the strong sales capabilities
that are fundamental to the Gartner formula, and our execution of these
capabilities is going to continue to drive long-term sustained double-digit
growth.
I'll now introduce Chris Thomas, who leads our Global Business Sales team. I
mentioned earlier this team works with the enterprise functions that are
beyond IT. Chris has been a member of our executive team since 2013, and
he's led GBS since it was formed in 2017. He also has a long history with
Gartner. He's been with us for 19 years. Throughout his tenure, Chris has had
various roles of increasing responsibility in our sales and in our service
delivery teams. Chris helped write the Gartner Sales Excellence Playbook.
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And using that playbook, he's led technology, supply chain and marketing
teams to long-term sustained double-digit growth. And Chris is going to share
how his team leveraged the Gartner formula in 2018 to build the foundation
for double-digit growth in GBS in 2019 and beyond. So Chris?
Chris Thomas: Thank you, Gene, and good morning, everyone. Today, I'll share more detail
on our GBS journey, the significant progress we made in 2018, building the
foundation for acceleration and how that progress now allows us to deliver on
our promise of long-term sustained double-digit growth. We know the right
things to do. You just heard about many of them as they're driving GTS'
consistent double-digit growth. They're the same right things that are behind
the success of heritage Gartner supply chain and our marketing teams, both of
which are now part of team GBS.
The Gartner formula works. During 2018, we applied this proven formula
across the entirety of GBS to accelerate our CV growth and it's paying off as
I'll share over the next few minutes.
First, a brief summary of our Global Business Sales organization. With $600
million in contract value, GBS represents 20 percent of Gartner's total CV.
We now have a team of roughly 800 quota-bearing salespeople with 5,400
client enterprises. GBS sells into all functions across the enterprise beyond
IT. And our strategy is to target the C-level across the function we serve and
then expand into their teams. Our 5,400 GBS client enterprises represent only
4 percent of the 138,000 addressable enterprises.
Our market opportunity is untapped across all functions, roles, geographies
and industries, giving GBS a long runway for rapid and sustained growth
ahead. HR, finance, sales, marketing and supply chain, each have the
potential to have contract value well in excess of $1 billion.
The Gartner formula is the foundation of our double-digit CV acceleration.
That's why, in 2018, we moved rapidly across GBS to put the various
elements of the formula in place. We leveraged the many strategic
investments in enabling infrastructure, and then we put a special emphasis on
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implementing 3 key areas of the formula -- indispensable insight, exceptional
talent, and sales excellence.
So let me talk a little more about each in turn. Gene and Mike both shared the
compelling and immediate need across all roles and functions for Gartner
support and insight in their decision-making. In the first half of 2018, we
launched GxL products across the largest GBS functions including HR,
finance, sales, legal and service to better address these needs. These added to
our already existing GxL products in supply chain and marketing. And over
time, we'll add more GxL products for other roles that we serve.
As Mike shared, these products provide significantly greater value to clients
with a powerful combination of practice-specific, research, technology and
cross-functional content as well as insight and advice tailored to the individual
needs of business leaders and their teams.
The reaction from our clients to these new GxL solutions has been
phenomenal. So I wanted to share the feedback from 2 of our clients, 1 from
sales and 1 from HR, as they talk about their experience.
(Video Begins)
Male: The big difference between the (seat) based and the leadership council
activities is actually the value we get. The tailored experience that we have in
the new engagement is significantly improved. I would say that it's probably
saving me in labor terms alone, about 1.5 FTEs in whole research, best
practice finding, designing new (things) -- all of those things added together.
We're quicker to a better starting point. It's hard to put a real number on it but
I would say it's probably five to seven times as much as the actual cost of the
license. That's one of the big differences I see between what we had before
and where we are today, is that the return on that investment, I'm paying more
today for the membership but I'm getting more return, faster.
Female: Our partnership with the staff here at Gartner really helped us hone in on what
were the areas of what we didn't even know yet. Things are constantly
evolving and changing and so what happened was I came out and said, we are
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really leaning into these areas, particularly around HR analytics, as well as HR
technologies. And this entire new world of additional research that I didn't
even know that was happening was presented to us and in a very timely
fashion, and it actually resulted in a deepening of our partnerships and an
expansion of (seats).
Today, we have three primary (seats) or points of contact that interact with the
company, but as a result of our recent dialogues, we're actually expanding that
to more of -- five primary (seat) model, and that would include both myself as
well as our head of learning, our head of talent acquisition, and then most
recently our head of analytics and HR systems.
It's a match made in heaven.
(Video Ends)
Chris Thomas: This feedback is consistent with what clients across all GBS functions are
telling us. And I hear the same feedback from finance leaders, legal counsels,
heads of diversity and inclusion and recruiting, customer service leaders and
more. These GxL products allow us to deliver significantly more value, in
turn driving much stronger retention. But the opportunity isn't just from
retention improvement. These GxL products allow us to provide more growth
opportunity as well because we can sell these high-value products throughout
our client's organizations and grow our CV in each account year after year.
We've seen this retention and growth uplift in supply chain, marketing and
GTS for many years, and we're announcing the same thing across the rest of
GBS, where we now have the GxL products.
Through the first half of last year, we then trained our entire sales organization
on how to sell these new offerings, while also putting in place our proven
retention programs and support. This transition was significant. Even our
tenured associates essentially became experienced new hires to Gartner as
they needed to learn an entirely new sales process and product set. Like all of
our experienced new hires across sales, they needed to learn the Gartner best
practices and it takes time for them to become fully proficient. With strong
training support, the team is moving rapidly up that learning curve with $100
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million of GxL new business sold in 2018 and a steep acceleration in the
second half across each of the new products.
Gene shared this slide, which shows the acceleration across the new GxL
products. Following the product launches and training throughout the first
half of last year, the learning curve was evident. From essentially a standing
start, we ended 2018 with over 90 percent of our prospect-focused sales
associates selling one or more GxL deals. Now even more encouraging, the
fastest acceleration we see is within the group selling multiple GxL deals in
2018. Demonstrating that once they sell one deal, they get it and now have
the confidence and capability to rapidly close additional deals. These results
and the trajectory into 2019 are proof that we've only just begun to scratch the
surface of the enormous market opportunity that we have across GBS with
these new products. But products are not the only place we're investing.
We're also adding exceptional sales talent to GBS, growing our sales force by
42 percent since the start of 2017.
This territory growth continues into 2019, while simultaneously accelerating
the learning curve of all of our growth hires to date as they now enter years 2
and 3 of their tenure. Our coverage model is based on that of GTS, but
customized for the unique needs of Global Business Sales. We
methodologically design territories and recruit the best sales people aligned to
the areas of greatest opportunity.
Sales professionals looking for great opportunity to succeed and build a long-
term career, they are attracted to Gartner and they are attracted to GBS.
Here's why -- a high-performance and highly collaborative culture; a vast and
untapped market opportunity; unmatched career development opportunities;
the ability to interact to the C-level and across the entire C-suite. All
combined with the power of the Gartner plan. These are all significant and
compelling advantages as we continue to attract and recruit top talent and
grow our team.
Now beyond these product and people investments in 2018, we also put a
significant emphasis on executing each element of the Sales Excellence
Playbook. As Joe shared, this detailed and ever-evolving playbook has helped
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GTS win the equivalent of multiple Super Bowls, delivering double-digit
growth year after year, and it will do exactly the same for GBS. There are
many chapters within the playbook and it's not easy to implement overnight.
We need to learn, practice and master the plays and adapt and innovate for
GBS wherever needed. GTS has been doing this consistently and it's
delivering results. GBS is now doing the same. We're seeing the impact and
we will reap the rewards in 2019 and beyond.
To support our growth, we've added significant recruiting and territory
planning capacity. The Sales Excellence Playbook is clear on what it takes to
consistently hire great talent, and we are now leveraging all of these recruiting
best practices across every part of GBS. Great talent still needs great training
to be the best they can be and to get them there faster. Throughout 2018,
we've worked to implement best-in-class training programs. And now the
same team that on-boards and trains GTS new hires also trains GBS new
hires. We follow the same 6-week sales academy process focused on the
Sales Excellence Playbook for retention and growth, with additional GBS
function-specific training, ensuring our teams know how to position Gartner
as mission-critical to finance leaders, HR leaders, sales leaders and so on, as
well as the same ongoing training to enhance mastery of their craft. This
combination is helping GBS new hires progress rapidly up the learning curve
and will ensure they deliver a strong productivity ramp.
Beyond implementing, recruiting and training proven practices and
investments, we also introduced a full suite of sales tools across GBS. These
tools are a key component behind improved sales productivity and accelerated
learning, and it was critical for GBS to have access to those same analysis,
coaching and prioritization tools. Again, this was a significant change
throughout 2018 and our salespeople and their leaders are continuing to ramp
their skills, while leveraging those tools to accelerate growth in 2019.
Finally, when it comes to retention and growth, we know what to do to win,
delivering indispensable, unrivaled insight through the right products, adding
and leveraging exceptional talent and consistently executing the Sales
Excellence Playbook.
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Our playbook is proven constantly evolving and highly effective when
executed well. GTS is showing just how powerful it is. We successfully
implemented the same playbook in our supply chain and marketing GBS
functions. We're now executing these plays across the rest of GBS and we're
seeing win after win here as well.
Moving into 2019. GBS has so many advantages compared to where we were
a year ago -- GxL products with expanded content to better address our
client's needs; a significantly larger and now more tenured team to sell and
renew those products; a strong retention outlook, thanks to a richer mix of
GxL in the CV base combined with a year or more of execution on our
retention programs; the GTS-proven recruiting practices, training programs,
productivity tools and best practices, all in place to now accelerate
performance; and that same vast untapped market opportunity in both new and
existing clients.
We know the right things to do. We did those right things in 2018 across
GBS to build the foundation for long-term sustained double-digit growth.
We're seeing really strong traction and a positive trajectory as our GBS teams
accelerate up that learning curve. We will deliver double-digit growth in 2019
and that will only be the start. Thank you.
Eugene Hall: Thanks, Chris. As you heard from Chris, we've been aggressively applying
the Gartner formula in GBS throughout 2018 to provide that foundation for
long-term sustained double-digit growth. We're now going to play a short
video to help you better understand our value proposition. Now the first part
of the video shows how clients actually access our insights on demand. And
the second half gives you a view into our peer community, how our clients
can interact with that peer community. Then after the video, we'll take a short
break.
We'll have some lunch for you outside. And then when we turn -- return from
the break, Craig Safian, our CFO, will share how the Gartner formula actually
connects to our business model. And then we'll be happy to take your
questions. So I encourage you to take advantage of the lunch break to connect
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with some our executive leadership team, which I introduced earlier and also
to network with each other.
So here's the video.
(Video Begins)
Male: The world has sped up, you have to stay ahead of change, stay on top of your
mission critical priorities, and you don't have a lot of time. Here's some good
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Your new Gartner.com experience helps you quickly find the information
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Everything is organized in a scrollable smart news feed that delivers insight
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Based on your profile, your tracks, and how you use the site, Gartner.com
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the more you use it, the smarter it gets. As you explore initiatives tied to your
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and posts more of it directly to your feed.
By clicking into an initiative, you can see how it aligns to your priorities. You
can choose the Start This Initiative feature and customize related topics within
the initiative you want to track. After that, your feed will automatically keep
you up to date with the latest posts on your initiative and related topics. On
the right are My Tracked Initiatives. If your subscription includes access to
Talk With a Gartner Expert, you can schedule an inquiry here.
Reality Test With Peers connects you to the Gartner Peer Insights and Peer
Connect communities, where you can share challenges and solutions and learn
from your peers' real world experiences.
In addition to our standalone iOS and Android apps, the new site is built to be
mobile friendly. And remember, keep your profile up to date; it improves our
ability to understand what you care about right now. And as always, the
search function takes you right to the information you need.
GARTNER, INC.
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We hope you find the new Gartner.com experience faster, easier, and more
useful. Get started on your priorities today.
In a world where everyone has a voice, how do you know what's valuable and
what's simply noise? You play a critical part in the transformation journey.
And you're not alone. As part of the Peer Connect journey, you decide what's
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You'll gain trusted insights managed by Gartner to ensure high value content
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Enhance your capabilities.
The future of leadership lies with Peer Connect. Discover more at
community.gartner.com.
(Video Ends)
Male: Ladies and gentlemen, please welcome back to the stage, Gartner's CEO,
Gene Hall.
Eugene Hall: All right. So welcome back. So I hope, you were able to take advantage of
the lunch break to connect with some of our executive team, and also to
network with each other. So now, our CFO, Craig Safian is going to illustrate
the fundamentals and economics of our business, and how the Gartner formula
actually connects to our business model. Craig's been with Gartner for more
than 16 years. And prior to becoming our CFO, he led Strategic Planning,
Corporate Development, and our corporate and business unit finance
functions. Craig being -- brings a unique combination of strategy, a deep
understanding of our business and its economics and finance and accounting
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leadership. He's uniquely talented from -- both strategically and
operationally, and his contributions to Gartner have continued to expand since
he took over as CFO 4.5 years ago. So Craig?
Craig Safian: Good afternoon, and thanks for joining us today. Earlier, Mike Harris told
you a story about Maria, a global HR leader. And all the interconnected
challenges that Maria has. I can tell you, from my own experience, that the
CFO and his or her team are going to be impacted significantly by those same
challenges. Whether it's the Head of HR, the CFO, the CIO, CMO, they can
all turn to Gartner for the insights and tools to help day-to-day priorities as
well as the unplanned obstacles that come up throughout the year.
Gartner helps by enabling leaders and their teams to make those decisions
with greater confidence and speed to greater outcomes for every enterprise
function. My role this morning is to talk about how we're delivering on that
value proposition through the lens of our financial and business model. I'll
cover how we leverage the Gartner formula and a powerful business model to
drive growth. How the combination of that formula and making smart
investments leads to double-digit top line, bottom line and free cash flow
growth. And how we deploy our cash flow and balance sheet to enhance
shareholder returns.
So as Gene addressed, who we are, what we do and how we succeed? All
stem from what we call the Gartner formula. We address our customers'
mission-critical priorities through indispensable insights. We invest in and
develop exceptional talent. We drive sales excellence in our sales -- we drive
excellence in our sales organizations, and we invest in a robust-enabling
infrastructure to support that sales effort and growth. These are all incredibly
powerful elements of our formula. But what really brings all this to life is our
relentless focus on globally consistent execution and continuously improving
and innovating every single thing we do.
So if our growth formula embodies who we are and what we deliver across
every line of business, it's our business model that generates the free cash flow
that allows us to reinvest in our business, return capital to our shareholders
and execute strategic value-enhancing M&A. It's a simple, yet highly
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effective financial model. And Research sits at the heart of it, as it accounts
for 80 percent of Gartner's revenue. This is a recurring revenue business with
very high renewal rates. We write a piece of research once, and we sell it over
and over, leading to high contribution margins.
In Research, we bill and collect ahead of recognizing revenue and delivering
services, and the business inherently has low capital requirements. And as
Gene pointed out, we also have our world-class conferences and consulting
businesses that directly complement and fuel our Research business. That's
how we're set up for long-term sustained growth. This powerful combination
of the Gartner formula and business model enables us to drive double-digit
percentage growth in contract value, revenue, earnings and free cash flow.
So with that framework in mind, what I'd like to do is take a closer look at
exactly how Gartner approaches growth and investments in our business. Our
growth potential starts with our market opportunity. As Gene showed you
earlier, we operate in a vast untapped market of close to $200 billion spread
across the enterprise functions we serve. We have a huge, huge runway in
each and every one of these functions, including IT. To illustrate, if you were
to take our current total contract value of $3 billion and grow it at a 15 percent
compound annual rate for 20 years, we'd have only captured 25 percent of
today's addressable market. And as we've shown, we've consistently
expanded our market opportunity through organic launches and M&A.
Here's how we think about driving growth and capturing that market
opportunity. Sustained growth in Research comes down to 2 primary levers --
growing our sales headcount and driving improvements to net sales
productivity. Levers, we know result in growth, which might sound simple
enough, but we've developed, iterated and honed numerous programs and
initiatives around each. With headcount growth, we're focused on recruiting
the best talent. Talent that has the best opportunity to be successful at
Gartner. We're investing in and building recruiting capacity and capability to
find that talent as well as innovating our training programs, so salespeople can
be more productive faster. We're planning and designing our territories, so
our teams are aligned to the greatest opportunity and plenty more.
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The other lever we have is sales productivity. We measure sales productivity
as the net contract value increase, or NCVI, per individual salesperson. We
calculate it for both GTS and GBS on a rolling 4-quarter basis, where the net
increasing contract value is the numerator and the number of salespeople at
the beginning of the period are the denominator. There are several ways we
improve sales productivity.
Joe and Chris went through all the details of our Sales Excellence Playbook.
It was created with the express purpose of driving sales productivity. That's
what drives Research growth. A combination of growing our sales force and
improving productivity, and we've successfully taken this approach with GTS
for a long time. Gene and Joe showed you how we've been growing our sales
force at a consistent 13 percent for the past decade. At the same time, we've
driven improvements to sales productivity.
Over the last 3 years, we've achieved consistent improvements to sales
productivity and as a result, contract value growth has accelerated from 12
percent to 13 percent to 14 percent. And as Joe highlighted, we're set up to
continue our CV growth. We've consistently grown this business at double-
digit rates and by continuing to leverage all the elements of our Sales
Excellence Playbook, we will continue to grow this business at double-digit
rates into the future. At the same time, we'll continuously improve and
innovate and ensure we make the appropriate investments to sustain that
growth.
And we're running the exact same plays for GBS. In GBS, we're growing
headcount. We're applying the Sales Excellence Playbook, which has built
the foundation for productivity improvements in 2019, and we're seeing GxL
contract value accelerate. 2016 and 2017 are obviously dominated by our
supply chain and marketing GxL contract value. But in 2018, we really
started to see the impact of our new GxL products. Growth in GxL is what
will drive us to double-digit overall CV growth in 2019, and even faster in
2020 and beyond.
We're confident in our ability to get GBS to double-digit growth for a number
of reasons. Notably, we have GxL and the growth rate has been accelerating.
GARTNER, INC.
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We have a larger sales force with 16 percent growth in 2017 and 23 percent in
2018, and they are all significantly moving up the learning curve. The richer
mix of GxL and a full year of our retention programs will drive higher
retention. We're leveraging the Sales Excellence Playbook, and we have a
vast addressable market opportunity.
With those advantages, we enter 2019 in a position of strength. Last week, on
our earnings call, we highlighted this sensitivity table to illustrate our path to
accelerated GBS growth in 2019, and I thought it would be helpful to briefly
touch on it again here. Let me show you one of the paths to 10 percent
growth. We enter 2019 with $594 million worth of GBS contract value at
2019 FX rates. A 2-point improvement in attrition, means roughly $149
million attrits in 2019. A 1 percent improvement in new business productivity
across our 790 salespeople equates to $209 million of 2019 new business.
That combination of attrition improvement and modest new business
improvement would yield 10 percent contract value growth for 2019. That's
just one of the paths to double-digit growth for GBS.
Again, Gartner is a growth company. We've been consistently delivering
double-digit top line growth, primarily by growing our sales force and
focusing on productivity. Our 2019 guidance and medium-term objectives
continue to reflect that. These are the same medium-term objectives we
shared with you last year. To sustain that double-digit growth, we know we
have to continue to make smart investments each and every year. We're
always pushing the business to innovate and improve in everything we do, so
we have more money to put back into the business to support and drive that
kind of growth for the long term. The largest investments we make are in
sales, but we're investing in all other areas of the business as well.
Let's just take a closer look at sales investment. We have a very successful
sales model, but there are 2 economic lags that impact the profitability of our
business. The first, which Gene, Chris and Joe covered is our sales
productivity ramp. We hire salespeople, they go through training, it takes 3 to
6 months for their first sale, 3 years until they're fully ramped up. So from
first hire to contract value, there is a productivity lag. As we sell the contract
value, we collect the cash shortly thereafter. That takes us to our second lag,
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which pertains to how we account for revenue and profit. While we get paid
shortly after the contract value is recorded, the revenue and profits get
accounted for over the next 12 months. That means there's a big lag between
contract value and profits. As the productivity ramps, CV, cash, revenue and
profits scale, everything scales except the cost of the salesperson, which
modestly grows as compensation increases.
In GTS, because we've been doing this for over a decade, we're primarily
impacted by the productivity lag. In GBS, we're impacted by both the
productivity and P&L lag. So we've hired the salespeople in GBS. We're on
the path to realizing the contract value and the revenue and profits will follow.
To understand how we garner returns from our investments, it's important to
understand all the inputs into our profitability. It starts with our revenue mix.
In 2018, Research made up 80 percent of total revenues. The remainder of
our revenues are split between our Conferences and Consulting segments,
which support and amplify our Research business. All of our businesses
generate strong contribution margins, but Research at 69 percent, is by far our
most profitable segment. Research is our largest business. It has the highest
contribution margin of our 3 segments, and it delivers consistent double-digit
growth with continued amazing growth potential for the future. That
combination drives our overall margin contribution of 63 percent.
Moving down the profit statement, we have our selling and G&A expenses.
We wanted to take the opportunity to provide greater visibility to the
components of our SG&A and help you better understand, how we think
about investing in these areas. Our SG&A splits roughly two-thirds of selling
with the balance being G&A. Taking it one level deeper, we have 3 distinct
sales teams within the sales expense line. GTS, GBS and the sales teams that
support our Conferences business what we call, GCS or Global Conference
Sales. As you'd imagine, GTS is by far the largest expense within sales,
making up close to 70 percent of our total selling expense. GBS makes up
just under 20 percent of the total with GCS approximately 5 percent of the
total and the balance in marketing and sales operations.
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Our G&A expense represents about 1/3 of our SG&A or about 16 percent of
revenue. The largest components of G&A for us are technology and real
estate, followed by HR and finance. We have been consistently driving
significant productivity out of our G&A functions to allow us to invest in the
enabling infrastructure we need to support our growth, most notably in
recruiting expense and facilities. In the future, we continue to expect to grow
G&A expenses at a slightly slower rate than revenues, providing ongoing
operating leverage that we can reinvest back into the business.
Let's walk through an example of all of that for our 2018 P&L. In 2018, our
contribution margins improved by around 60 basis points. This improvement
stem from a combination of improvements in margins to both Conferences
and Consulting and a continued shift in mix towards Research. I'd note that
we continue to drive investments within our cost of services. For example, we
launched a half dozen new GxL products. We're growing our analyst and
advisor capacity, and we're always improving the client experience. But we're
also always focused on continuous improvement and innovation, freeing up
expenses so that we can make the right investments to support growth.
When we break apart selling from G&A, you can see 2 different trends. First
that our continued investments in GTS, GBS and GCS negatively impacted
margins by about 140 basis points. Meaning these expenses grew faster than
revenues. While G&A positively impacted margins by about 30 basis points.
Meaning these expenses grew slower than revenues. The net was a roughly
50 basis point decline in adjusted EBITDA margins. All because of
thoughtful strategic investments in sales and the productivity and P&L lags
that we talked about earlier.
In 2018, we made lots of investments across the business. The largest
investment we made in dollar terms was in support of GTS. We grew GTS
headcount by 15 percent in 2018, with GTS expense growing about 2 points
more than that. That significantly lowered the number of open territories we
have. Additionally, through efficiency improvements, we were able to invest
in numerous other initiatives around hiring and training programs, new
business and retention initiatives and a host of others. And we started seeing
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the payback in 2018 with the accelerating contract value growth that we
showed you earlier.
We took the same investment approach with our conference sales teams,
investing for both immediate and long-term growth. In 2018, we grew the
sales force and reduced open territories, in addition to further adopting the
relevant pieces of our Sales Excellence Playbook and the growth rate of our
Conferences business accelerated dramatically. And we've taken that same
approach with GBS, investing in products and services, rapidly growing the
sales force, adopting the Sales Excellence Playbook and investing in all the
enabling infrastructure, we know supports growth. All of which builds the
foundation to drive sustained long-term double-digit growth.
The impact of all of that on our 2019 projected margin is shown here, and
we're using the midpoint of our guidance to do the math. The story is roughly
consistent with prior years. At the contribution margin level, we are dealing
with a roughly 50 basis point drag from retired, nonsubscription products in
the GBS space. We've retired these products because they're noncore. And
we believe, it will drive greater focus and ultimately, productivity in GBS.
Within the selling line, there is margin investment in 2019. This is almost
entirely for GBS, as GTS and GCS expense growth is roughly in line with the
corresponding top line growth. And as is our normal practice, we are seeing
operating leverage in G&A. The midpoint of our 2019 guidance calls for an
approximately 30 basis point contraction in EBITDA margins. Or said
another way, margins would have been approximately flat without the drag
from retired products. Looking forward, consistent with our medium-term
outlook, we expect EBITDA and free cash flow to grow roughly in line with
revenue.
We talked earlier about the power of the Gartner Business Model. We've
architected our business to take advantage of all its positive elements. As we
accelerate the growth of GBS, the benefits of the model start to compound.
That's because of the upfront billing. We'll continue to collect cash in
advance of delivering the revenues. Our 2019 guidance for free cash flow
growth is strong. And as we move out into 2020 and beyond, the combination
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of our growth and our business model will continue to deliver significant free
cash flow well in excess of net income.
In 2018, we primarily deployed our capital to delever. Through a combination
of utilizing proceeds from divestitures and our free cash flow, we reduced our
debt balance by $1 billion in 2018. That reduced our leverage ratios down to
around 3.4x gross debt to adjusted EBITDA at December 31, 2018, which
means we are now in the position to return to our long-standing capital
allocation strategy.
Over the last decade, we deployed $1.9 billion on buybacks at a weighted
average price of just over $61 per share. In 2018, we resumed our share
repurchase activity buying back $260 million of our shares, and we've
deployed an additional $4 billion on M&A. The CEB acquisition was
obviously the largest deal, but we've also done a series of small- and medium-
sized tuck-in acquisitions as well.
Going forward, our top priority is to reinvest back in the business for organic
growth. There are 2 other ways that we use our free cash flow, stock
buybacks and M&A. We have over $850 million available on our buyback
authorization. We'll continue to be price-sensitive and opportunistic when
buying back our shares. Now in terms of M&A, we are an organic growth
company, so we don't need to do M&A. We can be very disciplined. When
we do M&A, we look to enhance our core business. We prioritize Research,
and we seek differentiated content and data. As we have proven in the past,
we'll remain focused on ensuring that we deploy our free cash flow and
balance sheet flexibility on shareholder value-enhancing initiatives.
This is a very exciting time for Gartner. You heard Gene talk about how
rapidly the world is changing and how leaders across every enterprise function
turn to Gartner to help them accomplish their mission-critical priorities. Mike
Harris, our Head of Research and Advisory, illustrated the pressures and
dynamism across those functions as leaders face challenging circumstances
every day and how our research helps them with make-or-break decisions at a
low cost. And our GTS and GBS sales leaders, Joe Beck and Chris Thomas,
shared how they're leveraging the Gartner Sales Excellence Playbook to
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accelerate the growth of our business. Every enterprise function we serve from
IT to HR, to supply chain, to finance, is rapidly changing.
And our value proposition in all of these functions is indispensable and
unrivaled. We take that value proposition and leverage all of the elements of
the Gartner formula where all of our business contribute, Research,
Conference and Consulting. And we have an amazing business model.
Gartner remains committed to delivering sustained double-digit growth to
revenues, profit and free cash flow.
Thank you again for your time today, now Gene and I would be happy to take
your questions.
Gene, if you would join me on stage please.
David Cohen will be facilitating so he is going to join us as well and so just
wait for David to call on you and -- go ahead.
David Cohen: So if you have questions, please raise your hand, we'll bring over a
microphone. You have to wait until you have the mic to ask your question so
everyone can hear.
Jeff? The mic is going to come around.
Jeff Meuler: So a two-parter. The first -- and they're related, but the first, can you just help
size up how much the reset was from going from tenured sales associate level
productivity to experienced new hire on the people that were retrained plus the
promotions to kind of offset the GxL new sales ramp, that looks great?
And then the related question, everything you're saying makes a lot of sense,
the new data you're giving looks good. But the Q4, something about the GBS
metrics didn't really look very good and I guess I'm struggling to understand,
are there new things that you're still doing that are incrementally disruptive? I
think there was a tough wallet retention comp in Q4. I think CEB renewed a
lot of business in Q4. Can you just kind of help square the Q4 GBS metrics
with the progress you're seeing?
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Craig Safian: I'll take that 1 first and thanks for the question, Jeff. So in terms of what we
are seeing from -- over the course of 2018, Q1 to Q2 to Q3 to Q4, '18, was as
Chris highlighted and Gene highlighted we made a lot of changes but they
were thoughtful changes, and again all about laying the foundation for us to be
able to accelerate the growth rate of GBS in 2019 and accelerate it further
beyond that. I think the key thing to remember is, we only fully trained the
last people in Chris' GBS organization on the GxL products in roughly the
June timeframe and so we really only had 2 full quarters of the GBS team, the
full GBS team, really fully trained and able to sell the GxL products and
again, as we've talked about, there is a ramp that comes with selling that exact
precise type of value proposition in the market.
As Gene showed, and I think as Chris showed as well, under the covers when
you look at the GxL CV, the slope of the curve definitely accelerated in the
second half of the year as people got more comfortable. And as Chris's chart
showed, people were getting much more comfortable, and again if you get one
at bat and get a hit, you have that much more confidence the next time you
come up. And I know I'm mixing metaphors with what Joe did earlier on
football, but you gain confidence and you gain the skill set required.
And I think Chris's data reflected that. Specifically around Q4, it's really the
combination of the phasing out of legacy leadership council new business, and
replacing it as we come up the curve with the new GxL, new business. And
the ramp, while very, very impressive, wasn't enough to offset that known
decline that we had planned for. But as we continue to ramp up, we expect
that GxL new business and GxL contract value to significantly accelerate over
the course of 2019.
Jeff Meuler: So the sequential trend in CV and GBS from Q3 to Q4, is it just that there's
more business to renew on the legacy council -- leadership council business,
or just -- because it took a step back and everything you're saying was that
most things were done by June.
Craig Safian: You're precisely right. So one of the great things in our GTS business that Joe
and his team have been really focused on is the expiration skew of our
contract value is roughly even over the four quarters. So you will note that we
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generate more new business in Q4 than we do in Q3, which is more than we
do in Q2 and so on. And so that even skew really helps us grow contract
value dollars in the second half of the year. On the GBS side there's a heavy
weighting towards Q4, particularly December expirations and we just had a
large volume because of the amount of CV, think in the 45-ish percent range
of the contract value, came up for renewal in the fourth quarter. Actually,
more accurately, in December. And so we have programs in place to make,
try and even that out a little bit more over time and then again, our goal is to
really make GBS look like GTS on all the elements of the playbooks we
talked about, but also in the timing and phasing of the business.
David Cohen: At the back?
Tim McHugh: Just asked about GTS on your last call and (inaudible) reduction in the
number of open sales territories was mentioned quite a bit, so can you
elaborate how big of a change, what was that? And are you -- I guess there's
always going to be some open territory, so is there any risk you're below
normal, right, you're overperforming I guess relative to what you would
expect long-term in that metric?
Eugene Hall: Yes, Tim, so it has been an objective of ours for years to reduce the number of
open sales territories. The reason for that is we sell less in a territory without
a salesperson than we do with a salesperson. We had that brilliant insight and
so we want to minimize the number of open sales territories. The problem as
you pointed out is that we'll promote somebody to be a manager, for example,
and that gives us an open sales territory. The way we used to do it is, you'd
start recruiting after you promoted someone and then it takes, it might take 6
months or even longer, depending on what country you're in, to get that filled.
So over time we've been innovating to look at ways to, how can we reduce the
number of open territories over time. We've done that over a period of several
years and last year in 2018 I'll say we overachieved our expectations, we
reduced the number of sales territories substantially more than we had
expected to. We had operational -- and it's not random, we had operational
programs and those operational programs worked even better than we had
expected them to, and so that made a material difference in the overall number
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of sales people we had, the growth rate of the number of sales people we had,
because we have so many fewer open territories.
This is all great as Joe said, going into 2019 with a record low number of open
sales territories is just terrific for us because those salespeople then have all
year to sell. And again, I don't expect -- I expect that we will continue to
drive down the number of open sales territories over time. You asked if that's
kind of a one-time high and it's going to get worse. I'd say quite the opposite
actually, that it's not 0 and so we're going to keep driving that down. So I
expect that we will end this year with even fewer open sales territories than
we ended last year with.
Tim McHugh: One follow-up, just -- you also showed a presentation with the new
Gartner.com and some of the search functionality, essentially. Where are you
at in terms of actually successfully matching, I guess if you can measure drop-
off rates in terms of people doing searches and do they engage with content on
the Web Site. How good are you in -- and I imagine you've tried to
benchmark that, but can you give us any sort of relative performance or sense
of that in terms of how mature that is or good you are at that at this point?
Eugene Hall: So we -- hopefully as you got from the presentation, we want to be on demand
for our clients. When they have a problem, we want to be able to give the
answer to that problem immediately. So -- and one way they do that is they
go and they search out the documents that we have. So we've got those
documents prepared, they go and do that search. Search is very important for
us. Just as I described with open territories, we've been on a mission for years
to improve our search experience.
And every year we get better at it. If you looked closely there, you saw things
like what search experts would call type-ahead where if you start typing
things, it guesses as to what you might be searching for based on what your
role is and what other -- if you were a security person you might have -- if you
type the same words in, you might actually want different documents than
someone that is in operations or in application development. And so we have
a quite -- we're quite sophisticated, I'll put it.
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It's a major investment for us -- area for us. We have spent a lot of time
innovating, we have what we think are real great breakthroughs there in terms
of innovating on search and again we can expect it to get better every year, but
even right now I think we are very good. If you watch the video closely -- or
if you go use our Web Site, you'll see that it's very -- it's quite, very
sophisticated.
Gary Bisbee: Gary Bisbee at Bank America Merrill Lynch. Craig, so you've pushed back or
resisted at least the -- sort of the claim or the concept of margins rebounding
at some point in the future from the recent declines because you've talked
about the desire to continue to invest heavily to drive long-term top line
growth. And I think we all get that concept. But I guess I wanted to push
back a little bit on 2 fronts. So given how low the GBS productivity is, and
given a lot of evidence that you provided today that you really believe that's
going to improve, why wouldn't we see that flow through at some point?
And maybe the second way to ask the question, your adjusted EBITDA
margins are down 100 bps or so I think, adjusting for the divestitures since the
CEB acquisition, so maybe the other question is, are what you really saying is
that the CEB deal just is long term dilutive to margins by 100 bps or more?
Craig Safian: Thanks for the question, Gary. Good to have you back as well.
Gary Bisbee: You probably wish I wasn't.
Craig Safian: No, no that was an honest, earnest welcome back. What I think -- what
hopefully we were able to present today, as well as what we talk about on all
of our earnings calls is when we put the money to work from an investment
perspective we get the returns. And I think that we've got proof points of that
with GTS. We talk a lot about the money that we put into conferences and
again, you look at where we went from a growth rate perspective there
essentially almost doubling or doubling the growth rate in our revenues in
2018.
And that doesn't happen by accident, it happens because we made smart
targeted investments in areas that we had a high degree of confidence we'd get
returns on, but it is an upfront investment. I think the way we think about the
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business going forward and the way we think about creating value is -- and
this is going to sound a lot like what we said last year, but we want to
accelerate our top line. And the EBITDA and EPS and free cash flow and all
other metrics should accelerate with that top line as well. And so getting
GBS, which again as we've talked about reflects, represents 20 percent of the
contract value from 1 percent growth to 10 percent growth, that accelerates
everything all other things equal.
And that would accelerate the EBITDA as well. We believe because of the
vast market opportunity and because we've proven that when we've put money
to work, it drives returns. We would go a little bit faster in areas. The market
opportunity is there, it is certainly not a governor on our ability to keep
growing. And so I think as we get productivity in GBS and as the top line
accelerates, the bottom line accelerates as well. But we want to make sure
that we are appropriately reinvesting into the business.
And, again, sustained is kind of the story, right, so I think everyone believes
the double-digit, that's great, we're going to get there, it's really about doing it
over and over and over and over again. And I think we've proven that when
we put the money in the right places, we can make it sustain double-digit
growth.
Gray Bisbee: If I could just ask 1 quick follow-up. So both businesses are at (the)
(inaudible) 16 percent long term. So, like, if you're talking accelerate to offset
some improvement in productivity, would you consider growing GTS sales
above the 12 percent to 16 percent for an extended period, or is that not
realistic?
Eugene Hall: The way we've determined how fast we've grown GTS is we look at the --
each individual sales manager and what their capacity is to take on additional
new sales people and that gives us then a bottoms-up way to think about
exactly how many salespeople we can add and exactly where we can add
them. And so if that number turned out to be higher than the range that we
projected, absolutely; we'd be thrilled to grow higher than that. But it's driven
by operationally what's the ability of our area managers to take on more new
sales associates at a faster rate.
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And by the way, I talked about continuous improvement. We want to do that
so we work really hard to bring new sales people in and shorten that time to
productivity and make it so that it's easier for sales managers to get them up to
speed. So we're not satisfied with where they are. We want to get better on
that metric. But that's what constrains our growth rate is, it's the bandwidth of
our first line sales managers' ability to take on all of these new people we have
every year.
David Cohen: Peter's got a question.
Peter Appert: Thank you. So the 13 percent CAGR in GTS contract value, very impressive
over 10 years. But to the extent that it's correlated with 13 percent growth in
sales force over the same period, it might suggest, or I guess it does suggest,
that there really hasn't been any productivity gains over that period, which
might correlate with the static to declining margins. So what am I missing in
this arithmetic?
Craig Safian: Good afternoon, Peter. Our productivity measure is on the growth generated
by each individual sales person. Not necessarily the amount of contract value
that they're generating. I think the thing that we're really focused on is every
incremental dollar of growth in contract value we sell is worth a heck of a lot
more than a dollar because of our client retention rates and because of our
wallet retention rates. And so the average client stays with us for, let's say on
average 6 years and if you look at our wallet retention it actually grows each
and every year over those 6 years.
And so that's what we -- when we talk about making sure that we're making
the investments to fuel sustained long-term growth, when we hire a new sales
person, as they come up the productivity curve, they are generating
incremental contract value. We get that contract value in that first year but
again there's a much longer life to that, and so the investments we've been
making are what have allowed us to continue to grow at 13 percent, 14
percent, 15 percent on much larger numbers. So we're generating
significantly more growth dollars each and every year and those have a greater
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than 1-year value, think 5-, 6-, 7-year value on average, that's greater than 100
percent.
Peter Appert: And then sort of related to the earlier question on just the margin leverages, as
you see the maturation of the GBS sales force, the investment you've made in
that, why wouldn't it be realistic to think you'd see some pop back in margin
then, in 2020 for example?
Craig Safian: So I think when we went through the detailed margin walk materials earlier
it's important to understand that we are getting productivity everywhere in the
business and we're doing that so that we can reinvest back into the business,
again to support and drive that sustained long-term and hopefully accelerating
double-digit growth. We never stand still on that, we are always driving
productivity, and I think our investment philosophy and approach is that when
we drive the productivity on GBS that will give us an opportunity to make
even more investments to further fuel long-term double-digit growth.
David Cohen: There's a question from Jeff in the back.
Jeff Silber: It's Jeff Silber with BMO Capital Markets. I appreciate you gave us a little bit
more color about GxL than was able to do last week. I think it was said that
the GxL pricing was a little bit higher than the legacy CEB pricing. Could we
get some order of magnitude, I'm just curious how much of that is driving
your expected contract value this year?
Craig Safian: Interestingly, good afternoon Jeff. It's a little bit like apples and oranges. So
a leadership council that was enterprise based, it's hard to compare the pricing
of that to an individual seat or group of seats that we're selling to HR leaders
or finance leaders or what have you. The approach we've taken from a pricing
perspective -- I think one of the -- and Gene hits on this often in earnings calls
and in private sessions with the whole team as well. Simplicity is really
important and so we've modeled the pricing on the GxL products to look just
like what we've done on the IT leader side. And so the pricing there is very
similar and consistent to what we have on the IT side. The heritage leadership
councils could range from average pricing in certain channels of around
$20,000 to $25,000 or they could be in the $40,000 to $45,000 range but
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again, it was an offering for many as opposed to an offering for 1 and so they
are truly not comparable.
Jeff Silber: And just as a follow up and I'm sorry to go back to margins, but just focusing
on the G&A leverage, I think you highlighted you did about 30 basis points in
leverage last year, the midpoint of the guidance is 50 basis points this year. Is
that kind of a good long-term range we can use if we're modeling out over the
next 5 years or so?
Craig Safian: I think we want to make sure that we are making the right investments in areas
that will again support our long-term growth. And so one of the most notable
ones we talked about is obviously our recruiting capacity and capability, we
need to make sure that we are constantly investing there so that we can find
the great talent and drive productivity across all of our sales forces. That said,
we expect to drive net G&A expense growth at a rate slower than revenue
growth. Whether that's 30 bps, 50 bps or 20 bps, it's hard to say. It will be
dependent on the situation or dependent on the needs that we identify to drive
and support growth. But we're committed to ongoing operating leverage in
G&A.
David Cohen: Joe's got a question.
Joe Foresi: Joe Foresi from Cantor. So maybe I'll go back to the football reference. I
want to stay with one sport, plus I like the Patriots, but. You certainly might
have the same playbook but it is possible that maybe the players are different
in GxL? In other words, could it be that the product is maybe not as good as
Gartner's and could it be that the end users operate differently because there
are better and worse Patriot teams?
Eugene Hall: We've taken -- we developed the playbook on the IT side. As we talked
about, we applied it in supply chain and we got the exact same results. We
applied it in marketing and we got the exact same results. We've started
applying it, as you saw, in HR, finance, legal, and sales and the -- if you look
at the uptake, it's exactly what we would expect when we start applying that
sales playbook. In addition to that when we talk to sales people, they tell us
the products are terrific and that they really love selling them and so we're
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getting good feedback from salespeople and from clients on it. And so we're
pretty confident that it's going to be very much the same in the new functions,
HR, finance, legal, sales, et cetera, as it has been in IT, supply chain and
marketing.
Joe Foresi: When you think about the 10 percent growth in GxL you've obviously got a
small sample set because you've just started to sell it and the sales force is
starting to ramp on it. Have you risk-adjusted that sample set for a longer
period of time, so that you can see what the attrition rates would look like? Or
what the pricing would look like? I'm wondering how that's been looked at
when you've given the 10 percent contract value?
Eugene Hall: I'll answer the first half of that, which is we know why it's 10 percent better.
There's operational reasons why it's 10 percent better. It's things like there's
much -- Mike went through this, there's much more and much broader
content. There's a different service delivery model with it. There's different
kinds of client support. And so there's actually underlying reasons why it's
better. So it isn't kind of just, we thought it would be better, or we got a
couple of data points, and so there's underlying reasons why it's better and
again, I'll -- we -- on IT we saw what it is, it's quite good.
Supply chain and marketing have the same kind of deltas as well, they're
getting the range of IT as well. And so we have -- because of the underlying
economics and because everything we see looks that way, even though there's
a small number of renewals yet in HR, finance, legal and sales, again we've
seen very good results in the ones we've had longer, like marketing and supply
chain, and the underlying operational measures are exactly the same as in the
others.
Joe Foresi: On the GxL side, you've changed the product or you've relabeled it. What
areas were you specifically trying to address when you looked at the product
to make it -- were you trying to make it more sticky, were you trying to bring
together a bunch of different functions? I'm just trying to understand the
difference between GxL and you know as far as you would be.
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Eugene Hall: So the main thing we were doing is building a very strong value proposition,
the same very strong value proposition that we have in IT or marketing and
supply chain, and if you compare -- and Mike talked a little bit about this,
which is we -- the content is -- there's a lot more content in the GxL products
than in the legacy leadership council products. Legacy leadership council
products were a much narrower set of content and it varies by group, but you
can think it's whole number multiples more content.
In some cases may be as much as 10x more content in the GxL products, and
the way we get that is first, within the business function itself there's a broader
set of content. So, for example, in finance, if you had audit and risk, you'd
only get audit and risk. Now, in addition to audit and risk you may get
financial planning, et cetera. Because they care about those things so you get
more actual business content first. The second thing is there's IT content that
is relevant that we already had existing, that is relevant for a finance leader.
And so we've taken that IT content, like on financial planning systems or on
analytics, which are a very big deal. In fact it's -- if you look at issues CFOs
care about, half of them are technology-related. So we added the business
content that's much broader, we then took the technology content that we
already had and then tailored it for CFOs. Then in addition to that, there's
some content that is very relevant across many different functions. An
example of that would be developing talent. When you're developing talent,
many of the same principles apply in whether you're developing talent in IT,
in finance, in sales; some of the basics of that apply across the -- across the
business, and so we have this cross functional content.
We add all that together, the amount of content you would get more -- we kind
of -- think about ranging from 5x as much as you had in the leadership council
to 10x as much. So it's a lot more content. And then on top of the content I
mentioned, we've -- I talked about the events that we've added. Events are a
way that people get value, we've added a number of events and made those
events, actually conferences I should say, conferences and made those
conferences also much more robust than even the ones that existed, where
they existed, in the past.
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And then the actual productization itself uses the great search function that we
just talked about, the world-class search function and those other kinds of
capabilities that are built into the Gartner for IT Leaders, marketing leaders,
finance leaders, now they all have the same product-backed support that we've
had in the past just in IT. And so the whole point really is to have that very
strong value proposition and make that value proposition just as strong in all
the other functions as it was in IT, marketing and supply chain.
David Cohen: I think we've got time for 2 more. Ryan?
Ryan Leonard: Thank you. Ryan Leonard from Barclays. You've mentioned the success in
putting the playbook to work in supply chain and marketing, and I guess the
big difference that I see is that you have a book of CV already in place with
the legacy CEB piece, so you're kind of working on maintaining what was
already there in addition to accelerating growth, and presumably the 40
percent (plus) of sales hires are dedicated towards new sales.
Maybe can you walk us through the attrition that you've talked about, what are
your assumptions kind of baked in for '19, how operationally you go about
maintaining levels and what gives you confidence there's not further to go
before we see normalization?
Craig Safian: Yes, it's a good afternoon, Ryan. From an attrition perspective, the way we've
thought about and modeled into 2019, and you can kind of get a sense of it
from the sensitivity table that we walked through, that essentially if you take
the mix of GxL CV which is about 1/3 of the $600 million, and that means
two-thirds is the legacy stuff, and apply the rates we talked about on the
earnings call last week, where it's a roughly 30 percent attrition rate on the
legacy side and a 80 -- 20 percent attrition rate, sorry, on the GxL side you get
a weighted average attrition rate around 27 percent, which is roughly flat to
what we did in 2018.
And so we're not standing still and assuming that oh, wow, we just hope we
get that same attrition rate on the legacy stuff. So Chris alluded to it, Gene
alluded to -- or directly said it, Gene alluded to it, I alluded to it as well, we
have a significant number of retention programs that we have in place
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supporting both the GxL subscribers and the legacy subscribers. And so we're
working very hard to make sure that the attrition actually improves on the
legacy side and on the GxL side.
So we're doing both of those things. But again if you use that sensitivity table
that we walked through, even with a, no improvement in attrition and no
improvement in new business productivity, when you run the math with our
790 AEs we had on board at the beginning of 2019 you get roughly 8 percent
contract value growth.
Ryan Leonard: Got it. And 1 more if I could sneak it in. So obviously the hiring plans for
next year, 14 to 16 percent in GBS, 11 percent in GTS, but if we get to
halfway through the year and GTS is flat to accelerating is it fair to assume
that you would take that as an example of when you would like to reinvest, as
you talked about that gives you a good return?
Eugene Hall: As I said earlier the way that we decide how fast to grow our sales force, now
in both GTS and GBS is looking at the bandwidth of those managers. And so
as we get through the year and we see it looks like the managers have
bandwidth, or we can promote more managers and create more managers,
which we do all the time, then we'd accelerate that growth rate. And
similarly, if we saw that the bandwidth wasn't really working we'd be at the
lower end of the range.
David Cohen: Before we -- before we -- before we take the last question from Toni, please
note you'll have a survey that you will receive via e-mail from the Gartner for
Finance Leaders team. The replies will only be made available to us on an
aggregated basis. We appreciate your taking the time to complete this survey
to help us improve how we communicate with you. After the last question,
Gene will make some closing remarks.
Toni?
Toni Kaplan: Thanks. Toni Kaplan from Morgan Stanley. Gene, I know you don't have
many direct competitors, but if you could just give us a quick update on the
competitive environment?
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And then Craig, if you could talk a little bit about the M&A pipeline, you
haven't been so active since the CEB deal and you've been delevering. And
any sort of specific, just specifics on cash flow -- like return to shareholders
now that you've reached your leverage target?
Thanks.
Eugene Hall: So with regard to competitors we have a very strong value proposition and
when we go and talk to clients and talk to them about our different products,
the GxL products and the other ones that we have, it is very, very infrequent,
think less than 1 percent of the time that there's another -- that there's someone
that would be called competitive in that deal. Usually either we win the deal
or it's no decision and -- as opposed to they went to someone else. And that's
true for all of our products across every single one of the enterprise functional
areas we talked about.
Craig Safian: In terms of capital allocation, Toni, as we went through and as you noted
we're back to our rough leverage targets of where we wanted to be. We
generate a lot of free cash flow and we expect to generate lots of free cash
flow into the future. Tax reform now gives us the ability to actually leverage
almost all of our global cash flow, which we weren't able to do in the past.
And we want to put that to use. We talked about really 3 uses -- obviously
reinvesting into the business, which we'll continue to do; returning to capital --
returning capital to shareholders through our buyback programs; and strategic
value-enhancing M&A.
On the M&A front, the way to think about our pipeline or the way we're
thinking about M&A, we've got a CorpDev team, 2016 and '17 was really
focused on buying CEB and L2. Two-thousand-eighteen was really focused
on divesting a number of small business and I'd argue we did a really fantastic
job both in terms of the speed and the value we got for those deals. And now
the team is back focused and, they were always focused on that but now even
more focused, on M&A opportunities into the future.
I'm not going to get into the specifics of what we're looking for but our
expectation and the bulk of our pipeline as you'd imagine are small- and
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medium-sized tuck-in type deals that we'll be looking at. In absence of that,
and actually because of our free cash flow capability I'd say in addition to that,
we will always be looking at ways we can return capital to shareholders
through our buyback programs.
We did $260 million worth of that in 2018. We've got over $850 million on
our authorization, plus plenty of cash flow and balance sheet flexibility if we
should need it, and we'll treat it the same way that we showed you what we've
done over the last decade, where I think we've done a good job of both
strategic value enhancing M&A and returning capital through our buyback
programs.
Eugene Hall: Great. Well, thanks for your questions.
So here's what you should take away from today's session. We're living in
accelerated times. Enterprises need to constantly evolve to stay ahead of the
competition. Leaders across the enterprise -- HR, finance, IT, legal, sales --
they all need help with their make-or-break initiatives. Gartner is the best
source of that help. We have an indispensable, unrivaled value proposition, a
vast market opportunity, and through consistent execution of the Gartner
formula, we know how to capture that opportunity.
We've applied the Gartner formula in GTS and delivered long-term, sustained
double-digit results. We're applying the Gartner formula in GBS and expect
to achieve long-term sustained, double-digit results beginning in 2019. We
have a culture of continuous improvement and continuous innovation. We get
better, strong, faster year after year and we're in the best position we've ever
been in to provide sustained, double-digit growth across all of our key
financial metrics.
We hope you found this session useful to deepen your understanding of
Gartner and we look forward to updating you on Gartner's progress
throughout the coming year. Thanks for joining us today, and Happy
Valentine's Day.
END
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