Executive Summary: ISG Provider Lens™ Public Cloud - Services & Solutions - Nordics 2021
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The individual quadrant reports are available at:
- ISG Provider Lens™ Public Cloud - Services & Solutions - SAP HANA Infrastructure Services - Nordics 2021
- ISG Provider Lens™ Public Cloud - Services & Solutions - Managed Public Cloud Services for Midmarket - Nordics 2021
- ISG Provider Lens™ Public Cloud - Services & Solutions - Managed Public Cloud Services for Large Accounts - Nordics 2021
- ISG Provider Lens™ Public Cloud - Services & Solutions - Hyperscale Infrastructure and Platform Services - Nordics 2021
- ISG Provider Lens™ Public Cloud - Services & Solutions - Consulting and Transformation Services for Midmarket - Nordics 2021
- ISG Provider Lens™ Public Cloud - Services & Solutions - Consulting and Transformation Services for Large Accounts - Nordics 2021
The Nordics-based enterprises are ready to "reboot" and "reinvent" with increased adoption of cloud and digital services
The Nordics market has seen strong growth in terms of public cloud spending and digital transformation contracts across sectors and verticals in recent years, and this trend is expected to continue in the coming quarters. The market has demonstrated a significant growth across verticals in terms of IT outsourcing, divestiture and mergers. Due to enterprises' ambition to expand their product and service portfolio globally, cloud spending has increased across verticals over the last five to six quarters. IT service providers in the Nordics must improve their service portfolio and provide digital transformation advisory services as well as services related to hands-on projects.
The Nordic public sector is increasingly focusing on cloud adoption and multicloud, multiyear digital transformation initiatives. As companies in the Nordics focus on improving customer experience, we have observed an increase in the adoption of digital services. This is expected to rise as the region prepares for international investment, strategic collaboration, and mergers and acquisitions activity.
Digital transformation-led sourcing continues to rise: As a result of the ongoing transformation, the IT market in the Nordics is expected to continue growing significantly over the next few years. Enterprises in the region have embraced emerging digital technologies to become more cost effective and enhance customers’ experience in a digitally transformed global economy. Scaling digital solutions and developing and reinventing business models are the other major issues encountered by many enterprises during their transformation journey. Some companies are making steady and quick development, while others are trapped in a "digital deadlock," where technology legacy, organizational structures, culture and management hesitations obstruct growth. Companies should cooperate with global system integrators (GSIs) and regional technology and service providers as co-business partners to accelerate their digital transformation journey.
Instead of a traditional IT service provider, businesses are seeking collaborative partners and co-innovation partners: The market is primarily driven by enterprises' digital transformation initiatives and the demand for more agile IT delivery, which necessitates infrastructure modernization and the use of cloud technologies such as microservices, containers, functions and embedded AI. IT providers must recognize that the cloud is the default infrastructure option and adjust their offers and delivery organizations accordingly. This includes re-evaluating competency and certification requirements, adopting a collaborative ecosystem approach, and assisting clients in developing business cases, in which the cloud drives topline benefits rather than cost savings. Rather than functioning as a KRA and SLA, such as traditional IT vendors, many businesses are seeking IT service providers that can work as a joint partner and co-innovator.
Public cloud services have become the mainstream solution for developing a new business model: The IT market in the Nordics has always been one of the most progressive markets in Europe in terms of manufacturing and new baking solution development. Although many large organizations continue to run their applications in a legacy operation model, there is a significant increase in the number of enterprises adopting a more standardized digitalization approach in the last two years. This move has increased the public cloud spending of enterprise clients and SMBs across all industries. Sweden, which has a well-diversified manufacturing sector and exports the majority of its goods, contributes a far larger portion of its IT budget to R&D when compared to its neighboring countries. Denmark, Finland and Norway increasingly focusing on the food and beverage and the oil and gas industries. Overall, Nordic enterprises have increased their IT spending, especially on public cloud, cloud-native and IT infrastructure transformation.
Mergers and acquisitions and divestment continue to intensify the competition for GSIs: Over the last five to seven quarters, the region has seen a tremendous influx of mergers and acquisitions announcements. Mid-size IT service providers are recognizing the importance of having a solid portfolio and competitive strength to grow their market share and compete for major multi-cloud projects. It is critical for global system integrators and regional service providers to shift from the concept of traditional multi-cloud service providers.
SAP HANA infrastructure services have been widely adopted: The COVID-19 pandemic has accelerated digital adoption among several companies. This has increased the migration of SAP workloads to the cloud for a large number of SAP customers as enterprises seek more agility, elasticity and analytics capabilities. The demand for SAP HANA cloud infrastructure services has increased significantly. Nordic enterprise clients are reluctant to transfer their SAP HANA workload to cloud infrastructure due to data sovereignty and security issues. The COVID-19 epidemic has refocused CXOs' emphasis on cost reduction and workload optimization. However, banking, finance and retail clients have started migrating SAP HANA workloads to public cloud infrastructure in a proof-of-concept model. The growth in SAP HANA implementation on public cloud is subject to how the global and Nordic markets react to the COVID-19 business slowdown. AWS and Microsoft are dominating the Nordic market in terms of SAP on Cloud. Both the companies’ partner ecosystems and professional services continue to grow. With several strategic announcements with Swedish telco giants, Google Cloud has seen substantial growth.
Growth mindset and government support: The Nordic countries have passed innovation policies to help companies in their pursuit of new technology. This has supported in the development of a more robust discussion on topics such as health, Fintech, manufacturing and energy. Large digital sourcing frameworks, such as the Swedish transport administration and the Hansel deal for finished government, have been implemented in the region during the last three quarters. This is anticipated to rise as the majority of Nordics-based businesses try to improve customer experience by establishing a data-driven digital network.
According to ISG Index™, the adoption of cloud-based services drives European IT business services market in Q2. The EMEA ISG Index™, which measures commercial outsourcing contracts with annual contract value (ACV) of US$5 million or more, shows that the ACV for the combined market, which includes both as-a-service and managed services, reached US$6.3 billion, an increase of 31 percent when compared to the soft quarter last year during the onset of the pandemic, and an increase by 4 percent in the first quarter of 2021. It was the third consecutive quarter that combined market ACV exceeded the US$6 billion mark, with this quarter nearly matching the record established in the fourth quarter last year. Managed services, which was at US$3.4 billion, was down by 4 percent, its second straight quarterly decline, although it was up by 23 percent over a soft Q2 a year ago. Deal activity for the quarter was at a record 217 contracts, amid a flurry of mid-range deals between US$20 million and US$40 million. IT outsourcing (ITO) generated US$2.8 billion of ACV, an increase of 18 percent, and business process outsourcing (BPO) generated US$611 million of ACV, an increase of 54 percent.
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