Executive Summary: ISG Provider Lens™ Multi Public Cloud Services - U.S. Public Sector 2024
20 Dec 2024
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ISG Provider Lens™ Multi Public Cloud Services - Managed Services - U.S. Public Sector 2024
SLED sector’s growing need for improvement drives opportunities for cloud service providers and FinOps solutions
The U.S. public sector is accelerating cloud adoption, driving service demand
The U.S. public sector, particularly state, local and educational (SLED) agencies, is finally witnessing the anticipated surge in cloud services adoption. This shift is transforming SLED IT organizations, spending and department operations, intensifying competition among cloud service providers and increasing the demand for FinOps capabilities.
Initial cloud investments and adoption were slower than expected due to post-pandemic fiscal and political challenges. However, SLED CIOs are now actively seeking cloud-based solutions to modernize their IT infrastructure and deliver enhanced services to agency workers, citizens and other constituents.
As a result, cloud adoption rates among SLED IT workloads migrating to the cloud are steadily increasing, with estimates suggesting that around 10-15 percent of large SLED IT workloads are now cloud-based, a significant increase from 5-10 percent in previous studies.
Moreover, municipalities’ increasing reliance on state IT resources is driving cloud adoption. As local governments face staffing shortages and evolving skill requirements, they are turning to state-controlled and contracted cloud-based capabilities to meet the growing expectations of their constituents. These include IT infrastructure, managed services and domain- and department-centered functions, such as taxation, transportation and human services. This trend is expected to accelerate cloud adoption through the year-end of 2030, particularly for consulting, hyperscale
infrastructure and managed services.
More spending attracts more providers
Service providers are adapting their strategies and offerings in response to these shifting market dynamics. Many have significantly altered their market positioning, investing in new capabilities and partnerships to address the evolving needs of SLED agencies better. The number of providers competing in the market has also increased, reflecting the growing demand for cloud services.
Service providers have also intensified their efforts to engage with SLED organizations.
While most have dedicated resources to support SLED and other government client types, some providers such as Infosys have implemented and expanded wholly owned business units dedicated to sector clients and partners.
And even though sales and support requirements for state and local government agencies remain more complex than for their national government counterparts, the expanding market opportunity has spurred increased competition. For example, our 2023 study examined 37 providers of Consulting and Transformation services, including 25 in the
quadrant and recognizing nine Leaders and one Rising Star; this study evaluated 43 providers, including 27 in the quadrant and recognized nine Leaders and two Rising Stars. We saw similar increases in Managed Services, from
evaluating 37 providers, including 20 in the quadrant and identifying seven Leaders and one Rising Star, to assessing 47 providers, including 24 in the quadrant, and recognizing eight Leaders and two Rising Stars.
The continued fragmentation of the SLED purchasing and contracting landscape presents challenges. However, the growing use of cooperative purchase/procurement contracts and contracting vehicles across multiple state agencies is a positive sign. Initiatives, such as the National Association of State Procurement Officials (NASPO) and OMNIA’s cooperative purchasing platform, are streamlining processes and facilitating adoption.
Introducing public sector Cloud FinOps for 2024
Expanding cloud spending by SLED clients has also meant increased interest in and the need for FinOps capabilities.
Cloud FinOps is an indispensable practice for public sector organizations navigating the complex landscape of cloud services use and value. As these organizations increasingly rely on cloud technologies to enhance efficiency
and deliver public services, effective financial management has emerged as a critical concern. Cloud FinOps provides a framework that bridges the gap between financial goals and technical operations, enabling organizations to optimize cloud spending, improve transparency and drive better outcomes.
Key benefits of Cloud FinOps for public sector organizations:
Cost optimization: Cloud FinOps fosters data transparency between financial and technical teams, enabling organizations to identify and address inefficiencies, such as underutilized resources or inefficient provisioning. This
feature ensures cloud spending aligns with organizations’ mission and budget constraints, maximizing ROI.
Enhanced visibility: Cloud FinOps provides readily accessible, real-time insights into cloud usage and spending patterns. This datadriven approach empowers organizations to make informed decisions, identify areas for improvement, optimize resource allocation, forecast future costs accurately and respond proactively to changing needs and priorities, ensuring effective and efficient use of cloud resources.
Improved governance and compliance: Cloud FinOps establishes clear financial governance processes, ensuring cloud spending aligns with regulations and maintains accountability for resource utilization. This reduces the risk of financial irregularities and strengthens overall governance frameworks, building public trust and confidence in organizations’ use of taxpayer funds.
Increases agility and responsiveness: Cloud FinOps provides public sector organizations to enhance financial visibility and control, empowering them to scale cloud use as required to support rapid innovation and service delivery. This flexibility enables organizations to adapt to changing needs and priorities, ensuring effective and efficient delivery of public services in a dynamic and evolving environment.
This study includes our investigation of 47 FinOps services providers in a quadrant focused on SLED cloud cost optimization and our assessment of providers’ FinOps capabilities within larger Managed Services portfolios.
What makes a Leader?
Their portfolio attractiveness and competitive strengths characterize Leaders in the cloud services market. Portfolio attractiveness encompasses having the right capabilities, tools and technologies to meet clients’ current and future needs. Market presence, expertise influence, resources and geographic reach measure their competitive strength. The most successful providers demonstrate portfolio attractiveness and competitive strength, effectively addressing the dynamic needs of SLED agencies.
While the size of a provider’s portfolio — i.e., the number and scope of offerings, functionality, tools and technologies included — is essential, what truly matters is the business value it delivers to clients. Demonstrating how client business is improved using the portfolio is paramount.
Competitive strength is not solely measured by the number and scope of resources, for example, full-time employees (FTEs), locations and partners. Leadership is better demonstrated by a provider’s ability to influence what clients and partners do.
True leadership is exemplified not just by a provider’s ability to demonstrate business value for clients and partners in current conditions. It is represented by a provider’s ability to anticipate and respond to emerging trends, guiding clients and partners toward future market needs and satisfying upcoming, nextgeneration business IT requirements.
As the market evolves, providers must stay informed about emerging trends and invest in developing new skills and partnerships. Those anticipating and responding to changing client expectations will be best positioned to maintain their leadership status.
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