Pent-up Demand Fuels U.S. Public Sector Cloud Boom

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The U.S. public sector is quickly adopting public cloud services, beginning a long-awaited transition from legacy systems to advanced multicloud platforms, according to a new research report published today by Information Services Group (ISG) (Nasdaq: III), a leading global technology research and advisory firm.

The 2024 ISG Provider Lens™ Multi Public Cloud Services report for the U.S. Public Sector finds that cloud adoption by state, local and educational (SLED) organizations in the U.S. is steadily increasing after being slower than expected for the past several years. Though the federal government began making grants available for technology modernization in recent years, post-pandemic fiscal and political challenges prevented many agencies from launching cloud transformations.

"Cloud adoption was slower than expected initially, but momentum is growing now,” said Nathan Frey, partner, U.S. Public Sector, at ISG. "In response, more service providers are entering this market and adapting their strategies to meet public agency needs.”

SLED organizations are turning to cloud services in part because their legacy systems and overall IT models are becoming obsolete, the report says. With IT staff retiring and operating budgets getting squeezed, local agencies often lack the skills to manage either old or new technologies.

Constituents’ service expectations are also pushing agencies toward the cloud. Since 2023, public sector entities have become more comfortable relying on cloud infrastructure and services. Many made the transition by turning to large-scale cloud-based capabilities contracted and controlled by state governments.

To address the complexity of cloud-first or cloud-plus-legacy environments, SLED organizations often engage with managed services providers, many of which have enhanced their services for public agencies. Providers are expanding their use of multiple forms of AI, including generative AI, to make services more adaptable and augment IT staff within client organizations.

The global shift of ERP platforms to the cloud has strongly influenced the U.S. public sector, where SAP is the dominant ERP platform, the report says. Many public agencies are turning to service providers for assistance with this transition, which often involves fragmented SAP environments, data conformity problems and regulatory requirements. ISG expects the number of SLED SAP migrations to keep growing through 2027.

SLED organizations are increasingly concerned about financial management, especially as they rely more on cloud services, ISG says. Demand is growing for Cloud FinOps, which gives enterprises a framework for ensuring cloud spending aligns with agency missions, regulatory requirements and budgets.

"Agencies need to keep scaling up and adapting cloud usage to meet changing needs and serve constituents,” said Jan Erik Aase, partner and global leader, ISG Provider Lens Research. "FinOps gives them the visibility and confidence to make those investments.”

The report also explores other public cloud trends affecting the U.S. public sector, including stepped-up efforts by hyperscalers to meet the sector’s needs and rising demand for cooperative contracting among states.

For more insights into the cloud challenges U.S. public agencies face, including how to coordinate acquisition and maintenance of resources and evaluate provider’s public-sector qualifications, see the ISG Provider Lens™ Focal Points briefing here.

The 2024 ISG Provider Lens™ Multi Public Cloud Services report for the U.S. Public Sector evaluates the capabilities of 38 providers across five quadrants: Consulting and Transformation Services, Managed Services, FinOps Services and Cloud Optimization, Hyperscale Infrastructure and Platform Services and SAP HANA Infrastructure Services.

The report names IBM as a Leader in all five quadrants. It names Kyndryl and Rackspace Technology as Leaders in four quadrants each and Accenture, Infosys, NTT DATA and Unisys as Leaders in three quadrants each. AWS, CGI, Deloitte and Microsoft are named as Leaders in two quadrants each. SAP is named as a Leader in one quadrant.

In addition, Capgemini and HCLTech are named as Rising Stars — companies with a "promising portfolio” and "high future potential” by ISG’s definition — in two quadrants each. Google and TCS are named as Rising Stars in one quadrant each.

In the area of customer experience, Persistent Systems is named the global ISG CX Star Performer for 2024 among multi public cloud services providers. Persistent Systems earned the highest customer satisfaction scores in ISG's Voice of the Customer survey, part of the ISG Star of Excellence™ program, the premier quality recognition for the technology and business services industry.

A customized version of the report is available from Unisys.

The 2024 ISG Provider Lens™ Multi Public Cloud Services report for the U.S. Public Sector is available to subscribers or for one-time purchase on this webpage.

About ISG Provider Lens™ Research

The ISG Provider Lens™ Quadrant research series is the only service provider evaluation of its kind to combine empirical, data-driven research and market analysis with the real-world experience and observations of ISG's global advisory team. Enterprises will find a wealth of detailed data and market analysis to help guide their selection of appropriate sourcing partners, while ISG advisors use the reports to validate their own market knowledge and make recommendations to ISG's enterprise clients. The research currently covers providers offering their services globally, across Europe, as well as in the U.S., Canada, Mexico, Brazil, the U.K., France, Benelux, Germany, Switzerland, the Nordics, Australia and Singapore/Malaysia, with additional markets to be added in the future. For more information about ISG Provider Lens research, please visit this webpage.

About ISG

ISG (Information Services Group) (Nasdaq: III) is a leading global technology research and advisory firm. A trusted business partner to more than 900 clients, including more than 75 of the world’s top 100 enterprises, ISG is committed to helping corporations, public sector organizations, and service and technology providers achieve operational excellence and faster growth. The firm specializes in digital transformation services, including AI, cloud and data analytics; sourcing advisory; managed governance and risk services; network carrier services; strategy and operations design; change management; market intelligence and technology research and analysis. Founded in 2006, and based in Stamford, Conn., ISG employs more than 1,600 digital-ready professionals operating in more than 20 countries—a global team known for its innovative thinking, market influence, deep industry and technology expertise, and world-class research and analytical capabilities based on the industry’s most comprehensive marketplace data. For more information, visit www.isg-one.com.

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