Executive Summary: ISG Provider Lens™ Private/Hybrid Cloud - Data Center Services - U.S. Public Sector 2023
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Managing combined, adaptive services is the needed next step to predictable IT and business outcomes.
As the commercial and consumer use of cloudbased IT infrastructure continues to grow, its use among state, local and education (SLED) and other public-service client organizations also increases. This, in turn, is driving rapidly growing interest in, and purchases of, private/hybrid/data center managed hosting and managed services by SLED organizations.
Cloud use by SLED organizations is by no means new. However, with the COVID-19 pandemic, digital work environment, which had already started evolving, rapidly expanded. To support this expansion, SLED organizations began adding more and different types of cloud, on-premises, and hybridized solutions.
Uncertainty regarding the role and value of traditional data centers has further complicated SLED IT management and decision making.
Few SLED organizations are building new data centers because instead they are moving to cloud-based IT-as-service models. However, hundreds of legacy data centers continue to support thousands of critical software, data and business systems. Most of these operations will shift to hybrid cloud environments over the coming years. This will increase the need to effectively manage many IT resources being shifted to the cloud; however, lack of skilled professionals will be a challenge. Thus, we have seen significant sector initiatives toward taming, if not controlling, complex private and public cloud environments that include legacy data center landscapes. Providers serving SLED entities indicate to ISG that public sector revenue from managed cloud services grew, on average, more than 20 percent in 2022 compared to 2021. There are no signs of this growth abating.
The core change drivers that we noted in the 2022 report not only remain, but continue to grow themselves. These include ever-expanding adoption of cloud services overall, end-oflife for core business software and server processing, increased use of edge computing, new computing styles and development methods, rising cybersecurity threat levels and continuing staff shortages.
Practically, there is no easily discernable end to the growth. We expect continual movement of workloads to and within multiple clouds, including mainframe applications, while new types of workloads (for example, edge and IoT) proliferate. Simultaneously, public sector organizations will continue to face challenges in attracting and retaining IT staff.
SLED-specific complications must be addressed
SLED organizations in the U.S. face many hybrid/multicloud complications that commercial enterprises do not. Many U.S. municipalities rely upon core IT capabilities from state government agencies, including infrastructure, applications, data management and cybersecurity. State- and municipalitycontrolled educational institutions frequently rely even more heavily on such resources. According to data published by the National Association of State CIOs (NASCIO), more than half of state IT organizations in the U.S. deliver multiple IT services to cities, towns and educational entities. These services can be important revenue sources for statelevel IT organizations. However, they also increase IT environment complexity, cost, data management overhead, and IT security needs, further straining limited state-level IT resources.
Meanwhile, state agencies must also continue- to expand (and accelerate) their own digital business transformation capabilities, improve data privacy compliance and overall IT security, enhance citizen services and experiences, collaborate across a growing number of internal and external organizations and reduce costs. And they must do all of the above rapidly, to satisfy economic, regulatory and political requirements.
What makes a Leader?
There is no shortage of providers qualified to support U.S. SLED organization needs for private/hybrid cloud hosting and managed services. There is, in fact, an influx of providers that either did not previously support SLED clients or did not actively pursue such opportunities. In ISG’s 2022 Private/Hybrid Cloud and Data Center study for the U.S. public sector, 12 qualified managed hosting service providers and 19 qualified managed services providers were identified and assessed. In 2023, we identified and assessed 17 qualified managed hosting services providers and 24 qualified managed services providers. The key selection criteria for managed hosting and managed services provider are detailed in each relevant section of this report.
Recognition as a Leader in these quadrants does not depend solely on provider size or portfolio. Although such factors are important, Leaders must also understand and satisfy current SLED client needs while anticipating and enabling next steps and ongoing improvement. This include proven capabilities supporting strategic imperatives such as infrastructure consolidation, the effectiveness of user services (for example, help desk and provisioning), and centralization of IT project management and oversight.
Leadership also requires excellence in delivering services required to deliver significant business improvement for clients. This requires demonstration of experience and expertise in working with U.S. public sector organizations resulting in high levels of client satisfaction.
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