It Outsourcing Study 2016 Nordics

IT OUTSOURCING STUDY 2016 NORDICS

Whitelane Research & PA Consulting Group

Press Presentation 14 April 2016 Agenda 2

Agenda I.I. IntroductionIntroduction andand researchresearch methodologymethodology II. IT outsourcing trends III. Service provider performance - General satisfaction and Key Performance Indicators - Satisfaction by IT domain IV. Additional sourcing/governance trends - Sole sourcing and nearshore/offshore experience - Governance capabilities - Cloud computing satisfaction

About Whitelane Research and PA Consulting Group Whitelane Research PA Consulting Group

PA is a leading independent sourcing advisor. IT Outsourcing Studies . Management Consulting firm operating worldwide with conducted in 13 European over 2,500 employees countries . Broad set of business consulting, technology and innovation services

. 330 consultants in the Nordics An independent organisation uniquely focused on and dedicated to (out)sourcing PA has advised on more than 700 sourcing IT sourcing engagements for more than 600 clients world-wide, with research and events. sourcing representing 20% of PA’s revenue.

Nordic IT sourcing In PA Nordic, we have a team of more than 40 presence consultants focused primarily on sourcing. Best Practices Groups for End-Users PA is independent from service providers, technology End-User/Service Independent and solutions and assist our clients evaluate the most Provider events suitable options and opportunities.

Research methodology

. More than 300 participants of the top IT spending organisations in Denmark, Finland, Norway and Sweden that have evaluated close to 1,000 unique IT outsourcing contracts

. 29 IT service providers have been evaluated and ranked based on the opinion of their clients (not on the opinion of Whitelane Research or PA Consulting)

. In order to be ranked in this report, service providers must have at least 8 client evaluations for general satisfaction

. In order to be ranked in the application, infrastructure and end-user rankings, service providers must have at least 7 client evaluations for these respective IT areas

. Whitelane Research has been responsible for the data collection via an online survey questionnaire. Participants are CIOs, CFOs or their direct reports

. Both Whitelane Research and PA Consulting Group are completely independent organisations.

The survey covers all top spending organisations across all sectors

Financial services 2% 2% 2% 3% Manufacturing 3% 19% Public Sector 6% Retail, Wholesale

Telecommunications 7% Transportation & Logistics

Energy/Utilities, Oil & Gas 17% 8% Consumer Packaged Goods Foods/Beverages Other

Professional Services 9% 11% Entertainment/Media 11% Healthcare

N = 317 Pharmaceutical

Close to 1,000 outsourcing contracts have been evaluated, enabling us to rank the top 29 IT outsourcing providers in the Nordics

AT&T; 12 Verizon; 11 Volvo IT; 10 NNIT; 9 Basefarm; 8 L&T Infotech; 11 Tech Mahindra; 8 KMD; 13 BT; 11 Infosys; 14 Other; 200 Cognizant; 14 Wipro; 15 HCL; 19 CSC; 21

Atos; 21

Elisa; 24

TDC; 27 CGI; 68

HP; 29

Telenor; 30 Tieto; 60

Fujitsu; 34

EVRY; 54 Accenture; 40

TCS; 41 ATEA; 48 IBM; 42 TeliaSonera; 43 Capgemini; 44 N=981

Agenda I. Introduction and research methodology II. IT outsourcing trends III. Service provider performance - General satisfaction and Key Performance Indicators - Satisfaction by IT domain IV. Additional sourcing/governance trends - Sole sourcing and nearshore/offshore experience - Governance capabilities - Cloud computing satisfaction

Even more sourcing is still on the agenda in the Nordics

7% DENMARK FINLAND 11% 10% 8% 10% 27% 15% 47%

46% 26% 53%

NORWAY SWEDEN 7% 6% 6% 6%

39% 45% 54% 33% 43% N = 317

We will outsource more There will be no change We will outsource less We don’t know yet

Access to resources is becoming a prime reason for outsourcing in the Nordics

67% 62% Cost reduction 63% 67%

62% 53% The need for scalability, flexibility and lack of Access to resources 54% talent drives the need for access to resources 54% 57% 50% Focus on core business 60% 51%

38% With higher satisfaction levels the focus of Improvement of service quality 46% 50% improvement of service quality is dropping 43% 34% Business transformation 29% Organisations do not have flexible capacity and 29% capabilities to drive major business transformation 21%

24% 25% More financial flexibility 33% 36% 15% 2016 17% More transparency on costs 14% 21% 2015 5% 2014 Other 7% 4% 2013 2%

The reason to outsource varies across borders, while cost reduction is still a high priority in Norway due to macro-economic factors

MACRO-ECONOMIC FACTORS AS A Denmark Finland FACTOR FOR OUTSOURCING Access to resources 72% Access to resources 64% Focus on core business Cost reduction 68% 57% Cost reduction 52% Business transformation 50%

Business transformation 28% Focus on core business 43%

Improvement of service quality 28% More financial flexibility 29%

More transparency on costs 16% Improvement of service quality 21% Other 12% More transparency on costs 14%

More financial flexibility 12% Other 0% The oil and gas industry is the largest sector in Norway in terms of value. In 2015, due to the sharp and continuous decline in the oil price, there was a 27% drop in Norway Sweden revenue from NOK 312 billion in 20141. Cost reduction 81% Access to resources 61% The Norwegian organisations have the Access to resources 53% Cost reduction 61% most appetite for outsourcing more and 81% defined cost reduction as a reason for, Focus on core business 53% Focus on core business 55% up from 73% in 2015 and , indicating a Improvement of service quality 47% Improvement of service quality 39% desire to reduce or control overall costs Business transformation 31% Business transformation 37% with the means of outsourcing2. More financial flexibility 22% More financial flexibility 34% More transparency on costs 11% More transparency on costs 18% 1 www.norskpetroleum.no, retrieved 28-02-2016. 2 2015 Nordic IT Outsourcing Study, Other 3% Other 3% Whitelane and PA Consulting

General high satisfaction among clients in the Nordics

1% 3% 11% 6% DENMARK FINLAND

12% 1% 2% 4% 9% 2%1% 6%

29% 30%

51% 52% 29% NORWAY SWEDEN 3% 11% 1% 5% 14% 1% 5% 9%

27%

50% 30% 44% 50%

Very unsatisfied Unsatisfied Somewhat unsatisfied

Somewhat satisfied Satisfied Very satisfied

How satisfied are you in general with your service provider(s)? # of contracts 41 TCS 81% 40 Accenture 80% 8 Tech Mahindra 80% 8 Basefarm 78% 14 Infosys 76% 9 NNIT 76% 30 Telenor 75% 11 Larsen & ToubroL&T Infotech 75% 10 Volvo IT 74% 24 Elisa 73% 15 Wipro 73% 14 Cognizant 73% 19 HCL 73% 44 Capgemini 72% 43 TeliaSonera 72% 21 CSC 71% 48 ATEA 71% 68 CGI 71% 29 HP 70% 34 Fujitsu 69% 13 KMD 69% Key to scores 42 IBM 69% Very satisfied 100% 60 Tieto 68% Satisfied 80% 27 TDC 67% 12 AT&T 67% Somewhat satisfied 60% 21 Atos 65% Somewhat unsatisfied 40% 54 EVRY 64% Unsatisfied 20% 11 Verizon 64% Average = 72% Very unsatisfied 0% 11 BT 62% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90%

How satisfied are you in general with your service provider(s)? (Comparison with last year)

CHANGES FROM 2015 to 2016 • TCS tops the list as last two years, however their satisfaction has dropped from 87% to 81% • HCL and Cognizant have dropped significantly on their customer satisfaction score (from 82% to 73% and 81% to 73%) • The Indian heritage providers are not as dominate in the ranking as previous years! However in general they score high due to their continuously strong focus on building trust-based relationships • Accenture has strengthened its performance since last year by continuing to score above average on the majority of the KPIs • Regional players like Evry, Tieto, KMD and ATEA are struggling to satisfy their customers at same levels as other competitors.

General Satisfaction by Country: Denmark

Denmark TCS 78%

HCL 77%

HP 77%

CSC 76%

Accenture 76%

• 15% planning to in-source IBM 76% Key to scores • Access to resources the key driver and Very satisfied 100% focus on business NNIT 76% Satisfied 80% • General satisfaction is highest in the Nordic Somewhat satisfied 60% region Telenor 74% Somewhat unsatisfied 40% Unsatisfied 20% CGI 71% Very unsatisfied 0% ATEA 70%

KMD 70%

TDC 65% Average = 74%

General Satisfaction by Country: Finland

Finland Accenture 80%

Elisa 75%

TCS 75%

TeliaSonera 73%

Fujitsu 72%

• 10% planning to in-source Wipro 70% Key to scores • Access to resources the key driver and Very satisfied 100% Cost reduction Tieto 69% Satisfied 80% • General satisfaction is lower than the rest Somewhat satisfied 60% of the Nordic region HP 68% Somewhat unsatisfied 40% Unsatisfied 20% CGI 67% Very unsatisfied 0% IBM 63%

Atos 62%

Capgemini 62% Average = 70%

General Satisfaction by Country: Norway

Norway Accenture 85%

TCS 80%

Telenor 76%

Capgemini • 54% are looking to outsource more 75% Key to scores • Only 6% plan to outsource less Very satisfied 100% • Cost reduction is by far the key driver and Cognizant 75% Satisfied 80% Access to resources Somewhat satisfied 60% • General satisfaction is high Somewhat unsatisfied 40% ATEA 68% Unsatisfied 20% Very unsatisfied 0%

CSC 63%

EVRY 59% Average = 73%

General Satisfaction by Country: Sweden

Sweden TCS 86% Accenture 80%

HCL 80%

Wipro 77%

Capgemini 76%

Telenor 76% CGI 75% ATEA 74% • Only 6% plan to outsource less Volvo IT 73% Key to scores • Access to resources the key driver and Very satisfied 100% cost reduction TeliaSonera 71% Satisfied 80% • General satisfaction is high, however lower Infosys 70% Somewhat satisfied 60% than Denmark and Norway TDC 70% Somewhat unsatisfied 40% EVRY 68% Unsatisfied 20% Very unsatisfied 0% Tieto 68% Atos 67% IBM 65% HP 63% Fujitsu 60% Average = 72% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% © 2016 Nordic IT Outsourcing Study Service provider performance 19

General satisfaction in Sweden – 4 year comparison (2/2)

Sweden TeliaSonera

Infosys

TDC

EVRY

Tieto

Atos

IBM

2016 HP 2015

2014 Fujitsu 2013

General Satisfaction by Country: Europe (2015/2016) # of contracts 157 TCS 82% 92 Cognizant 78% Europe 82 Computacenter 77% 192 Accenture 75% 35 Tech Mahindra 74% 86 Infosys 72% 73 HCL 72% 179 HP 71% 229 Capgemini 71% 34 Unisys 71% 66 Sopra Steria 71% Key to scores 83 Wipro 71% Very satisfied 100% 224 Atos 70% Satisfied 80% 164 CGI 70% Somewhat satisfied 60% 58 Vodafone 70% 63 Telefónica 70% Somewhat unsatisfied 40% 124 Fujitsu 69% Unsatisfied 20% 246 IBM 68% Very unsatisfied 0% 74 Orange Business Services 68% 82 CSC 68% 68 Verizon 67% 98 T-Systems 66% 130 BT 63% 61 AT&T 62% Average = 71% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90%

Service provider performance 21

Key Performance Indicators (KPI) model

Relationship Commercial The service provider has a good and effective escalation process? Dimension Dimension

Account management quality Contractual flexibility The account management is of good satisfactory quality? Pro-activity Price level

The service provider is proactive in coming up with new Trustworthiness ideas to make the relationship more successful?

The service provider has the ability to drive change and successful General transformation? satisfaction

The service provider provides deliver us with all required Reporting Business information in a timely and accurate way? quality Value

Escalation Innovation effectiveness The service provider drives innovation e.g. new innovative technologies and services? Service delivery quality Transformation quality

Majority of private sector negotiate with the existing vendor first, but 1 in 3 will go directly for a competitive process.

If you are working in the private sector, will you first try to negotiate the renewal process with the existing vendor or directly run a competitive process? 21%

48%

31%

First negotiate with the existing vendor

Directly run a competitive process

Clients expect to utilize Nearshoring and Offshoring more in the future

Nearshoring Offshoring

7% 7% 19% 22%

34%

42%

29% 40%

Decrease Remain the same Increase N/A / I don’t know

Clients and Service Providers agree that IT should be responsible for managing the governance, but Service Providers believe that the Business should be much more involved or even sit in the driving seat during the selection process

Clients: Service Providers: Who should sit in the driving seat? Who should sit in the driving seat?

62% 19% 16% 3% 33% 19% 48%

process

During the selection During the selection

82% 9% 5%3% 81% 10% 10%

vendors)

Atthe governance

process(managing the process(managing the

0% 20% 40% 60% 80% 100% 0% 20% 40% 60% 80% 100%

IT department Business Procurement N/A – I don’t know yet

Conflicting realities of clients sourcing capabilities – own perception is far from Service Providers

Service providers: Viewpoints on Sourcing capabilities Clients: With regard to your own organisation, how satisfied are How mature do you consider your clients in general with • Transition is still an area where both clients you with the following governance capability areas? their capabilities in the following areas? and suppliers see a need to improve client capabilities • In Governance and supplier management Sourcing strategy 1%5% 11% 28% 42% 13% Sourcing strategy suppliers have a more negative view on 14% 38% 38% 10% client capabilities than the clients

Supplier selection and Supplier selection and 2%12% 27% 49% 10% 24% 19% 48% 10% contracting contracting

Transition and change Transition management 1%7% 14% 36% 36% 6% 19% 33% 24% 24% management

Governance and supplier Governance and supplier 4%13% 35% 40% 8% 10% 29% 29% 33% management management

0% 20% 40% 60% 80% 100% 0% 20% 40% 60% 80% 100%

Very unsatisfied Somewhat satisfied

Unsatisfied Satisfied

Conflicting realities of service integration – clients maintain it in-house, whereas service providers prefer an external provider

Viewpoints on service integration Clients: Service providers: - Currently, clients keep service integration in-house whereas service How do you integrate multiple service How would you recommend clients to providers prefer that an external, primarily a service tower provider, is provider contracts into one seamless integrate multiple service provider contracts responsible for SIAM service? into one seamless service?

16% 14%

11%

2% 29% 57%

71%

Internally Via an external independent provider (not a tower provider) Via an external service provider that also delivers another tower I’m not sure – N/A

The majority of organisations plans to increase their usage of public clouds

Are you planning to decrease/increase the How satisfied are you in general with these usage of public cloud? public cloud vendors?

1% 12% 20% Google 80%

Amazon 74%

Salesforce.com 73%

Microsoft 69%

Citrix systems 65%

SAP 65%

Oracle 65%

0% 20% 40% 60% 80% 100% 67%

Decrease Remain the same Increase N/A / I don’t know

CONTACTS

Jef Loos Head Sourcing Research Europe Whitelane Research Email: [email protected] Mobile: +32 (0) 475 23 08 52

whitelane.com

Søren Knudsen Partner PA Consulting Group Email: [email protected] Mobile: +45 27 88 36 14

paconsulting.com

IT OUTSOURCING STUDY 2016 NORDICS

Whitelane Research & PA Consulting Group

March 2016 Additional sourcing/governance trends 30

Agile methods are widely adopted in Service Providers service delivery models

Do you or your IT suppliers use agile methods? 10%

13%

77%

Yes No I’m not sure – N/A