Research Brief Finding Pure-Play Midtier ESPs: A Two-Step Process Abstract: The pure-play midtier consulting and integration sector can be a competitive option to global integrators. Tier 2 and 3 vendors are identified for business process re-engineering services. ByTedKempfandAlexSoejarto Recommendations Fight any attempts to evaluate the quality of execution based purely on a midtier ESP's annual revenue. Pure-play consulting and systems integrators with resources to establish breadth and depth of services suffer from recognition of their execution capabilities. These ESPs need to increase marketing and brand awareness campaigns in their battle for market share primarily with global systems integrators. ESPs must offer business process re-engineering services to effectively compete in the market. Publication Date: 24 March 2003
2 Finding Pure-Play Midtier ESPs: A Two-Step Process Introduction Choice is good, but choosing a consulting and systems integrator from among the hundreds of external service providers (ESPs) in the market can be daunting. To simplify the sourcing process, the consulting and systems integration market often is incorrectly characterized as consisting of the global consultancies and everyone else. In truth, Gartner Dataquest segments the market in a manner that allows us to compare vendors with similar-size operations. "Tier" is used to indicate ESP size when compared with other ESPs in that revenue segment. The four distinct groupings or tiers for consulting and systems integration vendors are: Tier 1 Annual revenue of $1 billion or more Tier 2 Annual revenue between $500 million and $999 million Tier 3 Annual revenue between $100 million and $499 million Tier 4 Annual revenue of less than $100 million Tier 1 ESPs have an advantage in their ability to offer services through multiple geographies, services offerings, industry practices and technology skill sets, as well as a large number of associates. Collectively, Tiers 2, 3, and 4 vendors are referred to as midtier consulting and systems integrators (see "Midtier IT Professional Services Providers: The Silent Majority Speaks Out," ITSM-NA-MT-0107). However, the term "midtier" is not intended to reflect vendor capabilities in terms of execution and quality. Tier 1 vendors attempt to offer a full range of services, whereas midtier vendors pick a sweet spot for their skills. Of particular importance are business process re-engineering (BPR) capabilities. For a discussion comparing re-engineering to transformation services, see "The Reemergence of Business Process Re-engineering," ITSV-WW-DP-0437. Though the sourcing decision for a BPR project may lead to a Tier 1 vendor such as Bearing Point, Deloitte Consulting or EDS, Tier 1 vendors are not the only choice available. In fact, pure-play midtier vendors are a viable option for BPR services. For this study, the decision was made to limit the sample size to Tier 2 and Tier 3 vendors because this is a manageable collection of vendors to analyze and data on these vendors were readily accessible. Although hundreds if not thousands of Tier 4 vendors are in the market, data were insufficient on all vendors in this segment. Equality of Execution and Quality Midtier consulting and systems integrators offer a similar class of service execution compared with Tier 1 vendors. Expectations from end users drive high-quality service execution across the market. Though differences exist in capabilities among the tiers, the difference is related to the following available resources (human and financial), not the execution and quality of service: 2003 Gartner, Inc. and/or its Affiliates. All Rights Reserved. 24 March 2003
Service execution is dependent on factors such as relationship management and methodology. Approaches by Tiers 1, 2 and 3 vendors are similar. Tier 4 vendors can lack the resources to develop strong methodologies. Size can be a blessing or a curse. Though Tier 1 vendors have depth and reach, they often lack the flexibility midtier vendors offer to negotiate modifications to a project. With various methodology certifications available, quality of delivery is increasingly consistent between Tier 1 and midtier companies. For example, standard application development approaches allow for consistent quality. Also, many midtier vendors have developed expertise similar to Tier 1 companies for deploying common enterprise software packages. Tier 1 and midtier companies are using knowledge management and project portfolio management applications to improve operational efficiencies. Tier 1 vendors are not alone in their quality initiative investments. Average consultant experience is sometimes higher in midtier vendors than Tier 1 vendors. Tier 1 vendors must recruit recent graduates to ensure scale efficiencies, while midtier vendors are primarily staffed with ex-tier 1 personnel and executives. 3 The Two-Step Filter Process Gartner Dataquest annually tracks 231 U.S.-based IT services providers that command a majority of the IT services market. These vendors are used as a reference to forecast the IT services market in North America. The most current data are based on revenue for 2001 and include both consulting and systems integration, and IT and business process outsourcing services (see Table 1). Although the midtier segment looks overwhelming, with hundreds of service providers offering similar services that are difficult to tell apart, a clear set of pure-play Tier 2 and Tier 3 ESPs can be identified. Table 1 IT Professional Services Segmentation in North America Vendor Tier Number of Vendors Tier 1 26 Tier 2 27 Tier 3 67 Tier 4 111 Total 231 Source: Gartner Dataquest (March 2003) 2003 Gartner, Inc. and/or its Affiliates. All Rights Reserved. 24 March 2003
4 Finding Pure-Play Midtier ESPs: A Two-Step Process Step 1 Supply In today s market, enterprises in the commercial sector are keenly interested in identifying midtier consulting and systems integration vendors that offer high-quality solutions at a lower price point when compared with Tier 1 vendors. This search for midtier vendors can often be hampered by perceptions of a highly fragmented market, with hundreds of vendors operating in North America. This perception is true when Tiers 2, 3, and 4 vendors are included in the search. However, when Tier 4 vendors are removed from the search, the competitive landscape narrows and an identifiable collection of vendors emerges. In an attempt to identify Tier 2 and Tier 3 vendors with primary offerings of consulting and systems integration services, the following revenuebased filters were applied on the 231 IT professional services providers mentioned in Table 1: Less than 40 percent of total annual U.S. revenue is derived from the provision of IT staff augmentation services. Less than 20 percent of total annual U.S. revenue is derived from the provision of network integration or telecommunications infrastructure services. Less than 25 percent of U.S. revenue is derived from the sale of proprietary software product sales. Less than 40 percent of U.S. revenue is derived from the public sector. About 40 percent of total U.S. revenue is derived from the delivery of application development and systems integration services. About 10 percent of total U.S. revenue is derived from the delivery of business strategy and IT consulting/architectural design services. From this exercise, the following 11 midtier consulting and systems integration companies were identified based on 2001 revenue: Answerthink Covansys Experio Infosys Technology Solutions Corp. (TSC) Ciber Sapient SBI and Co. Syntel Fujitsu Consulting Wipro 2003 Gartner, Inc. and/or its Affiliates. All Rights Reserved. 24 March 2003
Clearly, the Tier 2 and Tier 3 pure-play consulting and systems integration sector has an identifiable set of vendors. Step 2 BPR Skill Enterprises are looking to optimize their technology assets through incremental business process fine-tuning, as opposed to investing in new technology to transform their business. As such, enterprises are seeking out consulting and systems integrators with BPR capabilities. In North America there is a misperception that every Tier 2 and Tier 3 consulting and systems integration vendor has BPR skills that withstand closer scrutiny. Gartner Dataquest research suggests defensible BPR skills are limited to a select number of Tier 2 and Tier 3 vendors. This misperception has led to a Gartner Magic Quadrant on the BPR services of midtier consulting and systems integrators. Criteria for evaluating the Magic Quadrant participants is presented in "ESP BPR Magic Quadrant Evaluation Criteria," M-19-5834. Out of the 11 pure-play midtier consulting and systems integration vendors, only five are participants in the BPR Magic Quadrant: Answerthink, Covansys, Experio, Infosys and TSC. The remaining six vendors chose not to participate for the following reasons: The company is developing its BPR practice, BPR skills or BPR methodology. The company does not have sufficient client references to participate in the Magic Quadrant process. The company does not have the bandwidth in people and time to dedicate to the Magic Quadrant process. It is important to understand the positioning of peer companies for common capabilities. Visionary companies understand the opportunity BPR services present to deliver value. Execution specialists have the processes and methodologies in place for a solid BPR solutions offering. 5 Gartner Dataquest Perspective Evaluating a consulting and systems integration vendor based on revenue alone is not the best sourcing strategy. In fact, it is a very dangerous strategy. A holistic strategy is needed ("Management Update: The Sourcing Life Cycle Can Be Key to Business Operations," IGG-10022002-01). Revenue is better used to group similar companies together when assessing their skills in a particular service. An analysis of the North American ESP market indicates there are only a handful of pure-play, Tier 2 and Tier 3 consulting and systems integration companies from which to choose. The list for those ESPs experienced in offering BPR services is short. Users should start from this short list when searching for options beyond Tier 1 vendors. 2003 Gartner, Inc. and/or its Affiliates. All Rights Reserved. 24 March 2003
6 Finding Pure-Play Midtier ESPs: A Two-Step Process Key Issue How do consultants and systems integrators differentiate themselves in terms of market strategies, offerings, best practices and competitive positioning? This document has been published to the following Marketplace codes: ITSV-WW-DP-0473 For More Information... In North America and Latin America: +1-203-316-1111 In Europe, the Middle East and Africa: +44-1784-268819 In Asia/Pacific: +61-7-3405-2582 In Japan: +81-3-3481-3670 Worldwide via gartner.com: www.gartner.com Entire contents 2003 Gartner, Inc. and/or its Affiliates. All rights reserved. Reproduction of this publication in any form without prior written permission is forbidden. The information contained herein has been obtained from sources believed to be reliable. Gartner disclaims all warranties as to the accuracy, completeness or adequacy of such information. Gartner shall have no liability for errors, omissions or inadequacies in the information contained herein or for interpretations thereof. The reader assumes sole responsibility for the selection of these materials to achieve its intended results. The opinions expressed herein are subject to change without notice. 113614