User Survey Analysis - Business Units Taking Greater Role in Purchase of Cloud Services

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com Market Analysis and Statistics G00237741
User Survey Analysis: Business Units Taking Greater Role in Purchase of Cloud Services
Published: 1 October 2012 Analyst(s): Warren Bell, Bryan Britz, Ed Anderson
The increasing enterprise subscription to cloud services is causing a proliferation of these services. This document looks at the role business units play in the growth of cloud services and implications when the buying decisions come from business units, rather than IT.
Key Findings
Business units already play a large role in IT purchases; 42% of surveyed enterprises report that their business units control 20% or more of the overall IT budget. Surveyed enterprises report the primary reasons for the change are a desire by the business unit to take control of accelerating modernization of key applications and a strategic decision to push spending closer to business units. To adapt to the changing buying model, IT departments plan to shift priorities toward:

Amplifying security policies Creating policies for vendor evaluation and selection criteria Providing procurement assistance and best practices Investing in integration tools Enhancing service management skills and tools to provide insights into business unit (BU) purchased services
Recommendations
Service provider sales executives should adjust tactics and target business units with cloudbased solutions tailored to address their functional and industry-specific needs. Service provider marketing organizations should target IT with integration and security offerings, because those should initially generate the most interest.
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Additionally, service provider sales executives should partner with IT to improve the sales process (that is, no more cold calls to business units) and deepen client relationships. Cloud services threaten the existence of IT in some enterprises, so IT will be looking for partners (both internal and external) to validate their role.
Table of Contents
Survey Objective.................................................................................................................................... 3 Data Insights.......................................................................................................................................... 3 Business Units' Levels of Control Over IT Spending..........................................................................3 Implications................................................................................................................................ 5 Accelerating Modernization Among Top Reasons for Increased Business Unit Control of Spending .........................................................................................................................................................5 Implications................................................................................................................................ 6 IT's Responses to Increased Spending Control by Business Units and the Impact of Cloud............. 7 Implications................................................................................................................................ 9 Comparing IT Involvement in Organizations With Higher Levels of Business-Controlled Spending...10 Implications.............................................................................................................................. 12 Summary........................................................................................................................................13 Methodology.................................................................................................................................. 13 Recommended Reading.......................................................................................................................14
List of Figures
Figure 1. Percentage of Total IT Spending Controlled By Business Units Rather Than IT........................ 4 Figure 2. Percentage of Respondents Indicating Business Units Will Increase Control of IT Spending During Next Three Years........................................................................................................................ 5 Figure 3. ITs Perception of Why Business Units' IT Spending Control Will Increase................................6 Figure 4. IT Department Responses to Increased Business Unit Control of IT Spending......................... 8 Figure 5. Cloud's Impact on ITs Responses to These Changes............................................................. 9 Figure 6. IaaS and PaaS Planned Adoption.......................................................................................... 10 Figure 7. SaaS-Preferred Cloud Deployment........................................................................................ 11 Figure 8. Application Suites Enterprises Have and Plan to Replace.......................................................12
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Gartner, Inc. | G00237741
Survey Objective
Gartner conducted a large-scale enterprise study from June through July 2012. Gartner surveyed 556 organizations across nine countries and multiple industries where cloud planning is a critical issue. All organizations had at least 500 full-time employees. The survey objective was to help Gartner understand how planned adoption of cloud-based services influences broader IT practices, the core value drivers within IT, and organizational adoption of other externally provided services. The results of the study allow us to explore plans and perceptions for application-specific initiatives and various cloud delivery models. This is one of a series of research documents outlining results from the study. Due to ease of procurement and deployment, cloud-based services are entering the enterprise not through IT but rather individual business units looking to address a specific need quickly. This survey examines the relative percentage of cloud-based services purchasing by business units versus the IT organization, the drivers for business unit spending, its relationship to cloud strategies, how organizations with a larger percentage of IT spending controlled by business units vary from their peers, and the role IT will play in managing cloud-based services in the future.
Data Insights
The attractions to cloud-based services include ease of procurement, low initial prices and speed of activation. These factors increase the ability of business units to procure such services outside the control (or even knowledge) of the IT department. However, the way cloud services are purchased creates a change in buyer behavior within enterprises. In many enterprises, IT departments maintain sole or significant responsibility, for purchasing IT services. IT spending is now being more broadly distributed to business units.
Business Units' Levels of Control Over IT Spending

The percentage of IT spending under the control of business units, rather than a central IT department, varies by business trends. Many IT initiatives in recent years have focused on leverage resulting from centralization and standardization. At the same time, however, the growth of cloud services in the consumer market and other user-oriented forces emerged as key drivers shaping the future of IT services. Figure 1 depicts the number of enterprises presently having a sizeable portion of their IT budget controlled by business units. Forty-two percent of surveyed enterprises report business units control 20% or more of the overall IT budget. This compares with the 38% of enterprises in which the business units control between 10% and 20% of overall IT spending. In contrast, only 7% report business units control 5% or less of overall IT spending.
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Figure 1. Percentage of Total IT Spending Controlled By Business Units Rather Than IT

Percentage of Respondents 100 90 80 70 60 50 40 30 20 10 0 1 12 4 2 19 14 9 6 13 35% or More 30% to Less Than 35% 25% to Less Than 30% 20% to Less Than 25% 15% to Less Than 20% 19 10% to Less Than 15% 5% to Less Than 10% 1% to Less Than 5% Less Than 1% None
Source: Gartner (September 2012)
We also asked respondents to indicate which, if any, business units they expected to increase their control of IT spending in the next three years. Ninety-seven percent of all respondents indicated that at least one business unit would increase its control of IT spending over the next three years. As depicted in Figure 2, finance (46%), supply chain (46%), marketing (45%), and sales (45%) are the business units most commonly expected to increase control of IT spending in the next three years.
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Figure 2. Percentage of Respondents Indicating Business Units Will Increase Control of IT Spending During Next Three Years
Marketing Finance Sales Supply Chain HR Manufacturing Legal Others None 0 3 5 10 15 20 25 30 35 40 45 50 4 17 34 39 46 46 45 45
Percentage of Respondents
Implications
The business's involvement, and at times decision-making authority, in IT spending cannot be overlooked. Service providers should connect their value proposition to key performance indicators the business will care about. Providers should help IT leadership, not go around it. IT leadership will be a key ally in building the business case and ultimately have some role in overseeing whatever is sold. The finance, sales, marketing, and supply chain functions stand out as key departments service providers should consider as key business units that need to be part of their overall go-tomarket approach for highly specialized, business-function-oriented, cloud solutions.
Accelerating Modernization Among Top Reasons for Increased Business Unit Control of Spending
Respondents who indicated they expected one or more business units would increase their level of IT spending control over the next three years were then asked to rank the top three reasons for that change. Figure 3 illustrates our findings. Fifty percent of respondents indicated that business unit desire to take control of accelerating modernization of key applications was a top reason. A strategic decision to push spending closer to business units and refocus IT department was identified by 47% of organizations. Surprisingly, the normally perceived reasons for the shift (internal IT is too expensive and/or internal IT moves too slowly) ranked fourth and eighth, respectively.
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Figure 3. ITs Perception of Why Business Units' IT Spending Control Will Increase
Business unit desire to take control of accelerating modernization of key applications Strategic decision to push spending closer to business units and refocus IT department Lack of understanding the purpose/value for IT operational processes Belief that internal IT is too expensive Preference to buy turnkey solutions Belief that IT department is not cutting edge Belief that IT moves too slowly Poorly understood IT requirements Poorly defined business objectives 8 9 6 8 7 5 5 7 5 8 7
26 23 11 9 12 9 7 10 11 11 10 10 19
19 15
15
Others 11 None 1 0 10 20 30 40 50 Percentage of Respondents
Ranked 1st Ranked 2nd Ranked 3rd 60 70
Implications
As noted in "User Survey Analysis: Using Cloud Services for Mission-Critical Applications," applications modernizations initiatives often lead to consideration of public cloud services. Service providers should connect their cloud-related service offerings with their modernization services. Optimally, the two should be positioned together. The strategic decision to shift spending to the business unit and refocus IT is, in essence, a change in both procurement practices and a shift in business process structure. This shift is not perceived by IT to be a condemnation of IT's effectiveness, but rather strategic decisions that largely reflect the strategic and mission-critical nature of IT (information technology, not necessarily the function) to the business. Additionally, there may be opportunities to help organizations modernize their business process workflows to accommodate new buying models with cloud. IT departments need
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tools to respond to internal demands (from business units) more quickly, and offerings from providers can address those needs.
IT's Responses to Increased Spending Control by Business Units and the Impact of Cloud
With spending control shifting to the business units, we asked respondents if they were engaging in a number of initiatives in response to this expected shift. As depicted in Figure 4, amplifying security policies is the most common existing or planned initiative. This is followed by standardizing procurement guidelines and enhancing overall budget management processes and supporting analytics to support distributed spending. Although it was the lowest response both for "currently doing" or "not doing but considering," the fact that 29% of respondents claim they are in the process (and another 29% are considering) disbanding central IT is a telling sign of how the role of internal IT continues to evolve. For these enterprises, they see specific roles and responsibilities where centralized IT management will no longer be required. Interestingly, the highest percentage (33%) of such organizations was in enterprises with 1,000 to 4,999 employees.
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Figure 4. IT Department Responses to Increased Business Unit Control of IT Spending

Amplifying security policies Standardizing procurement guidelines Enhancing overall budget management processes and supporting analytics to support distributed spending Defining enterprisewide risk management frameworks Re-evaluating acceptable "good enough" service levels of internally delivered performance Re-evaluating acceptable "good enough" service levels of externally delivered performance Requiring security department involvement in contract decisions Investing in integration tools Refocusing on enterprise architecture requirements Enhancing service management skills and tools to provide insights into business-unit-purchased services Establishing policies to strictly prohibit and limit such spending Disbanding central IT 0 Yes
63 61 57 56 54 54 54 54 54 52 44 29 20 29 40 60 Percentage of Respondents No, and Not Considering 37
31 31 35 34 35 33 34 38 35 39 19 42 80
6 8 8 10 11 13 12 9 11 9
100
No Currently Doing, but Considering
Taking these changes into account, how will IT respond? As shown in Figure 5, the top responsibilities that IT departments expect to undertake due to the impact of cloud include: amplifying security policies (72%), investing in integration tools (70%) and enhancing service management skills and tools to provide insights into business unit-purchased services (67%). In contrast, 16% of respondents believe the cloud will cause central IT to disband, while 14% believe IT will no longer be able to establish policies to strictly prohibit and limit cloud-related spending.
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Figure 5. Cloud's Impact on ITs Responses to These Changes

Amplifying security policies Investing in integration tools Enhancing service management skills and tools to provide insights into business-unit-purchased services Requiring security department involvement in contract decisions Defining enterprisewide risk management frameworks Re-evaluating acceptable "good enough" service levels of externally delivered performance Re-evaluating acceptable "good enough" service levels of internally delivered performance Enhancing overall budget management processes and supporting analytics to support distributed spending Standardizing procurement guidelines Refocusing on enterprise architecture requirements Establishing policies to strictly prohibit and limit such spending Disbanding central IT 0 Will Do Less
Number of respondents = 299
7 8 7 8 8 11 12 12 7 9 14 16
19 20 21 25 25 25 23 24 31 28 27 30 20
72 70 67 66 65 63 62 61 61 60 55 49
2 3 5 1 2 2 2 2 2 3 3 5 100
40 60 80 Percentage of Respondents Don't Know/Not Applicable
No Impact
Will Do More
Implications
For service providers, some of the initial opportunities are in the areas of integration and security. Enterprises will need assistance in ensuring that their purchased cloud services are fully integrated and operating smoothly. Providers with experience integrating multiple technologies from different vendors will have an early advantage in the market. Furthermore, some IT departments may be concerned for their very existence. Service providers can help by viewing IT as a partner, and the two can present jointly delivered solutions to business
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units. By creating a partnership, providers can help allay the fears of IT while creating a motivated partner that will help them discover opportunities within the enterprise.
Comparing IT Involvement in Organizations With Higher Levels of BusinessControlled Spending

When respondents are divided into high and low levels of business-controlled spending (high = business units control 25% or more of IT spending), further differences became apparent. When looking at Infrastructure as a service (IaaS) for development and test, 9% more of high enterprises are currently buying the service than low enterprises (see Figure 6). Additionally, 9% more high enterprises are evaluating and plan to buy platform as a service (PaaS) for platform database services than are low enterprises.
Figure 6. IaaS and PaaS Planned Adoption
Percentage of Respondents 80 70 60 50 40 30 20 10 0 Low Business High Business Low Business High Business Low Business High Business Low Business High Business 37 33 34 35 41 47 33 42 16 25 19 24 18 23 21
21
IaaS for Development and Test
IaaS for All or Most of Storage Evaluated and Plan to Buy
PaaS for Integrating Applications Currently Buy
PaaS for Platform Database Services
Respondents displayed different deployment preferences for application suites for cloud models when separated by level of business control over IT spending. Enterprises with high business control preferred private cloud for content communication and collaboration (36% versus 26%) and community cloud for office suites more than low business (20% versus 9%). In contrast, low business control users preferred public cloud for vertical specific applications (13% versus 8%). Enterprises with low businesses control prefer private cloud 8% more than high businesses for security applications, but the margin is reversed for the hosted cloud model. (See Figure 7).
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Figure 7. SaaS-Preferred Cloud Deployment

Percentage of Respondents 100 7 90 80 70 60 50 23 40 30 20 10 0 Low Business High Business Low Business High Business Low Business High Business Low Business High Business Low Business High Business 42 29 31 34 28 33 23 27 14 16 12 27 24 22 8 14 7 8 11 16 11 7 12 15 9 4 7 14 9 4 14 20 17 10 9 6 9 20 9 8 15 23 27 8 13 8 9 13 20 9 2 8
15
28
33
34 26
36
CRM
Content, Collaboration and Communications Hosted Cloud
Office Suites
Security
Vertical Specific
Private Cloud
Community Cloud
Public Cloud
Hybrid
No Cloud
Furthermore, enterprises with high business control identified a number of application suites they currently have but intend to replace. As shown in Figure 8, enterprises with high business control plan to replace several application suites at significantly higher rates than enterprises with low business control. Correspondingly, enterprises with low business control did not rate any of the application suites for replacement at a significantly higher rate than enterprises with high business control.
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Figure 8. Application Suites Enterprises Have and Plan to Replace

Percentage of Respondents 35 30 25 20 15 10 5 0 Low Business High Business Low Business High Business Low Business High Business Low Business High Business Low Business High Business 20 33 29 22 17 26 19 26 20 29
Digital Content Creation

ERP
Office Suites
Security
SCM
In at least one respect, enterprises with both high and low levels of business controlled spending provided identical responses. When asked to identify the five provider attributes most important to their organization when considering public cloud services, both categories had the same ranking:

Robust disaster recovery Technical architecture of compute environment SLA comparable with those in on-premises agreements Security certifications Providers' financial viability/stability
Implications
For service providers, this highlights the fact that although enterprises are ready to move to the cloud, their preferred model is the private cloud. For many enterprises, regulations and security concerns limit their deployment model options to the private cloud. Accordingly, marketing campaigns should shift away from public cloud offerings (at the enterprise level) and move more toward private and hosted cloud offerings. Consequently, service providers must understand how the level of business controlled spending in the enterprise will affect the cloud adoption preferences. Where spending rests more with business units, it changes both the delivery model and application preferences than in enterprises where
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spending rests more with IT. Additionally, the fact 33% of enterprises with high business control of spending state they plan to replace their current ERP suite hints at significant sales potential for both software and service providers.
Summary
Overall, this survey provided insight into enterprises' buying habits and view of (and plans for) cloud-based services. Finance, supply chain, marketing and sales are the business units most commonly expected to increase control of IT spending in the next three years. The top reason for the change is because of the business unit's desire to accelerate modernization of key applications. In response to this change, IT departments cite amplifying security policies as the most common existing or planned initiative. While private cloud was the preferred deployment model across all application suites, storage is the service most currently purchased in public cloud environments.
Methodology
Gartner surveyed 556 organizations across nine countries and multiple industries where cloud planning is a critical issue. All organizations had at least 500 full-time employees. A large-scale enterprise study was conducted from June 2012 through July 2012 to help Gartner understand how planned adoption of cloud-based services influences broader IT practices, the core value drivers within IT, and organizational adoption of other externally provided services. The results of the study will allow us to explore plans and perceptions for application-specific initiatives and various cloud delivery models. Qualified participants needed to be personally knowledgeable about their organization's overall application environment and portfolio, including the enterprise applications in use, IT budget, and cloud initiatives in terms of current and future investments in applications as well as use of external service providers within their organization. All interviews were conducted online. In all, 556 qualified respondents worldwide participated in this study with the following country breakdown: Australia (n = 51); Brazil (n = 50); China (n = 50); France (n = 50); Germany (n = 49); India (n = 52); Mexico (n = 50); U.K. (n = 53); and U.S. (N = 151). We grouped these countries in the following regions: Asia/Pacific (Australia, India, China), Europe (France, Germany, U.K.), Latin America (Brazil, Mexico), and North America (U.S.). No single vertical industry represented more than 10% of the respondent base. In terms of company size, respondents were categorized by number of full-time equivalents (FTEs) across the following breakdown: 500 to 999 FTEs (83); 1,000 to 2,499 FTEs (128); 2,500 to 4,999 FTEs (95); 5,000 or more FTEs (246); and don't know (4). Additionally, we looked for trends in countries with similar economic profiles, which we grouped as established (Australia, France, Germany, U.K., U.S.) and emerging (Brazil, Mexico, India, China). The survey was developed by Bryan Britz, Warren Bell and Ed Anderson and was reviewed, tested and administered by a group of their colleagues. The questionnaire was fielded by an external vendor under contract with Gartner. Panel members were recruited via an email invitation and were directed to a secure website through which the survey was administered. All respondents were
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informed that the study was being conducted in accordance with Esomar's code of practice and assured that their responses would remain confidential and would be analyzed only in the aggregate.
Recommended Reading
Some documents may not be available as part of your current Gartner subscription. "User Survey Analysis: Using Cloud Services for Mission-Critical Applications," "User Survey Analysis: How Public Cloud Strategies Impact Established IT Services Spending" (forthcoming, G00237733) "Forecast Overview: Public Cloud Services, Worldwide, 2011-2016, 2Q12 Update" "Hints and Tips on Using Gartner Numbers When Reviewing IT Spending Plans" Evidence Gartner surveyed 556 organizations across nine countries and multiple industries where cloud planning is a critical issue. All organizations had at least 500 full-time employees.
This document is published in the following Market Insights:

Consulting & Solution Implementation Services Worldwide IT Outsourcing Worldwide IT Services Asia/Pacific IT Services Europe
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com Market Analysis and Statistics G00237741

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Business Units' Levels of Control Over IT Spending

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Figure 1. Percentage of Total IT Spending Controlled By Business Units Rather Than IT

Source: Gartner (September 2012)

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Others 11 None 1 0 10 20 30 40 50 Percentage of Respondents

Ranked 1st Ranked 2nd Ranked 3rd 60 70

Source: Gartner (September 2012)

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Figure 4. IT Department Responses to Increased Business Unit Control of IT Spending

63 61 57 56 54 54 54 54 54 52 44 29 20 29 40 60 Percentage of Respondents No, and Not Considering 37

No Currently Doing, but Considering

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Figure 5. Cloud's Impact on ITs Responses to These Changes

40 60 80 Percentage of Respondents Don't Know/Not Applicable

Source: Gartner (September 2012)

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Comparing IT Involvement in Organizations With Higher Levels of BusinessControlled Spending

IaaS for Development and Test

IaaS for All or Most of Storage Evaluated and Plan to Buy

PaaS for Integrating Applications Currently Buy

PaaS for Platform Database Services

Source: Gartner (September 2012)

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Figure 7. SaaS-Preferred Cloud Deployment

Content, Collaboration and Communications Hosted Cloud

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Figure 8. Application Suites Enterprises Have and Plan to Replace

Digital Content Creation

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This document is published in the following Market Insights:

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