For Sourcing & Vendor Management Professionals

August 31, 2010

Systems Integration Spend Rebounds In 2010
Sourcing Execs Must Drive Successful Vendor Selection, Governance, And Pricing
by Liz Herbert
with Christine Ferrusi Ross and Mark Grannan

Executive S ummary
Forrester’s Q2 2010 survey of more than 2,800 IT services buyers across the globe shows that firms are
again investing in more strategic initiatives, with IT strategy consulting and systems integration spend
both seeing a rebound in 2010. This means that after more than a year of focusing on their existing
supplier relationships through rationalizing vendors and renegotiating rate cards, sourcing professionals
now must refocus on helping drive new project success. This includes refreshing your knowledge of the
services landscape and new providers, as well as ensuring you’re up to date on favorable pricing trends
and best practice contract terms.

Overall it services spend is growing in 2010

Forrester recently surveyed more than 2,800 IT services buyers to find out the state of IT services spend,
investment priorities, and key drivers for investment. With the economy rebounding, spend on IT
services is increasing. Almost one-quarter of respondents plan to increase their spend 5% to 10%; 7%
of respondents plan to increase IT services spend more than 10% (see Figure 1). BRIC countries and
Mexico show the highest appetite for more IT services: 48% respondents in Brazil and Mexico plan to
increase IT spend; 37% of emerging Asia (India, China, and Russia) plan to increase services spend.

Firms Are Moving From Pure Cost Cutting To More Strategic Initiatives
IT strategy and systems integration projects were hard hit during the recession starting in late 2008, but
they are now making a comeback. Firms are reinvesting in strategy consulting and systems integration
projects, typically aimed at increasing revenue, gaining better insight through business intelligence, or
improving business processes. Forrester found:

· IT services buyers are increasing use of IT strategy consulting. Twenty-five percent of IT services
buyers plan to increase their budget allocated to IT strategy consulting in 2010 versus 2009 (see
Figure 2). Emerging markets show the biggest appetite for IT strategy consulting, with 49% of Latin
American respondents and 37% of emerging Asia respondents plan to increase spend.

· Spend on SI work is rebounding. Project spend was commonly the first and biggest area of
elimination as companies turned to severe cost-cutting mode, but systems integration work is now
seeing a slow recovery. Overall, 25% of firms plan to increase project spend while only 14% plan to
decrease from 2009 numbers.

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· IT services buyers are allocating more dollars to offshore services firms. In 2009, firms
allocated an average of 11.0% of their overall IT services budget to offshore IT services firms.
In 2010, this number will jump to 12.4% (see Figure 3). Emerging geographies continue to
show the highest use of offshore, with IT services buyers in Latin America and emerging Asia
allocating more than one-fifth of their IT services spend to offshore IT services firms.1

Figure 1 Firms Cautiously Plan To Increase IT Services Spend

“How do you expect your spending on IT services to change in 2010?“

48%

23%

15%

6% 7%

Decrease Decrease Stay about Increase Increase

more than 5% to 10% the same 5% to 10% more than
10% 10%

Base: 2,803 global SMB and enterprise IT executives and technology decision-makers
(with 100 or more employees)
(percentages do not total 100 because of rounding)

Source: Forrsights Budgets And Priorities Tracker Survey, Q2 2010

57556 Source: Forrester Research, Inc.

August 31, 2010 © 2010, Forrester Research, Inc. Reproduction Prohibited

Systems Integration Spend Rebounds In 2010 3
For Sourcing & Vendor Management Professionals

Figure 2 IT Services Buyers Are Increasing Use Of IT Strategy Consulting

“How do you expect your firm’ spending on the following IT services and outsourcing categories
to change in 2010?”

Decrease Decrease Increase Increase

more than 10% 5% to 10% 5% to 10% more than 10% Stay about the
same
Contractors for application 6% 15% 20% 4% 51%
development and maintenance

Desktop and server hardware

outsourcing services 5% 12% 12% 2% 64%

Infrastructure outsourcing 5% 12% 15% 3% 59%

Applications management
outsourcing services 4% 12% 14% 3% 62%

Systems integration services 4% 10% 21% 4% 57%

project work

Network and telecommunications

managed services 4% 13% 17% 3% 60%

IT strategy, process, operations, 4% 10% 21% 4% 58%

or security consulting

Maintenance and support services for 3% 14% 16% 2% 61%

computer and communications equipment
(e.g., IBM, HP, Cisco, Alcatel)

Base: 2,803 global SMB and enterprise IT executives and technology decision-makers
(with 100 or more employees)
(“Don’t know” responses have been removed from this analysis)
Source: Forrsights Budgets And Priorities Tracker Survey, Q2 2010
57556 Source: Forrester Research, Inc.

Figure 3 IT Services Buyers Are Allocating More Dollars To Offshore Services Firms

“What percentage of your firm’s total spending on IT services and outsourcing went to offshore IT
services firms in 2009? And what do you expect for 2010?”

2009 11.0%

2010 12.4%

Base: 2,803 global SMB and enterprise IT executives and technology decision-makers
(with 100 or more employees)

Source: Forrsights Budgets And Priorities Tracker Survey, Q2 2010

57556 Source: Forrester Research, Inc.

August 31, 2010 © 2010, Forrester Research, Inc. Reproduction Prohibited

Systems Integration Spend Rebounds In 2010 4
For Sourcing & Vendor Management Professionals

recomme n datio n s

sourcing executives play a crucial role in project success

Sourcing executives, many of whom spent the past 12 to 18 months in severe cost-cutting mode,
must now prepare for more strategic projects. Preparing effectively includes:

· Navigating the emerging service landscape. The services provider landscape has seen
significant change in recent years. Service providers underwent significant consolidation
(Dell/Perot, HP/EDS, NTT/Intelligroup, NTT/Dimension Data, PwC/BearingPoint, HCL/Axon,
Sparta/KPIT, and many more). Satyam fell following a financial scandal then reappeared
strong after being acquired by Tech Mahindra to form Mahindra Satyam. And smaller services
providers — such as UST Global and Mindtree — posted strong growth and won deals
with some of the world’s largest enterprises. Refreshing your knowledge of the provider
landscape and provider capabilities will prepare you to strategically advise your business
executives about their best options for project success.
· Understanding nuances of new offshore options and delivery models. Many large
firms have been using offshore resources for years. However, today’s services landscape
offers offshore resources for more strategic engagements — not just technical areas like
development and testing. This shift in the use of offshore resources requires SVM teams to
appropriately set their users’ expectations and prepare for change management in these
strategic engagements. Also, emerging hotbeds of talent like China, the Philippines, and
Brazil will push you to further due diligence into opportunities in these alternative offshore
geographies. And, firms are increasingly considering accelerators, tools, templates, and
multiclient service delivery models that can save cost and time through reusable IP and
reduced headcount needs. But, these new delivery models create new risks as well, such as
intellectual property issues. Update your knowledge of these key trends to ensure that your
new projects don’t stall out due to hiccups in offshore delivery.
· Refreshing favorable pricing and contract terms based on new trends. Pressure on project
success rates is high, and sourcing groups play a critical role in ensuring favorable pricing
and contract terms. Many firms are moving to more outcome-based models or incorporating
outcome-based components into traditional time-and-materials or fixed-price engagements.
This means that sourcing teams must help their organizations understand where, when, and
why firms are increasing their use of outcome-based and critical factors for success.

August 31, 2010 © 2010, Forrester Research, Inc. Reproduction Prohibited

Systems Integration Spend Rebounds In 2010 5
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Supplemental MATERIAL
Methodology
Forrsights Budgets And Priorities Tracker Survey, Q2 2010 was fielded to 2,803 IT executives and
technology decision-makers located in Australia/New Zealand, Brazil, Canada, China/Hong Kong,
France, Germany, India, Japan, Mexico, Russia, the UK, and the US from SMB and enterprise
companies with 100 or more employees. This survey is part of Forrester’s Forrsights for Business
Technology and was fielded from March 2010 to May 2010. LinkedIn Research Network fielded
this survey online on behalf of Forrester. Survey respondent incentives included gift certificates and
research summaries. We have provided exact sample sizes in this report on a question-by-question
basis.

Forrester’s Forrsights for Business Technology fields 10 business-to-business technology studies

in 12 countries each calendar year. For quality control, we carefully screen respondents according
to job title and function. Forrester’s Forrsights for Business Technology ensures that the final
survey population contains only those with significant involvement in the planning, funding, and
purchasing of IT products and services. Additionally, we set quotas for company size (number of
employees) and industry as a means of controlling the data distribution and establishing alignment
with IT spend calculated by Forrester analysts.

If you’re interested in joining one of Forrester’s research panels, you may visit us at http://Forrester.
com/Panel.

Endnotes
1
Forrsights Budgets And Priorities Tracker Survey, Q2 2010 was fielded to 2,803 global IT executives and
technology decision-makers. In response to the question “What percentage of your firm’s total spending on
IT services and outsourcing went to offshore IT services firms in 2009? And what do you expect for 2010?”,
participants in Latin America said 21% for 2009 and 23% for 2010, whereas participants in emerging Asia/
Russia indicated that 20% for 2009 and 22% for 2010 of their firm’s IT services and sourcing spend went to/
would go to OFFSHORE IT services (http://www.forrester.com/ER/Research/Survey/1,10198,774,00.html).

Forrester Research, Inc. (Nasdaq: FORR) is an independent research company that provides pragmatic and forward-thinking advice to global leaders in business
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peer-to-peer executive programs. For more than 27 years, Forrester has been making IT, marketing, and technology industry leaders successful every day. For
more information, visit www.forrester.com.
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