Organizations must diligently select an external service provider (ESP) for data center services and highly industrialized IT services, especially during turbulent economic times. It's not enough for organizations to base their decisions on price, current data center location and technical capability. They must also consider an ESP's overall vision and strategy for developing new services, if they want to engage in a long-term data center outsourcing (DCO) contract that supports critical functions. The evaluation criteria that Gartner has used in this Magic Quadrant provide a comprehensive framework to analyze 12 ESPs' capabilities to deliver these services across Europe (see Figure 1).

Gartner interviewed more than 50 client references for this Magic Quadrant. These interviews, combined with our normal interactions with Gartner clients in Europe, provide meaningful insight into the pulse of this market. Most of these clients are satisfied with the service they receive in this area and the relationship they have with their providers. Although a number of dissatisfied clients always exist, overall DCO is a viable, satisfactory and mature sourcing option in Western Europe.

Although the DCO market is mature, consolidation, virtualization, green requirements, automation and industrialization of new service offerings — especially in the area of infrastructure utility services (IUS) — continue to drive rapid change. In the infrastructure managed service market, the lines between different approaches — colocation, hosting, DCO, infrastructure utility and cloud computing — are blurring as new infrastructure utility and cloud-computing service offerings emerge. As these offerings (see Market Definition/Description section) compete for the same clients' business and wallet share, they gain prominence in the market.

The European market presents some key differences from the North American market, which started and continues to lead the evolution toward cloud computing and infrastructure as a service. More specifically, hosting represents 40% of the total managed data center service market in North America.

Data center outsourcers (U.S. and European) have historically dominated the DCO market in Europe because of its specific geographic and cultural structure. The various countries and languages across Europe have inhibited the growth of very large Internet providers, such as Amazon or Google. As a result, hosting represents less than 20% of the managed data center service market (e.g., DCO plus hosting).

The economic conditions in Europe during 2009 and 2010 have been driving the demand for low-cost services that also offer innovation, flexibility, continuous optimization, automation and virtualization. This raises the bar for the managed data center service market.

This new Magic Quadrant reflects these market changes. We moved from selection criteria based on a country-by-country presence to criteria based on six regions, because clients are more willing to accept the concept of providing a consolidated European data center, which is not necessarily located in a specific country. We have also expanded the coverage of this Magic Quadrant to include Eastern Europe, and reduced the revenue threshold to start taking additional players into account. Although no Indian providers qualified for this Magic Quadrant, they are close to meeting the target, and we anticipate that at least one will qualify for inclusion in the 2011 Magic Quadrant.

Steria and Telefonica are two new entrants in the Magic Quadrant, and in 2010, three out of the 12 providers are service arms of telecommunications companies. In fact, for many years, European telecom incumbents have felt uncertain about their data center service strategies. They have mostly offered colocation or simple hosting services, and sometimes even outsourced their data center management to other outsourcers. These telecom providers are now accelerating their coverage of data-center-based services, and implementing industrialized services and cloud computing because they can integrate these with their networking services. T-Systems, the business service arm of Deutsche Telekom, is leading the way with its dynamic infrastructure service approach, while BT Global Services is bringing its new Virtual Data Center (VDC) offering to market. Telefonica qualifies for inclusion in this Magic Quadrant because of its significant investments and focus on these new services. Although other telecom-related players did not qualify for inclusion in this Magic Quadrant, they are refreshing their data-center-based services at an accelerated pace.

The 12 providers represented in this Magic Quadrant have a combined revenue of roughly $18 billion in DCO services. These providers are managing more than 500 data centers that span 22 European countries. Most data centers are provider sites. Others are client sites, or are leased from third parties. These providers manage more than 1 million mainframe MIPS (million instructions per second) and more than 500,000 servers, of which more than 20% are virtual servers.

The average service provider represented in this Magic Quadrant records roughly $1.5 billion from this service line and manages more than 45,000 servers, with an average of more than 42 data centers in European countries. Each service provider varies significantly in size, the number of staff and clients they have, the number of data centers they manage, and their geographical coverage. Their approaches to this service area also differ. Some of the providers view DCO as a strategic business; others consider data centers as a necessary base capability to deliver end-to-end services that extend to network services, and unified communications and collaboration (telecom companies), or to application and business process services (outsourcers, system integrators).

For the scope of this Magic Quadrant, Gartner defines Europe as the combination of Eastern and Western Europe.

For the scope of this Magic Quadrant, Gartner's definition of Western Europe includes Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy, the Netherlands, Norway, Portugal, Spain, Sweden, Switzerland and the U.K.

For the scope of this Magic Quadrant, Gartner's definition of Eastern Europe includes Albania, Bosnia and Herzegovina, Bulgaria, Czech Republic, Croatia, Estonia, Hungary, Latvia, Lithuania, Macedonia, Moldova, Montenegro, Poland, Romania, Russia, Serbia, Slovakia, Slovenia, Turkey and Ukraine.

We subdivide Western Europe into the following regions:

• Western Europe, Northwest: Ireland and the U.K.
• Western Europe, Northeast: Denmark, Finland, Norway and Sweden
• Western Europe, Central West: Belgium, France and the Netherlands
• Western Europe, Central East: Austria, Germany and Switzerland
• Western Europe, South: Greece, Italy, Portugal and Spain

Gartner defines "data center" as the centralized support of computer equipment in a secure facility, the underlying network infrastructure, and the processes and organization that support this environment. This generally includes the following items:

• System operations
• Tape operations
• Print operations
• Second-level data center support
• Production control
• Backup and recovery processes
• Technical support (operating systems, subsystems)
• Performance analysis/capacity planning
• Storage management
• System security/contingency planning
• Asset procurement and third-party management

DCO is a segment of IT outsourcing (ITO), which always includes an IT management service and is segmented into data center, desktop, network and enterprise application outsourcing. ITO can include a portfolio of product support and professional services that ESPs bring together to provide IT infrastructure, enterprise application services, or both to ensure the success of the service recipient's mission.

Gartner defines IUS as the provision of outsourced, industrialized, asset-based IT infrastructure managed services (below the functional business application layer). Service outcomes, technical options and interfaces define IUS, which organizations pay for based on resource usage, allocation or the number of users served.

Remote infrastructure management (RIM) is a delivery model that providers often embed in DCO. This is an acceptable approach in DCO relationships that are based on a client or third-party-owned data center, and when a single service provider delivers RIM. In this case, the client signs a single service contract with one service provider for the whole set of DCO services. In this contract, the main provider is responsible for end-to-end service delivery, including the management and control of the hosting subprovider.

This Magic Quadrant focuses on management services for mainframe and centralized server environments — including IUS — to evaluate each service provider's capability to deliver DCO services across Europe. As in previous years, this Magic Quadrant excludes simple, dedicated Web hosting and colocation services.

Gartner included service providers that:

• Demonstrate that they provide DCO services as a sole-source direct provider (we excluded data center services delivered entirely by partners or subcontractors).
• Show that they have nonmarginal data center delivery capabilities in at least three regions in Europe (see "Market Definition/Description" section).
• Generate less than 70% of their total European DCO and utility service revenue in any single country in Europe.
• Generate a minimum of 10% of their total European DCO and utility service revenue in at least three European countries (not all part of the same region).
• Generate at least $100 million in annual European DCO and utility service revenue in Europe.

Gartner excluded service providers that:

• Deliver data center services entirely by partners or subcontractors.
• Exclusively focus and deliver pure hosting services, such as colocation, simple/dedicated hosting or a pure rental approach to data center capabilities.
• Engage in DCO service relationships that are not bundled — for example, when the client owns one contract with the hosting provider and one contract with the RIM provider.

We required each service provider included in this Magic Quadrant to brief the authors and present its vision of the market and ability to execute. In 2010, we also asked providers to detail their:

• Service line financials, investments and other main indexes
• New-generation data centers, green IT and physical consolidation plans
• Global delivery, RIM and low-cost locations
• IUS offerings, clients, servers, samples of service-level agreements (SLAs) and pricing
• Deal pipeline, deal structure and sales performance
• Value proposition, key differentiators and win/loss elements

In 2010, two new providers met the selection criteria: Steria and Telefonica.

We did not drop any vendors from the 2009 Magic Quadrant.

Gartner evaluated these providers on the quality and efficacy of their processes, systems, methods and procedures, which enable each provider's performance to be competitive and effective while positively affecting revenue, retention and reputation. We judged providers on their ability and success in capitalizing on their vision, as well as on their Western European footholds in terms of resources, coverage, seamless delivery within different countries, and their ability to meet client requirements.

Product/Service

For this highly weighted category, we evaluated each provider's capabilities and the services it offers. We gave special consideration to practice area profile and service capabilities in Europe, service definitions, effective "resourcing" and transition management. The categories of services for our study are:

• Practice area profile and service capabilities focus on:
  • Overall European DCO revenue, client numbers and staff allocated
  • Data and control center locations, ownership (provider or client), and size
  • Management team and position in the corporate structure
  • Amount of MIPS and servers managed
• Core services and SLAs focus on:
  • The management of SLAs, which includes the provision of core and ancillary data center services, such as full facilities management, remote management, customer on-site support, capacity/configuration planning and consulting on consolidation.
• Resource and transition management measures each service provider's ability to:
  • Effectively provide relevant resources to the customer.
  • Efficiently transition assets, workloads and facilities.
  • Integrate staff coming from the client organization.
  • Complete transition projects to implement a global delivery model, and to ensure business continuity in day-to-day service delivery.

Overall Viability

This category, which we weighted as "high," includes an assessment of the financial health of the organization's data center operations, and the likelihood that the individual data center business unit will continue investing to support state-of-the-art delivery within the organization's portfolio of services.

In particular, we considered growth in the volume per unit (MIPS and servers) as well as revenue in the outsourcing data center segment during the past three years. We asked each service provider about the future outlook for this outsourcing segment of its business, as well as whether it expects revenue and margins to grow, decline or remain stable.

Sales Execution/Pricing

This category, which we weighted as "standard," assessed each provider's capabilities in all presales activities and the structure that supports them. We gave specific consideration to teams in charge of deal management, pricing and clarity of scope.

We also interviewed clients to gather feedback about their experiences with the service provider in terms of negotiation and pricing.

Market Responsiveness and Track Record

This category, which we weighted as "standard," assessed each service provider's ability to respond, change direction, be flexible, and achieve competitive success as opportunities develop, competitors act, customers' needs evolve and market dynamics change.

We also asked clients for feedback on their providers' flexibility, continuous improvement and innovation.

Marketing Execution

This category, which we weighted as "low," assessed the clarity, quality, creativity and efficacy of programs that are designed to deliver an organization's message to influence the market, promote the brand and business, increase awareness of the services, and establish a positive association between the service/brand and the service providers in the minds of buyers.

Customer Experience

This category, which we weighted as "high," evaluated the reference customers' overall satisfaction with the service and the relationship, taking into account other Gartner client interactions. We obtained reference customers by asking each provider for five Western European references for DCO services. We required that these references follow the geographic distribution needed to participate in the study and the different vertical industries addressed. We also asked for samples of global reports on SLAs, customer satisfaction and other relevant measures during the past 12 months.

In particular, we considered important elements of a successful DCO customer experience. Such elements include client satisfaction as part of the evaluation criteria and incentive plans for the account teams, and continuous improvement processes in place centrally and within the account management team.

Operations

This category, which we weighted as "standard," assessed each provider's ability to meet its goals and commitments, while satisfying contractual obligations for service delivery to clients. Factors include the quality of the organizational structure, skills, experiences, programs, systems, and other vehicles that enable the service provider to operate effectively and efficiently on an ongoing basis.

In particular, we considered communication processes, quality control and assurance processes, relationships, contract and service delivery management, continuous improvement plans, methodologies — especially related to Information Technology Infrastructure Library (ITIL) processes — and other certifications available for all sites or specific data centers or clients.

We spoke to the service providers about their main procedures (operational, transitional, program management, relationship management and change management) and asked reference customers for their feedback about these procedures. We asked providers to supply information about the facilities/services they provide, the principal system platform they manage, locations, capabilities and resources, disaster recovery plans, physical and IT security, and backup procedures.

Gartner evaluates service providers on their ability to convincingly articulate logical statements about current and future market directions, innovations, customer needs and competitive forces, and on how well these map to Gartner's position. Ultimately, we rate providers on their understanding of how they can exploit market forces to create opportunities for their organizations.

Market Understanding

This category, which we weighted as "standard," assessed each provider's corporate view of the data center services and outsourcing market in Western Europe. We evaluated how each provider is trying to address the main requirements of Western European clients. We also looked at the main effect that new technologies, delivery models and services would most likely have on each provider's business and delivery models in the short term and medium term.

In particular, we considered each provider's:

• Vision for DCO services
• Plans to differentiate itself from major competitors
• System for segmenting and analyzing the target market to drive marketing and sales
• Plans to position these services within the broader offering

Marketing Strategy

This category, which we weighted as "low," looked at each provider's main marketing messages related to DCO services in Western Europe.

In particular, we considered:

• Current and future value propositions for DCO in Western Europe
• The importance of DCO services within the broader IT service portfolio
• Channels for internal and external communications
• The differentiation of a provider's message from its competitors' messages

Sales Strategy

This category, which we weighted as "standard," required each provider to illustrate its overall sales strategy for DCO (for example, direct vs. indirect selling partners, allies and channels), its reactive answer to RFPs vs. its proactive answer, its stand-alone offering vs. offerings bundled within other services, and its dedicated vs. shared sales force.

In particular, we considered:

• A high-level sales organization chart to illustrate the provider's go-to-market strategy
• The number of dedicated personnel in Western Europe
• The number of offers issued during the past 12 months, as well as offers in the pipeline
• Countries covered by direct, local teams vs. centralized teams
• Client retention rate (driven by the ease of doing business with the provider and its focus on relationship management)

Offering (Product) Strategy

This category, which we weighted as "high," required each provider to specify the most-important aspects of the service offering that differentiates it in the market and delivers value to its clients.

In particular, we considered each provider's:

• Ability to integrate client assets, including data centers in Western Europe
• Ability to transfer data center staff from client to provider in each Western European country
• Approach to combining standard service elements into customized service delivery to provide flexibility and low-cost services

Business Model

This category, which we weighted as "high," asked each provider for a high-level description of its business model for DCO services, and how it fits within the provider's overall business model. In particular, we considered the ability to address and satisfy two competing requirements: client-specific requirements (driving client satisfaction) and the industrialized, centralized delivery of DCO services (driving low cost and margin).

To evaluate how well the provider's business model addresses account management, we asked for information about:

• The structure of the management teams used to support and manage customers
• The average experience, knowledge and skill level of executive management and the key customer-facing managers
• Processes to address customer issues locally vs. centrally, including customer access to the appropriate level of management within the service provider and to the escalation procedures

To evaluate how well the provider's business model addresses delivery, we asked each provider to describe the strategy for centralized delivery of standardized data center services. We focused on how much of the service the provider bases on virtualized and automated platforms. We also asked for information about the approach to the global delivery model for DCO services, as well as the established or planned remote premises.

We asked each provider's client references for their judgment of the provider's business model, including account management and service delivery, and factored the answers into our evaluation.

Vertical/Industry Strategy

This category, which we weighted as "low," assessed each provider's strategy to direct resources, skills and offerings to meet the specific needs of individual market segments, including vertical industries.

In particular, we considered each service provider's:

• Penetration of different industries for DCO services
• Ability to demonstrate expertise in the vertical markets and business processes underpinned by DCO services

Innovation

This category, which we weighted as "high," evaluated each provider's position in the market as a thought leader and an innovator. It also evaluated each provider on its leadership and investment to achieve its vision, and to develop innovative strategies in the DCO market.

In particular, we considered the answers to these questions:

• What investments is your company making to sustain and enhance its vision for innovative DCO services?
• How do you offer innovation to your established and new customers?
• What innovative solutions have you provided to customers in the past 12 months?
• What global alliances do you have with other leading suppliers (and what investments support these alliances)?

We also asked whether each service provider's utility-based offerings included:

• Highly standardized services, processes and SLAs
• Virtualized and automated computing platforms
• Utility pricing units
• Reduced baselines and increased flexibility

We asked client references for their judgment of their providers' ability to innovate, including the technical aspects of innovation, their ability to lower costs and improve the service, and their "proactivity," adaptability and service flexibility.

Geographic Strategy

This category, which we weighted as "standard," looked at regional capabilities, global consolidation processes, local alliances and partnerships, including:

• Each provider's strategy to target markets in different Western European countries with the appropriate resources, skills and offerings to meet specific client needs
• How infrastructure consolidation processes are affecting the practice area landscape
• Relationships with product and service providers to add value, provide full-service solutions or bring innovation closer to clients
• How each provider takes responsibility for managing the service delivered, even when using subcontractors or partners

We also asked reference clients for their feedback on local capabilities, and the current or potential effects of consolidation and global delivery processes.

Leaders perform skillfully. They have a clear vision of the market's direction and develop competencies to maintain their leadership. They shape the market rather than follow it. The Leaders quadrant includes, in alphabetical order, CSC, HP, IBM and T-Systems.

Challengers execute well today, but they have a less-defined view of the market's direction. They need to be more aggressive in outlining and communicating their strategy for the future. Challengers include, in alphabetical order, Atos Origin, Capgemini, Fujitsu, and Siemens IT Solutions and Services.

Visionaries have a clear vision of the market's direction and are focused on providing services to meet future market needs. They need to improve their ability to deliver and penetrate the Western European market. The only visionary in this Magic Quadrant is BT Global Services.

Niche players focus successfully on a particular service, a limited number of Western European markets or both. This narrow focus may affect their ability to outperform or innovate. Niche players include, in alphabetical order, Logica, Steria and Telefonica.

• During a difficult year for most providers, Atos Origin achieved growth in the DCO area, improved its margin, and continued to invest in its data center estate and services. This has enabled it to strengthen its reputation in service resilience and high availability, while also reducing costs.
• Atos Origin has accelerated its delivery of industrialized services with the announcement of its Atos Sphere cloud offering. The provider reports that about 20% of its business comes from utility-style services, which it has mostly driven through renewal and small-and-midsize-business (SMB) deals.
• Clients praised Atos Origin for its ability to deliver quality, stable and reliable data center services; for its focus on managing the relationship rather than the contract; and for its technical skills, especially in the mainframe area. Atos Origin operates its data center ITO remote control centers in locations such as India, Malaysia, Morocco and Poland.

• Atos Origin's delivery structure still includes many people in high-cost locations, namely the U.K. and France. This may limit business flexibility, the speed of implementing homogeneous, globally delivered services, and the overall flexibility of contract pricing, baselines, and terms and conditions. The desire to speed up the implementation of global delivery may create tension or delivery issues.
• The increasing pressure from competitors (such as Indian vendors, cloud providers and independent software vendors), coupled with Atos Origin's dependence on relatively few geographic markets, will force the provider to accelerate its strategic focus on specific vertical markets, and on the offerings that it should pursue to leverage the potential sweet spot in midsize to large European organizations.
• Clients reported that Atos Origin could offer innovation in its service approach more proactively, better manage the transition toward global delivery and fine-tune its change management function.

• Despite a challenging market and BT Global Services' deep restructuring, the provider has grown its DCO revenue. It has also clarified the value of its partnership with HP, which now focuses on serving existing customers rather than developing new business.
• A positive level of investment in its key strategic offering, the VDC, underlines BT's commitment to this market. BT integrates management tools and consulting services (such as VDC Assess and Optimize) into VDC to bring it to market aggressively. VDC is pivotal to helping BT promote its managed infrastructure-as-a-service offering, which provides flexibility and simple pricing mechanisms.
• Clients praised BT for the attitude and technical skills of its staff, its willingness to understand and respond to clients' IT and business needs, and its ability in transition and service-level management.

• While the VDC strategy is sound, BT has only launched it in the U.K., and is just starting to introduce it in other countries. VDC does not automatically manage physical servers or dedicated assets — BT can manage these only manually and offline. This will limit the implementation of hybrid cloud services, and, in general, BT's ability to migrate hybrid (physical/virtual) workloads into VDC to raise the level of virtualization in its installed base.
• BT is aiming to consolidate data center capabilities while rationalizing the portfolio of services that it delivers to clients. However, it will take time for this goal to deliver cost-benefits, and BT will need to manage this process carefully to keep customers (especially nonstrategic customers) satisfied. Despite its focus on enhancing global delivery capabilities in India (Mumbai), BT remains behind the ability of market leaders to deploy remote infrastructure services from low-cost locations.
• Clients reported that BT needs to reduce its reliance on key personnel, and must further reinforce its ITIL orientation and ability to support clients in their journey toward adopting global delivery and industrialized services.

• Capgemini continues to evolve a balanced portfolio of end-to-end IT services. The execution of its aggressive consolidation plan, investment in new generation data centers, and progressive consolidation of control center activities into a standardized, India-based Infrastructure Management Operations Center confirms Capgemini's continued focus on IT infrastructure services.
• Although Capgemini focuses on customer relationships, innovation and service industrialization are the other key dimensions of its i3 programs. In addition, the development of a new service catalog of standardized services is likely to progressively underpin all of Capgemini's new "solutioning," and establish infrastructure management as the foundational layer of Capgemini's other value-added services.
• Clients praised Capgemini for its ability to deliver resilient services at a competitive price, and manage service levels to proactively support continuous improvement initiatives. Clients also praised the provider, which operates its ITO remote control centers in locations such as India and Spain, for its practical client management.

• Despite its size in Europe, Capgemini's coverage remains limited in the U.S. and weak in Asia/Pacific. This may put Capgemini at a competitive disadvantage when competing to roll out services from the U.S. to Europe, or for deals with European multinational corporations that operate in the U.S. and in Asia/Pacific. It may also limit Capgemini's growth potential in this service line.
• Capgemini's industrialized offerings require continued focus and investments, as well as faster go-to-market models. The lack of a visible portfolio of industrialized offerings and growing economies of scale may limit Capgemini's ability to address clients' need for flexibility and cost containment during a challenging 2010.
• Clients reported that Capgemini could better fine-tune its transition to global delivery locations, underpin those locations with seamless processes and procedures, and integrate subcontractors or other internal parties.

• CSC has developed a strong portfolio of standardized services, and quickly strengthened its image as a service provider for cloud assessment services and hybrid solutions. Solid marketing initiatives will bring in sales opportunities and business in the short term, which will help CSC retain control over existing clients that are looking for cloud solutions.
• Although CSC has not indicated plans to invest in building new data centers, it has successfully consolidated its data centers, and optimized available space and the average power usage effectiveness (PUE) of its data centers in Europe. During the next two years, CSC will absorb significant assets and capabilities from the megadeal it recently closed with Zurich Financial Services Group. This deal will also serve as a springboard for CSC's European DCO business.
• Clients praised CSC for its ability to manage day-to-day data center operations, its IT skills in areas such as mainframe and security, and the outcomes it has achieved through its approach to transition management.

• CSC has intensified its focus on cloud-based and utility services, which will reduce the size of deals and clients that CSC aims to address. This challenges CSC's strategy and go-to-market model, which were traditionally focused on large enterprises and relatively large deals. CSC has not yet clarified how it plans to approach smaller deals/opportunities from a broader set of companies.
• CSC's nearshore/offshore footprint is still behind others (its main remote control center is located in India). Aggressive plans to increase its offshore ratio and reduce staff for large clients could create significant turbulence during 2010 and 2011.
• Clients reported that CSC could become more proactive in supporting continuous improvement and innovation, manage service levels more effectively, and perform changes in a more timely way.

• Despite a complex year following the acquisition of Siemens' share of Fujitsu Technology Solutions, and the related focus on restructuring and standardizing on a more integrated organization, Fujitsu has continued its data center consolidation and investment plan, and achieved growth in line with the market.
• After years of innovation focused on custom-made service provisioning, Fujitsu is finally delivering the first industrialized offerings as market-facing assets, with an initial pipeline of utility deals, while also leveraging an indirect go-to-market approach for services and cloud-based offerings for SMBs. Fujitsu has already engaged 10 third-party channels to execute this approach.
• Clients praised Fujitsu for its reliability in delivering data center operations, the quality and competence of its technical skills, its flexibility in managing client relationships, and its transition management capabilities.

• Despite recent improvements, Fujitsu is still relying on global delivery/low-cost capabilities (located in India, Russia and South Africa) that are too limited. This reflects the requirements that its customers, which include a significant number of large government organizations, have made so far. Fujitsu must implement its consolidation plan more aggressively to reduce the cost of operations and protect its margin.
• The proportion of servers that Fujitsu has virtualized is lower than the average, proving the relative immaturity of its new utility and hybrid cloud offerings. This is likely to require Fujitsu to further advance its design and ramp up its service delivery capabilities.
• Clients reported that Fujitsu could improve its ability to manage new requests, its focus on proactively delivering continuous improvement, and its expertise in ITIL.

• HP grew its DCO business despite the economic crisis and its EDS integration activities. In the past two years, HP significantly reduced the number of client-owned data centers in Europe, and it plans to further consolidate these while adding a couple of new data centers with a PUE below 1.3. In addition, HP increased its managed MIPS significantly in 2009 and is deploying a new single global toolset for service management across all its data centers.
• HP has a large client base for its utility services and six utility data centers in Europe. HP's utility service offering is sound, backed up by a clear vision, a broad well-structured and organized portfolio, and a strong pipeline. HP also has broad and deep delivery capabilities, and manages more virtual machines as part of its DCO business than the average provider in this market.
• Clients praised HP for its robust data center operations, its focus on governance and relationship management, and its ITIL competency. They also commended the potential of HP's global capabilities, which include existing ITO remote control data centers in locations such as Bulgaria, Slovakia, India and Malaysia.

• Although the EDS integration process is well under way, it still requires additional time and effort to complete. HP has completed the legal integration and harmonized the portfolio. However, it has not yet fully integrated the delivery engine, which can cause service delivery challenges and lower customer satisfaction, as occurred during the second half of 2009.
• The increasing share of and focus on utility services may affect revenue growth because utility service deals are smaller and the revenue from large clients shifts to lower-cost utility services. HP needs to increase its ability to manage a large number of smaller utility deals, and HP is, in fact, testing indirect channels as a route to market across Europe, after having used its first indirect channel in Eastern Europe. These third parties might then increase the need for HP to update and create a more automated service delivery and management model.
• Clients reported that HP could improve its ability to promptly react to new requests and changes, that it must improve the transition process toward global delivery, and that it should focus on delivering innovation and continuous improvement.

• While IBM still maintains the most comprehensive presence, brand recognition and technical capabilities, as well as one of the most powerful R&D engines, it is now competing more directly with traditional and increasingly nontraditional players. IBM's structured approach to innovation has the potential to develop into new and more efficient services for its customers.
• IBM listened to its customers when they requested a higher quality of service. It made the most of its QMS framework, which spans delivery and governance to focus on continuous improvement work and improve service quality. This gives IBM the potential to satisfy the demand for high-quality services and processes that smaller customers require.
• Clients praised IBM for its robust data center services, its focus on process quality and stability, its global delivery potential, and its ability to manage service levels while driving quality assurance and improvement. IBM operates its ITO remote control centers in locations such as the Czech Republic, Hungary, India and South Africa.

• IBM's cloud message to the market is sound, but its commitment to and focus on dynamic and utility infrastructures remain unclear. IBM's portfolio of industrialized offerings does not appear to be entirely integrated within its outsourcing approaches, and lacks a clear path from "on demand" toward the cloud. IBM needs to carefully manage the push toward the cloud to avoid cannibalizing profits within its installed base.
• To maintain DCO leadership in the long run, IBM must extend its message beyond green IT and smart services for data centers. IBM also must continue to demonstrate to the market that it cares about smaller clients by showing how these clients can leverage IBM's most comprehensive global delivery model and industrialized offerings.
• Clients reported that IBM could improve its ability to react flexibly, especially in light of a perceived high level of organizational complexity/bureaucracy. IBM could also fine-tune the transition to global delivery and proactively offer industrialized services.

• Logica maintains a strong presence in Europe, and a good protracted focus on infrastructure outsourcing that supports the growth of its DCO business. Logica's presence in key European markets, its significant investments and its data center consolidation plan will improve its DCO position in those European markets. Logica also plans to invest further in RIM capabilities and in an additional global delivery toolset.
• Logica improved its global delivery setup by enhancing its capabilities in India in 2009, and expanded that setup with the addition of Morocco in 2010. Offerings for utility services are sound and complement Logica's DCO portfolio, and customers seeking an end-to-end solution can combine Logica's DCO portfolio with solid application services.
• Clients praised Logica for its customer focus, its ability to handle change, its ITIL orientation and its performance in transition management.

• Although Logica expanded its capabilities in India, it should further accelerate its global delivery expansion because it is behind the competition in terms of the volume it delivers globally. After a period of acquisitions, Logica should speed up its data center consolidation program and the implementation of a twin data center strategy to catch up with its main competitors.
• Logica's utility story is solid, but still limited to a few selected geographies, and now it extends to cloud propositions such as brokerage. The provider's average contract duration in this area is longer than its competitors' average deal terms, while volume flexibility is higher. In general, Logica treats IUS as business as usual, while it's not leveraging innovative, industrialized approaches quickly enough.
• Clients reported that Logica could refine its link between problem and change management for major issues, as well as its ability to deliver continuous improvement and translate its client focus into true flexibility.

• A renewed focus on outsourcing services and large deals, as well as an improved and comprehensive penetration strategy for the European DCO market, underpins Siemens IT Solutions and Services' (SIS's) traditional leading position in Germany and Austria. Its strategy is centered on key themes such as energy optimization, security (identity and asset management) and industrialization.
• In line with the market's evolution, SIS has started an aggressive plan for utility and cloud-based DCO offerings to exploit the potential for virtualization, automation and integration across its client base. SIS is also using its consulting services and a solidly engineered model for industrialized data center services to support these offerings.
• Clients praised SIS for its customer focus, its flexible attitude in relationship management, the quality of its IT skills and its proactive attitude in promoting industrialized offerings.

• SIS's revenue declined overall and in DCO in 2009. SIS will need to take decisive action to consolidate its data centers and standardize service delivery to restore growth, while balancing profitability. Although this would be a positive and necessary step, clients would need to monitor service delivery quality and their relationship with established SIS executives during any consolidation and standardization program, because SIS is currently restructuring the company after appointing a new CEO.
• SIS's focus on the industrialization of DCO services is sound, but needs to accelerate. For example, SIS, which has located its main ITO remote control center in Romania, has recently started to enhance its RIM capabilities in India. SIS's ability to take advantage of low-cost capabilities to realize their potential is still limited when compared with market leaders. SIS has been slow to execute its server virtualization program, which has been in place with VMware since 2006, but it is accelerating the execution of this program through a recent agreement for vCloud.
• Clients reported that SIS could improve its transition process when consolidating or moving to global delivery; it could also fine-tune service-level management and better drive innovation and the allocation of key staff.

• Steria mostly focuses on France and the U.K., but is looking to expand more in Germany and the Nordic countries. Steria's combination of in-house, onshore and remote capabilities to deliver DCO services, which addresses the needs of outsourcing clients in continental Europe, is a sound strategy to support the provider's ambition of becoming a more recognized European DCO provider.
• Acquisitions and a late but sound focus on key themes, such as global delivery deployment, the creation of an industrialized platform for infrastructure services, and a vertical approach to meet the needs of industry leaders, underpin Steria's strategy to grow its DCO business. In addition to this ambition, Steria maintains a strict approach to qualifying deals while working to become a player that can support transformation through flexibility, a blended delivery model and local presence.
• Clients praised Steria for responding well to customers and maintaining a positive level of client intimacy, for its ability to guarantee resilient data center operations, and for its ITIL expertise.

• Steria's data center penetration of the European market is patchy, with 74% of its DCO business in the U.K. and France and another 10% in Norway. Steria's limited visibility outside the U.K. and France could hinder its potential to expand through Pan-European deals.
• Steria, which has located its main ITO remote control centers in Poland and India, is still developing its RIM capabilities in low-cost locations, and its level of consolidated, asset-based delivery remains limited. As it pursues the need to drastically consolidate data centers in the next few years, Steria must carefully manage service delivery quality and client satisfaction. Finally, Steria must shift its focus from industrializing its internal delivery model to creating a portfolio of industrialized service offerings.
• Clients reported that Steria could improve its ability to react to change requests, its drive to proactively deliver innovation and continuous improvement, and its service-level management reporting.

• T-Systems' revised and focused strategy on the top-400 corporate customers, and an international proposition that is mostly based on its industrialized dynamic infrastructure services and cloud computing, are paying off. Gartner estimates that T-Systems' dynamic industrialized offering has already achieved 20% of its outsourcing business and is growing fast. T-Systems has increased its visibility as a successful telecom and IT provider, has closed a number of deals with major clients, is serving more than 120 clients with its infrastructure utility for SAP offering, and has demonstrated its ability to offset — at least for data center services — the declining revenue from its internal services to Deutsche Telekom.
• T-Systems has revised its service catalog to include a significantly reduced and standardized set of offerings, and has accelerated its implementation of global delivery, which has been overdue for a long time. Its revised service catalog and faster implementation of global delivery are likely to lower service costs and deliver higher returns on investment.
• Clients praised T-Systems for its ability to provide stable and resilient services, its customer focus, its ability to manage service levels over time, and its broad set of technical skills and services.

• The global capabilities and delivery network of T-Systems, which has located its main ITO remote control centers in Slovakia, Hungary, Mexico and Malaysia, are evolving rapidly. However, utility offerings are driving an increase in the number of T-Systems' new large deals, as well as in the number of smaller contracts and clients, which will place the provider's global capabilities and delivery network under pressure. Only continued sales growth, rapid deployment of low-cost global delivery capabilities and continued development of its dynamic service offerings will position T-Systems as a more credible global player.
• Despite winning important contracts, T-Systems must further penetrate the European market and reinforce its brand awareness — particularly in the Nordic countries. Although it has substantial potential to penetrate the European market, the macroeconomic climate has placed its business under pressure in Germany. T-Systems will need to develop or tailor specific offerings to achieve future growth in vertical sectors (such as automotive and financial services) that are facing particular challenges or are restructuring.
• Clients reported that T-Systems should respond to new requests faster, offer improvements to services more proactively, address its reliance on a complex and bureaucratic structure, and improve its ITIL focus to further increase the performance of its processes.

• Telefonica can rely on its strong presence in the Iberian market, and its operations in North and South America, to support clients with operations (or growth ambitions) in these regions. It can also derive future growth by continuing to focus on geographies, such as the U.K., Germany and Eastern Europe, and by exploiting converging IT and telecom services.
• Telefonica has demonstrated a positive vision and commitment, which it has supported by the investment necessary to develop industrialized managed data center services. Its 3P approach to connect the network/data center platform to people and processes to deliver integrated client services is also sound.
• Clients praised Telefonica for the quality and reliability of its infrastructure and data center services, the technical skills and technological depth of its engineers, and its flexible approach to account management.

• Telefonica is not a widely recognized brand in the delivery of DCO services, and this, coupled with its scattered and limited European presence for this service, will challenge its European DCO expansion. Its focus on small deals is likely to support slow growth, with risks of escalating costs per sale and challenges of service standardization and service delivery processes for larger deals.
• Despite some early success in moving client workloads in its data centers in Eastern Europe, Telefonica has created and deployed a global remote infrastructure service model that is very limited, compared with those of leading competitors in Europe. Telefonica plans to invest to enhance its low labor cost control center capabilities in Brazil and the Czech Republic through 2012, and to leverage opportunities across its DCOs in the U.S. and Latin America. In the short term, this is likely to leave Telefonica at a disadvantage when competing against providers that are taking a much more aggressive approach to developing these capabilities.
• Clients reported that Telefonica could improve its incident management and ability to manage end-to-end processes. They also said that Telefonica could benefit from increasing its focus on ITIL competencies and the proactive delivery of innovation.