Gartner Industry Addressability Report

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A Report for Microsoft Office 365 Industry Addressability Study Gartner Consulting Report 03 July 2017 Engagement: 330043507 This document including any supporting materials, is owned by Gartner, Inc. and/or its affiliates and is for the sole use of the intended Gartner audience or other authorized recipients. This document may contain information that is confidential, proprietary or otherwise legally protected, and it may not be further copied, distributed or publicly displayed without the express written permission of Gartner, Inc. or its affiliates. © Gartner, Inc. and/or its affiliates. All rights reserved. Table of Contents 1. Introduction ........................................................................................................................................................... 3 2. Financial Services ................................................................................................................................................... 7 3. Healthcare ............................................................................................................................................................ 11 4. Manufacturing ..................................................................................................................................................... 15 5. Transportation ..................................................................................................................................................... 19 6. Retail .................................................................................................................................................................... 23 7. Government ......................................................................................................................................................... 26 8. Hospitality ............................................................................................................................................................ 31 9. Appendix .............................................................................................................................................................. 35 2 © Gartner, Inc. and/or its affiliates. All rights reserved. Gartner is a trademark of Gartner, Inc. or its affiliates. Environment, Microsoft Friendliness, Digital Maturity, and Partner Ecosystem. The regions and industries were scored on these categories through quantitative and qualitative analysis in order to determine Microsoft’s ability to address the Office 365 opportunity through partners. In conjunction with the Microsoft Addressability score that was developed, the total addressable markets (TAdM) for knowledge workers (KW TAdM) and firstline workers (FW TAdM) were determined 1. The two components of the analysis were combined and graphed in order to arrive at strategic recommendations. Additionally, heat maps and solution maps were created to pinpoint bright spots within verticals for Office 365 interactions with vertical specific software and use cases. 1. Introduction This document, which is an overview of the findings from a study by Gartner Consulting and commissioned by Microsoft, provides insights into trends, solutions, and strategic areas of focus in order to accelerate Office 365 adoption and penetration globally. The report is divided into several main sections, beginning with an overview of the project, Office 365-related market trends, summary of study findings, and industry deep dives. The industry deep dives provide details on industry-specific trends, addressable markets, IT and software spend, as well as key solutions. Background Microsoft engaged Gartner to identify key regions and industries that could provide significant growth opportunities for Office 365. In order to identify these opportunities, Gartner started with a hypothesis: regulated industries and firstline workers are markets with relatively low adoption rates that could potentially drive significant growth. Firstline workers are defined as employees, staff, team members or the workforce itself, that serve as the first point of contact between companies, their customers / products / suppliers and the market. These workers are often in roles that directly impact the customer experience and the delivery and development of products and services. On the other hand, knowledge workers are involved in non-routine tasks that require industry / solution-specific expertise. Knowledge workers are often a dispersed workforce, thereby needing collaboration tools in order to share knowledge and project progress. Sources The qualitative and quantitative analysis and total addressable market estimates were determined through the use of published Gartner forecast data, Gartner analyst discussions, Gartner CIO survey data, and Gartner published research. Gartner conducted additional qualitative analysis through secondary research to supplement Gartner data. Research Summary Partner Impact Gartner views organizational-centric digital roadmaps as an impediment to the impact of digital transformation. Digital ecosystems, which include participants from a wide range of industries who provide a wide range of solutions to deliver value throughout the ecosystem, will drive significant growth for the participants. Microsoft partners are well-positioned to succeed in the growing Office 365 ecosystem by creating and delivering integrated solutions. These integrated solutions have not emerged organically but rather as a result of partner collaboration and intervention in the Office 365 ecosystem. Methodology Using a multi-step approach, Gartner developed an outside-in market perspective on Office 365’s Addressability. The analysis was conducted on a regionallevel and included Asia / Pacific, Canada, Central and Eastern Europe, France, Greater China Region, Germany, India, Japan, Latin America, Middle East and Africa, United Kingdom, United States, and Western Europe. The industries included in the analysis were Government, Healthcare, Financial Services, Manufacturing, Retail, Hospitality, and Transportation. The regions and industries are further defined in the Appendix. Through the analysis the regions and industries were assessed on four key categories – Investments and Regulatory 1 High-Level Country Analysis Regional differences on digital maturity, Microsoft friendliness, investment and regulatory environment, and partner ecosystems are the driving force behind the Harvey Ball ratings for Microsoft Addressability in Figure 1.1. Overall, highly-developed regions were found to be the most aligned, while regions with developing economies were on the lower-end of the ratings spectrum. However, even within the lower-rated regions, Knowledge and firstline worker definitions included in appendix 3 © Gartner, Inc. and/or its affiliates. All rights reserved. Gartner is a trademark of Gartner, Inc. or its affiliates. there are strategic opportunities and pockets of growth with large addressable markets that should not be ignored. High-Level Vertical Analysis The verticals, rated on the same metrics as the regions, can be seen ranked in order of Microsoft Addressability in Figure 1.2. The output: The United States, Canada, and United Kingdom are the regions with the highest addressability scores, primarily driven by heavy investment in SaaS office suites to date, and interest in continued investment in SaaS office suites, BI / analytics, collaboration tools, and other cloud services. Figure 1.2: Microsoft Addressability Industry Rankings, 2017 1 Financial Services 2 Healthcare 3 4 Manufacturing Transportation Figure 1.1: Microsoft Addressability Region Rankings, 2017 5 United Western Europe Kingdom France Germany (WE) Central & Eastern Europe (CEE) 4 Canada 2 3 Retail 6 Government 7 Hospitality 3 1 4 Japan United States Financial Services scored the highest primarily due to the industry’s high digital maturity, Microsoft friendliness, and digitalization initiatives driven by innovation. 2 4 Greater China Region (GCR) 2 India 2 Latin America (LATAM) 1 Middle East & Africa (MEA) 1 Financial Services is followed by Healthcare, Manufacturing, and Transportation respectively. The Healthcare industry is investing heavily in digital initiatives, and, like Financial Services, has high Microsoft friendliness due to its focus on security and need to meet stringent regulations. As globalization and cost reduction initiatives are putting pressure on organizations to become more efficient and deliver products and services to customers faster, Manufacturing and Transportation are both undergoing digital transformations in order to remain competitive. Asia-Pacific (APAC) 3 Table 1.1 provides the global Total Addressable Market for firms with more than 100 employees. Table 1.1: Global TAdM for 100+ Employee Firms Workers Knowledge Firstline APAC 31.3 71.1 Canada 3.5 1.6 CEE 36.3 30.5 France 5.0 3.1 GCR 26.5 80.2 Germany 7.5 3.5 India 34.0 31.7 Japan 8.9 5.2 LATAM 15.1 17.8 MEA 27.6 52.1 United Kingdom 7.3 3.0 United States 21.9 12.1 WE 14.8 8.4 Total 239.9 320.3 Retail, Government, and Hospitality lag behind the other industries, but still have significant alignment to Microsoft. Retail is undergoing a significant transformation – there is a push to become more digital, but organizational barriers and tight budgets will continue to hinder Retailer’s efforts to help struggling brick-andmortar locations compete. The Government, while highly Microsoft friendly (especially in the US due to the dedicated Microsoft cloud services available), is slow to adopt cloud and move away from legacy systems. Outside the US there is hesitation to use cloud services from a foreign entities. The Hospitality industry relies heavily on vertical specific software (VSS). When this aspect is combined with tight IT budgets, many Hospitality organizations find it hard to invest in innovative / digital solutions, however, organizations are finding it increasingly more important to invest in technology in Source: Gartner Consulting, Estimates in Millions 4 © Gartner, Inc. and/or its affiliates. All rights reserved. Gartner is a trademark of Gartner, Inc. or its affiliates. order to improve customer service and remain competitive. Gartner Microsoft Office 365 Overview This section covers trends in adoption of Office 365 and Team-Oriented Messaging Collaboration Tools. As demonstrated on Table 1.2, there are key solutions that represent bright spots or target areas in which Microsoft Office 365 could provide significant value to organizations within specific verticals. These are detailed in the vertical chapters, but should be considered when engaging in discussions with organizations in each of the industries. Office 365 Adoption Office 365 adoption and plans for adoption have continued to increase over the years. From 2014 to 2016 all organizations using or planning to use Office 365 increased from 65% to 78% as shown in Figure 1.3. Table 1.2: High-Level Solutions by Industry Vertical Figure 1.3: Change in Office 365 Adoption, 2014 to 2016 Key Solutions Financial Services  Case Management: Claims Processing / Underwriting  Agent / Broker Portals  Doc/Contract Management/Case Management/Loan Origination (Coordination) Healthcare  Virtual Health / Remote Patient Monitoring (Telemedicine)  Care Coordination  Medical Data Storage Manufacturing  Product Lifecycle Management (PLM)  Content Management / Document & Records Management  Knowledge Management (Troubleshooting) Transportation  Mobile Technology  Scheduling / Carrier Tendering  Disruption Management (Irregular Operations) Retail  Workforce Management  Internal Communication & Collaboration  Customer Service & Support (Unified Commerce) Government  Citizen Services (Citizen Engagement)  Case Management  Regulatory, Licensing, & Permitting / Planning (Community Dev.) Hospitality  Hotel Operations  Customer Service & Support  Restaurant Operations 2014 Currently Using or Planning to Use Office 365 65% Firstline Financial Services 22.3 23.0 Healthcare 23.7 26.7 Manufacturing 88.3 114.8 Transportation 15.0 26.3 Retail 24.2 39.8 Government 59.1 80.5 Hospitality 7.2 9.2 239.9 320.3 Total Source: Gartner Consulting, Estimates in Millions 5 © Gartner, Inc. and/or its affiliates. All rights reserved. Gartner is a trademark of Gartner, Inc. or its affiliates. No Plans for Office 365 22% Currently Using or Planning to Use Office 365 78% Overall, while cloud adoption is growing, the top reason for not using public cloud services is security and / or privacy concerns. Many of these concerns may stem from outdated perspectives based on assumptions that have been disproven, or the gap between what providers are delivering to address organizations’ needs. Providers need to provide sufficient information regarding the security record of the services in order to help customers move beyond these general security concerns (security is listed as the second highest cloud deployed application). With growing regulations including the EU’s GDPR, security is top of mind for many CIOs. Microsoft is continuously working to address these challenges organizations are facing (i.e. Microsoft Cloud will provide GDPR compliance) and there are an increasing number of security and compliance capabilities being built into Office 365 which can provide value to many organizations. Table 1.3: Global TAdM for 100+ Employee Firms in Key Industries Knowledge No Plans for Office 365 35% The biggest hesitations to adopt Office 365, as seen in Figure 1.4, include security concerns, cost, and competive offerings. It is important to be aware of these challenges as they can be overcome through highlighting the right use cases, and having appropriate meaningful conversations about security and functionality. Table 1.3 presents the total addressable markets for knowledge workers and firstline workers for the industries profiled in this study. Workers 2016 Figure 1.4: Reason for “No plans for Office 365” (2016) the lowest adoption include Financial Services (Banking & Securities and Insurance) and Industrial Manufacturing; these industries have been slower to move to the cloud due to regulations and the desire to protect IP / keep data on-premises. Legal or Business Concerns About information Security 5% Figure 1.6: Public Cloud Email – Public Companies Using Microsoft Office 365 vs. Other, 2016 Cost of Licenses or Migration 4% Currently Using or Planning to Use Office 365 78% No Plans to Use Office 365 22% All Other Reasons 13% Banking and Financial Services 7% 93% Insurance Services 8% 92% Industrial Electronics and Electrical Equipment 9.5% 91% Automotive 10% Industrial Manufacturing Email and Calendar represent the most popular Office 365 services and, consequently, Exchange Online is the tip of the spear for Office 365 adoption. With a significant portion of the market considering adoption, there is a significant opportunity for partners, especially IT service providers (Managed Service Providers, Systems Integrators, Value Added Resellers, etc), to help endbuyers adopt the basic workloads, as well as to upsell advanced workloads and add-on solutions / services. Additionally, as customers look to maximize the value of their investments to deliver new business value and digital workplace initiatives IT service providers figure to play a significant role. 50% OneDrive for Business 9% Office 365 ProPlus Skype for Business Online 17% 27% 8% 5% 14% 8% 6% Rank 1 Rank 2 Rank 3 40% 50% 60% 70% 80% Percentage of Respondents Figure 1.6 shows the breakdown of public cloud email for Microsoft compared to other public cloud services, by industry. The industries with the highest percentage using Microsoft cloud-deployed Office 365 Healthcare, Pharmaceuticals and Life Sciences, IT Software and Hardware Services, and Aerospace. The industries with 6 © Gartner, Inc. and/or its affiliates. All rights reserved. Gartner is a trademark of Gartner, Inc. or its affiliates. 90% 10.5% 90% Transport and Logistics 11% 89% Construction Materials and Natural Resources 12% 88% Travel and Hospitality 11% 89% 15% Healthcare Providers 18% Pharmaceuticals and Life Sciences 19% 10% 85% 82% 81% 20% 30% 40% 50% 60% 70% 80% 90% 100% Other (Including Private Cloud, Hybrid, and On-Premises) Figure 1.7 shows that the team-oriented messaging collaboration tool market is expected to grow to nearly $5B worldwide by 2021, growing at an astonishing 96% CAGR. A significant portion of the market will be due to the inclusion of collaboration tools within bundled office suites. Project Online or Project Pro for Office 365 30% 10.5% While email will continue to be a mission-critical application, its utilization may be partially reduced as more organizations run team-oriented collaboration tools (e.g., Slack, Teams, Google Hangouts Chat, etc.) in parallel. Given the aggressive market transition to cloud delivery, these tools will be pushed to a broad swath of the global IT buying community. For some, the tools will just be an added benefit, however, for select IT buyers, they will be a value driver for acquiring a cloud office suite and a point of differentiation. 16% 20% Retail and Wholesale Trade Food and Beverage Processing Team-Oriented Messaging Collaboration Tools Power BI 10% 91% 92% Additionally, the industries that have been the biggest adopters of Google’s G Suite are those that have large numbers of firstline workers (e.g. manufacturing, retail, transportation). Microsoft has a chance to gain momentum and market share in these markets with its new competitive firstline worker offering. Yammer 0% 9% 8% Microsoft Office 365 19% 14% Chemicals 0% 23% 13% Office 365 SharePoint Online 12% 92% Consumer Products Energy (Utilities or Oil & Gas) Figure 1.5: Enterprises Ranked Interest for Office 365, 2016 Services Email and Calendar (Exchange Online) 90% 8% Figure 1.7: Team-Oriented Messaging Collaboration Tools, Worldwide, 2016 and 2021 Figure 2.2 shows Microsoft's Addressability score plotted against the approximate addressable firstline worker market. $5,000 $4,500 While the US remains the dominant market opportunity for Office 365 in terms of addressability, Canada, AsiaPacific, and Western Europe are all considered strong opportunities. The UK also remains a strong opportunity, however, Gartner expects some slow down as a result of Brexit. Furthermore, Gartner forecasts a corresponding advancement in Western Europe as Germany, France, and Spain all try to capture opportunities as organizations exit the UK due to market uncertainty. Australia, the emerging economies in Greater China, India, Latin America (specifically Brazil and Mexico) as well as South Africa lead the way in terms of FinTech / InsureTech adoption as a means to increase accessibility to financial services. Helping to enable this digital / tech innovation is an opportunity to increase Office 365 adoption. While the FinTech market is booming in mature economies, it represents a relatively small overall opportunity. One of the keys to driving Office 365 addressability is through customer success at major financial institutions (both Banking and Insurance). As Office 365 is adopted by top tier institutions, smaller, regional organizations will understand that regulatory hurdles can be cleared, thereby driving a second wave of adoption. $869 $4,000 $3,500 $1,966 $3,000 $2,500 $2,000 $1,500 $2,075 $1,000 $500 $10 $160 $- 2016 Bundled with Office Suites 2021 Stand-Alone, Special-Purpose Bundled with UC The value proposition of this segment of collaboration tools is they improve business team coordination and performance — for example, by responding to RFPs faster, rolling out corporate IT DevOps processes, requiring fewer employees to run customer service, improving customer satisfaction levels, enabling better decisions by including subject matter experts, and/or reducing product development time. Within target knowledge and firstline worker segments, opportunities exist to address and improve vertical specific processes such as Loan Coordination in financial services (Knowledge) or Irregular Operations in transportation (Firstline) As team-oriented messaging collaboration tools are being used to address industry-specific use-cases, there are opportunities to increase share of wallet outside of core IT and tap into larger budgets of established business buyers. Figure 2.1: Microsoft Addressability vs. Knowledge Worker TAdM for Financial Services 2. Financial Services Overview: Innovation to serve customer needs is driving industry digitalization initiatives. Institutions are starting to overcome regulatory obstacles and invest more heavily in cloud, resulting in a higher demand for collaboration and the next wave of SaaS investment. The two main segments within the financial services industry are Banking & Securities and Insurance. Figure 2.1 shows Microsoft's Addressability score plotted against the approximate knowledge worker market and Collaborative technologies such as content management, secure file sharing, and communications tools are 7 © Gartner, Inc. and/or its affiliates. All rights reserved. Gartner is a trademark of Gartner, Inc. or its affiliates. expected to have a positive impact on improving customer service / responsiveness while driving down the cost to serve for both knowledge workers and firstline workers. These goals can be accomplished by empowering firstline workers (tellers / agents) with additional information / context for customer interactions and knowledge workers with the tools for improved coordination for loan applications / service and claims management. adopt the cloud. Additionally, Banks are increasingly deploying security and compliance solutions in the cloud as they struggle to keep pace with market, regulatory, and customer expectations around fraud detection and the management of DDoS attacks. Insurance – Regulatory, political, and social factors exert a strong influence on the degree of market volatility with which Life and Property & Casualty (P&C) Insurance companies need to cope. Seventy percent of Insurance IT leaders consider their companies to be average at best when it comes to embracing digital transformation. Many business and IT leaders see the lack of digital maturity as a growing risk and are concerned about the entrance of new competitors such as InsureTechs or companies from other industries. Regulation and compliance — particularly Own Risk Solvency Assessment (ORSA) in the US and International Financial Reporting Standards (IFRS) 4 globally — continue to drive Insurers' investment in technology and services. As a result, digital transformation has become a point of emphasis, however, legacy technologies still persist. Insurance CIOs are prioritizing BI / analytics, cloud services / solutions, and digitalization / digital marketing. Figure 2.2: Microsoft Addressability vs. Firstline Worker TAdM for Financial Services According to an August 2016 Gartner Survey, Insurance technology leaders claim to have a cloud first strategy (95% of respondents), yet cloud penetration remains low. These lofty expectations indicate that cloud has reached a tipping point and adoption will increase. Banking & Securities – While there is a significant amount of hype regarding FinTech (7 out of 10 CIOs consider digital entrants a larger threat than traditional competitors), the impact has yet to materialize. As organizations prepare to deal with this new reality, “digital” to deliver business agility and innovation becomes a matter of when and not if. In order to manage these forces, Banking & Securities CIOs are prioritizing BI / analytics, digitalization / digital marketing, and Infrastructure / datacenter investments to improve collaboration and innovation while helping to manage digital change and improve market competitiveness. Total Addressable Market Segments The Financial Services Industry accounts for ~7.4% of the total available market (TAM), 9.3% of the total knowledge worker addressable market (KW TAdM), and 7.2% of the total firstline worker addressable market (FW TAdM) for organizations with over 100+ employees for the 7 verticals analyzed. Knowledge workers engage in non-routine work types (e.g., financial modeling, risk analysis, claims / case management) while the firstline segment is expected to perform client-facing tasks such as customer service and retail banking. Organizations are enthusiastic about the potential of cloud in their industry, however, adoption remains relatively slow. Cloud adoption is primarily driven by the need for automation, cost-efficiency, agility, and innovation and is most heavily utilized in ERP, HR and service desks; “core” functions (those that link to the GL) such as trade finance or treasury are much slower to 8 © Gartner, Inc. and/or its affiliates. All rights reserved. Gartner is a trademark of Gartner, Inc. or its affiliates. Table 2.1: Financial Services Knowledge Worker TAdM and Firstline Worker TAdM by Region (100+ Employee Firms) Workers Knowledge Firstline APAC 2.47 5.79 Canada 0.46 0.14 CEE 2.99 1.90 France 0.41 0.14 GCR 2.05 4.71 Germany 0.93 0.29 India 3.41 3.48 Japan 0.87 0.29 LATAM 1.07 1.41 MEA 2.34 3.09 United Kingdom 0.93 0.26 United States 3.25 1.09 WE 1.17 0.44 Total 22.35 23.03 Figure 2.3: Financial Services IT Spend by Category, 2016 to 2021 Source: Gartner Consulting, Estimates in Millions Spending: CIOs from Banking & Securities have demonstrated an increasing budget for formal IT. A large portion of this budget will go toward investing in FinTech players through incubators and accelerators, which will increase the growth rate of IT spending. Overall Financial Services IT spend totals $746B, and the breakdown can be seen in Figure 2.3. The largest category of IT spending in 2016 was on IT services, followed by Telecom and internal services. The fastest growing segment is software with an expected CAGR of 7.6% through 2021 which will put it as the second highest IT spend segment in 2021 for Financial Services. Source: Gartner Vertical IT Spend Forecast, $Millions The financial services industry has the largest vertical specific / enterprise application spending, with organizations spending significantly more on vertical specific software (VSS) than legacy systems. Evolving business and technical requirements will lead to increased investments in risk analytics and reporting software, and risk-related managed services, contributing to continued strong growth in "other software" and outsourcing services. IFRS 4 will also drive investments in ERP systems, and therefore growth in the "ERP / SCM / CRM" category of software, and related consulting / implementation services. Within the software category (as seen in Figure 2.4), infrastructure and VSS represent the two highest spend categories and are forecasted to be the top through 2021. ERP / SCM / CRM and Desktop (which includes office suites) are the fastest two growing segments with an 11.3% and 8.1% CAGR respectively through 2021. 9 © Gartner, Inc. and/or its affiliates. All rights reserved. Gartner is a trademark of Gartner, Inc. or its affiliates. Figure 2.4: Financial Services Software Spend by Segment, 2016 to 2021 Table 2.2: Financial Services Key Solutions and Applicable Office 365 Workloads and VSS Interactions Key Solutions Key Microsoft Office 365 Workloads Key Vertical Specific Software (VSS) Interactions Case Management: Claims Processing / Underwriting     SharePoint Skype for Business Exchange Teams  Life Insurance Admin. Systems  P&C and Life Insurance Billing/Collection Mgmt.  Reinsurance Agent / Broker Portals     SharePoint Skype for Business Exchange Teams  Life Insurance Admin. Systems  P&C and Life Insurance Billing/Collection Management  Reinsurance Loan Coordination (Document / Contract Mgmt.     SharePoint Skype for Business Teams Exchange  Retail Core Banking  Unified Digital Banking  Islamic Core Banking Case Management: Claims Processing / Underwriting – Organizations are trying to eliminate the manual processes and paper-based documentation / back-office functions involved in the claims management and underwriting process. In order to breakdown organizational silos, improve collaboration, and provide a customizable document management platform to improve the case management process improving operational efficiency and reducing cost, organizations are leveraging SharePoint, Skype for Business, and / or Teams. Industry estimates suggest that automation may reduce time to serve by as much as 90%. Source: Gartner Vertical IT Spend Forecast, $Millions Solutions Agent / Broker Portals – According to a Gartner survey from October 2016, 73% of Insurers stated they believe the degree of e-service adoption via portals or mobile apps is low, and most reported that the majority (>60%) of their business processes are still paper-based. More than ever Insurers need to prove that they are “easy to do business with” to drive customer loyalty. As a result, many traditional vendors are adding portal functionality to core modules, however, they often lack the user friendliness of stand-alone offerings. The combination of Skype for Business and/or SharePoint to improve agent, broker, and customer collaboration could help fill industry gaps. The top three solutions for the Financial Services industry that have high alignment to Microsoft Office 365 workloads are case management, agent / broker portals, and Loan Coordination (Document / Contract Management). Table 2.2 shows the key solutions in the industry, the aligned Office 365 workloads, and the potential interactions of these workloads with key vertical specific software. Loan Coordination (Document / Contract Management) – The lending process remains largely paper-based and is powered by legacy technologies that are, in some cases, as much as 20 years old. While customers have changed the way they search and shop for loans, the process itself has failed to keep pace. Helping to digitize the loan process, from digital document submission (Exchange) and storage (SharePoint) to a more collaborative 10 © Gartner, Inc. and/or its affiliates. All rights reserved. Gartner is a trademark of Gartner, Inc. or its affiliates. origination and servicing environment (Teams, Yammer, Skype) has the potential to not only improve the customer experience but generate significant cost and time savings for both customers and loan originators. regulatory environment. Whereas countries like the US present a significant opportunity, largely because of government mandates to drive down the cost of Healthcare, country and state privacy laws create a complex environment in which technology vendors need to operate. On the other hand, in the European Union, where EHR and legally protected privacy were adopted at the same time, the regulatory environment is much less complex. Gartner expects the next wave of Healthcare digitalization, and opportunity for Office 365, to come from emerging economies focused on improving access to Healthcare as populations skyrocket. India is increasing public spending on Healthcare by 6x and is growing vertical specific healthcare investments by almost 8% per year, while China has increased spending by more than $500B over the last decade and is expected to grow investment in Healthcare software by more than 8% through 2020. 3. Healthcare Overview: The Healthcare industry is investing heavily in digital workplace initiatives and analytics focused on reducing cost to serve while providing differentiated, patientcentric care, population health management, and precision medicine. When all of these factors are combined, Healthcare is a strong and growing opportunity. The development and orchestration of digital business / societal ecosystems are becoming critical success factors in solving challenges related to coordinating care delivery across settings and services within the continually evolving landscape of Medical / Life Sciences Discovery, Healthcare Delivery, Insurance and Payment. Solutions and workflows will be enabled by collaboration tools, communication tools, and increased content management and sharing. The main two subsegments within Healthcare are Hospital & Integrated Delivery Network and Physician Practice. Figure 3.1: Microsoft Addressability vs. Knowledge Worker TAdM for Healthcare Figure 3.1 shows Microsoft's Addressability score plotted against the approximate knowledge worker market and Figure 3.2 shows Microsoft's Addressability score plotted against the approximate addressable firstline worker market. In Healthcare, digital readiness is linked to electronic health record (EHR) investment / adoption. North America (US and Canada) and Western Europe (Denmark, Finland, the Netherlands, France, and the UK) lead the way in digital initiatives. In order to achieve these digital initiatives, governments around the world have taken two key paths to incentivize adoption: a top down, government run approach (Canada, Australia, UK, and France) and a regulatory requirements / incentives approach (United States). Regardless if national EHR guidelines are in place to drive adoption, Microsoft is well positioned in Healthcare and the value proposition for Office 365 improves due to its ability to handle sensitive data and the potential to break down organizational silos that inhibit collaboration. The second major indicator of Microsoft’s ability to address the healthcare vertical is the government 11 © Gartner, Inc. and/or its affiliates. All rights reserved. Gartner is a trademark of Gartner, Inc. or its affiliates. Figure 3.2: Microsoft Addressability vs. Firstline Worker TAdM for Healthcare budget on digital initiatives by 2018 (up from 15% in 2016). In the years to come, HDOs and their physicians will again be upended by efforts to pull the explosion of medical discoveries into treatment faster, emphasizing the need for IT to create an architecture and workflow management model that permits real-time data and decision support exchanges. Substantial efforts are required to modernize legacy systems to postmodern ERP suites and / or replace EHR systems that are not achieving business outcomes. The top technology investments include BI / analytics, cyber / information security, and industry-specific applications. EHR has also been called out as a top priority by 25% of Healthcare CIOs, while many CIOs with EHRs in place recognize this as the trigger to incorporate clinical data into data warehouse, population health management and real-time health systems (RTHS) analytics plans. Cloud adoption has been historically hindered by regulation / compliance issues for healthcare providers (e.g., PHI, HIPAA). However, with Healthcare-specific cloud offerings like Microsoft Azure, Healthcare providers understand that cloud infrastructure and applications actually improves the providers’ ability to remain within regulatory / compliance guidelines while also enhancing cyber / information security. Healthcare’s recognition for the need of real-time solutions is an indicator of the need for more significant cloud adoption. Digital transformation in Healthcare is driving addressability among knowledge and firstline workers. As doctors, patients, and hospital administrators become increasingly connected and collaborative, organizational silos are broken down, enabling Healthcare organizations to innovate. This innovation, paired with improved access to data, facilitates the next generation of solutions such as improved care coordination and virtual health initiatives such as improving patient access, satisfaction and outcomes. Other than strict regulation / compliance measures, Healthcare CIOs face additional challenges such as funding / budgets for digital transformation and a lack of skills / resources, particularly regarding health data analytics. Hospital / Integrated Delivery Network (IDN) – Despite rising healthcare demands from aging populations and new procedures, revenue is constrained by large public and private payer controls on payment rates. Also, moves toward value-based (instead of activity-based) funding models keep revenue growth constrained, especially for hospitals. IT as a percent of the total operating budget has nearly doubled from the pre-EHR to the post-EHR environment. The potential impacts on operating costs, revenue capture and patient safety are substantial, but few Healthcare Delivery Organizations (HDOs) have come close to optimizing the system's potential. Total Addressable Market Segments The Healthcare Industry accounts for ~7.5% of the total available market (TAM), 9.9% of the total knowledge worker addressable market (KW TAdM), and 8.3% of the total firstline worker addressable market (FW TAdM) for organizations with over 100+ employees for the 7 verticals analyzed. Knowledge workers engage in medical treatment and hospital / office administrative work types, while the firstline segment is expected to perform tasks such as nursing, home / home healthcare nursing, and maintenance / facilities. Digitalization in Healthcare will take several years, and many organizations have yet to fully flesh out digital strategies beyond incumbent vendor-provided roadmaps, however, HDOs are projected to spend 24% of overall 12 © Gartner, Inc. and/or its affiliates. All rights reserved. Gartner is a trademark of Gartner, Inc. or its affiliates. Table 3.1: Healthcare Industry Knowledge Worker TAdM and Firstline Worker TAdM by Region (100+ Employee Firms) Workers Knowledge Firstline APAC 2.35 4.69 Canada 0.36 0.20 CEE 3.04 2.63 France 0.64 0.38 GCR 1.83 5.92 Germany 1.15 0.63 India 3.51 3.37 Japan 1.52 0.98 LATAM 1.42 1.57 MEA 1.08 2.10 United Kingdom 0.98 0.50 United States 4.02 2.59 WE 1.82 1.14 Total 23.73 26.71 Figure 3.3: Healthcare IT Spend by Category, 2016 to 2021 Source: Gartner Consulting, Estimates in Millions Spending: Source: Gartner Vertical IT Spend Forecast, $Millions Growth of Digital Healthcare is creating opportunities in the traditional IT domain, such as software, services and infrastructure. The Healthcare industry's total IT spend for 2016 was approximately $115B. As shown in Figure 3.3, the largest spend categories were for IT services and internal services. The software category is expected to have the highest growth over the next 4 years with an expected 7.9% CAGR through 2021. Within the Software category vertical specific software is the largest segment and is expected to grow at an 8.5% to approximately $14.2B in 2021. Figure 3.4 shows spending for all of the different software categories. The segment with the fastest expected growth is ERP / SCM / CRM with an expected 11.2% CAGR through 2021. 13 © Gartner, Inc. and/or its affiliates. All rights reserved. Gartner is a trademark of Gartner, Inc. or its affiliates. Figure 3.4: Healthcare Software Spend by Segment, 2016 to 2021 Virtual Health / Remote Patient Monitoring (Telemedicine) – A lack of awareness about telemedicine and virtual care is an impediment to the wide adoption of such systems in care processes, as is the lack of clarity on payer payments. Solutions for HDOs need to start with educating the buyers with a specific focus on answering questions relevant to their roles (e.g., for IT: what infrastructure is required to enable virtual care / telemedicine?); for solution providers focused on the physician practice segment, target those with high percentages of rural patients who will adopt virtual care to streamline the care process and ease the burden of going to a physical office. Implementing and managing EHRs with virtual care / telemedicine and collaboration tools such as Skype for Business and Skype for Business Cloud PBX / PSTN Conferencing will be major growth areas for service and solution providers. Care Coordination – Care coordination includes workflow and decision support applications for the emerging care coordinator and navigator roles HDOs operating under population health management with payers. As care coordinator and navigator roles increase in prominence within HDOs, and HDOs are increasingly focused on delivering better patient outcomes, care coordination applications and interest in digitally enabled workflows will grow. While CIOs in different countries and regions operate under different payment or funding models, they share a common need to leverage technology to support care delivery, care coordination across agencies and the administration of healthcare. The single most important thing the CIO must do to make care coordination successful is to transform from an independent physiciancentric culture to a care team and integrated health system culture. This will be enabled through integration of key workloads such as SharePoint (enables secure, internal collaboration among groups), Skype for Business & Skype for Business Cloud PBX / PSTN Conferencing (enables communication between on-site medical staff with firstline home care nurses to deliver improved diagnoses and treatment management) and Teams (enables continuum of care during shift changes). Source: Gartner Vertical IT Spend Forecast, $Millions Solutions The top three solutions for the Healthcare Industry that have high alignment to Microsoft Office 365 workloads are Virtual Health / Remote Patient Monitoring, Care Coordination, and Medical Data Storage. Table 3.2 shows the key industry solutions, the aligned Office 365 workloads, and the potential interactions of these workloads with key vertical specific software (VSS). Table 3.2: Healthcare Key Solutions and Applicable Office 365 Workloads and VSS Interactions, 2016 Key Solutions Key Microsoft Office 365 Workloads Key Vertical Specific Software (VSS) Interactions Virtual Health / Remote Patient Monitoring (Telemedicine)  Skype for Business  Skype for Business Cloud PBX / PSTN Conferencing  Electronic Health Records  Imaging  Patient Engagement & Persuasion Care Coordination  SharePoint  Skype for Business  Skype for Business Cloud PBX / PSTN Conferencing  Teams  Electronic Health Records  Imaging  Patient Engagement & Persuasion Medical Data Storage  SharePoint  Electronic Health Records  Imaging  Precision Medicine Medical Data Storage – Medical data storage originated as a technical response to the prodigious storage growth associated with picture archiving and communication systems (PACSs), and the cost and complexity of PACS migrations, however, the value proposition has evolved to include standards-based image access and sharing, EHR integration, universal image viewing and support for 14 © Gartner, Inc. and/or its affiliates. All rights reserved. Gartner is a trademark of Gartner, Inc. or its affiliates. Figure 4.1: Microsoft Addressability vs. Knowledge Worker TAdM for Manufacturing mobile applications. With a significant portion of data from EHRs represented as unstructured data, along with the increased use of analytics to drive more efficient and profitable operations and value-based care initiatives, healthcare providers will begin to invest more aggressively in vendor-neutral medical data storage. This trend will create opportunities for Microsoft partners, particularly those focused on integrating and developing solutions based on SharePoint. 4. Manufacturing Overview: Within the Manufacturing industry, digital initiatives are underway in order to keep up with globalization and competition. Large investments are expected for smart machining, IoT, and advanced analytics. The industry’s digital business initiatives can be enabled through the use of collaboration tools and connecting firstline workers to upper management in order to increase efficiency. The main two segments within manufacturing are process manufacturing and discrete manufacturing. Figure 4.2: Microsoft Addressability vs. Firstline Worker TAdM for Manufacturing Figure 4.1 shows Microsoft's Addressability score plotted against the approximate knowledge worker market and Figure 4.2 shows Microsoft's Addressability score plotted against the approximate addressable firstline worker market. Within the knowledge worker segment, the United States represents the best opportunity for the Manufacturing industry. The combination of the large economy of the US, mature digital ecosystem, and overall Microsoft friendliness, means there are strong opportunities with US manufacturers. The UK and Canada follow in terms of addressability, but are much smaller markets. Germany, APAC, and WE are the next best aligned. Germany manufacturing is a leader in manufacturing digitalization in Europe. In 2011 the German government established the initiative Industrie 4.0 with the aim to secure manufacturing jobs and growth for Germany by developing a competitive advantage through digitalization. This has influenced other countries to follow suite, e.g. the 2016 joint collaboration agreement between the governments of Germany and Japan to develop global standardization for Industrie 4.0 and IoT. Industrie 4.0 as a model for CIOs undergoing digital transformation is now a widely accepted framework, especially in discrete manufacturing. Microsoft products are used widely by knowledge workers within manufacturing, from documentation and manual data analysis through productivity suites to communication through email. But there is an additional opportunity to meet the needs of knowledge workers through collaboration tools specifically to support product lifecycle management processes (e.g. product development and cross department collaboration). The 15 © Gartner, Inc. and/or its affiliates. All rights reserved. Gartner is a trademark of Gartner, Inc. or its affiliates. IoT integration for the pursuit of Industrie 4.0 opens opportunities for the need of collaboration tools and connecting firstline workers to upper management in order to increase efficiency (i.e. troubleshooting). "product innovation platforms" and "manufacturing process management" platforms. The next generation of digital manufacturing is expected to lead to increasingly connected assets. As these connected products are deployed, a corresponding rise in field services opportunities is expected to emerge. Gartner expects this to lead to additional opportunities to connect field employees, improve workforce management, and deploy tools that increase collaboration. Process Manufacturing – Although regulations in the process manufacturing industry (e.g. natural resources / minerals, energy resources / processing, and bulk goods such as chemicals, paint, ink etc.) are considered more lenient in comparison to other verticals, new, more strict, regulations are driving the innovation and adoption of IT / OT convergence and alignment due to the requirements for increased visibility and traceability, accelerated time to market, and mitigating product risk and recalls for the industry. Another driving force for innovation is the demand for differentiated products, which has pushed technologies like unique device identification and trackand-trace serialization further along the adoption curve. CIOs from discrete manufacturers are focused on driving capabilities / solutions for advanced analytics, IoT and autonomous vehicles. In order to enable these areas of focus, investments are grounded in BI / analytics, ERP, cloud services / solutions, and infrastructure & data center. Initially, cloud adoption in discrete manufacturing was hindered due to the need to protect IP at all costs. However, cloud adoption in discrete manufacturing is more mature compared to process manufacturing due to the need to demonstrate agility / nimbleness and keep up with customer demand. Leadership is investing in cloud solutions to enable collaboration across the organization to improve both operational capability and performance management. Furthermore, CIOs are prioritizing investments in BI / analytics, ERP, cloud services and infrastructure. As the volume of data in manufacturing operations grow, the focus of cloud includes applications and infrastructure. Cloud is expanding in manufacturing, with new subscription-based cloud offerings for design, engineering and PLM. Gartner predicts that Digital Factories will lead IoT disruption over the next 3-8 years. Total Addressable Market Segments The Manufacturing Industry accounts for ~42.6% of the total available market (TAM), 36.8% of the total knowledge worker addressable market (KW TAdM), and 35.8% of the total firstline worker addressable market (FW TAdM) for organizations with over 100+ employees for the seven verticals analyzed. Knowledge workers engage in business analytics, manufacturing process design, and engineering, while the firstline segment engages in tasks such as field service, firstline assembly / packaging, and machine operation / fabrication. While cloud adoption is increasing, Gartner expects cloudbased applications to take longer to reach mainstream adoption due to the level of implementation difficulty and perceived business disruption. Other challenges for process manufacturers include harmonizing the PLM platform with legacy systems (ERP, supply chain management, and manufacturing execution systems), a shortage of digital skills / resources and balancing customization demands with compliance. Discrete Manufacturing – Discrete manufacturers (e.g. automotive, consumer goods, heavy industry, IT hardware, etc.) are evolving to an Industrie 4.0 vision, which involves a projection of digital business into manufacturing. This transition impacts business performance metrics, roles, skills, organizations, practices and processes for designing, producing and servicing products. This new generation of design and manufacturing software is being built as cloud-based 16 © Gartner, Inc. and/or its affiliates. All rights reserved. Gartner is a trademark of Gartner, Inc. or its affiliates. Table 4.1: Manufacturing Industry Knowledge Worker TAdM and Firstline Worker TAdM by Region (100+ Employee Firms) Workers Knowledge Firstline APAC 12.71 23.27 Canada 0.83 0.41 CEE 10.84 7.75 France 1.15 0.60 GCR 14.34 38.63 Germany 1.73 0.86 India 17.66 13.71 Japan 2.89 1.62 LATAM 5.34 4.66 MEA 11.33 18.14 United Kingdom 0.93 0.44 United States 5.09 2.85 WE 3.42 1.87 Total 88.27 114.81 Figure 4.3: Manufacturing IT Spend by Category, 2016 to 2021 Source: Gartner Consulting, Estimates in Millions Spending: Source: Gartner Vertical IT Spend Forecast, $Millions Through 2018, the Global Manufacturing Purchasing Managers' Index (PMI) will remain above 50, signaling an expansion of IT purchasing in the global market. Figure 4.3 shows the overall IT spend by the Manufacturing industry, which totaled approximately $539B in 2016. The largest category within IT spend was IT services followed by internal services in 2016; however in 2021 spending on software is expected to surpass the internal services spend due to its expected 8.5% CAGR, which is the fastest growth among all categories. With the positive index for employment and the expansion of jobs, demand is expected to improve for purchases of desktop and business applications including ERP, supply chain management (SCM), CRM, mobile devices and mobile telecommunications services. Figure 4.5 shows the segments within software. ERP / SCM / CRM and vertical specific software are growing the fastest with expected CAGR of 11.7% and 8.0% respectively through 2021. The focus of spend will remain on infrastructure and ERP / SCM / CRM segments. 17 © Gartner, Inc. and/or its affiliates. All rights reserved. Gartner is a trademark of Gartner, Inc. or its affiliates. Figure 4.4: Manufacturing Software Spend by Segment, 2016 to 2021 Table 4.2: Manufacturing Key Solutions and Applicable Office 365 Workloads and VSS Interactions Key Solutions Key Microsoft Office 365 Workloads Key Vertical Specific Software (VSS) Interactions SharePoint Exchange Office 365 ProPlus Skype for Business Yammer Teams  Product Lifecycle Management (PLM) Product Lifecycle Management (PLM)       Content Management / Document & Records Management  SharePoint  Exchange  Teams  Product Lifecycle Management (PLM)  Product Data Mgmt. (PDM)  Enterprise Manufacturing Intelligence (EMI) Knowledge Management (Troubleshooting)  SharePoint  Teams  Yammer  Product Data Mgmt (PDM)  Enterprise Manufacturing Intelligence (EMI)  Product Lifecycle Mgmt. (PLM) Product Lifecycle Management (PLM) – New product failures heavily impact both manufacturers and retailers. Communication between retailers and manufacturers will be vital to take advantage of innovative data such as image recognition for product tracking and trend analysis. Collaboration tools that can bridge groups such as Microsoft Teams, Yammer and OneDrive, can help teams track trends and react swiftly to changing demands. Additional opportunities exist for service providers and ISVs exist to integrate the vast VSS solutions deployed by manufacturers with PLM platforms (which are increasingly cloud-based). Source: Gartner Vertical IT Spend Forecast, $Millions Solutions The top 3 solutions for the Manufacturing Industry that have high alignment to Microsoft Office 365 workloads are Product Lifecycle Management (PLM), Content Management / Document & Records Management, and Knowledge Management (Troubleshooting). Table 4.2 shows the key industry solutions, the aligned Office 365 workloads, and the potential interactions of these workloads with key vertical specific software (VSS). Content Management / Document & Records Management – Gartner is expecting more than half of ECM vendors to re-architect their offerings to cloud-based platforms, which will create services and integration opportunities for Exchange, SharePoint and Yammer. Canada, India, Italy, Japan, US, and UK are all more interested in enterprise content management tools than other regions and may represent a greater proportion of net new accounts or transitioning Office 365 accounts. Knowledge Management (Troubleshooting) – IT / OT convergence and alignment has exposed gaps in knowledge management such as processes, standards, and documentation. Knowledge management will be transformed by chatbots, deep learning, natural-language processing, all of which require cloud-based advanced analytics. Manufacturing productivity can benefit from Office 365, through collaboration integrated (e.g. SharePoint, Teams, Yammer) with operational systems to drive collaboration among suppliers, partners and engineering teams and control of tacit knowledge 18 © Gartner, Inc. and/or its affiliates. All rights reserved. Gartner is a trademark of Gartner, Inc. or its affiliates. Figure 5.2: Microsoft Addressability vs. Firstline Worker TAdM for Transportation management. In particular, the use case of troubleshooting is extremely relevant to the manufacturing industry; workers often find themselves out in the field, on client sites, or on the manufacturing floor, performing non-routine servicing of machinery and in need of an extra set of eyes. In these cases peer-to-peer communication through Teams and Yammer can be valuable in order to reduce downtime and utilize internal expertise. In the case of routine machinery servicing and maintenance, the ability to access SharePoint and previously documented cases, can increase productivity through empowering workers. 5. Transportation Overview: Transportation logistics, as well as airlines, are actively seeking solutions and digital initiatives to help control costs, improve customer service, and connect with sizable firstline workforces. These forces are aligning the industry to mobile and collaboration tools that enable communication and workflow efficiencies. Due to a heavy reliance on vertical specific software and proprietary / legacy systems, opportunities in transportation for Office 365 partners are not as strong as other verticals. For the purpose of this report, transportation is divided into two major sub-segments: logistics and passenger travel. Figure 5.1 shows Microsoft's Addressability score plotted against the approximate knowledge worker market and Figure 5.2 shows Microsoft's Addressability score plotted against the approximate addressable firstline worker market. Within the Transportation industry, organizations in the United States, United Kingdom, and Canada are most aligned to Microsoft Office 365 products. These regions, particularly the US, are most likely to be interested in (and have available funds for) investing in solutions for the growing firstline workforce. Germany, Greater China Region, Asia / Pacific, and Western Europe are the next most aligned, followed by India, Japan, and France. India has historically been more Google friendly than other regions due to its preference for dispersed architectures which helps with its connectivity issues. APAC and GCR are both growing rapidly and increasing investment in transportation software and technologies. Due to the sheer volume of vehicles used in these regions, there are a growing number of opportunities for vendors to address through fleet services. Figure 5.1: Microsoft Addressability vs. Knowledge Worker TAdM for Transportation Logistics – According to a 2016 survey by Gartner, logistics CIOs are pushing for organizational adoption of advanced analytics and business algorithms to drive better business outcomes and clearly link the value of IT to these outcomes. Technology investments are focused on advanced analytics, cloud services / solutions, and 19 © Gartner, Inc. and/or its affiliates. All rights reserved. Gartner is a trademark of Gartner, Inc. or its affiliates. infrastructure, indicating an overall need for digital infrastructure to remain competitive. Transportation is cloud-friendly in part due to the integration with supply chain, which has most applications already in the cloud, and fleet management and vehicle tracking / routing, all of which are transitioning to the cloud. such as the airline industry, railways, bussing systems, passenger ships, etc. Much like logistics, the top two technology investments are in BI / analytics and cloud services / solutions. A major difference is passenger travel’s expected investment in mobility and mobility applications, which is likely due to enabling crew and firstline workers to deliver high-caliber customer experiences for consumers while also improving employee satisfaction. A growing number of logistics executives are planning on or considering closing the gap between transportation planning and the overall supply chain planning (SCP) landscape to synchronize end-to-end supply chain processes and meet their supply chain goals. This will be enabled by increasing reliance on digital ecosystems (transportation CIOs are expected to triple digital ecosystem partners by 2019), as well as the ability for transportation ecosystems to expand to other sectors such as retail, energy and utilities, insurance, smart cities, etc. The airline industry is in the unique position to know where someone will be (or supposed to be) on a given day, however, airlines have not yet tapped into this knowledge and the potential opportunity to empower their role within this digital travel ecosystem with opt-in data. Advanced analytics used in passenger data, destination context and location, travel itineraries, reasons for travel, passenger relations and network peers, transaction currencies, modes of local transport, weather, and other location-based data can alter the power dynamics and role in this digital ecosystem. Airport authorities and airlines have implemented beacon technology to engage with passengers. Several rail authorities are leveraging sensors to improve train diagnostics and drone technology for aerial surveillance of trains and tracks. Connected buses are informing riders with accurate bus location / arrival times, as well as providing a fleet management solution for bus operators. Transportation CIOs expect to source 37% of the critical components (e.g. IP, algorithms, platforms) from existing partners, 22% from new partners, and build 37% in house. This furthers the need to participate and influence a myriad of digital ecosystems that are directly or tangentially important to logistics CIOs. Overall, transportation is not a highly regulated vertical (especially compared to Financial Services and Healthcare), however, there are specific regulations affecting the logistics industry. For instance, European efforts to cut carbon emissions by 40% by 2030 have made funds available for collaboration in logistics (e.g. consortia like NexTrust are beginning to emerge). Government mandates regarding the installation of telematics devices (e.g. e-log mandate in the US) are driving the adoption of commercial telematics solutions. By collecting data regarding driver behavior from these telematics devices, driver communications, and logistics sensors, the logistics industry is now able to harness the benefits of predictive analytics. The major challenge for CIOs in passenger travel is reliance on legacy hardware, software and infrastructure. After several airline network and infrastructure failures in 2016, cloud-based solutions have become an increasingly promising alternative to on-premises systems. Other subverticals like smart transportation will require cloudbased infrastructure and solutions to connect end-point devices with IoT platforms. Unlike industries like Financial Services and Government, where regulations are considered an inhibitor to cloud adoption, regulations for passenger travel are driving cloud adoption. These CIOs view cloud adoption as one of many steps toward digitalization, which will ultimately improve efficiencies and reduce fines / further regulation due to technology failures. Additional barriers to success for logistics CIOs are related to the industry’s heavy reliance on non-digital business practices (e.g. manual / paper-based processes) such as workflows, certificates of analysis, bills of materials, and, for global logistics, customs documentation. This has created great difficulty in terms of content management / governance. Total Addressable Market Segments The Transportation Industry accounts for ~9.0% of the total available market (TAM), 6.3% of the total knowledge worker addressable market (KW TAdM), and 8.2% of the Passenger Travel – This sub-segment includes all forms of transportation that moves people from place-to-place, 20 © Gartner, Inc. and/or its affiliates. All rights reserved. Gartner is a trademark of Gartner, Inc. or its affiliates. Figure 5.3: Transportation IT Spend by Category, 2016 to 2021 total firstline worker addressable market (FW TAdM) for organizations with over 100+ employees for the seven verticals analyzed. Knowledge workers engage in management, analytics, and travel agent functions, while the firstline segment includes freight / truck operators, longshoreman (load / unload vessels), warehouse employees, and client service representatives (crew members and call center agents). Table 5.1: Transportation Industry Knowledge Worker TAdM and Firstline Worker TAdM by Region (100+ Employee Firms) Workers Knowledge Firstline APAC 2.11 5.04 Canada 0.19 0.16 CEE 2.66 3.06 France 0.30 0.27 GCR 1.28 4.75 Germany 0.42 0.36 India 1.82 2.09 Japan 0.65 0.60 LATAM 0.95 1.22 MEA 2.26 6.60 United Kingdom 0.34 0.28 United States 0.97 0.91 WE 1.06 0.99 Total 15.00 26.34 Source: Gartner Vertical IT Spend Forecast, $Millions While the largest spend currently is on infrastructure followed by Vertical Specific Software (VSS), the ERP / SCM / CRM segment is expected to grow the fastest with an 11.3% CAGR through 2021. The next two fastest growing segments are Desktop (which includes Office Suites) and VSS, with CAGRs of 7.7% through 2021. Transportation will remain heavily focused on vertical specific software, but workflow improvements and digital initiatives across the board are driving growth in the additional segments. Source: Gartner Consulting, Estimates in Millions Spending: Through 2021 Software is expected to grow the fastest, with a 7.8% CAGR, followed by IT Services with a 5.0% CAGR. 21 © Gartner, Inc. and/or its affiliates. All rights reserved. Gartner is a trademark of Gartner, Inc. or its affiliates. Figure 5.4: Transportation Software Spend by Segment, 2016 to 2021 Table 5.2: Transportation Key Solutions and Applicable Office 365 Workloads and VSS Interactions, 2016 Key Microsoft Office 365 Workloads Key Solutions Skype for Business Teams Yammer Skype for Business Cloud PBX / PSTN Conferencing  SharePoint  Telematics  Transportation Management System  Yard Management  Vehicle Routing and Scheduling Scheduling / Carrier Tendering  Skype for Business  Teams  Yammer  Transportation Management System  Vehicle Routing and Scheduling  Telematics Disruption Management (Irregular Operations)         Mobile Technology     Key Vertical Specific Software (VSS) Interactions Skype for Business Teams Yammer SharePoint Irregular Operations Airport Operations Reservations / Ticketing Flight Operations Mobile Technology – Mobility and mobile applications is one of the top 5 technology investment priorities for CIOs in the transportation industry. Mobile technology in transportation logistics can improve driver communications, driver task assignment, predictive and driver behavior analytics, telematics, efficiencies through improved situational awareness, productivity, and digitalized workflows (e.g. digital logs). The communications and collaboration workloads within Microsoft Office 365 are the key enablers of mobility and connectivity. Organizations can benefit from the use of Skype for Business, Teams, Yammer, Skype for Business Cloud PBX / PSTN Conferencing, and SharePoint to activate firstline workers and connect them to management. Teams and Yammer can be great tools to use as a digital bulletin board where drivers and logistics personnel can communicate about route complications, weather forecasts, loading and unloading difficulties, and any unexpected situations that could cause delays. Source: Gartner Vertical IT Spend Forecast, $Millions Solutions The top 3 solutions for the Transportation Industry that have high alignment to Microsoft Office 365 workloads are Mobile Technology, Scheduling / Carrier Tendering, and Disruption Management (Irregular Operations). Table 5.2 shows the key industry solutions, the aligned Office 365 workloads, and the potential interactions of these workloads with key vertical specific software (VSS). Scheduling / Carrier Tendering – Scheduling and carrier tendering are highly integrated and important workflows for transportation organizations. Driver scheduling tools, carrier tendering, independent operator tendering, and last mile delivery can all be improved through better communication channels. Skype for Business can provide quick means of communications, while Teams and Yammer can provide a digital collaboration space to organize for-hire carriers and private fleet carriers. Teams and Yammer can also improve visibility into shipping status and delays, and communicate the need for overtime hours in the warehouse. Disruption Management (Irregular Operations) – Across the airline industry customer service is a top priority, and 22 © Gartner, Inc. and/or its affiliates. All rights reserved. Gartner is a trademark of Gartner, Inc. or its affiliates. one of the major gaps in customer service is how airlines approach disruption management. Disruptions (e.g. weather delays, maintenance / repairs, etc.) create serious headaches for passengers and airlines alike; how fast an airline can respond to these disruptions affects an airline’s revenue directly. There has been significant growth in solutions to address irregular operations and disruption management, but for many airlines it is still a manual and painful process. The use of Skype for Business, Teams, Yammer, and SharePoint, to increase collaboration between air traffic control, ground operations, crew management, and airport operations can help improve efficiency and reaction time. These tools can also help provide staff with up to date information in order to increase transparency and accuracy when communicating with customers, thus improving customer experiences. Providing better communication and collaboration to management will help ease interactions with travel partners (e.g. hotels, shuttles, etc.), reduce costs, lower brand and customer loyalty damage, and benefit employees as well. Uber to test grocery delivery using the ride-sharing company. Figure 6.1: Microsoft Addressability vs. Knowledge Worker TAdM for Retail 6. Retail Overview: Retail corporate workers and in-store management make up the majority of the knowledge worker opportunity in retail. Microsoft productivity suites are widely used among retail knowledge workers but, there is a rising opportunity to meet the demands of firstline workers by enabling staff with mobile devices capable of POS and collaborative communication tools. Retailers are looking for competitive advantages through customer engagement. Enabling firstline workers with mobile devices that allow faster and more knowledgeable service could meet the desired impact. Organizations in the Retail industry are making significant investments in transformation, both digitally and organizationally, as retailers fight to remain competitive with e-tailer powerhouses (e.g. Amazon); however, tight budgets, historical underinvestment in technology / software, and reliance on vertical specific solutions make the industry less likely to turn to Office 365 for their digitalization needs. Figure 6.1 shows Microsoft's Addressability score plotted against the approximate knowledge worker market and Figure 6.2 shows Microsoft's Addressability score plotted against the approximate addressable firstline worker market. Within the knowledge worker segment, the UK represents the best opportunity in the Retail industry. The United Kingdom leads the pack in addressability because of its fast projected adoption of cloud through 2021. The United States follows in terms of addressability, but only by a small margin. Canada, France, and Germany are the next highest aligned. Retail online channels are opening opportunities for partnerships between retailers and transportation companies. An example is the partnership between the North American companies Walmart and 23 © Gartner, Inc. and/or its affiliates. All rights reserved. Gartner is a trademark of Gartner, Inc. or its affiliates. Figure 6.2: Microsoft Addressability vs. Firstline Worker TAdM for Retail execution of customer-facing processes. Success will require retailers to use a combination of knowledge, innovation, speed and strategy to maintain and grow market share in the digital economy. Although regulations in retail have been more lenient compared to other industries, recent data breaches have brought greater attention / concern regarding customer data privacy and overall security. Due to these data privacy and security concerns, as well as the need for network elasticity to handle spikes in demand (e.g. Black Friday), retailers, especially those without the internal skills to manage complex IT and regulatory environments increasingly look to the cloud. In the past, retailers have partnered with established enterprises, and with the rise of online shopping they are partnering with digital partners in order to better compete. Reliance on service partners will continue for the foreseeable future as retail CIOs have stated the biggest impediment to success is the lack of skills / resources, particularly for BI / Analytics. Additional challenges retail CIOs face include lack of funding / budget and communicating / implementing the broad organizational change generated by digital workplace initiatives (particularly in regard to the onset of hybrid, human, and artificial work environments). Retail – Retailers are pushing forward with unified commerce strategies; the proliferation of customer touch points has forced retailers to re-evaluate their investments to support customer interactions across multiple channels, and optimize capabilities across the supply chain. As customer expectations change due to connectivity and accessibility through e-tailers, Retailers are struggling to compete through their brick-and-mortar stores, resulting in further tightening of budgets and the need for large, investment-heavy digitalization initiatives in order to remain relevant in the market. Retailers are emphasizing analytics in order to optimize operations and to better understand and serve evolving customer needs. Reinventing the customer experience is critical for multichannel retailers as they transform from multichannel to unified retail commerce to enable exceptional customer experience. To avoid losing market share, Retailers are redirecting resources toward activities that differentiate the customer experience and increase the speed of innovation. Total Addressable Market Segments The Retail Industry accounts for ~9.6% of the total available market (TAM), 10.1% of the total knowledge worker addressable market (KW TAdM), and 12.4% of the total firstline worker addressable market (FW TAdM) for organizations with over 100+ employees for the 7 verticals analyzed. Knowledge workers engage in store / merchandise planning, digital marketing, and warehouse / inventory management work types, while the firstline segment includes roles such as sales associate, firstline packing and shipping (digital commerce), and customer support / call center agent. The number of use cases for Office 365 and SaaS tools for firstline retail workers is still limited today, but have a promising future. Advanced analytics, IoT, and business algorithms were cited as the technologies with the most potential to change the organization. The impact of digital business and IoT will require advanced analytics to support realtime decision making to take advantage of momentary business opportunities. Retailers will leverage big data, advanced analytics and algorithms through applied AI to enable these decisions with greater accuracy and timely 24 © Gartner, Inc. and/or its affiliates. All rights reserved. Gartner is a trademark of Gartner, Inc. or its affiliates. Table 6.1: Retail Industry Knowledge Worker TAdM and Firstline Worker TAdM by Region (100+ Employee Firms) Workers Knowledge Firstline APAC 3.17 8.22 Canada 0.27 0.18 CEE 4.25 4.06 France 0.39 0.28 GCR 2.62 9.71 Germany 0.51 0.34 India 3.42 3.82 Japan 0.95 0.73 LATAM 2.08 2.60 MEA 2.75 6.88 United Kingdom 0.57 0.36 United States 1.92 1.48 WE 1.34 1.15 Total 24.24 39.80 will move it into the second largest IT spend category in 2021. Figure 6.3: Retail IT Spend by Category, 2016 to 2021 Source: Gartner Consulting, Estimates in Millions Spending: Retail CIOs are focusing technology investments to unify the customer experience across all channels. Front-end investments include BI / analytics, digital marketing and ecommerce / website, while also increasing investments in enabling technologies such as ERP / CRM / SCM and infrastructure / datacenter to support the evolving customer experience. Source: Gartner Vertical IT Spend Forecast, $Millions Within the software category, infrastructure and vertical specific software are the highest spend segments, as seen in Figure 6.4. ERP / SCM / CRM is expected to be the fastest growing segment with an expected CAGR of 9.8% through 2021. Investments are not universal across all sub-segments. For instance, 57% of Grocers rank BI / analytics as their top technology investment priority while only 36% of the entire Retail industry ranks BI / analytics as number one. Regions are also spending at different rates – Retailers from the US, UK and India will drive increased spending on vertical specific software, while India, the Middle East and Africa, and Greater China are expected to drive spending on BI tools. The retail industry's IT spend in 2016 totaled approximately $167B and is expected to grow to $199B in 2021 as seen in Figure 6.3. The largest spend is on IT services and telecom services. The fastest growing category is software which is expected to grow to approximately 32.7B in 2021 with a CAGR of 7.9%, which 25 © Gartner, Inc. and/or its affiliates. All rights reserved. Gartner is a trademark of Gartner, Inc. or its affiliates. Figure 6.4: Retail Software Spend by Segment, 2016 to 2021 Workforce Management (Scheduling) – Retail workforce management includes software, services and hardware to assist organizations with managing the operational deployment and optimization of the in-store retail workforce and improving the effectiveness of management. Investments in workforce management will be implemented / managed by trusted service providers, who will create value-added opportunities to drive improved analytics among workforce analytics (e.g. tools to improve employee performance, measurement and decision support throughout retail operations to improve business outcomes) and ERP / CRM / SCM applications. Key workloads include Office 365 ProPlus, Skype for Business, Teams and StaffHub. Internal Communication & Collaboration – In order to understand and manage increasing customer service demands from buyers, Retailers need to improve internal communication and collaboration. Retailers, plagued by legacy technology systems and heavily siloed organizations, will rely heavily on service providers for technology integration and change management to drive the organizational collaboration required to provide the desired unified customer experience. Key workloads include SharePoint, Skype for Business, Skype for Business Cloud PBX / PSTN Conferencing and Teams. Source: Gartner Vertical IT Spend Forecast, $Millions Solutions Customer Service & Support (Unified Commerce) – Unified Commerce is about contextualized engagement with consumers, as well as the execution of meeting consumers’ needs. Consumers expect a seamless experience across all channels / devices. This will be facilitated by integrations for SharePoint and Skype for Business with applications like CRM / POS, Retail Operations, and Distributed Order Management. The top 3 solutions for the Retail Industry that have high alignment to Microsoft Office 365 workloads are Workforce Management (Scheduling), Internal Communication & Collaboration, and Customer Service & Support (Unified Commerce). Table 6.2 shows the key industry solutions, the aligned Office 365 workloads, and the potential interactions of these workloads with key vertical specific software (VSS). 7. Government Table 6.2: Retail Key Solutions and Applicable Office 365 Workloads and VSS Interactions Key Solutions Key Microsoft Office 365 Workloads Key Vertical Specific Software (VSS) Interactions Office 365 ProPlus Skype for Business Teams StaffHub  Retail CRM  Retail Operations Workforce Management (Scheduling)     Internal Communication & Collaboration  SharePoint  Skype for Business  Skype for Business Cloud PBX / PSTN Conferencing  Teams  Retail CRM  Merchandise Assortment Management  Retail Forecasting/ Replenish. Sol.  Unified Price/ Promotion, Markdown Optimization Customer Service & Support (Unified Commerce)  SharePoint  Skype for Business  Retail CRM  Retail Operations  Retail DOM Overview: Government has two main sub-segments: Federal and State & Local. Within the Federal Government, digital transformation in “mature” geographies is underway. As digital government continues to take shape, the appetite for collaboration and productivity tools is expected to increase, however, change within Federal Governments usually moves at a glacial pace. Federal Government is Microsoft Friendly and will look to Office 365 as a solution, when budgets and initiatives align. On the other hand, State and Local Governments (SLG) are focused on improving constituent access / transparency by investing 26 © Gartner, Inc. and/or its affiliates. All rights reserved. Gartner is a trademark of Gartner, Inc. or its affiliates. Figure 7.1: Microsoft Addressability vs. Knowledge Worker TAdM for Government in cloud-based solutions to replace legacy applications / systems. Since SLG is less regulated than Federal, has more freedom to choose different vendors, and has greater budgetary constraints, SLG is less likely to turn to Office 365 compared to Federal agencies. Figure 7.1 shows Microsoft's Addressability score plotted against the approximate knowledge worker market and Figure 7.2 shows Microsoft's Addressability score plotted against the approximate addressable firstline worker market. Government organizations in North America (US and Canada), Western Europe (UK, France, Germany, and the Nordics), and APAC (Singapore, Australia, Japan, and South Korea) are leaders in terms of digital transformation. As countries continue to invest in connected assets and open data initiatives, Gartner expects to see increased digital readiness in Greater China, Eastern Europe, and Latin America. Most countries in Africa and the Middle East (outside of financial strong holds and oil rich nations) are positioned well behind the digital frontier. As digitization increases across the globe and governments make transformational investments, Microsoft’s addressability is expected to increase. A secondary trend that will help to increase Office 365 addressability is adoption in established economies. Many countries throughout Latin America look to regional leaders (the United States in this case) to set the standard for technology adoption. As investments to drive adoption increase, a fast follower mentality can be expected. Similar copycat mentalities resonate throughout Western Europe with Germany, and APAC with Japan and Australia. Finally, Gartner expects to see significant government investment at all levels in India in productivity and vertical specific solutions, ultimately signaling improved addressability for Office 365 as a standalone solution and as a platform. While the knowledge worker opportunity is relatively well understood in government (mission-based teams, citizen engagement, and administrative tasks), emerging opportunities for firstline workers are on the rise. Two key opportunities include the deployment and management of IoT in the government vertical and increasing usage of communications and collaboration tools in law enforcement. These two opportunities are well suited to Office 365 and will help to increase firstline worker addressability. 27 © Gartner, Inc. and/or its affiliates. All rights reserved. Gartner is a trademark of Gartner, Inc. or its affiliates. Figure 7.2: Microsoft Addressability vs. Firstline Worker TAdM for Government Governments are increasingly adopting a cloud-first policy (set by the US in 2011) and interest in public cloud and SaaS continues to grow as security fears are increasingly seen as being unfounded. Adoption of SaaS based technologies required to support digital workplace initiatives have been the first domino to fall in the cloud adoption journey. Specifically, cloudbased office, collaboration, and file sync and share have, or are being adopted across all levels of government (although Gartner predicts mainstream adoption is still two to five years away). As investments in internal capabilities yield process improvements and cost savings, expect Government organizations to turn their focus towards legacy application modernization as IT leaders look to manage the growing cost and risk of aging technologies. Replacement of legacy solutions will be gradual, and Governments will focus on a strategy of extending the capabilities of existing investments to meet mission critical processes as well as wholesale legacy replacement with cloud based, vertical specific COTS solutions. Gartner expects service providers to play a significant role not only in the sales and servicing of these technologies, but by bringing innovative solutions / capabilities to ensure that Government organizations are able to reach their objectives. Government – Austerity measures continue to impact government’s ability to effectively delivery IT. Years of budget cuts have left IT departments struggling to deliver innovative solutions and have reduced the focus to “keeping the lights on.” However, rising citizen expectations have forced a decision point for adoption of digital government solutions. Government CIOs' at the federal, regional, and local level must shift focus away from infrastructure – Gartner is already seeing a significant movement regarding data center consolidation – and its cost burden toward quickly delivering true mission outcome improvements. While the structure of public service delivery in government organizations / agencies has remained unchanged for 50 or more years, citizen expectations have outpaced government’s ability to address them. Modern IT can assist in rebalancing Government accountability, responsiveness, and foresight in setting and executing on public policy objectives to address the increasing expectations of citizens. Total Addressable Market Segments Government accounts for ~20.7% of the total available market (TAM), 24.6% of the total knowledge worker addressable market (KW TAdM), and 25.1% of the total firstline worker addressable market (FW TAdM) for organizations with over 100+ employees for the 7 verticals analyzed. Knowledge workers engage Government administration positions (e.g. politicians, appointees, courts, citizen services), while the firstline segment includes law enforcement and field workers. To excel in a digital society, government organizations are pursuing digital transformation strategies to increase their responsiveness, accountability, and transparency. These strategies must be both internal, digital workplace, and external, digital service delivery. In order to manage the cost of this transformation and keep pace with an increasingly innovative market place, government agencies are looking to the cloud. 28 © Gartner, Inc. and/or its affiliates. All rights reserved. Gartner is a trademark of Gartner, Inc. or its affiliates. Table 7.1: Government Knowledge Worker TAdM and Firstline Worker TAdM by Region (100+ Employee Firms) Workers Knowledge Firstline APAC 7.43 22.00 Canada 1.31 0.46 CEE 11.52 10.26 France 2.07 1.40 GCR 3.65 14.28 Germany 2.59 0.91 India 3.40 4.51 Japan 1.57 0.70 LATAM 3.83 5.88 MEA 7.17 14.08 United Kingdom 3.41 1.02 United States 5.62 2.50 WE 5.54 2.48 Total 59.12 80.50 Figure 7.3: Government IT Spend by Category, 2016 to 2021 Source: Gartner Consulting, Estimates in Millions Spending: Source: Gartner Vertical IT Spend Forecast, $Millions Figure 7.3 shows the overall IT spend for 2016 and 2021 for Government. Government IT spend is expected to increase to approximately $536B in 2021 from $470.8B in 2016. The largest category of spend was IT services in 2016 followed by telecom services and software. Software is expected to have the largest growth and move into the second largest category of IT spend in 2021 to approximately $109B. Within the software segment, as shown in Figure 7.4, Infrastructure and vertical specific software have the highest spend, and by 2021 vertical specific software is expected to be the largest. ERP / SCM / CRM category is expected to grow the fastest at a 9.3% CAGR to approximately $14.7B in 2021. 29 © Gartner, Inc. and/or its affiliates. All rights reserved. Gartner is a trademark of Gartner, Inc. or its affiliates. Figure 7.4: Government Software Spend by Segment, 2016 to 2021 Table 7.2: Government Key Solutions and Applicable Office 365 Workloads and VSS Interactions, 2016 Key Microsoft Office 365 Workloads Key Solutions Key Vertical Specific Software (VSS) Interactions Citizen Services (Citizen Engagement)  Skype for Business  Skype for Business Cloud PBX / PSTN Conferencing  Yammer  Exchange  Citizen Engagement Case Management  SharePoint  Teams  Case Management  Women, Infant, and Children  Employment Regulatory, Licensing, & Permitting / Civic Planning (Community Dev.)     Teams SharePoint Skype for Business Skype for Business Cloud PBX / PSTN Conferencing  Community Development Citizen Services (Citizen Engagement) – Digital government initiatives are driven by citizen requirements, one of which is increased access to city, regional, and national services through an easy to use digital channel. Where many government agencies largely rely on traditional mail today, citizens’ demands for instant question / answer is increasing. Office 365’s collaboration technologies (specifically Yammer, Skype for Business, and Exchange) can help provide new communication channels and cut down on the lag associated with traditional calling and emailing while improving customer satisfaction. Source: Gartner Vertical IT Spend Forecast, $Millions Solutions Case Management – Aging case management systems have reached end of life, however, budgetary concerns have forced government agencies to leverage a strategy to extend them beyond useful life rather than adopt new COTS solutions. Custom built or legacy solutions can no longer keep pace with government expectations and Office 365 (through SharePoint and Teams) offers unique opportunities to redesign government processes and eliminate what is a today a paper based process with existing investments, effectively killing two birds with one stone. The top 3 solutions for the Government that have high alignment to Microsoft Office 365 workloads are citizen services (citizen engagement), case management, and regulatory, licensing, & permitting / civic planning. Table 7.2 shows the key industry solutions, the aligned Office 365 workloads, and the potential interactions of these workloads with key vertical specific software (VSS). Licensing & Permitting / Civic Planning – Licensing and permitting in most municipalities remains a highly manual process. While large US state and local government agencies have begun the process of replacing these processes with cloud based solutions, most municipalities lack the budget for these investments. With Office 365, an opportunity to improve collaboration and accuracy throughout the process from submission, to departmental review will yield higher revenues, improved constituent 30 © Gartner, Inc. and/or its affiliates. All rights reserved. Gartner is a trademark of Gartner, Inc. or its affiliates. satisfaction, and elimination of a heavily paper based system. and deep business intelligence, cloud solutions enable can be spun up or down to meet the demands created by opening and closing of brick-and-mortar locations. Furthermore, cloud solutions decrease system outages caused by local natural disasters. 8. Hospitality Overview: Investments in advanced analytics will drive insights aimed at improving / unifying the customer experience. Currently, data is not shared among the many disparate systems (e.g. reservation systems, marketing databases and workforce optimization tools), thereby creating a situation where demand-based pricing is not possible. For Hotels, this has created obstacles to driving revenues while also increasing the level of difficulty in honoring online prices. Advanced analytics will align pricing and marketing campaigns, driving improved communication among corporate and regional branches. Hotels and restaurants have historically built systems by piecemeal. Instead of upgrading a system to have additional functionality, Hospitality organizations have resorted to just purchasing a separate system for the new function. This has led to a technology environment where the multiple disconnected systems cannot be effectively integrated. This problem is further complicated if different locations have different versions of the software within the same hotel chain or restaurant group. Like other industries, Hospitality also suffers from disconnected departments that act within their own silos rather than acting like a digital entity. While Hospitality organizations desire to integrate these disparate systems to improve / digitize workflows, cloud migration is viewed as a daunting task, especially in light of historically tight IT budgets. Organizational fears regarding moving core applications such as reservations systems has also hindered cloud adoption in Hospitality. Restaurants and Hotels are looking beyond internal data points and are applying advanced analytics to improve digital marketing campaigns. For instance, social media analytics are driving more targeted digital marketing campaigns that are increasing conversion. Location analytics are being used to understand why certain locations are performing better than others and then leveraged to drive improved results at these locations. Figure 8.1 shows Microsoft's Addressability score plotted against the approximate knowledge worker market and Figure 8.2 shows Microsoft's Addressability score plotted against the approximate addressable firstline worker market. Figure 8.1: Microsoft Addressability vs. Knowledge Worker TAdM for Hospitality The UK, the US, Canada, Germany, and France are the regions that are best aligned to Microsoft Addressability, however, the delta between addressability ratings for the top region (UK) and the lowest rated region (Central and Eastern Europe) is relatively small in Hospitality compared to other industries. This suggests that although there are some regions of strong opportunities, all regions are expected to demonstrate growth in the next few years. CIOs in the Hospitality industry are prioritizing investments in cloud services / solutions, BI / advanced analytics, and digitalization / digital marketing. These investments are aimed at breaking down organizational and location-based silos, which have inhibited a continuous customer experience. Cloud services / solutions will enable integration opportunities for partners to create the desired unification of the disparate systems. In addition to being the first step to being able to leverage advanced analytics 31 © Gartner, Inc. and/or its affiliates. All rights reserved. Gartner is a trademark of Gartner, Inc. or its affiliates. Figure 8.2: Microsoft Addressability vs. Firstline Worker TAdM for Hospitality Table 8.1: Hospitality Knowledge Worker TAdM and Firstline Worker TAdM by Region (100+ Employee Firms) Workers Knowledge Firstline APAC 1.07 2.13 Canada 0.08 0.05 CEE 1.01 0.80 France 0.08 0.05 GCR 0.76 2.21 Germany 0.16 0.09 India 0.79 0.70 Japan 0.47 0.31 LATAM 0.45 0.46 MEA 0.64 1.23 United Kingdom 0.19 0.11 United States 1.06 0.70 WE 0.42 0.31 Total 7.17 9.15 Total Addressable Market Segments Source: Gartner Consulting, Estimates in Millions The Hospitality Industry accounts for ~3.3% of the total available market (TAM), 3.0% of the total knowledge worker addressable market (KW TAdM), and 2.9% of the total firstline worker addressable market (FW TAdM) for organizations with over 100+ employees for the 7 verticals analyzed. Knowledge workers in Hospitality are usually in upper management, while the firstline segment includes servers, customer-service representatives, and food preparation staff. Spending: The Hospitality industry has the lowest IT spend out of the industries analyzed. Figure 8.3 shows the breakdown of overall IT spend by category – Hospitality’s total IT spend in 2016 was approximately $33B. The largest category of spend included IT Services at approximately 13.6B in 2016. The fastest growing category is software, which is expected to grow at an 8.5% CAGR over the next 4 years to approximately $6.7B in 2021. 32 © Gartner, Inc. and/or its affiliates. All rights reserved. Gartner is a trademark of Gartner, Inc. or its affiliates. Figure 8.3: Hospitality IT Spend by Category, 2016 to 2021 Figure 8.4: Hospitality Software Spend by Segment, 2016 to 2021 Within the software category the breakdown of spend is shown in Figure 8.4. Infrastructure and vertical specific software are the two highest segments at $1.7 and $1.4B respectively. Infrastructure, vertical specific software, and ERP / SCM / CRM are expected to grow fastest at similar rates over the next 4 years, approximately a 9% CAGR. Desktop, which includes office suites is the smallest segment and is expected to grow at a 6.7% CAGR over the next 4 years to approximately $0.3B. Solutions The top three solutions for the Hospitality industry that have high alignment to Microsoft Office 365 workloads are hotel operations, customer service and support, and restaurant operations. Table 8.2 shows the key solutions in the industry, the aligned Office 365 workloads, and the potential interactions of these workloads with key vertical specific software (VSS). Table 8.2: Hospitality Key Solutions and Applicable Office 365 Workloads and VSS Interactions Key Microsoft Office 365 Workloads Key Vertical Specific Software (VSS) Interactions Hotel Operations       Office 365 ProPlus SharePoint Skype for Business Teams Yammer StaffHub  Property Management System (PMS) Customer Service & Support     Skype for Business Teams Yammer SharePoint  Property Management System (PMS)  Reservations Restaurant Operations     Skype for Business SharePoint Teams StaffHub  FOH / Dining Room Management  Kitchen Management  Back Office Restaurant / Product Management Key Solutions 33 © Gartner, Inc. and/or its affiliates. All rights reserved. Gartner is a trademark of Gartner, Inc. or its affiliates. Hotel Operations – Hotel operations encompass the interactions between front desk, housekeeping, and the back office, with functions including room management, customer service, and revenue management. Hotel operations need to run smoothly in order to deliver exceptional customer service. The main software used to support these functions is a property management system; however, workflows exist outside of this software and streamlining communication is key to delivering better productivity, efficiency, and a more engaged workforce. The Core Office Suite and SharePoint offer easy communication between back office and front desk staff. Skype for Business can be used to check the status on room cleaning and to quickly communicate with management to resolve problems that arise. Teams can be also used for communication between departments to troubleshoot problems and bridge the gap between the different functions. Yammer could provide hotel-wide notifications for keeping staff informed (e.g. maintenance actions, construction zones, new services added for customers, etc.) in order to increase efficiencies and help provide pro-active customer service. StaffHub is an emerging platform designed to address pain points in scheduling firstline workers. both internal and external opportunities. Skype for Business can provide quick communication between internal departments without the customer service staff having to leave the customer’s side. Skype for Business could also be implemented in a way that allowed customers to directly ask questions with front desk staff, order room service, set a morning alarm, or ask for towels directly from housekeeping, without having to pick up the phone. Restaurant Operations – Restaurant operations include the processes that are required to run a restaurant from back office to front of house operations. These processes include table management, kitchen management, labor management, and product management; while much of the vertical specific software on the market touches many of these functions, a lot are incomplete and leave employees with manual tasks that can cause delays in food service, incorrect orders, and missed opportunities. Customer service is a key initiative for restaurants and Microsoft Office 365 has workloads that can improve communications, decrease delays, and thus improve customer experience. Skype for Business can be used by wait staff and hostesses to check on orders, inform kitchen staff of a large influx of people so they can adjust their break schedules, and answer customer questions without having to leave the table or the front of house. Giving staff access to SharePoint so that they have up-todate information on menu items, daily specials, or inventory limitations would be beneficial. Teams could be used for additional collaboration and communication between management and the different departments in order to enable staff. Similar to hotel operations, scheduling of firstline workers can be improved through the use of StaffHub Customer Service and Support – Customer service and support is key to fulfilling customer expectations and achieving customer loyalty. Traditionally the front desk is the primary contact to hotel guests, but having well informed staff across all hotel operations and providing fast, friction-less communication channels with guests is also desirable. As with hotel operations, Teams and Yammer can be used to help keep employees informed and resolve any customer problems with ease. SharePoint can be used to share resort or hotel event schedules or specials for the week with staff so they can easily communicate to the customer. Skype for Business offers 34 © Gartner, Inc. and/or its affiliates. All rights reserved. Gartner is a trademark of Gartner, Inc. or its affiliates. 9. Appendix Regional / Country Taxonomy Region Asia / Pacific (APAC) Canada Central and Eastern Europe (CEE) France Greater China Region (GCR) Germany India Japan Latin America (LATAM) Middle East and Africa (MEA) United Kingdom (UK) United States (US) Western Europe (WE)                     Australia Indonesia Korea Malaysia Canada Czech Republic Hungary Poland Kazakhstan France China Germany India Japan Argentina Brazil Chile Israel Nigeria Qatar Country / Countries New Zealand Philippines Singapore Thailand     Romania Russia Slovakia Ukraine  Rest of Eastern Europe  Rest of Eurasia  Taiwan            Columbia Mexico Panama Saudi Arabia South Africa Turkey  Northern Ireland            United States Austria Belgium Denmark Finland Greece  Vietnam  Rest of Emerging Asia / Pacific  Hong Kong  England 35 © Gartner, Inc. and/or its affiliates. All rights reserved. Gartner is a trademark of Gartner, Inc. or its affiliates.     Ireland Italy Netherlands Norway Portugal Peru Trinidad and Tobago Rest of Latin America UAE Rest of Middle East & Northern Africa  Rest of Sub-Sahara Africa  Scotland  Wales     Spain Sweden Switzerland Rest of Western Europe Vertical / Industry Taxonomy Vertical Financial Services Government Healthcare Provider Manufacturing & Natural Resources Retail Hospitality Transportation              Sub-Verticals Banking & Securities Insurance Federal & International Government Local & Regional Government Hospital / Integrated Delivery Network (IDN) Physician Practice Automotive Consumer, Non-Durable Products Energy Resources & Processing Heavy Industry IT Hardware Life Sciences & Healthcare Products Natural Resources & Materials          General Retailers Grocery Specialty Retailers Restaurants & Hotels Air Transport Motor Freight Pipelines Rail & Water Warehousing, Couriers & Support Services 36 © Gartner, Inc. and/or its affiliates. All rights reserved. Gartner is a trademark of Gartner, Inc. or its affiliates. IT / Markets Taxonomy Term Knowledge Worker Firstline Worker Total Available Market (TAM) Total Addressable Market (TAdM) Vertical Specific Software (VSS) Office Suites Web Conferencing / Collaboration Business Intelligence (BI) Project and Portfolio Management (PPM) Enterprise Content Management (ECM) Digital Content Creation (DCC) Definition / Example  Knowledge workers are involved in non-routine tasks that require industry / solution-specific expertise.  Knowledge workers are often a dispersed workforce, thereby needing collaboration tools in order to share knowledge and project progress  Firstline workers are employees, staff, team members or the workforce itself, that serve as the first point of contact between companies, their customers / products / suppliers and the market.  These workers are often in roles that directly impact the customer experience and the delivery and development of products and services.  The size of the market in terms of the total number of employees regardless of designation  The portion of the available market that can be addressed by a given provider for a product or service  Software developed to address the specific needs of a given industry  Office productivity suites are generally collections of basic productivity applications for tasks such as word processing, spreadsheet manipulation and presentation graphics  Web conferencing represents one form of real-time collaboration. It consists of real-time electronic meeting and content delivery, desktop and application sharing, IM, and group document markup with electronic whiteboarding (augmented by audio, data and video), security (encrypted data transfer and password protection), and remote control (a participant can control applications of another device)  An umbrella term that includes the applications, infrastructure and tools, and best practices that enable access to and analysis of information to improve and optimize decisions and performance  PPM applications support an integrated view across the portfolio of resource effort, including both project and nonproject work. Organizational resource information can be grouped into taxonomies of roles, functions and skill sets, thus allowing for better tracking of resource assignment and utilization  ECM suites consist of applications for content life cycle management that interoperate but that can also be sold and used separately. Some vendors have added extended technology components, such as digital asset management, for handling rich media, electronic forms and document composition for high-volume generation of customized documents  Software is used for creating or altering visual digital content. The digital content can be either computer-generated or transformed from analog means, such as photographs or videos 37 © Gartner, Inc. and/or its affiliates. All rights reserved. Gartner is a trademark of Gartner, Inc. or its affiliates.