SMB IT Services Buying Trends and Preferences, 2003 (Executive Summary) Executive Summary

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1 SMB IT Services Buying Trends and Preferences, 2003 (Executive Summary) Executive Summary Publication Date: 16 September 2003

2 Author Mika Yamamoto Krammer This document has been published to the following Marketplace codes: ITSV-WW-EX-0336 For More Information... In North America and Latin America: In Europe, the Middle East and Africa: In Asia/Pacific: In Japan: Worldwide via 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

3 SMB IT Services Buying Trends and Preferences, 2003 (Executive Summary) Introduction In 2003, the small and midsize business (SMB) IT services market will present a $118 billion opportunity in the United States alone. This is a lucrative market with unique characteristics, needs and preferences. With little desire to deal with global, best-of-breed IT services providers, the positioning and messaging to succeed among these enterprises must be unique to the individual SMB segments defined by enterprise size and further by vertical and region. IT services vendors must pay close attention to how, from whom and what SMBs want to consume from outside providers. Gartner Dataquest provides feedback from SMBs to provide such a perspective. The research for this document is focused on the consumption pattern of IT services among SMBs. Survey results include responses from IT managers and business managers, making up 60 percent and 40 percent of the results from SMBs, respectively. All enterprises surveyed use outside IT services providers. Objectives The objectives of this research are to profile how SMBs prefer to consume IT services and provide the distinctions of these preferences among the various SMB market segments. Specific to SMBs, the major areas of focus for this document are broken down as follows: The preferred profile of the "ideal" IT services vendor Decision-making criteria for IT services Influencers of the IT services identification and selection process IT service purchase plans Methodology Gartner Dataquest provides reflection and analysis from a customer buying trends primary research study. Gartner Dataquest's customer buying trends study is an annual phone-based survey that assesses customer buying behavior and attitudes toward IT services providers. The research was first performed in 1998; this year's results were obtained during the third quarter of Although some questions remain similar from year to year, the majority of survey questions are updated annually. Regardless, the primary focus of this annual survey remains that of exploring current dynamics and year-to-year shifts in the sourcing strategy for selecting and hiring external services providers (ESPs). A sample of 244 respondents was selected in the 2002 survey to reflect diversity by industry, function, size and decision-making roles within the marketplace. Prospective respondents were screened for their use of ESPs in providing IT services, such as IT consulting, systems or network integration, outsourcing, application services or Internet services. For the sake of this document, only the survey results from the SMB respondents are analyzed Gartner, Inc. and/or its Affiliates. All Rights Reserved. 1

4 2 SMB IT Services Buying Trends and Preferences, 2003 (Executive Summary) Key Findings On analysis of the data, Gartner Dataquest identified the following key findings pertaining to North American SMB IT services buying behaviors: The Big Four consulting firms are not the service providers that SMBs work with most often. They are more likely to spend their services dollars with national or local value-added resellers (VARs). Small (five to 99 employees) and lower-end midsize businesses (100 to 499 employees) would rather support their legacy systems vs. new systems. Among upper-end midsize (500 to 999 employees) businesses, the responses are split between the desire to support legacy systems and architect new systems. SMBs are least interested in doing business with global solutions providers; they'd much rather deal with regional/local providers. This rewards Tier 2 and Tier 3 service providers in addition to VARs with the bulk of SMBs' IT services contracts. SMBs do not consider themselves outsource-oriented (that is, open to the concept of outsourcing). This sentiment is most prevalent among midsize enterprises. Because of the profile of respondents IT executives this is not surprising, because desire is strong for internal control of technology processes. Once presented with solid business rationale and benefit, business executives among SMBs have a greater comfort level with outsourcing than their IT counterparts. SMBs would prefer to conduct future business with incumbent IT services providers. The hard work required to develop relationships with these businesses is rewarded with a great deal of loyalty. Perceived market leadership among vendors is not important to SMBs. Only a minority of respondents stated they prefer to do business with market leaders; those that win the majority of contracts in the SMB market are those with regional/local presences and established track records for delivering value within a market segment defined by enterprise size and by vertical markets. SMBs do not usually contract technology vendors to also provide services. They rely more heavily on their regional/local systems integrators and VARs for IT services. Peers and technology vendors are the most influential external influencers for the identification and selection of IT services vendors among SMBs. Although SMB segments vary, the most significant deal makers and deal breakers for IT services are price, and demonstration of business value and industry-specific skills. Although many SMBs have a desire to maintain the balance they have on outside vs. internal resources for IT, a surprisingly high percentage plan to increase their emphasis on using outside resources for IT. SMBs will be most likely to use IT services providers on engagements that deal with industry-specific applications (vs. more horizontal applications, such as customer relationship management [CRM], enterprise resource planning [ERP], and e-learning, for example). SMBsuseITservicestosatisfysuchneedsasincreasingsecurity,integrating business systems and outsourcing business processes and applications management. Variations of preference do exist among SMB segments, manifested, for example, by varying degrees of interest in outsourcing Gartner, Inc. and/or its Affiliates. All Rights Reserved. 16 September 2003

5 SMB IT Services Buying Trends and Preferences, 2003 (Executive Summary) 3 Related Documents The following Gartner documents offer more information on the SMB market for IT services: "IT Vendors Will Need Focus When Selling to SMBs in 2003," K "SMB IT Utility Wants and Needs, 2002," ITSM-NA-UW-0108 "Business Process Outsourcing Popularity Grows in SMB Market," ITOU-WW-UW-0109 "SMB Services and Software Market U.S. Forecasts, 2003," ITSM-NA-MS-0105 "MSB IT Spending Priorities, Drivers and Impediments," M "MSB IT Spending Benefactors: Channel Preferences, Plans," M "Midsize Businesses Still Balking at.net," M "Seven More Big Vendor Mistakes Inhibiting SMB IT Sales," COM "SMBs Show Appetite for IT Outsourcing: How Will Outsourcers Respond?" ITOU-WW-UW-0107 For the full report, see "SMB IT Services Buying Trends and Preferences, 2003," ITSM-NA-UW Gartner, Inc. and/or its Affiliates. All Rights Reserved. 16 September 2003