Asia Pacific's Leading Technology Spend Optimisation Partner

2015/16 IT Market Study Australia and New Zealand

Executive Summary

Version 1-0

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Contents

i. Introduction

ii. Key Insights

iii. Overview of ITNewcom

For copies of the ITNewcom 11th Australia and New Zealand IT Market Study please contact Kim Gordon at kgordon@itnewcom.com

Quoting ITNewcom Information and Data

Internal Publication: Limited use of excerpts within client organisations is allowed and does not require prior approval from ITNewcom. Organisations may quote individual sentences, paragraphs and figures derived from this report in internal communications and presentations provided that they are reproduced verbatim and in context. All copyrighted material should be marked 'for internal use only'. External Publication: The use of any ITNewcom information and data in any external communication, document or presentation requires the prior written consent of ITNewcom. Disclaimer: Although the data and information contained in this report is believed to be accurate at the time of publication, ITNewcom does not warrant the accuracy, completeness or suitability of the information or data.

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Introduction

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ITNewcom Overview

Assisted our clients optimise over $25B of Technology spend since 1997

55 People, 7 Offices, exclusively focused on Technology spend Optimisation

Holistic Services spanning, Strategy, Execution and Managed Services

Deep insights into local supply market with a focus on capability and performance

Extensive Technology Benchmark database having executed over 1600 Technology Benchmarks across ANZ

Dedicated Research Capability focussed on the ANZ Market

2015/2016 IT Market Study Demographics

An Insourced Organisation is an organisation that insources the majority of its IT Services.

0%

25%

50%

75%

CIO Senior IT Manager IT SourcingManager

CXO Other

Study Participant by Role

0%

10%

20%

30%

Utilities Financials Healthcare Government Industrials Other

Organisation by ITN Industry Group

0%

25%

50%

75%

Insourced Outsourced

Organisation by Sourcing Mix

Introduction Unparalleled Local Insights The ITNewcom 2015/2016 Market Study collected data on 163 suppliers and 351 deals providing deep insights and comprehensive analysis of the ANZ market across all major industry sectors.

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Key Insights

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This year’s budget vs last year’s spend

The ITNewcom market research indicates growth of around 2.2% to $AU 43.7 billion for FY2016.

By far the largest spending industry segments are Financials and Government.

Key Insight #1: Big IT Spenders Grow Modestly

Source: ITNewcom Market Databases

Key Insights and Observations

59% of organisations have an increased IT budget this year compared to last year’s actual spend, a slightly bigger proportion than last year.

At the same time, 18% of organisations have the same budget as last year’s spend, and 23% have less. This is still much improved on two years ago.

There is a slight decrease in budget confidence, in that a larger proportion than last year expect a reduction in budget within the current year, and that number well exceeds those expecting an increase.

There is modest, though slightly reduced pressure to increase budgets for the following financial year. The effect of that will likely be more noticeable in those organisations where strategic business initiatives truly drive IT activity, and where, therefore, funding comes from those business initiatives.

That pressure for future growth appears to be less in New Zealand than in Australia.

Australia and New Zealand’s top 250 IT spenders will increase IT spend to around $43.7 Billion (AUD) in FY2016.

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10%

20%

30%

40%

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70%

This Year'sBudget is Less

This Year's Budgetis About the Same

This Year'sBudget is More

2013 2014 2015

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Business Initiatives over next 2 years

Example responses:

• Business Initiatives: in a Utility company, “Retail transformation”, and in a Health care provider, the standardisation of health care facilities and providing for growth in the number of facilities.

• Application Initiative: Document and Data Management

• Infrastructure Initiative: Infrastructure and network transformation

• IT Process : Globalised service management / one-stop IT shop

• Business Process : Back-office BPO

Key Insights and Observations

• When asked to name their top two business initiatives, 70% of CIO/CTO respondents nominated at least one high-level strategic business initiative. However only 13% focused solely on such business initiatives: 57% also named an IT program (application, infrastructure or process).

• These are business leaders, driving, or at least fully sharing in the most important endeavours of the organisation.

• The initiatives they describe have the potential to transform and innovate, to achieve real competitive advantage and growth.

• Some of the leading organisations are undertaking far-reaching digital business initiatives, from customer engagement through operational processes.

• At the same time, as the chart on the left shows, a majority of all the initiatives named were described at the level of IT projects – applications, infrastructure and IT processes.

37%

31%

16%

9%

7%

Business Initiatives

Application Initiatives

Infrastructure Initiatives

IT Process

Business Process

Key Insight #2: Business Initiatives Drive IT

Enterprise-wide strategic business initiatives are among the top initiatives named by 70% of CIOs. Some of the leading organisations are undertaking major digital business initiatives.

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Key Insight #3: Long-Term Outsourcing Growth Continues

Source: ITNewcom Market Databases

Users’ intention to outsource more shows that the long-standing gradual growth in outsourcing as a proportion of IT spending will continue.

Sourcing Intentions trend by Service Category

Insights and Comments

There is strong intention to outsource more applications services and infrastructure services, with 40-50% of respondents saying they plan to outsource more, which is an increase in this intent since our 2013 study. It holds for both public and private sectors.

Similar sentiment at a somewhat lower level is also evident for business process services (30%), despite the current limited outsourcing of BPO.

Nearly half of organisations indicate an intent to outsource more applications services, which will see the marked “mixed” sourcing nature of this service line continue. As organisations tackle the IT aspects of strategic business initiatives, especially the extensive digitisation of business, we must expect to see a shifting and more complex sourcing mix for applications services.

Backsourcing (bringing a service back inhouse) remains rare.

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25%

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100%

2013 2015 2013 2015 2013 2015 2013 2015 2013 2015

Business Process Applications Infrastructure Telecommunications IT Service Desk

Outsource More Insource More No Change Not Sure

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Key Insight #4: Technology Suppliers Are Dominant

Source: ITNewcom Market Databases

Technology itself has become more important in the age of digital business: hence technology suppliers are seen as strategic.

Key Suppliers – Which Supplier Segments are Considered Most Important

Insights and Comments

Technology providers (mostly software) are the most prominent among the respondents’ strategic suppliers now. Although not all those may be major service providers, the importance of digital business has driven technology itself to strategic importance. For similar reasons, plus their criticality to business operations and their growing presence in cloud services, telcos remain high in importance.

Among pure IT service providers, Tier 1 suppliers remain most important, but their dominance continues to decline quite noticeably. The smallest service suppliers, the Tier 3s, are also diminishing in importance to the major IT users surveyed. It is the Tier 2 suppliers that are gaining in importance.

The Indian providers have slipped in prominence among named key suppliers. The absolute change is small but it does reflect the fact that these have mostly become “normal” suppliers as Tier 1 and Tier 2 suppliers also offer mature offshore services.

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Tier 1 Tier 2 Tier 3 Indian Tech Telco

2011 2013 2015

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Key Insight #5: Suppliers “Could Do Better”

Source: ITNewcom Market Databases

All categories of suppliers are rated below expectations on average.

Supplier Performance 2015

Insights and Comments

Change since 2013 has been mostly minimal and differences among supplier types are also mostly small. Note particularly that there is not much perceived difference between Tier 1 and Tier 2 service suppliers; if anything, Tier 2s do slightly better.

The Indian suppliers, however, have slipped significantly in overall performance compared to the peak achieved in 2013, and are now collectively rated lowest among the tiers of suppliers.

When asked what one thing the suppliers could do to improve, the participants suggested the following most frequently -

For Tier 2, Indian and cloud suppliers: Innovation – to bring and apply new business technology and ideas.

For Tier 1 and Telcos: to improve the management of the day-to-day service, the ease of working with the supplier as well as contractual and negotiation complexity.

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2

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Tier 1 Tier 2 Tech Telco Indian

2013 2015

Exceeds expectations

Slightly above expectations

Meets

expectations

Slightly below expectations

Does not meet

expectations

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Overview of ITNewcom

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Highly Experienced People Methodologies Refined Through

Engagement Holistic Services

1 2 3 4 5 6 7 8

39% 78% 14% 7% 3% 0.2 2

39% 78% 14% 7% 3% 0.2 2

39% 78%

14%

7% 3% 0.2 2

39% 78% 14% 7% 3% 0.2 2

39% 14%

7%

3% 0.2 2

39% 78%

14%

7% 3% 0.2

14%

0.2

7%

39% 78% 14%

14% 14% 14%

Client 1

Client 2

Client 4

Vlinet 6

Client 5

Client 7

IBM

Client 8

Deep Supplier Relationships Rich A/NZ Benchmark Data Dedicated Research Capability

Original Test

High price inflation? 1

Large differences in price? 4

Excessive profit? 3

Prices outstripping costs? 2

Opportunity based on benchmarks? 5

Vendors easily substituted? 8

High fragmentation of spend? 7

High Supplier share of business? 6

About ITNewcom ► The Facts Unparalleled knowledge of IT costs and suppliers in the A/NZ market, combined with a proven track record of results achieved through influencing over $22B of IT spend for the markets largest and most complex clients

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About ITNewcom ► Unmatched Regional Insights ITNewcom has performed over 1600 business process and IT service benchmarks within the Asia Pacific region. This, in conjunction with consulting and best-in-class market research has enabled ITNewcom to build the most current and comprehensive benchmarking databases in the Asia Pacific Region.

Benchmarks - by Industry Sector

38%

16% 11%

8%

7%

6%

6% 5% 3%

Government Financials Utilities

Transportation Resources Consumer

Manufacturing Industrials Healthcare

Benchmarks - by Category

59

65

48

1,560

60

40

50

20

30

0

10

Satisfaction

1,557

Business Process

Key Terms Information Technology

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ITNewcom Foundation ► Educating Indigenous Australians

• Approach

Established in 2011 to provide academic university scholarships to young indigenous Australians. The investment provides the scholars with the necessary support to help them make a successful transition from school, to university and into the workforce. The foundation is currently supporting 5 scholars at Melbourne University, University of NSW and University of South Australia and will double the number of scholars in 2016.

ITNewcom Foundation Vision

Giving Indigenous Australians an opportunity to continue the education journey through University and to see

more and more Indigenous Australians joining the ranks of the professions. Ultimately, we would like to see many

Indigenous Australians comfortably occupying seats at the boardroom table.

Major Activities in 2015

Appointed a senior liaison person to maintain regular contact with students, colleges, universities and the respective indigenous units.

Expanding our supplier program to be more relevant to the Supplier Community. Hosting our first foundation event in October 2015 to bring together all those who make the foundation’s

endeavours possible. Ensuring alignment and effective engagement with government programs and policies.

AUCKLAND 54 Ponsonby Road Grey Lynn Auckland 1011 NEW ZEALAND Phone: +64 (0)9 360 2105

BRISBANE Riparian Plaza L36, 71 Eagles Street Brisbane QLD 4000 Phone: +61 (0)73121 3146 Fax: +61 (0)7 3121 3030

CANBERRA 23 Brindabella Circuit Brindabella Business Park ACT 2609 Phone: +61 (0)2 6230 1061 Fax: +61 (0)2 8904 7788

MELBOURNE L27, 101 Collins Street Melbourne VIC 3000 Phone: +61 (0)3 9653 9278 Fax: +61 (0)3 9653 9307

PERTH 45 Ventnor Avenue West Perth WA 6005 Phone: +61 (0)8 9389 4433 Fax: +61 (0)8 9389 4400

SINGAPORE Marina Bay Financial Centre Level 39, Tower 2 10 Marina Boulevard SINGAPORE 18983

SYDNEY L6, 99 Walker St North Sydney NSW 2060 Phone: +61 (0)2 8904 7777 Fax: +61 (0)2 8904 7788

www.itnewcom.com