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August 25, 2010

The Forrester Wave: North American Applications Outsourcing, Q3 2010by Bill Martorelli for Sourcing & Vendor Management Professionals

Making Leaders Successful Every Day

For Sourcing & Vendor Management Professionals

The Forrester Wave: North American Applications Outsourcing, Q3 2010IBM And Accenture Lead A Highly Competitive Field In A Mature Industryby Bill Martorelli with Christine Ferrusi Ross, Betsy Rose, and Mark Grannan

August 25, 2010

Execut i ve S u mma ryIn Forresters 38-criteria evaluation of 12 leading providers of applications outsourcing (AO) solutions vendors, Forrester found that in this mature market IBM and Accenture lead the pack due to their superior organizational breadth and depth of capability. The analysis also showed that Infosys, Wipro, TCS, Cognizant, HCL, HP Enterprise Services, Capgemini, and CSC are all Leaders; CGI and Dell Services are Strong Performers. Despite the leadership of two multinational corporations (MNCs), the major offshore providers continue to demonstrate effective maturity and service delivery excellence. Client satisfaction as indicated by client reference scores was exceedingly high across the vendors. We also saw a continued trend of converging value propositions between the leading MNCs and offshore providers, which includes both price competitiveness and cultural fit. While most clients were content with their outsourcing relationships, many continue to voice the desire for a direct, proactive, and innovative business partnership not just a technically competent order taker neither MNCs nor offshore providers were spared in this regard.

tab l e of Contents2 Applications Outsourcing Matures Further With Satisfied Clients 4 North American Applications Outsourcing Evaluation Overview Evaluation Criteria Focus On Provider Strengths And Differentiation All Of The Providers Evaluated Have A Strong Market Presence 6 Traditional Powerhouses IBM And Accenture Lead, But Many Leaders Emerge 8 Service Provider Profiles Leaders Possess Diverse Strengths And Extensive Global Presence Strong Performers Have Smaller Market Presence, But Also Bring Strengths To The Market 11 Supplemental Material

N OT E S & R E S O URC E SForrester surveyed 12 North American applications outsourcing service providers: Accenture, Capgemini, CGI, Cognizant, CSC, Dell Services, HCL, HP Enterprise Services, IBM, Infosys, TCS, and Wipro. We also spoke with more than 55 provider-supplied client references.

Related Research Documents Application Outsourcing Clients Are Satisfied, But Want More April 21, 2010 Market Overview: Applications Outsourcing Suppliers Adjust To The New Normal February 8, 2010The Forrester Wave: North American Applications Outsourcing, Q1 2007 March 26, 2007

2010, Forrester Research, Inc. All rights reserved. Unauthorized reproduction is strictly prohibited. Information is based on best available resources. Opinions reflect judgment at the time and are subject to change. Forrester, Technographics, Forrester Wave, RoleView, TechRadar, and Total Economic Impact are trademarks of Forrester Research, Inc. All other trademarks are the property of their respective companies. To purchase reprints of this document, please email [email protected]. For additional information, go to www.forrester.com.

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The Forrester Wave: North American Applications Outsourcing, Q3 2010For Sourcing & Vendor Management Professionals

Applications outsourcing matures further with satisified clients Despite economic ups and downs, firms continue to rely and invest in applications outsourcing (AO) services from a variety of providers. Development and maintenance services continue to dominate the AO business, although it is diversifying with greater emphasis on complementary capabilities such as testing and business intelligence and analytics. The roster of suppliers remained largely stable through the economic downturn, although industry consolidation reshaped the landscape somewhat due to HPs acquisition of EDS in 2008 and Dells acquisition of Perot Systems in 2009.1

Overall customer satisfaction is high. Overall satisfaction with applications outsourcing

services is high according to client reference scores. Forrester asked client references to weigh in on 10 key attributes of service delivery, and the overall grade across suppliers was 4.3 out of a possible 5.0. Still, customers often find they want more out of their providers including a more proactive stance and more consistent delivery of innovation (see Figure 1).2

Offshore and MNC value propositions have converged. Little difference was apparent in

client reference scores between India-centric providers and global multinationals in areas such as cultural fit and price competitiveness where there was a wide gulf evident in 2007.3 The convergence of value propositions was also evident in discussions with individual client references, many of which have significant experience in working with suppliers of various types. Moreover, leading India-centric suppliers may have varying strengths but they wound up with exceedingly close aggregate scoring in the analysis.

The impact of the cloud is just beginning to be felt in AO. All suppliers envision a future that

includes cloud computing, but the precise shape of this future remains unclear. Other than in the area of test and development and SaaS enablement, details are scant. Suppliers such as CSC and TCS are leading the way, pursuing test and development services in partnership with cloud testing suppliers like Soasta, while suppliers like HCL are pursuing SaaS enablement vigorously.

Suppliers still struggle to achieve innovation. One the most challenging aspects of service

delivery remains enlisting customers successfully in innovation activities. For the most part, suppliers continue to emphasize innovation as a push activity as opposed to a joint activity at the individual account level. Capgemini and TCS are leading the pack in this area.

With growth returning, the stage is set for rate increases. AO services providers in the past 12to 18 months have been willing to sacrifice on billing rates while engaging for more work in a slack economy. But signs of increased demand are beginning to put upward pressure on billing rates again.

Managed outcome engagements represent the next threshold in value. Clients and suppliersagree that managed outcome engagements combining the qualities of defined outcome and fixed price represent the next logical step with AO relationships. Why? The managed

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outcome approach affords significant advantages to both customers and suppliers of AO services, provided that sufficient maturity and goodwill exists on both sides to make it work. Based on the high percentage of AO work still delivered on a time-and-materials basis, this trend still has a long way to run.4

India remains the central delivery geography for AO services. Even though the India-centric

providers are diversifying geographically, this transition is still in its infancy. It was not unusual in our analysis for these providers to have 75% or more of their resources based in India. Diversification across Indian cities greatly outpaces diversification across regions and countries for these suppliers.

Figure 1 Client Reference ScoresDell Services Capgemini

Forresters Weighting

Cognizant

Accenture

Infosys

CLIENT REFERENCE SCORES Eectiveness of applications outsourcing processes Account management and governance skills Cultural t Price competitiveness Ability to make a transformational impact in the client environment Works well within an ecosystem of suppliers Flexibility Technical competency Ability to resolve incidents and problems Vertical industry capability Average score

10% 4.00 3.00 4.00 4.00 4.00 4.00 4.00 4.00 4.00 5.00 4.00 4.00 10% 4.00 4.00 5.00 4.00 4.00 4.00 4.00 4.00 5.00 5.00 3.00 4.00 10% 5.00 3.00 4.00 4.00 4.00 4.00 5.00 4.00 4.00 4.00 4.00 3.00 10% 3.00 3.00 4.00 4.00 4.00 4.00 5.00 3.00 4.00 4.00 3.00 4.00 10% 3.00 3.00 4.00 4.00 3.00 4.00 4.00 3.00 4.00 4.00 3.00 4.00 10% 4.00 3.00 4.00 4.00 4.00 4.00 4.00 4.00 4.00 4.00 4.00 4.00 10% 4.00 4.00 4.00 4.00 5.00 4.00 5.00 5.00 4.00 5.00 4.00 4.00 10% 3.00 3.00 4.00 4.00 4.00 4.00 4.00 4.00 4.00 4.00 4.00 4.00 10% 4.00 4.00 4.00 4.00 4.00 3.00 4.00 4.00 4.00 4.00 3.00 4.00 10% 4.00 4.00 5.00 5.00 5.00 4.00 5.00 4.00 4.00 4.00 4.00 5.00 3.80 3.40 4.20 4.10 4.10 3.90 4.40 3.90 4.10 4.30 3.60 4.00

All scores are based on a scale of 0 (weak) to 5 (strong).Source: Forrester Research, Inc.

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Wipro

HCL

CSC

IBM

TCS

CGI

HP

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north American Applications Outsourcing Evaluation overview To assess the strength of the global AO market and see how leading providers stack up, Forrester evaluated the strengths and weaknesses of 12 top service providers. Evaluation Criteria Focus On Providers Strengths And Differentiation After examining past research, user needs assessments and vendor interviews, we developed a comprehensive list of evaluation criteria. We evaluated suppliers across 38 criteria, which we organized into three high-level buckets (see Figure 2):

Current offering. To assess each service providers current offering, we evaluated the strength

and positioning of its global delivery model, capabilities in ERP packages, relative focus on ERP versus customer-developed applications, transition and knowledge transfer capabilities, and key complementary capabilities. We also solicited feedback from client references on 10 key attributes of the providers service delivery performance.

Strategy. Our assessment of strategy measured each service providers overall strategy around

its client value proposition and view toward the future of applications outsourcing, vision for managed outcome relationships, strategy for continuous improvement, and vision for improved delivery through the leverage of intellectual property.

Market presence. We assessed market presence by using a combination of criteria including size

of the overall company, size of the suppliers applications outsourcing business, total number of AO customers, global reach of services in terms of customers, overall financial performance, and the suppliers typical engagement profile.

All Of The Providers Evaluated Have A Strong Market Presence Forrester included 12 suppliers in this study including Accenture, Capgemini, CGI, Cognizant, CSC, Dell Services, HCL, HP Enterprise Services, IBM, Infosys, TCS, and Wipro. Each of these vendors has:

Demonstrated experience and skills in AO services. For inclusion in our analysis, all suppliershad to demonstrate a record of high capability in providing AO services to clients across verticals primarily those with revenues of $1 billion or more (see Figure 3).

Revenues of more than $1 billion across all service lines. This analysis focused on the largest Global delivery capability. All participating suppliers were required to have some globaldelivery capability in at least one low-cost geographic region.

12 AO providers in the marketplace, and no supplier with overall revenues of less than $1 billion was included.

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Relevance and interest from Forresters client base. Finally, all suppliers demonstrated

continuing interest from Forresters client base in the form of regular mentions and inquiries from Forrester clients.

Figure 2 Evaluation CriteriaCURRENT OFFERING Overall approach to applications outsourcing Client reference scores

What is the providers overall approach to applications outsourcing? How well does the provider rate in the eyes of its reference customers?

Complementary capabilities What are the providers complementary capabilities? STRATEGY Value proposition for applications outsourcing What is the providers value proposition for applications outsourcing?

Vision for managed outcome What is the providers vision for managed outcome relationships? relationships Strategy for continuous improvement What is the providers strategy for continuous improvement?

Vision for improved delivery What is the providers vision for improved delivery performance through performance through leverage of intellectual property? leverage of intellectual property What is the providers strategy for enlisting customers in joint Strategy for enlisting innovation-focused activities? customers in joint innovation-focused activities Strategy for future low-cost labor locations Strategy for legacy modernization MARKET PRESENCE AO business and customer base Financial performance Engagement prole What is size of the providers applications outsourcing business and customer base? How strong is the providers nancial performance? What does the providers engagement prole look like?Source: Forrester Research, Inc.

What is the providers strategy for future low-cost labor locations? What is the providers strategy for legacy modernization?

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Figure 3 Providers Top Three Applications Outsourcing VerticalsAccenture Consumer products Telecommunications BFSI Capgemini Public sector Energy, utilities, and chemicals Manufacturing CGI BFSI Public sector Telecommunications Cognizant BFSI Healthcare and life sciences Manufacturing CSC Public sector BFSI Aerospace and defense Dell Services Healthcare Public sector Manufacturing46752

HCL Manufacturing BFSI Telecommunications HP Consumer products Telecommunications Energy IBM BFSI Consumer products Public sector Infosys BFSI Manufacturing Telecommunications TCS BFSI Telecommunications Manufacturing Wipro BFSI Manufacturing RetailSource: Forrester Research, Inc.

Traditional Powerhouses IBM and Accenture lead, but many leaders emerge The evaluation uncovered a market in which (see Figure 4):

IBM and Accenture lead, followed by leading India-centric providers and fellow MNCs. IBMand Accenture stood out by virtue of their broader complementary capabilities and extensive market presence, along with geographically diversified global delivery models. Leading Indiacentric providers were led by Infosys, but otherwise were a closely linked bunch. Fellow MNCs like Capgemini, HP Enterprise Services, and CSC were also in the Leaders category.

CGI and Dell Services are Strong Performers. Both CGI and Dell Services, formerly Perot

Systems, had the disadvantage of smaller size and fewer global delivery resources, but are both strong providers for their target vertical industries. CGI in particular has an unusually mature vision for managed outcome relationships.

This evaluation of the North American applications outsourcing market is intended to be a starting point only. We encourage readers to view detailed product evaluations and adapt the criteria weightings to fit their individual needs through the Forrester Wave Excel-based vendor comparison tool.

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Figure 4 Forrester Wave: North American Applications Outsourcing, Q3 10Risky Bets Strong Strong Performers

Contenders

Leaders Accenture HCL HP Wipro Infosys TCS CSC Capgemini IBMGo online to download the Forrester Wave tool for more detailed product evaluations, feature comparisons, and customizable rankings.

Cognizant CGI Dell Services

Current oering

Market presence Weak Weak Strategy StrongSource: Forrester Research, Inc.

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Figure 4 Forrester Wave: North American Applications Outsourcing, Q3 10 (Cont.)Dell Services Capgemini

Forresters Weighting

Cognizant

Accenture

Infosys

CURRENT OFFERING Overall approach to applications outsourcing Client reference scores Complementary capabilities STRATEGY Value proposition for applications outsourcing Vision for managed outcome relationships Strategy for continuous improvement Vision for improved delivery performance through leverage of intellectual property Strategy for enlisting customers in joint innovation-focused activities Strategy for future low-cost labor locations Strategy for legacy modernization MARKET PRESENCE AO business and customer base Financial performance Engagement prole

50% 4.46 3.35 3.46 3.84 3.72 3.22 3.97 3.92 4.63 3.93 3.61 3.86 50% 4.90 3.20 3.20 3.50 3.50 2.90 4.10 4.30 4.80 3.80 3.60 3.60 30% 3.80 3.40 4.20 4.10 4.10 3.90 4.40 3.90 4.10 4.30 3.60 4.00 20% 4.34 3.66 3.00 4.32 3.68 3.00 3.00 3.00 5.00 3.68 3.66 4.32 50% 3.95 3.90 3.25 3.45 3.45 2.95 3.45 3.40 4.15 3.90 3.85 3.70 25% 5.00 4.00 3.00 4.00 4.00 3.00 3.00 3.00 5.00 4.00 4.00 4.00 25% 4.00 4.00 4.00 3.00 3.00 2.00 4.00 3.00 4.00 4.00 3.00 4.00 10% 3.00 3.00 3.00 3.00 3.00 3.00 3.00 3.00 3.00 3.00 3.00 3.00 10% 5.00 3.00 3.00 5.00 3.00 3.00 3.00 3.00 5.00 5.00 3.00 3.00 10% 3.00 5.00 3.00 3.00 3.00 3.00 3.00 3.00 3.00 3.00 5.00 3.00 10% 3.00 3.00 3.00 3.00 3.00 5.00 5.00 5.00 3.00 5.00 5.00 5.00 10% 3.00 5.00 3.00 3.00 5.00 3.00 3.00 5.00 5.00 3.00 5.00 3.00 0% 60% 20% 20% 4.23 4.12 3.80 5.00 2.09 0.88 3.80 4.00 2.50 1.84 3.00 3.00 4.25 4.68 4.20 3.00 2.56 1.80 3.40 4.00 2.84 2.64 3.80 2.50 3.33 3.28 3.80 3.00 4.56 5.00 3.80 4.00 4.56 5.00 3.80 4.00 3.82 4.04 4.00 3.00 4.34 4.76 4.40 3.00 3.98 4.80 4.00 1.50

All scores are based on a scale of 0 (weak) to 5 (strong).Source: Forrester Research, Inc.

Service Provider Profiles Leaders Possess Diverse Strengths And Extensive Global Presence

IBM. IBM was the overall Leader in this analysis, with broader capabilities than any other singleprovider and extremely solid customer references to match. One of the surprising aspects of IBMs performance was its relatively strong reputation for price competitiveness and flexibility among client references. Less surprising were its very strong complementary capabilities, strong outsourcing processes, and overall vast market presence. Among other strengths, IBM has a strong vision for the role of intellectual property in accelerating AO service delivery.

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Wipro

HCL

CSC

IBM

TCS

CGI

HP

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Accenture. Accenture retains a distinctive value proposition as a premier supplier of AO

services with very diverse capabilities as well as a solid, differentiated value proposition. Accenture stands out in its provision of consulting services, as well as its significant capabilities in ERP applications. It also boasts a significant overall market presence, with strength in both North America and EMEA. Accentures capabilities are ideal for large enterprises that are seeking significant engagements, including those that are seeking managed outcome relationships. Accentures client reference scores were solid, particularly in regard to cultural fit with its clients. Accenture also has a strong vision for the role of intellectual property in the delivery of AO services.

Infosys. Infosys scored the highest of the India-centric providers. Infosys has a strong visionabout how intellectual property can be used to improve overall productivity compared with other India-centric providers, as well as a strong vision for managed outcome relationships. Although highly dependent on India for the vast bulk of its resources, Infosys has detailed specific plans for geographic expansion. The company also has significant capabilities in transition.

Wipro. Wipro is another Leader from the India-centric group of suppliers. It is distinguished by

its significant commitment to Lean concepts, a strong vision for managed outcome relationships, and solid market presence. According to client references, Wipros account management and governance capabilities appear to have improved significantly since our last analysis. Wipros capabilities in testing are virtually unmatched in terms of overall size and span of its practice.

TCS. TCSs performance in client references scores was low relative to other providers studied

in this analysis. TCS was particularly strong in its core outsourcing disciplines, including transition management and knowledge transfer. TCS is among the most geographically diversified of the India-centric providers, although it still relies heavily on India for the bulk of its resources. TCS remains an innovator in involving customers in innovation-yielding activities with its Co-Innovation Network (COIN).

HCL. HCLs client reference scores were among the highest overall in our analysis. HCL is

another company that is growing more rapidly than its direct competitors, in part due to its acquisition of AXON in 2008. HCLs approach to managed outcome relationships is solid, although its overall value proposition remains a work in process. The companys AO market presence remains modest by comparison with its competitors in part because HCL is relatively stronger than many AO competitors in BPO and IT infrastructure outsourcing. HCL, which was not included in our prior analysis, has come a long way in the marketplace in that time frame and is clearly worthy of its Leader status.

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HP Enterprise Services. HPs acquisition of EDS, resulting in HP Enterprise Services, has

yielded a new giant supplier with particular strengths in its current offering as it pertains to outsourcing disciplines like transition and an expanded global delivery network. HP fared well in its client reference scoring. Its market presence is among the largest of the suppliers included in this analysis.

Cognizant. Cognizants client reference scores were among the highest recorded, indicating a

high degree of customer satisfaction relative to competitors. Cognizant is also distinguished by its virtually uninterrupted record of growth in revenues despite economic conditions. Cognizant remains highly India-centric in terms of its development and maintenance resources, although geographic expansion is under way. With Cognizant 2.0, the company has a strong position concerning the role of intellectual property in the delivery of AO services. Its testing capabilities are among the most substantial in the industry.

Capgemini. Capgeminis overall market presence lags some other multinationals by virtue

of its smaller number of employees involved with AO services and its smaller number of clients, but it has a strong vision for managed outcome relationships and also is a leader in developing innovation programs that involve the customer directly. Capgemini has also been on the forefront of new technologies affecting AO including cloud computing by virtue of its relationships with Amazon.com and Google. Capgeminis position was affected by relatively weak client reference scores but it remains comfortably within the Leaders category.

CSC. CSC exhibits a unique blend of conventional outsourcing strengths, manifested in

solid performance in transition and knowledge transfer, along with an India-centric global delivery value proposition that relies heavily on capabilities acquired with Covansys, which CSC purchased in 2007. CSCs typical engagement is more biased to large engagements (those with more than $5 million in annual contract value) than its direct Indian-centric competitors, although its approach to managed outcome relationships versus resource-based relationships is similar. CSCs overall client reference scores were solid, especially in the areas of flexibility and vertical industry capability. CSC also scored well for its complementary consulting capabilities.

Strong Performers Have Smaller Market Presence, But Also Bring Strengths To The Market

CGI. CGIs response was distinguished by a particularly strong and mature vision for managed

outcome relationships, including the frequent pitfalls that clients experience when attempting to affix SLA responsibility on AO partners without releasing control for the supplier to actually do the work autonomously. CGI is not as large as many competing suppliers and its global delivery capability is therefore less pronounced, but it retains a healthy capability for North American enterprises.

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Dell Services. Dell Services is the result of Dells acquisition of Perot Systems, which had been akey supplier of AO services to its core markets including the healthcare vertical, both provider and payer. Dell retains a solid value proposition for this and other verticals and had generally positive client reference scores across the 10 criteria listed. Perot had already articulated a detailed plan for geographic expansion and with Dell Services its geographic capabilities are expanded further.

Supplemental MATERIAL Online Resource The online version of Figure 4 is an Excel-based vendor comparison tool that provides detailed product evaluations and customizable rankings. Data Sources Used In This Forrester Wave Forrester used a combination of two data sources to assess the strengths and weaknesses of each solution:

Provider surveys. Forrester surveyed providers on their capabilities as they relate to the

evaluation criteria. Once we analyzed the completed provider surveys, we conducted executive strategy briefings where necessary to gather details of provider qualifications.

Customer reference calls. To validate product and provider qualifications, Forrester alsoconducted reference calls with five of each providers current customers. The Forrester Wave Methodology We conduct primary research to develop a list of vendors that meet our criteria to be evaluated in this market. From that initial pool of vendors, we then narrow our final list. We choose these vendors based on: 1) product fit; 2) customer success; and 3) Forrester client demand. We eliminate vendors that have limited customer references and products that dont fit the scope of our evaluation. After examining past research, user need assessments, and vendor and expert interviews, we develop the initial evaluation criteria. To evaluate the vendors and their products against our set of criteria, we gather details of product qualifications through a combination of lab evaluations, questionnaires, demos, and/or discussions with client references. We send evaluations to the vendors for their review, and we adjust the evaluations to provide the most accurate view of vendor offerings and strategies. We set default weightings to reflect our analysis of the needs of large user companies and/or other scenarios as outlined in the Forrester Wave document and then score the vendors based on a clearly defined scale. These default weightings are intended only as a starting point, and we

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encourage readers to adapt the weightings to fit their individual needs through the Excel-based tool. The final scores generate the graphical depiction of the market based on current offering, strategy, and market presence. Forrester intends to update vendor evaluations regularly as product capabilities and vendor strategies evolve. Endnotes1

All three major Texas-based outsourcers were acquired in a two-year span. For a discussion of HPs acquisition of EDS, see the May 13, 2008, HP Acquires EDS To Focus On Enterprise IT Services report. For a discussion of the Dell-Perot merger, see the September 22, 2009, Dells Plans To Acquire Perot Systems report. Finally, Xerox acquired ACS, but ACS was not included in this analysis. See the October 6, 2009, Xeroxs Acquisition Of ACS Underscores A Converging Market report.

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Many clients wish that their applications outsourcing providers would more proactively suggest potential improvements that the suppliers can bring from other client engagements. See the April 21, 2010, Application Outsourcing Clients Are Satisfied, But Want More report. Forrester broke out client responses separately for India-centric providers and global multinational providers in the Forrester Wave: North American Applications Outsourcing, Q1 2007. See the March 26, 2007, The Forrester Wave: North American Applications Outsourcing, Q1 2007 report. Although this transition has been under way for some time, relatively few customers have mastered the transition from resource-based to outcome-based relationships. See the April 18, 2008, From FTEs To Results: Going Beyond Labor Arbitrage To Managed Outcome Relationships report.

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