Good morning, and welcome to Gartner Investor Day 2019. Thanks to all of you in the room and on the webcast for joining us today. I know you have busy schedules, and we appreciate you're taking the time to be with us this morning. Whether this is your 1st Gartner Investor Day or you've been following the company for a number of years, we believe you will leave with a greater appreciation for the indispensable unrivaled value we offer clients, the Gartner formula we apply and the long term sustained double digit growth we drive. Before we begin, please take note of our Safe Harbor statement shown on the screen.
Today, you will hear a compelling story of Gartner and its relevance for investors seeking long term sustained double digit contract value. Revenue, earnings, and free cash flow growth. We will begin with our CEO, Jean Hall, who will discuss the way that the pace of change is impacting leaders across all enterprise functions. Jean will describe Gartner's unique business and our powerful history of disciplined execution applying operational excellence to drive growth and shareholder returns. Mike Harris, our head of research and advisory, will share a compelling view of Gartner's value proposition for leaders across all enterprise functions.
He will go deeper into the dynamics that are creating urgency for our insight, illustrate how our clients get mission critical value from Gartner and describe our scalable continuously improving research model. Following Mike, our leaders of Global Technology And Business Sales, Joe Beck and Chris Thomas will introduce you to their growing teams. Talk about how they are going to market and share with you how they apply our sales excellence playbook to drive productivity and sustained double digit contract value growth. After a break for lunch, Craig Safian, our CFO, will describe the powerful combination of the Gartner formula and business model and how they enable us to drive long term sustained double digit growth in revenue, earnings, and free cash flow. Finally, Jean and Craig will answer your questions.
And it receives our return of opportunity, risk, and unrelenting change across every business function, the goal is not simply to arrive, but to thrive, The roads that led to success yesterday offer no assurances today, and every decision carries greater uncertainty than ever before. As their worlds become more interconnected than ever, leaders face decisions that will impact not only their own organization, but the enterprise as a whole, and they're turning to Gartner for help. Talent, technology, strategy, In every area of their business, Gartner sits at the intersection of decisions that matter most We understand the rules, the challenges, the risks, and we know how to maximize opportunity. Leaders across every function in every industry, everywhere in the world rely on Gartner. For the indispensable insights, tools and advice to help them address their mission critical priorities.
To get ahead of change, to Investor Day 2019.
Ladies and gentlemen, please welcome to the stage, Gartner, CEO Gene Hall.
Good morning, and welcome to Gartner Investor Day. We're living in accelerated times: digital disruption regulatory change, shifting customer expectations, cybersecurity risks, changing socioeconomic expectations, geopolitical risk, macroeconomic dislocations. It has never been a harder time to
be a
leader. And the rate of change continues to accelerate. From 61 years to 18 years. And it's expected to decline another 12 to a mere 12 years, by 2027. For enterprises, it's no longer just about incremental improvements, very, very survival has never been more at risk.
And same is true for their leaders. Leaders in every major function of the enterprise across every industry and in every geography, need health, and they need Gartner. And for investors seeking long term sustained double digit growth, growth from the top line, Growth in free cash flow Gartner is an unrivaled opportunity. You look like you needed a break. So today, I'll give you a detailed overview of our business.
You'll get a snapshot of our indispensable unrivaled value proposition. I'll outline our vast market opportunity. And I'll share a strategy to capture that opportunity through our 3 businesses: research, conferences, and consulting, which will fuel long term sustained double digit growth. Now I'll take a minute to introduce our executive leadership team who's here with us this morning. Starting with those who are going to share the stage later today.
First, we have Mike Harris, who leads our global research and advisory team. Do we bring the house lights up? You'll hear from Joe Beck and Chris Thomas, who lead our global sales organization. And most of you know, Craig Safian, our CFO. And the other members' leadership team that are here today are Ken Davis, who leads products and services globally, Our Head of Conferences, Alvin Dawkins, our Chief Information Officer, Mike Gilberto, Mike's back there.
Our head of consulting, Scott Henssel. Excuse me. In our General Counsel, Jules Kaufman, Jules is over here. Robin Praddock, who leads human resources and David Duvey, who heads up marketing. So during our break and after the presentations, please get to know our team.
All right, so thanks. You can sit down now. Now we operate in 3 business segments. Research, conferences, and consulting. Now last year alone, Gartner helped 15,600 Enterprises.
In 100 countries around the world with their mission critical priorities. We delivered about $4,000,000,000 in revenues, We provided great jobs to 15,000 associates around the world, and we delivered market beating returns for our shareholders. Few organizations had this level of global impact. The corporate conferences deliver incredible insights to our attendees, while building our brand and making a profit. This segment represents about 11% of our business.
Now our mission is to produce must attend conferences for the communities that we serve. Our conferences are aligned to the same roles and functions that we serve in our research business. And by combining the outstanding value of our research with unparalleled peer networking and the magic of live events. Every conference we produce becomes the most important annual gathering for the executives that we serve. We inspire, educate and equip our attendees for success.
And as a result, the first Getting of every year is to Gartner Conferences had its best year yet in 2018, with virtually every metric hitting new highs. We also accelerated our Avanta conferences, which are C level Invitation only regional summits. We expect to produce more HR, supply chain, marketing, sales, and finance. Across these conferences, we expect to attract more than 100,000 attendees, including more than 15,000 chief information officers. And thousands more sealable executives in the business functions that we serve.
Gartner Conferences deliver incredible insights to our attendees, while building our brand and, of course, making it profit. Gartner Consulting makes up about 9% of our business. Gartner Consulting supports chief information officers and their teams. We provide clients a deeper level of involvement through extended project based work to help them execute their most strategic initiatives. Gurgent Consulting is highly differentiated.
1st, we are independent and objective. We don't sell software. We don't sell hardware, and we don't do implementation services. In addition, all of our engagements are powered by Gartner Research. The best content and insights available anywhere.
And we evolved our consulting strategy to align work closely with research. We rolled out a new organization and new operating model, And this is going to improve our execution in driving growth and delivering value to clients. We've strengthened our consulting solutions and offerings. We define new career paths, upgraded recruiting capabilities, enhanced our performance management processes. All to position this segment for a strong 2019 and beyond.
So Gartner's Consulting serves as an extension of Gartner Research, that provides clients with a deeper level of involvement through extended project based work to help them execute their most strategic initiatives. Now research is our largest and most profitable segment, and it represents about 80% of our revenues. Our research segment sits at the core of Gartner's indispensable unrivaled value proposition. Our value proposition addresses the critical needs of leaders across the major functions in the enterprise. Now every leader has make or break initiatives that disproportionately impact the ongoing vitality of their enterprise, and, of course, their personal success.
Critical initiatives like these extend over a period of time. They span multiple business functions, They extend several layers into the organization, and they have ongoing important decision points. Some examples might include integrating large acquisition, implementing a new financial management system, or driving digital transformation to achieve competitive advantage. With the accelerated pace of business, leaders have to make these decisions faster than ever, and they have to get them right. The penalty for getting them wrong is high, both for the company and the individual.
Now if that weren't enough, executives will simultaneously handle multiple of these high impact initiatives. Executive need help getting to the right decisions. They need someone they can trust, and they need that help now. Our indispensable unrivaled value proposition addresses this critical need. We have more than 2000 world class experts on the most important priorities for business and government leaders.
We create indispensable insights, best practices, peer exchanges and implementation guides across every major enterprise function. We're independent and we're objective. We have an unparalleled community of C level peers to complement our expert advice, to share real world case examples and to validate major decisions. With the accelerated pace of business today, business leaders need help in real time. So we deliver critical insights on demand.
And we do this through our cloud based subscription service and through the ability to talk one on one with our analysts and advisors also on demand. We play where the stakes are high delivering incredible insights at a price that's extremely low relative to the value. Even our largest clients, Gartner Costs are a tiny fraction of their budget. There is no other place that our clients can get such valuable insights on demand and at a very modest cost. This is why our clients stay with us, renew at high rates, and spend more with us year after year.
Now indispensable unrivaled value proposition gives us a vast market opportunity. We developed a detailed bottoms up estimate on that market opportunity. It's based on looking at the actual number of companies the specific roles within each company and the pricing for the appropriate products for that role. By using this approach, we estimate that the market opportunity for technology is about $55,000,000,000. The opportunity for supply chains about $23,000,000,000.
Marketing adds another $25,000,000,000, HR14, finance 24, sales 38, and legal and other adds another $19,000,000,000. In total, we estimate that the combined market opportunity for all 9 functional areas is almost $200,000,000,000. Now this compares to today's contract value of about $3,000,000,000 This means we can grow at double digit rates for a very long time. Over the past decade, we've developed the Gartner Formula, to drive long term sustained double digit growth, but the Gartner Formula has 4 elements to it: indispensable insight: exceptional talent, sales excellence and enabling infrastructure. And then for all of these, we drive globally consistent execution of best practices and continuous improvement innovation.
To sustain and accelerate our success. Now this is our formula for long term sustained double digit growth, and it's how we're capturing our vast market opportunity. The Global Technology Sales, or GTS, represents about 80% of our research contract value. And we began developing the Gartner formula for GTS back in 2005. And we've improved on that formula every year.
Every year, our research content becomes more insightful and more indispensable. And we've packaged these incredible insights, and online products that are tailored to the needs of individual roles. We hired and developed exceptional talent. We grew our sales force at a compound annual growth rate of 13% per year over the last decade, And this provided a great foundation for long term sustained double digit growth. With ever better training, tools, and processes.
And we call this the sales excellence playbook. We supported our salespeople with ever improving infrastructure, such as recruiting, contracting and service delivery. The result Contract value grew at a compound annual growth rate of 13% per year. Now that's a track record of long term sustained double digit growth. Consistent application of the Gartner Formula is what's driven the sustained success.
Now to achieve this sustained success, our new salespeople need to learn the sales excellence playbook. We of course have world class training programs, but learning the sales excellence playbook isn't easy. Now our GTS salespeople sell to large, medium, and small accounts. They're located in countries around the world. Some are account executives who grow our existing clients.
Some are business developers who sell to prospective clients. So here's an example, for experienced U. S.-based new hires that are account executives. Do these salespeople take about 3 years to reach full productivity. The right most far shows 3rd year productivity indexed to 100%.
In the 1st year, they sold about 48 percent of full productivity, as you can see in the left post bar. In the second year, it's about 83%. So that's an example of U. S.-based new hires who are account executives. The other types of new salespeople also have similar learning curves.
So the sales excellence playbook is incredibly effective for Now looking forward, we'll keep developing new innovations and making continuous improvements to the Carter formula. We'll focus on relentlessly consistent execution of the best practices that drive success. And will continue getting better, faster, stronger each and every year. Now you're going to hear more about GTS from the extraordinary leader of that team, Joe Beck. Global Business Sales, or GPS, represents about 20% of our research contract value.
The GBS sales organization supports all the enterprise functions beyond IT. Each of these roles has the same need for our services as in IT. GBS includes the supply chain practice, which we established at the end of 2009 through the acquisition of AMR. We applied the Gartner Formula to supply chain. We introduced Gartner for Supply Chain Leaders and our Supply Chain business had a compound annual growth rate of 23% per year over the last 9 years.
The GBS also includes Gartner for marketing leaders, which we started organically back in 2012. We applied the Gartner Formula to Marketing, and our Gartner for Marketing Leaders business had a compound annual growth rate of 76 percent per year over the past 6 years. The GPS now includes HR, finance, sales, legal, and more. So in 2017, we began building foundation for long term sustained double digit growth in these new enterprise functions. And of course, that foundation is the Gartner Formula.
We developed indispensable insights combining legacy business content with relevant Gartner IT content. We delivered these endospatial insights in products for business leaders across the enterprise. We refer to these products collectively as GXL. Gartner for Marketing Leaders is GML. Gartner for Finance Leaders is GFL, Gregnant for sales leaders is GSL and so on.
Now GXL products delivered sustained growth compared to legacy products. They provide greater value clients because they're tailored to client's individual needs, and this in turn results in higher prices per user and stronger retention. Now beyond better pricing and retention, GXO products provide exponentially more growth opportunities because we could sell these high value products throughout our clients' organizations. Beyond indispensable insights, we hired and developed exceptional talent, last year, we grow Salesforce 23 percent. We implemented the same training tools and processes as those in GTS that have led to ever improving sales excellence there.
And we further supported our salespeople with the same enabling infrastructure that we have just like in GTS. To build a foundation for long term sustained double digit growth in GBS, we made significant changes. We restructured the organization. We reconfigured contract terms conditions. We eliminated discounting.
As I just mentioned, we introduced a new suite of products that we collectively call GXL. These products were rolled out and salespeople trained during the first half of twenty eighteen, as you can see on this chart. One way to think about it is GBS salespeople and their managers were in their 1st year with Gartner in 2018. They were like new hires. The Vist chart shows the sales of the new GXL products, HR, finance, sales and legal, from when we began piloting them in late 2017.
And you can see the learning curve as our Salesforce was trained and gained experience in selling these new products. Now every GXL product is gaining momentum. These charts show the cumulative bookings of the new GXL products. We've indexed the 2018 ending value to 100, so you can more clearly see the growth trend. HR, finance, legal, sales, They're all accelerating.
As the GBS sales force continues to gain experience selling the GSL products, we expect that acceleration to continue. To summarize, We're delivering indispensable insights through our GXL products. We entered 2019 with a richer mix of GXL products, which have higher retention. We have a 23% larger sales force with exceptional talent. And that Salesforce is further up the learning curve on the sales excellence playbook.
And we've invested aggressively and the enabling infrastructure to support sustained double digit growth in GBS. So here's what you should take away from my remarks. We're living in accelerated times. Enterprises need to constantly evolve to get ahead of
the competition.
Leaders across the enterprise need help. They need help with their make or break initiatives. And Gartner, is the best source of that help. A vast market opportunity, and through consistent execution of the Gartner Formula, we know how to capture that opportunity. We applied the Gartner Formula in GTS and delivered long term sustained double digit results.
We're applying the same Gartner formula in GBS and expect to achieve long term sustained double digit results beginning in 2019. With a culture of continuous improvement and continuous innovation, we get better stronger faster year after year. And we're in the best position we've ever been in to provide sustained double digit growth across our key financial metrics. To deepen your understanding of Gartner and our expanded research and advisory capabilities, I'll introduce Mike Harris. Mike's our Global Head of Research And Advisory.
He's had various leadership positions across the Research Advisory team for more than 20 years. Much is a strong leader who's driven substantial improvements in business results and client value measures. So Mike, Thank
you very much.
You very much, Jean, and good morning, everyone. Nearly 2 thirds of CEOs and CFOs It's to anticipate business model change within the next three years, typically due to digital transformation, in reaction to new growth opportunities and competitive threats in their industries. Now these leaders often initiate significant change programs, which have a ripple effect across the entire enterprise. So other C suite leaders like heads of marketing, HR, IT, and supply chain then work with their leadership teams and their peers to modernize the way the entire enterprise runs, changing the very way that value is generated in the enterprise. Our Gartner's model is to provide subscription based on demand indispensable research and advisory services to help all functional leaders and their teams navigate precisely these types of challenges clients find our services so valuable because of a combination of 3 fundamental things: Expert advice, the ability to speak with our over 2000 global experts on variety of critical top because that advice gives them the confidence to make better and continuous decisions.
The subscription model provides ongoing access to the insights needed by leaders and their teams, on a step by step basis. And on demand response through already published research content, data and benchmarks. Leaders need that insight, and they need that data. For example, about 2 thirds of marketing leaders say that access to data, metrics and advice are critical for their role. But you all know, there's no shortage of information out there.
Executives try to access as much information as possible, but that has an opposite effect. They have access to a huge volume of information. But the sheer volume of it is overwhelming and often conflicting, increasing the uncertainty about the best path to follow for a given decision. Now our research shows that executives who are presented with lots of unsynthesized and conflicting information frequently make the wrong decision. Their probability of getting it right is no better than a coin toss.
One client of ours is a senior IT leader in the U. S. Federal government, He'd been overwhelmed with differing perspectives on if and how he should move his applications to the public cloud. And he told us that what he valued most about working with Gartner was our ability to synthesize the information he needed and to distill it into a clear action plan. And critically, that the recommendations that we made were from an independent organization with no downstream business influencing those recommendations.
So in an era where information is so abundant, access to truly independent unbiased and expert advice, on the most critical priorities facing an executive is extremely valuable. That need for independent objective advice about how to run a function rise. In these functional heads, they know that their jobs, frankly, in their careers, are on the line when they're running their function. Every decision counts about strategy, talent, technology, budget, and then you see demonstrate performance or frankly, their CEO will replace them. Because at any given time, more than 1 in 5 C level executives are in their 1st year in role.
And 46% of all executives underperform relative to their performance goals for the 1st 18 months of their tenure as head of a functional unit. All executives and their teams, whether they're new to the role or highly tenured, are faced with these constant change and daily complex challenges that can impact the entire enterprise. And they come to Gartner for the provocative ideas and pragmatic advice they need. Now they certainly come to Gartner for technology advice, and technology is a critical enabler of all enterprise functions. I'll speak more about that in a minute.
But there are so many other factors within each function where clients seek Gartner's advice. Let me give you some examples which come from our own analysis of client interactions across all functions. Take talent. It is a major challenge for everyone. CEOs have increased the amount of time that they spend talking about talent on earnings calls.
With the most commonly discussed talent issue being culture. Why? Because their functional leaders are struggling to fill open roles, to upgrade the talent pool and to change the culture of their organizations. For example, fewer than 10% of finance leaders today employed data scientists, but within just three years, more than a quarter will employ data scientists and 60% will employ data specialists. Organizational changes are also constant.
In 2018, fully 1 third of all heads of HR, dealt with a company wide reorg. In fact, 99% of them have dealt with at least one major organizational change in the past 3 years. Acquisitions, divestitures, CEO transitions, and major launches of new technology or entering new geographies. When HR is effectively supporting major change initiatives in the organization, the success rate doubles. And most CEOs expect their HR leader to make these organizational changes happen faster than they did 3 years ago.
Customer behavioral changes are also creating new challenges. In the last 5 years, creating extended decision making teams and increasing the frequency of no decision. At the same time, the average B2B sales professional has direct customer access for only about 5% of the purchase experience. And these are just a few reasons why marketing and sales leaders are coming to Gartner to get advice on how to manage the multichannel customer experience. To build the right content marketing programs Chief Supply Chain Officers have another set of challenges due to changing consumer behavior.
Millennial consumers are demanding a transparent supply chain across the entire Global Ecosystem. Corporate social responsibility and ethical sourcing are now top of mind for supply chain leaders and CEOs alike, not only for distinguishing their brand, but also for attracting investors. And every industry is being impacted. Apparel is being asked about factory conditions and child labor. High-tech needs 0 conflict minerals in their devices, food and beverage have to prove the source of supply is safe and ethical, and life sciences has to deal with ongoing counterfeit risks.
Gartner helps all these companies build sustainable ecosystems and powerful brands. And then there's regulation. Leaders in every function face board level questions when significant regulatory changes take effect. For example, tax reform here in the U. S.
It's had real benefits in reducing corporate tax rates and repatriating overseas cash, but finance executives seek expert advice on how to properly communicate these changes in SEC filings and annual reports. So recently, we republished, we published a pragmatic set of research, sharing extracts of 10 K disclosures regarding U. S. Tax reform from multiple companies. Like Schlumberger, eBay And United Rentals, Inc, to help other companies communicate their own disclosures.
Talent, Organizational changes, customer behavior, regulation, all of these things are underpinned by technology. Our CIO, IT leader and technical professional clients come to Gartner seeking provocative ideas and approaches to help them adapt to all of these changes. And they also come to us for pragmatic advice on how to benchmark their maturity levels and costs against peers, so they can continuously CIOs and their teams better engage with their C level peers on issues that extend well beyond IT. In our GXL products, We include relevant technology research for heads of sales, customer service, finance, marketing, and so on. The content needed to digitalize those functions in select implement and manage functional tech.
In our Symposium keynote, just a few months ago, I said that leaders in all functions apply technology and information in unique and creative ways to outperform their peers. For instance, the Chief Sales Officer, is not only involved in the selection of a CRM system, they're often the primary driver. And while 27% of finance teams are currently making use of advanced analytics, that number is expected to triple within 3 years. In marketing, technology spending has grown incredibly quickly to where it's now the single largest area of investment for that function. Even more than the labor budget.
So how do we know all this? Because we research all of these functions and we quantify and benchmark executive performance to help our clients outperform their peers. We conduct literally hundreds of thousands of one on one conversations every year, most held remotely over video and content sharing conference calls, and some held face to face during our conferences. And we analyzed the millions of content pieces searched for and accessed on our website. Every function across the enterprise has enormous pressure to transform, to respond immediately to internal changes and external shocks, and to continuously improve their teams to benchmark competitors to stay ahead and they turn to Gartner for the singular combination of expert advice the confidence to make better decisions continuously and to get those things on demand, just when they need it.
We stay abreast of the latest things that are happening in enterprises, large and small, in the public and private sectors and all around the world in every industry. And we shape our content and resources to meet those needs. So information overload, talent and organizational changes shifting regulations and customer behavior, they all add up to constant change for every senior executive. Which means that every functional leader is an urgent need of indispensable insights, advice and tools to achieve their mission critical priorities and outperform their competition. The one company that is best able to address that need, Gartner Now let me show you how Gartner helps clients by sharing with you a year in the life of a representative HR executive whom we'll call Maria.
So it's week 6 on the job for Maria. She's recently been named the new Chief Human Resources Officer for XYZ Precision Manufacturing. A multibillion dollar company that produces precision metal components for the Aerospace, Industrial And Agricultural Industries. So as head of HR, she's responsible for recruiting, talent development, performance management, compensation and benefits, and a host of other activities that are essential for running the business. She has managers with teams of people Now as she's settling into her new role, she engages with Gartner on campus recruiting because she needs a lot of new engineering talent to support the company's growth plans.
So Maria goes to our website, find several research reports online, including ones detailing the career aspirations of Generation Z, and a how to guide for building on campus recruiting programs. She reads those 2 in detail and has some questions about how she'd apply this to her particular environment. So she emails Gartner and says she'd like to speak with one of our experts on the topic. The next day, she's on a video conference call with the expert we've identified shares content on how she can best address her issues. But as we all know, priorities change rapidly.
So what if the Chief Operating Officer resigns unexpectedly for health reasons? In that situation, Maria suddenly has a new and more urgent challenge. In addition to her other responsibilities, she now has to throw herself full tilt into finding and hiring a new COO. She needs expert advice, and she needs it right away. So she turns to Gartner, and we provide her with our succession management playbook.
That helps her identify candidates work with the board of directors in the hiring process and quickly onboard the successful candidate. But in parallel, Maria's understaffed recruiting team is still struggling to hire that engineering talent needed. Since as you know, in the U. S, there are currently more open jobs postings than there are candidates who are actively looking. So Maria has her head of recruiting engaged with Gartner to access our big data solution for planning and recruiting talent neuron, which provides her the analytics recruiting team needs to understand where to it specifies the compensation and benefit levels that are needed to attract that talent, and therefore speeds the average time to hire through more targeted recruiting activity.
And throughout the year, Gartner continues to help Maria with the ongoing critical functions of her HR operation. In fact, Maria and her leadership team attend the Gartner conference reimagine HR to hear the latest thinking on these topics and in ways that HR can drive leadership development. But then what affects YZ? Precision Manufacturing announces an acquisition. The company now needs to be completely reorganized to integrate teams, brands and infrastructure to realize anticipated cost synergies.
Clearly that's not just up to HR. That requires intense coordination with other functional leaders such as the CMO and the CIO. Maria still needs advice on new operating models and how to blend 2 very different cultures. She has to assess how long to keep the acquired companies brand, how best to transfer the equity to the newly combined entity and what the new combined corporate brand ultimately should be. The CMO also is deeply involved in the integration.
Now he needs a master data management strategy to manage customer data sets from both companies. Because he wants to avoid sending competing pricing for overlapping products to a single customer and also looks for cross sell and up sell campaign opportunities. So he brings in the CIO to the conversation to discuss a master data management strategy. Meanwhile, the CIO also needs to figure out how to consolidate 2 payroll and accounting systems. Each of these leaders calls on Gartner for help not just for themselves, but for members of their teams who haven't gone through a major acquisition before.
By watching prerecorded webinars, reading published content, and having one on one conversations with Gartner Experts, team members entitled to our research and advice rapidly accelerate their M and A knowledge base. They can also better coordinate with other functions all across the company. Now I could go on, but you get the idea. Functional leaders today have a wide array of critical operational issues that they have to deal with every day to keep the business running. And at the same time, there are multiyear priorities to be managed and numerous events that crop up unexpectedly that they have to solve very quickly either with their own teams or in collaboration with other C level leaders in the enterprise.
Gartner is there to support them in every case with provocative, innovative ways to transform their business and solve their most pressing challenges, as well as with pragmatic and practical tools and advice to help them execute. All delivered on demand through our subscription services. So how do we do it? How does Gartner generate the insights and advice for 15,000 enterprises day in and day out for Maria and every other client? Well, let me first explain how we structure our products, such as Gartner for IT Leaders, Gartner for sales leaders, or Gartner for marketing leaders.
We identified the target client roles, including the C level functional leader and their leadership teams. So for sales, that would mean the chief sales officer, sales operations, territory planning, strategy and division hits. Then using external market research and the years of knowledge accumulated by researching each of these roles. We prioritize the content that we produce on the topics that are most critical for our clients and prospects. In our recently launched GXL products, we've made several enhancements to legacy offerings.
We brought together all relevant research for each functional leader, combining content from several leadership councils to provide the integrated insight execute on their priorities. We then enrich the products further with technology content that's relevant for each function, such as CRM for sales and marketing leaders, for example. And then we've added new additional research to help drive cross function priorities, such as digital transformation, cost optimization, and talent. And all of this And for every topic that we cover within each product, the Italian acquisition or digital transformation, we ensure that our content is provocative helping the client see something differently and take action, such as envisioning a major digital transformation. And pragmatic, helping clients with practical guides for how to execute, like a job description for a new data science talent needed to drive that digital transformation.
We share content methodologies across functions for scale and consistency. For example, We've developed maturity assessments for every function. These help functional leaders in their teams benchmark how advanced or immature their operations are, and then identified the specific steps needed to progress, say, from a level 3 to a level 4. We recently worked with the utility company to benchmark its operations and figure out how to cut costs by 10% company wide over the next 3 years. Now because of our benchmarking and proprietary database, more than 1000 cost saving strategies the company is now on track to hit its savings targets.
Our clients really value our proprietary benchmarks. Like our annual audit fee benchmark or our methodology to benchmark digital brand performance called DigitalIQ. Let's take
L2's Digital IQ index is a tool for brands looking to benchmark their digital performance relative to peers. The Digital IQ measures brands across 12.50 data points against 4 dimensions, site and e commerce, digital marketing, social media, and mobile. Brand scores are indexed to an average of 100 and assigned into 1 of 5 classes, genius, gifted, average, challenged, and feeble. Our published research reports provide a robust overview of online investments across the sector, including best practices and case studies. In the customized deep dive, our client strategy team delivers brand specific insights to your organization's leadership team.
In the 2 to 3 hour presentation, we go a layer deeper into the data, looking at where your brand is strong and weak and make both strategic and tactical recommendations that feed directly into your annual road map. The Digital IQ offers brands away to hold their team and vendors accountable and provides a framework to shape capital allocation decisions.
I heard a few of you chuckle at the idea of rating a client feeble in the on the IQ scale. And it's true. That gets client's attention. But it is a fantastic way to focus our engagement on those areas in greatest need of improvement. There are other methodologies as well, consider our best practice methodology.
When people use the phrase best practice, often what they're really talking about is common practice. The approach that most organizations use for a function or process. In our approach, we focus on what is truly best practice. That is what the top 10 percent of organizations do differently to achieve exceptional results. Methodology involves extensive quantitative analysis of business results in correlation to specific practices.
We then break down those truly best practices into modular steps that other companies can follow, which is perfect for disrupting established practices with new insight. We're also applying the Magic Quadrant methodology for vendor selection into areas beyond IT. One of our more popular examples is where we help supply chain leaders choose 3rd party logistics providers. And using all of these models, in each of our practices through modular and repeatable methods affords us operational scale and more importantly, a consistent platform for C level executives and their teams to continuously improve their functions and continuously adapt to whatever comes next. We've built a similarly scalable platform for service delivery.
And as I mentioned earlier, we have hundreds of thousands of one on one conversations with clients every year, and those clients have access across our areas of expertise. The algorithm takes into account an analyst profile, along with data on all prior advisory sessions that they've had. We identify the best available resource for every client as well as the client satisfaction level to direct more calls of a similar nature to the best equipped Gartner experts. And when the discussion is complete, we guide the client on what they should do next. We provide links to relevant research to delve deeper into the discussion topic.
Or we direct them to another expert in a related area to continue enabling a 360 degree view of all the functions in an enterprise. No one else is able to have this kind of scalable content and advisory service for any role in the enterprise. And yet, we're doing it across the entire C suite. And we're delivering significant results. We literally have thousands of testimonials from satisfied clients.
The client's often noting time saved and money saved. For example, Gartner paid for itself in 15 days saving $2,100,000 in inventory alone. Project Acceleration is often cited as a key benefit as this client reported. The value that Gartner delivered to us was speed, focus, and access to best practices. And I like what this chief supply chain officer said and how they simply summed up the value that we delivered by saying Gartner offers the total one stop shop.
Frankly, we are better because of Gartner. Every team in every function in every enterprise faces dynamic challenges every day. Continuously improving functional performance is an ever present need. Later on to that, disruptive events and transformations, And you see why Gartner is such a valued resource for insight and advice on how to provocatively approach a challenge in a new and different way. Or how to pragmatically accomplish critical activities to save time, money and to speed up the operating tempo of the organization.
And we continue to build our platform. The content methodologies for maturity, digital performance and vendor selection, the service technology to rapidly route client queries to the best available expert, and the indispensable insight to provide unrivaled capability to help Now let me turn it back to Gene to introduce our sales leaders. Thank you.
Well, thanks, Mike. So you just heard how our research team provides senior leaders in all major functions across the enterprise with indispensable insights, advice and tools. These indispensable insights are at the core of the Gartner Formula for driving long term sustained double digit growth. Now, Leonard is Joe Beck, who runs our Global Technology Sales Organization. Joe came to Gartner through an acquisition back in 1997.
And the 20 plus years since then, he's held various roles of increasing responsibility within sales. He's been instrumental in creating and evolving the Gartner Formula. Joe's going to give you a vivid picture of how we're using the sales excellence playbook, drive long term sustained double digit growth. Joe?
Thank you, Jean. Thank you, Jean, and good morning, everyone. In my role as Executive Vice President Global Technology Sales or GTS for short. I have the privilege of leading a strong, and passionate, and best in class sales organization. That knows how to leverage our proven practices to drive growth.
Today, I'll talk about why we have just delivered the best year ever for Global Technology Leaders and how we will continue to deliver strong sales productivity while growing at double digits. First, a brief summary of our global technology sales organization. GTS has $2,500,000,000 in contract value. 80% of Gartner's total CV and is comprised of roughly 3000 sales professionals who sell our indispensable research into nearly 13,000 Enterprises in more than 100 countries around the world. Our strategy continues to be to sell to and serve every level of We understand the business priorities of the team and how they translate into initiatives for every individual on that team.
Starting with the CIO, our salespeople worked diligently to align our IT expertise to their specific business objectives. We then expand to the members of the CIO's direct team and then broadly into the organization to help them execute. This proven strategy enables us to deliver incredible value to unique individuals and then their team members effectively expanding our overall opportunity within an account. All this is substantiated by the fact that most a full 2 thirds of our new business comes from existing accounts, while the results show that this account expansion strategy works, we have only just scratched the surface. On average, GTS clients have only 5 or 6 seitholders in their IT organization.
Yet, there are 7 clearly defined departments in IT with leaders in charge of each. Like the head of data and analytics or the head of security. And in many of the IT organizations we sell into, There are hundreds of people under each of those leaders. Even our midsized clients have full teams under those roles. The opportunity is there on org charts with names and boxes.
And that's just with our 13 1000 enterprises that are clients today. We've identified over 138,000 enterprises that can and should be our clients. If we count enterprises with even just one seed holder, we're only working in 9% of the available enterprises. We know the organizations to target. We have a winning strategy for selling to them, and we can confidently position our value proposition to every level of the IT organization.
This is why GTS can and will continue to grow at double digit rates Every year, we get better, stronger and faster in capturing this opportunity, and our outlook for the future is very strong. Because the GTS team knows the Gartner formula inside and out. We have reaped the benefits of this formula for years. And are completely committed to the relentless execution exceptional talent and sales excellence. Of course, this is all built upon research and advisory's long track record of continuously meeting the needs of CIOs around the world.
The products we sell target Gartner's provocative and pragmatic insight that Mike just mentioned to improve the outcomes of any IT organization's initiatives and in lockstep with our sales strategy These products are tailored to specific roles. Whether a global CIO whose $1,000,000,000 IT transformation will dictate the future health of their business, or the IT leader establishing a cybersecurity plan for our government in thriving emerging markets. Or the working team, managing an ever expanding cash of business data. Regardless of their role or their initiative, when IT leaders face tough challenges, Gartner has a proven product designed for their role to support their unique needs. Absolutely, no one else provides our level of insight and advice.
No one Like our indispensable insights, hiring exceptional talent is a critical element of how sales leaders execute on the Gartner Formula. As you know, this is one of our largest investments, and we are incredibly selective in our hiring process. For every 100 sales applicants, we hire fewer than 3 people. And over the past 10 years, we have increased sales capacity by 13%, which is directly in line with our 10 year CV growth rate. In 2018 alone, we grew GTS headcount by 15%.
GTS is a diverse group with a balanced global footprint. We call on all industries in every region of the globe in every size enterprise. Gartner has a highly collaborative culture using leading edge tools and best practices. Our growth translates to unparalleled upward mobility opportunities for our people. We offer a truly special kind of sales opportunity a performance driven compensation plan, the ability to strategize with C level executives and work alongside some of the brightest minds in technology.
It's not surprising that Gartner's regularly recognized as a best place to work and that associate referrals lead to an amazing 30% of our sales hires. These are all strategic advantages as we continue to attract top talent So we have the indispensable insight. We've got exceptional talent on board. How do we leverage them to capture that market opportunity? And that's where our best practices over the years, leading to a dynamic and detailed sales excellence playbook that is designed to ensure we execute the best practices consistently across the globe.
And when I say sales excellence playbook, I don't mean just any playbook. Let me draw an analogy. And since I played college football, the analogy I'll use as a NFL Coach's playbook. But not just any coach, imagine joining a team and being handed Bill Bellicheck's Patriot playbook. The one that year after year leads to playoff and Super Bowl wins.
Sure. It's going to take time to read, learn, and master. But you know that everything you need to win the Super Bowl is in that playbook. That's what the Gartner sales excellence playbook means to our people. In fact, let's hear from some of our GTS salespeople on what makes our proven approach so impactful.
In a spreadsheet that lists we figure out how we're going to meet it. Get in our chart, be it power, confirm value in the client's voice, use engagement plans, create urgency, and close the business.
The conversations that are required to accomplish that will give you the insight that you need to understand not only the organizational goals, but also the tactical struggles on the front lines. That depth of insight is what you need to justify a larger investment in Gartner.
We know what our goal and our vision is 2 years out So we make the territory plan and design headcount growth to achieve those goals well in advance. We get a lot of value out of our new AEs because we asked a lot of time upfront with them to help them use the tools that they've developed at Academy and apply value to each of their clients in the field. It's clear from day one what the expectations are and the actions that will deliver results.
This is the greatest place in the world. It's got a great culture I love what I do.
We know there will be bumps in the road, but we also know what the right things are to do to keep getting these results. We tell our new hires, we tell our team, there's room for growth, there's room to raise the bar and take things to the next level. Keep doing those right things and the results will follow.
This level of execution across GTS is why we have achieved meaningful increases in our sale productivity and double digit growth year after year. Our teams know exactly what to do when it comes to recruiting, training, using tools and applying best practices. This is GTS' proven approach to future success. We start by recruiting top talent into territories optimize for success. And in 2018, our investments in recruiting and territory planning paid off Accelerating headcount required significant investments in recruiters with systems and training to ensure sales maximize the benefit of these great resources.
As I mentioned earlier to a record low. Open territories mean that no one is selling into those accounts. So this is a big deal for 2019, and will lead to increased productivity. Innovating this approach was a multiyear journey for GTS that will yield better results each year. We also invested in a world class territory planning function that identifies exactly the right places to put additional salespeople.
This capability is systematically prioritizing the enterprises where we can capture the most opportunity. With both within existing accounts as well as those enterprises that don't do business with us today. Expanding our sales capacity and execute on our rigorous recruiting and territory blueprint means better coverage on our clients, and more people engaging with future clients and to ensure we nurture and develop our exceptional sales talent We offer best in class training programs with proven team of 10 year trainers Across the Globe. In GTS, we know it takes most salespeople 3 years to get to full productivity. This 3 year ramp peppered with various training experiences has been consistent over time.
In the 1st year, our new hires need to be taught the playbook. They begin to learn, but are not fully productive. In the 2nd year, they improve their skills along with their confidence and conviction and sell more. By the 3rd year, they have mastered the playbook and are producing like a veteran player. The ramp up begins with a 6 week sales academy, which is focused on the best practices for driving retention and growth.
And has resulted in material improvements in new higher productivity. And every year, we're piloting innovative approaches to getting new hires up the learning curve more quickly. By the time our new salespeople take on a quota bearing role, they're set on a path to fully understand the economics of our business and how to execute sales the sales excellence playbook. We have also committed significantly in sales training throughout their tenure to ensure the latest best practices are consistently executed throughout the world. We also know that ramp up Jean talked about.
Prietary sales tools that are specifically architected around our best practices. In our sales excellence playbook, is crystal clear about when and how to use those tools to maximum effect. Use daily, these tools guide new and tenured sales people to the most productive activities for each are already helping us to prioritize and engage of double digit CV growth for Gartner under our belt. Our Salesforce knows what to do to be successful. Our best practices are ingrained in every touch point with sales.
And with our focus on continuing improvement innovation, we are always updating and evolving our playbook. This has become a massive advantage for GTS and for Gartner and our opportunity is to All of these chapters in the sales excellence playbook allow us to disseminate the known best practices across all of our sales teams. We only recruit people who and we build tools Moving into 2019, we have a series of strong advantages, unrivaled solutions for every environment and every role an IT organization from the CIO and their direct reports down into the organization. Strong trust based relationships with our existing 13,000 enterprises. We have a tremendous market opportunity a proven strategy for growth in 100 more salespeople attacking that opportunity.
All of this will enable GTS to grow double digit rates in 2019 and beyond. Thank you.
So thanks, Joe. You know, Joe just described how we built the strong sales capabilities that are fundamental to the Gartner Formula. And how execution of these capabilities is going to continue to drive long term sustained double digit growth. Now I'll now introduce Chris Thomas, who leads our Global Business Sales team. As I mentioned earlier, this team worked with the enterprise functions that are beyond IT.
Chris has been a member of our executive team since 2013, and has led GBS since it was formed in 2017. He also has a long history with Gartner. He's been with us for 19 years. Throughout his tenure, Chris has had various roles of increasing responsibility in our sales, and in our service delivery teams. Chris helped write the Gartner sales excellence playbook.
And using that playbook, he's led technology, supply chain and marketing teams to long term sustained double digit growth. And Chris is going to share how his team leveraged the Gartner Formula in 2018 to build the foundation for double digit growth in GBS in 2019 and beyond. So, Chris,
Thank you, Jean, and, good morning, everyone. Today, I'll share more detail on our GBS journey, the significant progress we made in 2018, building the foundation for acceleration. And how that progress now allows us to We know the right things to do. You just heard about many of them as their driving GTS' consistent double digit growth. They're the same right things that are behind the success of Heritage Gartner Supply Chain and our marketing teams, both of which are now part of team GBS.
The Gartner Formula Works. During 2018, We applied this proven formula across the entirety of GBS to accelerate our CV growth, and it's paying off as I'll share over the next few minutes. 1st, a brief summary of our Global Business Sales Organization. With $600,000,000 in contract value, GBS represents 20% of Gartner's total CV. We now have a GBS sells into all functions across the enterprise beyond IT, and our strategy is to target the C level across the functions we serve and then expand into their teams.
Our 5400 GBS client Enterprises represent only 4% of Our market opportunity is untapped across all functions, roles, geographies, and industries, giving GBS a long runway for rapid and sustained growth ahead. HR finance, sales, marketing and supply chain each each have the potential to have contract value well in excess of $1,000,000,000. The Gartner Formula is the foundation of our double digit CV acceleration. That's why in 2018, we moved rapidly across GBS to put the various elements of the formula in place. We leveraged the many strategic investments in enabling infrastructure, And then we put a special emphasis on implementing 3 key areas of the formula: indispensable insight exceptional talent, and sales excellence.
So let me talk a little more about each intern. Gene and Mike both shared the compelling and immediate need across all roles and functions for Gartner support and insight in their decision making. In the first half of twenty eighteen, we launched GXL products across the largest GBS functions, including HR, finance sales, legal, and service to better address these needs. These added to our already existing GXL products in supply chain and marketing. And over time, we'll add more GXL products for other roles that we serve.
As Mike shared, these products provide significantly greater value to clients, with a powerful combination of practice specific, research, technology, and cross functional content, as well as insight and advice tailored to the individual needs of business leaders and their teams. The reaction from our clients to these new GXL solutions has been phenomenal. So I wanted to share the feedback from 2 of our clients, one from sales and one from HR as they talk about their experience.
The big difference between the seat based and the leadership council activities is actually the value we get, the tailored experience that we have in the new engagement is significantly improved. I would say that it's probably saving me, in labor terms alone about 1a half FTEs in the whole research, best practice finding, designing, new things, all of those things added together. So we're quicker to a better starting point. It's hard to put a real number on it, but I would say it's probably 5 to 7 times as much as the actual cost of the life That's one of the big differences I see between what we had before and where we are today is that the return on that investment, I'm paying more today for the membership but I'm getting more return faster.
Our partner with the staff here at Gartner really helped us hone in on what were the areas of what we didn't even know yet. Things are constantly evolving and changing. And so what happened was, as I came out and said, we are really leaning into these areas, particularly around HR analytics as well as HR Technologies. And this entire new world of additional research that I didn't even know that was happening, was presented to us in a very timely fashion, and it actually resulted in a deepening of our partnership and expansion of seats. Today, we have 3 primary seats or points of contact, that interact with the company.
But as a result of our recent dialogues, we're actually expanding that to more of a 5 primary state model and that would include both myself as well as our head of learning. Our head of talent acquisition. And then most recently, our head of analytics and HR systems. It's a match made in heaven.
This feedback is consistent with what clients across all GBS functions are telling us. And I hear the same feedback from finance leaders, legal councils, heads of diversity and inclusion and recruiting, customer service leaders and more. These GXL products allow us to deliver significantly more value, in turn, driving much stronger retention. But the opportunity isn't just from retention improvement. These GXL products allow us to provide more growth opportunity as well, because we can sell these We've seen this retention and growth uplift in supply chain marketing and GTS for many years, and we're now seeing the same thing across the rest of GBS, where we now have the GXL products.
Through the first half of last year, We then trained our entire sales organization on how to sell these new offerings while also putting in place our proven retention programs and support. This transition was significant, even our tenured associates essentially became experienced new hires to Gartner, as they needed to learn an entirely new sales process and product set. Like all of our experienced new hires across sales, They needed to learn the Gartner best practices, and it takes time for them to become fully proficient. With strong training support, the team is moving rapidly up that learning curve, with $100,000,000 of GXL new business sold in 2018 and a steep acceleration in the second half across each of the new products. Jean shared this slide which shows the acceleration across the new GSL products.
Following the product launches and training the first half of last year, the learning curve was evident. From essentially a standing start, we ended 2018 with over 90% of our prospect focused sales associates, selling 1 or more GXL deals. Now even more encouraging, the fastest acceleration we see is within the group selling multiple GXL deals in 2018, demonstrating that once they sell one deal, They get it and now have the confidence and capability to rapidly close additional deals. These results and the trajectory into 2019 are proof that we've only just begun to scratch the surface of the enormous market we're also adding exceptional sales talent to GBS, growing our sales force by 42% since the start of 2017. This territory growth continues into 2019, while simultaneously accelerating the learning curve of all of our growth hires to date, as they now enter years 23 of their tenure.
Our coverage model is based on that of GTS, but customized for the unique needs of global business sales. We methodically design territories and recruit the best salespeople aligned to the areas of greatest opportunity. Sales professionals looking for a great opportunity to succeed and build a long term career. They're attracted to Gartner and they're attracted to GBS. Here's why, a high performance and highly collaborative culture a vast and untapped at the C level and across the entire C suite, all combined with the power of the Gartner brand.
These are all significant and compelling advantages as we continue to attract and recruit top talent and grow our team Now beyond these product and people investments in 2018, we also put a significant emphasis on executing each element of the sales excellence playbook. As Joe shared, this detailed and ever evolving playbook has helped GTS win the equivalent of multiple Super Bowl delivering double digit growth year after year, and it will do exactly the same for GBS. There are many chapters within the playbook, and it's not easy to implement overnight. We need to learn practice and master the plays and adapt and innovate for GBS wherever needed. GTS has been doing this consistently and it's delivering results.
GBS is now doing the same. We're seeing the impact, and we will reap the rewards in 2019 and beyond. To support our growth, we've added significant recruiting and territory planning capacity. The sales excellence playbook is clear on what it takes to consistently hire great talent, and we're now leveraging all of these recruiting best practices across every part of GBS. Great talent still needs great training to be the best they can be and to get them there faster.
Throughout 2018, we've worked to implement best in class training programs. And now the same team that onboards and trains GTS new hires also trains GBS new hires, We followed the same 6 week sales academy process focused on the sales excellence playbook for retention and growth. With additional GBS function specific training, ensuring our teams know how to position Gartner as mission critical to finance leaders, HR leaders, sales leaders and so on, as well as the same ongoing training to enhance mastery of their craft. This combination is helping GBS New hires progress rapidly up the learning curve and will ensure they deliver a strong productivity ramp. Beyond implementing recruiting and training proven practices and investments, we also introduced our full suite of sales tools across UBS.
These tools are a key component behind improved sales productivity and accelerated learning, and it was critical. For GBS to have access to those same analysis, coaching and prioritization tools. Again, this was a significant change throughout 2018, and our salespeople and their leaders are continuing to ramp their skills while leveraging those tools to accelerate growth in 2019. Finally, when it comes to retention and growth, we know what to do to win, delivering indispensable unrivaled insight through the right products adding and leveraging exceptional talent and consistently executing the sales excellence playbook. Our playbook is proven constantly evolving and highly effective when executed well.
GTS is showing just how powerful it is. We successfully implemented the same playbook in our supply chain and marketing GBS functions. We're now executing these plays across the rest of GBS, and we're seeing win after win here as well. Moving into 2019, GBS has so many advantages compared to where we were a year ago. GXL products with expanded content to better address our clients' needs.
A significantly larger and now more tenure team to sell and renew those products. A strong retention outlook, thanks to a richer mix, of GXL in the CV base combined with a year or more of execution on our retention programs. The GTS proven recruiting practices, training programs, productivity tools, and best practices all in place to now accelerate performance, and that same vast untapped market opportunity in both new and existing clients We know the right things to do. We did those right things in 2018 across GBS to build the foundation for long term sustained double digit growth. We're seeing really strong traction and a positive trajectory as our GBS teams accelerate up that learning curve.
We will deliver double digit growth in 2019, and that will only be the start.
Thanks, Chris.
As
you heard from Chris, we've been aggressively applying the Gartner formula in GBS throughout 2018 to provide that foundation for long term sustained double digit growth. We're now going to play a short video to help you better understand our value proposition. Now the first part of the video shows how clients actually access our insights on demand. And the second half gives you a view into our peer community, how our clients can interact with that peer community. Then after the video, we'll take a short break.
We'll have some lunch for you outside. And then when we turn return from the break, Craig Safian, our CFO, We'll share how the Gartner formula actually connects to our business model. And then we'll be happy to take your questions. So I encourage you to take advantage of the lunch break to connect with some of our executive leadership team, which I introduced earlier, and also to network with each other. So here's the video.
The world has sped up. You have to stay ahead of change. Stay on top of your mission critical priorities, and you don't have a lot of time. Here's some good news. You now have a faster way to access the power of Gartner.
Your new gartner.com experience helps you quickly find the information most important to achieving your critical priorities current initiatives and mission critical priorities. Based on your profile, your tracks and how you use the site, garner.com continuously delivers customized content tailored to what you need now. And the more you use it, the smarter gets. As you explore initiative tied to your business objectives, the site learns about what content is most timely for you and posts more of it directly to your feed. By clicking into an initiative, you can see how it aligns to your priorities.
You can choose the start this initiative feature and customize related topics within the initiative you want to track. On the right are MyTrak initiatives. If your subscription includes access to talk with a Gartner expert, you can schedule an inquiry here. Reality test with peers connects you to the Gartner peer insights and peer connect communities, where you can share challenges and solutions. And learn from your peers real world experiences.
In addition to our standalone iOS and Android apps, the new site is built to be mobile friendly. And remember, keep your profile up to date. It improves our ability to understand what you care about right now. And as always, the search function takes you right to the information you need. We hope you find the new gartner.com experience faster easier and more In a world where everyone has a voice, how do you know what's valuable?
And what's simply noise. You play a critical part in the transformation journey. And you're not alone. As part of the peer connect community, you decide what's important. Experience a new kind of collaboration and tap into an unlimited network of qualified peers, just like you.
You'll gain trusted insights, manage by Gartner to ensure high value content, and build your own experience with each connection. We are the world's most influential network of IT and business leaders, and your trust is our top priority. No hidden agendas, no sales pitch. Transform your challenge into Vallejo. When you bring your issue to the digital table, Not only will you get answers, you'll also provide solutions to peers with similar mission critical priorities.
Access our 85,000 plus registered members and browse more than 55,000 member contributions. Expand your network. Multiplying your power, enhance your capabilities. The future of leadership lies with peer connect. Discover more at community.gartner.com.
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welcome back.
So I hope you're able to take advantage of the lunch break to connect with some of our executive team and also the networks weaved each other. So now our CFO, Craig Safian, is going to illustrate the fundamentals and economics of our business and how the Gartner Formula actually connects to our business model. Craig's been with Gartner for more than 16 years. And prior to becoming our CFO, he led to strategic planning, corporate development, and our corporate and business unit finance functions. Craig Bing brings a unique combination of strategy, a deep understanding of our business and its economics and finance and accounting leadership.
He's uniquely talented from both strategically and operationally. And his contributions to Gartner have continued to expand since he took over as CFO 4.5 years ago. So Craig?
Good afternoon, and thanks for joining us today. Earlier, Mike Harris told you a story about Maria, a global HR leader, and all the interconnected challenges that Maria has. I can tell you from my own experience that the CFO and his or her team are going to be impacted significantly by those same challenges. Whether it's the head of HR, the CFO, the CIO, CMO, they can all turn to Gartner for the insights and tools to help on day to day priorities, as well as the unplanned obstacles that come up throughout the year. Gartner helps by enabling leaders and their teams to make those decisions with greater confidence and speed.
To greater outcomes for every enterprise function. My role this morning is to talk about how we're delivering on that value proposition through the lens of our financial and business model. I'll cover how we leverage the Gartner Formula and a powerful business model to drive growth. How the combination of that formula and making smart investments leads to double digit top line, bottom line and free cash flow growth. And how we deploy our cash who we are, what we do, and how we succeed, all stem from what we call the Gartner Formula.
We address our customer's mission critical priorities through indispensable insights. We invest in and develop exceptional talent. We drive sales excellence in our sales or we drive excellence in our sales organizations, and we invest in a robust enabling infrastructure to support that sales effort and growth. These are all incredibly powerful elements of our formula, but what really brings all this to life is our relentless focus on globally consistent execution and continuously improving and innovating every single thing we do. So if our growth formula embodies who we are and what we deliver across every line of business, it's our business model.
That generates the free cash flow that allows us to reinvest in our business return capital to our shareholders and execute strategic value enhancing M and A. It's a simple yet highly effective financial model, and research sits at the heart of it as it accounts for 80 percent of Gartner's revenue. This is a recurring revenue business with very high renewal rates. We write a piece of research once, and we sell it over and over leading to high contribution margins. In research, we bill and collect ahead of recognizing revenue and delivering services.
And the business inherently has low capital requirements. And as Jean pointed out, we also have our world class conferences and consulting businesses that directly complement and fuel our research business. That's how we're set up for long term sustained growth. This powerful combination of the Gartner formula and business model enables us to drive double digit percentage growth in contract value, revenue, earnings and free cash flow So with that framework in mind, what I'd like to do is take a closer look at exactly how Gartner approaches growth and investments in our business. Our growth potential starts with our market opportunity.
As Jean showed you earlier, we operate in a vast, untapped market of close to $200,000,000,000 spread across the enterprise functions we serve. We have a huge, huge runway in each and every one of these functions, including IT. To illustrate, if you were to take our current total contract value of $3,000,000,000 and grow it at a 15% compound annual rate, For 20 years, we'd have only captured 25% of today's addressable market. And as we've shown, we've consistently expanded our market opportunity through organic launches and M and A. Here's how we think about driving growth and capturing that market opportunity.
Sustained growth in research comes down to 2 primary levers: growing our sales headcount and driving improvements to net sales productivity, levers we know result in growth. Which might sound simple enough, but we've developed iterated and honed numerous programs and initiatives around each. With headcount growth, we're focused on recruiting the best talent, talent that has the best opportunity to be successful at Gartner. We're investing in and building recruiting capacity and capability to find that talent, as well as innovating our training programs. So salespeople can be more productive faster.
We're planning and designing our territory, so our teams are aligned to the greatest opportunity and plenty more. The other lever we have is sales productivity. We measure sales productivity as the net contract value increase or NCVI per individual salesperson. We calculated for both GTS and GBS on a rolling 4 quarter basis, where the net increase in contract value is the numerator and the number of salespeople at the beginning of the period are the denominator. There are several ways we improve sales productivity.
Jo and Chris went through all the details of our sales excellence playbook. It was created with the express purpose of driving sales productivity. That's what drives research growth. A combination of growing our sales force and improving productivity. And we've successfully taken this approach with GTS for a long time.
Gene and Joe showed you how we've been growing our sales force at a consistent 13% for the past decade. At the same time, we've driven improvements to sales productivity. Over the last three years, we've achieved consistent improvements to sales productivity, And as a result, contract value growth has accelerated from 12% to 13% to 14%. And as Joe highlighted, we're set up to continue our CV growth. We've consistently grown this business at double digit rates and by continuing to leverage all the elements of our sales excellence playbook, we will continue to grow this business at double digit rates into the future.
At the same time, will continuously improve and innovate and ensure we make the appropriate investments to sustain that growth. And we're running the exact same place for GBS. In GBS, we're growing headcount. We're applying the sales excellence playbook, which has built the foundation for productivity improvements in 2019. And we're seeing GXL contract value accelerate.
20162017 are obviously dominated by our supply chain marketing GXL contract value. But in 2018, we really start to see the impact of our new GXL products. Growth in GXL is what will drive us to double digit overall CV growth in 2019 and even faster in 2020 and beyond. We're confident in our ability to get GBS to double digit growth for a number of reasons. Notably, we have GXL, and the growth rate has been accelerating.
We have a larger sales force with 16% growth in 201723 percent in 2018 and they are all significantly moving up the learning curve. The richer mix of GXL and a full year of our retention programs will drive higher retention. We're leveraging the sales excellence playbook, and we have a vast addressable market opportunity. With those advantages, we entered 2019 in a position of strength Last week on our earnings call, we highlighted this sensitivity table to illustrate our path to accelerated GBS growth in 2019, I thought it would be helpful to briefly touch on it again here. Let me show you one of the paths to 10% growth.
We entered 2019 with $594,000,000 worth of GBS contract value at 2019 FX rates. A 2 point improvement in attrition means roughly $149,000,000 attrits in 2019. A 1% improvement in new business productivity across our 790 salespeople equates to $209,000,000 of 2019 new business. That combination of attrition improvement and modest new business improvement would yield 10% contract value growth for 2019. That's just one of the paths to double digit growth for GBS.
Again, Gartner is a growth company. We've been consistently delivering double digit top line growth, primarily by growing our sales force, and focusing on productivity. Our 2019 guidance and medium term objectives continue to reflect that. These are the same medium term objectives we shared with you last year. To sustain that double digit growth, we know we have to continue to make smart investments each and every year.
We're always pushing the business to innovate and improve in everything we do So we have more money to put back into the business to support and drive that kind of growth for the long term. The largest investments we make are in sales, but we're investing in all other areas of the business as well. Let's just take a closer look at sales investment. We have a very successful sales model, but there are 2 economic lags that impact the profitability of our business. The first, which Jean, Chris and Joe covered, is our sales productivity ramp.
We hire salespeople. They go through training. It takes 3 to 6 months for their first sale, 3 years until they're fully ramped up. So from hot first hire to contract value, there's a productivity lag. As we sell the contract value, we collect the cash shortly thereafter.
That takes us to our 2nd lag, which pertains to how we account for revenue and profit. While we get paid shortly after the contract value is recorded, the revenue and profits get accounted for over the next 12 months. That means there's a big lag between contract value and profits. As the productivity ramps CV, cash, revenue and profits scale. Everything scales except the cost of the salesperson, which modestly grows as compensation increases.
In GTS, because we've been doing this for over a decade, were primarily impacted by the productivity lag. In GBS, were impacted by both the productivity and P and L lag. So we've hired the salespeople in GBS. We're on the path to realizing the contract value and the revenue and profits will follow. To understand how we garner returns from our investments, it's important to understand all of the inputs into our profitability.
It starts with our revenue mix. In 2018, research made up 80% of total revenues. The remainder of our revenues are split between our All of our businesses generate strong contribution margins, but research at 69% is by far our most profitable segment. Research is our largest business. It has the highest contribution margin of our 3 segments, and it delivers consistent double digit growth with continued amazing growth potential for the future.
That combination drives our overall margin contribution of 63%. Moving down the profit statement, we have our selling and G and A expenses. We wanted to take the opportunity to provide greater visibility to the components of our SG Our SG and A splits roughly 2 thirds of selling with the balance being G And A, taking it one level deeper we have 3 distinct sales teams within and the sales teams that support our Conferences business, what we call GCS or global conference sales. As you'd imagine, GTS is by far the largest expense within sales, making up close to 70% of our total selling expense. GBS makes up just under 20% of the total with GCS approximately 5% of the total and the balance in marketing and sales operations.
Our G and A expense represents about 1 third of our SG and A or about 16% of revenue. The largest components of G And A for us are technology and real estate followed by HR And Finance. We have been consistently driving significant productivity out of our G and A functions to allow us to invest in the enabling infrastructure we need to support we'd continue to expect to grow G And A expenses at a slightly slower rate than revenues, providing ongoing operating leverage that we can reinvest back into the business. Let's walk through an example of all that for our 2018 P and L. In 2018, and consulting and a continued shift in mix towards research.
I'd note that we continue to drive investments within our cost of services. For example, we launched a half dozen new TXL products. We're growing our analysts and advisor capacity and we're always improving the client experience. But we're also always focused on continuous improvement and innovation, freeing up expenses so that we can make the right investments to support growth. When we break apart selling from G And A, you can see 2 different trends.
First, that our continued investments in GTS GBS and GCS negatively impacted margins by about 140 basis points, meaning these expenses grew faster than revenues. While G And A positively impacted margins by about 30 basis points, meaning these expenses grew slower than revenues. The net was a roughly 50 basis point decline in adjusted EBITDA margins, all because of thoughtful strategic investments in sales, and the productivity and P and L lags that we talked about earlier. In 2018, we made lots of investments across the business, The largest investment we made in dollar terms was in support of GTS. We grew GTS headcount by 15% 2018, with GTS expense growing about two points more than that.
That significantly lowered the number of open territories we have. Additionally, through efficiency improvements, we were able to invest in numerous other initiatives around hiring and training programs, new business and retention initiatives, and a host of others. And we started seeing the payback in 2018 with the accelerating contract value growth that we showed you earlier. We took the same investment approach In 2018, we grew the sales force and reduced open territories. In addition to further adopting the relevant pieces of our sales excellence playbook, and the growth rate of our Conferences business accelerated dramatically.
And we've taken that same approach with GBS, investing in products and services rapidly growing the Salesforce, adopting the sales excellence playbook and investing in all the enabling infrastructure, we know supports growth. All of which builds the foundation to drive sustained long term double digit growth. The impact of all of that on our 2019 projected margin is shown here, and we're using the midpoint of our guidance to do the math. The story is roughly consistent with prior years. At the contribution margin level, we are dealing with a roughly 50 basis point drag from retired non subscription products in the GBS space.
We've retired these products because they're noncore, and we believe it will drive greater focus and ultimately, productivity in GBS. Within the selling line, there is margin investment in 2019. This is almost entirely for GBS, as GTS and GCS expense growth is roughly in line with the corresponding top line growth. And as is our normal practice, we are seeing operating leverage in G And A. The midpoint of our 2019 guidance calls for an approximately 30 basis point contraction in EBITDA margins.
Or said another way, margins would have been approximately flat without the drag from retired products. Looking forward, consistent with our medium term outlook, we expect EBITDA and free cash flow to grow roughly in line with revenue. We talked earlier about the power of the Gartner Business model. We've architected our business to take advantage of all of its positive elements. As we accelerate the growth of GBS, the benefits will continue to collect cash in advance of delivering the revenues.
Our 2019 guidance for free cash flow growth is strong, And as we move out into 2020 and beyond, the combination of our growth and our business model will continue to deliver significant free cash flow well in excess of net income. In 2018, we primarily deployed our capital to delever. Through a combination of utilizing proceeds from divestitures and our free cash flow, we reduced our debt balance by $1,000,000,000 in 2018. That reduced our leverage ratios down to around 3.4 times gross debt to adjusted EBITDA at December 31, 2018. Which means we are now in the position to return to our long standing capital allocation strategy.
Over the last decade, we deployed $1,900,000,000 on buybacks at a weighted average price of just over $61 per share. In 2018, we resumed our share repurchase activity buying back $260,000,000 of our shares. And we've deployed an additional $4,000,000,000 on M And A. The CEB acquisition was obviously the largest deal, but we've also done a series of small and medium sized tuck in acquisitions as well. Going forward, our top priority is to reinvest back in the business for organic growth.
There are two other ways that we use our free cash flow, stock buybacks and M and A. We have over $850,000,000 available on our buyback authorization. We'll continue to be price sensitive and opportunistic when buying back our shares. Now in terms of M and A, we are an organic growth company, so we don't need to do M and A. We can be very disciplined.
And we seek differentiated content and data. As we have proven in the past, we'll remain focused on ensuring that we deploy our free cash flow and balance sheet flexibility on shareholder value enhancing initiatives. This is a very exciting time for Gartner. You heard Jean talk about how rapidly the world is changing and how leaders across every enterprise function turned to Gartner to help them accomplish their mission critical priorities. Mike Harris, our Head of Research And Advisory, illustrated the pressures and dynamism across those functions as leaders face challenging circumstances every day in how our research helps them with make or break decisions at a low cost.
In our GTS and GBS sales leaders, Joe Beck and Chris Thomas, shared how they're leveraging the Gartner sales excellence playbook to accelerate the growth of our business. Every enterprise function we serve from IT to HR to supply chain to finance is rapidly changing. And our value proposition in all of these functions is indispensable and unrivaled. We take that value proposition and leverage all of the elements of
the Gartner
formula where all of our businesses contribute, research, conferences and consulting. And we have an amazing business model. Gartner remains committed to delivering sustained double digit growth to revenues profits and free cash flow. Thank you again for your time today. Now Jean and I would be happy to take your questions.
Jean, if you would join me on stage, please. David David, David Cohen will be facilitating, so he's gonna join us as well. And so just wait for David to call on you and
move that.
So if you have questions, please raise your hands. We'll bring over a microphone. We ask that you wait until you have the mic, to ask your question so everyone can hear.
Can the house lights come up anymore?
Jeff? The mic's gonna come around.
Yeah. Thank you. So 2 parter. The first, and they're related, but the first Can you just help size up how much the reset was from going from tenured sales associate level productivity to experience new hire on the, the people that were retrained plus the promotions to kind of offset the GXL new sales ramp. That looks great.
And then the related question, everything you're saying makes a lot of sense. The new data you're giving looks good. But the Q4, some of the GBS metrics didn't really look very good. And I guess I'm struggling to understand, are there new things that you're still doing that are incrementally disruptive I think there was a tough wallet retention comp in Q4. I think CB renewed a lot of business in Q4.
Can you just kind of help square, the Q4 GBS metrics with the progress you're seeing?
Yes, I'll take that one, first and thanks for the question, Jeff. So In terms of what we're seeing from over the course of 2018, Q1 to Q2 to Q3 to Q4, 18 was, as as Chris highlighted and Jean highlighted, we made a lot of changes, but they were thoughtful changes. And again, all about laying the foundation for us to be able to accelerate the growth rate of GBS in 2019 and accelerate it further beyond that. I think the key thing to remember is we only fully trained the last people in Chris's GBS organization on the GXL products in roughly the June timeframe. And so we really only had 2 full quarters of the GBS team, the full GBS team, really fully trained and able to sell the GXL products.
And again, as we talked about, there is a ramp that comes with, selling that exact, precise type of value proposition in the market. As Jean showed, and I think as Chris showed as well, under the covers, when you look at the GXL CV, it the slope of the curve you know, definitely accelerated in the second half of the year as people got more comfortable. And as Chris's chart showed, people were getting much more comfortable. And again, it's like If you get one at bat and get a hit, you have that much more confidence the next time you come up. And I know I'm mixing metaphors with what Joe did earlier on football, But, you gained confidence and you gained skill set required.
And again, I think Chris's data reflected that specifically around Q4, it's really the combination of the phasing out of, legacy leadership council new business. And replacing it as we come up the curve with a new GXL, new business. And, you know, the ramp while very, very impressive wasn't enough to offset that known decline that we had planned for. But as we continue to ramp up, we expect that GXL new business and GXL contract value to significantly accelerate over the course of 2019.
Like the sequential trend in CV and GBS from like Q3 to Q4, is it just that there's more business to renew on the legacy council leadership council business or just because it took a step back and everything you're saying was that most things were done by June?
Yes. No, you're precisely right. So, one of the great things in our GTS business that Joe and his team have been really focused on is the expiration SKU of our contract value is roughly even over the 4 quarters. And so you'll note that we generate more new business in Q4 than we do in Q3, which is more than we do in Q2 and so on. And so that that even SKU really helps us grow contract value dollars in the second half of the year.
On the GBS side, there's a heavy weighting towards Q4, particularly December, expirations. And we just had a large volume because of the amount of CV think in the 45 ish percent range of the contract value came up for renewal in the fourth quarter, actually, you
know,
act
you more accurately in in in December. And so we have programs in place to make, you know, try and even that out a little bit more, over time. And then again, our our goal is to really make GBS look like GTS on all the elements of the playbooks we talked about, but also in, the timing and phasing of the business. Question from Tim
in the back.
Hi, thanks. Just to ask about GTS on your last call. Production in the number of open sales territories was mentioned quite a bit. So can you elaborate how big of a change was that? And are you, I guess, there's always going to be some open territory.
So is there any risk you're below normal, right? You're over, over performing, I guess, relative to what you would expect long term in that metric?
Yes, Tim. So, it has been an objective of ours for years to reduce the number of open sales territories. The reason for that is that we sell less in a territory without a salesperson. Than we do with the sales person. We had that brilliant insight.
And, and so we want to minimize numerous sales, open sales territories. The problem as you pointed out is that, we'll promote somebody to be a manager, for example, and that gives us an open sales territory. The way we used to do it is you'd start recruiting after you promoted someone. And then it takes, you know, might take 6 months or even longer depending what country you're in, to get that filled. So over time, we've been innovating to look at ways to how can we reduce the number of open territories over time?
We've done that over a period of several years. In, last year in 2018, I'll say we overachieved our expectations, we reduced this number of sales territories, you know, substantially more than we had expected to. We had operational, and it's not random. It's we had operational programs, and those operational programs, work even better than we had expected them to. And so that made a material difference in the overall number of of salespeople, we had growth rate, the number of salespeople we had because we had so many fewer open territories.
This is all great, as Joe said, Going into 2019 with a record low number of open sales territories is just terrific for us because those salespeople that have all year to sell and Again, I don't expect, I expect that, we will continue to drive down the number of open sales territories over time. You asked if that's kind of a a one time high and it's going to get worse. I'd say quite the opposite actually that it's not 0, and so we're going to keep driving that down. So I expect that we will end this year with even fewer open sales territories than we ended last year
Okay, great. And one follow-up, just, you also showed a, a presentation with the new gartner.com and some of the search functionality essentially. Where are you at in terms of actually successfully matching, I guess, however, I guess, if you can measure drop off rates in terms of people doing searches and do they engage with content on the website? How good are you? And I imagine you've tried to benchmark that, but can you give us any sort of relative performance or sense of that in terms of how mature that is or good you are at that at this point?
So we, we as, as you hopefully got to the presentation, we, want to be on demand for our clients. When they have a problem, we want to be able to give the answers to that problem immediately. So, and one way they do that is they go and they search out the documents that we have. So we've got those documents prepared. They go and do that search.
Search is very important for us. Just as I described with, with open territories, we've been on a mission for years to improve our search experience. And every year, we get better at it. If you looked closely there, you saw things like, what search experts would call like type ahead, where If you start typing things, it guesses as to what you might be searching for, based on what your role is and what other if you're a security person, you may have different, if you type the same words in, you actually want different documents than, someone that is in operations or in application development. And so we have, quite we're quite sophisticated, but I'll put it it's a major investment for us area for us.
We have spent a lot of time innovating. We have, we think, a real great breakthroughs there in terms of innovating on search. And again, we can expect to get better and better every year. But even right now, I think we very good. If you and if you watch you get if you watch the video closely or if you go use our website, you'll see that it is, it's very it's quite very sophisticated.
Yeah, thanks. Gary Bisbee,
American Merrill Lynch. Craig, so you've pushed back or resisted at least the, sort of the claim or the the concept of margins rebounding at some point in the future, from the recent declines, because you've talked about the desire to continue to invest heavily to drive long term top line growth. And I think we all get that concept, but I guess I wanted to push back a little bit on two fronts. So given how low the GBS productivity is and given a lot of evidence that you've provided today that you really believe that's going to improve, why wouldn't we see that flow through at some point? And maybe the second way to ask the question your adjusted EBITDA margins are down 100 bps or so, I think, adjusting for the divestiture since the CEB acquisition.
So you may be The other question is, are what you're really saying is that the CEB deal just is long term dilutive to margins by 100 bps or more?
Thanks for the question. Gary, good to have you back as well. You
probably wish
I was. No, no. That was an honest earnest Welcome back. What what I think, what hopefully, we were able to present today as well as what we talk about on all of our earnings calls is when we put the money to work from an investment perspective, we get the returns. And I think that we've got proof points of that with GTS.
We talked a lot about the money that we put into conferences. And again, you look at where we went from a growth rate perspective there, essentially almost doubling or doubling the growth rate in our revenues in 2018, that doesn't happen by accident. It happens because we made smart targeted investments in areas that we had a high degree of confidence we get returns on, but it is an upfront investment. And I think, you know, the way we think about, the business going forward and the way we think about creating value is, and this is going to sound a lot like what we said last year, but we want to accelerate our top line. And the EBITDA and EPS and free cash flow and all other metrics, should accelerate with that top line as well.
And so getting GBS, which, again, as we've talked about, reflects, represents 20% of the contract value from 1% growth to 10% growth, that accelerates everything. All of the things equal. And that would accelerate the EBITDA as well. We believe because of the vast market opportunity and because we've proven that when we put money to work, it drives returns, we would go a little bit faster in areas. The market opportunity is there.
It certainly not a governor on our ability to keep growing. And so I think as we get productivity in GBS and as the top line accelerates, the bottom line accelerates as well, but we want to make sure that we are appropriately reinvesting into the business. And again, sustained is kind of the story, right? So I think everyone believes the double digit. That's great.
We're going to get there. It's really about doing it over and over and over and over again. And I think we've proven that when we put the money in the right places, we can make it sustained double digit growth.
If I
could just ask one quick follow-up. So both businesses are at 16% long term. So like if you're talking accelerate to offset some improvement in productivity, would you consider growing GTS sales above the 12 to 16 for an extended period, or is that not
realistic? The way we've determined how fast we've grown GTS is we look at the, at the individual, each individual sales and what their capacity is to take on additional new salespeople. And that gives us then a bottoms up, you know, way to think about exactly how many salespeople can add and exactly where we can add them. And so if that number turned out to be higher than the range that we projected, absolutely, we'd be thrilled to go, grow higher than that. But it's driven by, operationally, what's the ability of our area managers to take on, more you know, more new sales associates at a faster rate.
And by the way, I talked about continuous improvement. We want to do that. So we work we work really hard to bring new salespeople in and shorten that time to productivity and make it so that it's easier for sales managers to get them to speed. So We're not satisfied with where they are. We want to get better on that metric, but that's what constraints our growth rate is, it's the bandwidth of our 1st line sales managers ability to take on all these new people we have every year.
Thank you. So
the 13% CAGR in, GTS contract, they're very impressive, over 10 years. But to the extent that is correlated with 13% growth in Salesforce, over the same period, it might suggest, or I guess it does suggest that there really hasn't been, any productivity gains over that period, which might correlate with sort of the static to declining margin. So what am I missing in this arithmetic?
So the good morning, Peter. The our productivity measure is on the growth generated by each individual salesperson, not necessarily the amount of contract value that they're generating. I think the thing that we're really focused on is every incremental dollar of growth and contract value we sell is worth a heck of a lot more than a dollar because of our client retention rates and because of our wallet retention rates. And so the average client stays with us for, let's say, on average 6 years. And if you look at our wallet retention, it actually grows each and every year over those 6 years.
And so that's what we when we talk about making sure that we're making the investments to fuel sustained long term growth, when we hire a new salesperson as they come up the productivity curve, they are generating incremental contract value. We get that contract value in that 1st year, again, there's a much longer life to that. And so the investments we've been making are what have allowed us to continue to grow at 13, 14 15% on much larger numbers, right? So we're generating significantly more growth dollars each and every year, and those those have a greater than 1 year value, I think 5, 6, 7 year value on average, that's greater than 100%.
And then sort of related to the earlier question on just the margin leverage. As you see the the maturation of the, the GBS sales force need, but investment you've made in that, why wouldn't it be realistic to think you'd see some pop back in margin then in 2020, for example?
So I think when we went through the detailed margin walk, materials earlier, it's important to understand that we are getting productivity everywhere in the business. And we're doing that so that we can reinvest back into the business, again, to support and drive that sustained long term and hopefully accelerating double digit growth. We never stand still on that. We are always driving productivity. And I think our investment philosophy and approach is that when we drive the productivity on GBS, that will give us an opportunity to make even more investments to further fuel long term double digit growth.
It's a
question from Jeff from the back.
It's Jeff Silber with BMO Capital Markets. I appreciate you gave us a little bit more color about GXL. Then, was, was able to do last week. I think it was said that the GXL pricing was a little bit higher than the legacy CEB pricing. Could we get some order of magnitude?
I'm just curious how much of that is driving your expected contract value growth this year?
Yes. Interestingly, and good afternoon, Jeff. It's a little but a little bit like apples and oranges. So in a leadership council that was enterprise based, it's hard to compare the pricing of that to an individual seat or a group of seats that we're selling to HR leaders or finance leaders or what have you. The approach we've taken from a pricing perspective, and I think one of the, and Jean, hits on this often in earnings calls and in private sessions with the whole team as well, simplicity is really important.
And so we've modeled the pricing on the GXL products, to look just like what we've done on the IT leader side. And so the pricing there is very similar and consistent to what we have on the IT side. The the heritage leadership councils, you know, could range from average pricing in certain channels of around 20 to 25 K. Or they could be in the 40 to 45 k range. But again, it was an offering for many as opposed to an offering for 1.
And so they're they're they're truly not comparable.
Okay. I understand. And just as a follow-up, and I'm sorry to go back to margins, but, just focusing on the G and A leverage, I think you highlighted about 30 basis points in leverage last year. The midpoint of the guidance is 50 basis points this year. Is that kind of a good long term range we can use if we're modeling out over the next five or so?
So I think, you know, we wanna make sure that we're making the right investments in areas that will again support our long term growth. And so one of the most notable ones we talked about is obviously our recruiting capacity and capability. We need to make sure that we are constantly investing there so that we can find the great talent and drive productivity across all of our sales forces. That said, we expect to drive netgandaexpense growth at a rate slower than revenue growth. Whether that's 30 bps, 50 bps, or 20 bps.
It's hard to say. It'll be dependent on the situation and dependent on the needs that we identify to drive and support growth. But we're committed to operating, ongoing operating leverage in G And A.
Hi, Joe Ferrezi from Kantor. So maybe I'll go back to the football reference. Want to stay with one sport, plus I like the patriots. But you certainly might have the same playbook, but is it possible that maybe the players are different? And GXL.
In other words, could it be that the product is maybe not as good as Gartner's? And could it be that the end users operate differently? Because, you know, there are better and worse Patriot teams.
So, you know, We've taken the we developed the playbook on the IT side. As we talked about, we applied it in supply chain we got the exact same results. We applied it in marketing, and we got the exact same results. We started applying it, as you saw, in HR, finance, legal, and sales. And the, if you look at the uptake, it's exactly what we would expect when we start applying that, that, sales playbook.
In addition to that, when we talk to salespeople, they tell us the products are terrific, and that, they really love selling them. And so we're getting good feedback from salespeople and compliance on it. And so we're pretty that, it's going to be very much the same in the new functions, HR finance, legal sales, etcetera, as it's been in IT, supply chain and marketing.
When you think about the 10% growth in in GXL, you've obviously got a small sample set because you've just started to sell it and the Salesforce is starting to ramp on it. Have you risk adjusted that sample set for a longer period of time so that you can see what the attrition rates would look like? What the pricing would look like. I'm wondering how that's been looked at, when you've given the 10% contract value?
So I'll let it's the first half of that, which is, we know why it's 10% better. In other words, there's operational reasons why it's 10% better. It's things like there's much, you know, Mike went through this. There's much more and much broader content. There's a different service delivery model with it.
There's different kinds and support. And so there's actually underlying reasons why it's better. So it isn't kind of just we thought it would be better or we got a couple of data points. And so there's underlying reasons why it's better. And again, on IT, we saw what it is, it's quite good.
Supply Chain And Marketing have the same kind of deltas as well. They're getting in the range of IT as well. And so we have because of the underlying economics and because everything we see looks that way, even though there's a small number of renewals yet in HR, finance, legal, and sales, can we've seen very good results in the ones we've had longer like marketing and supply chain and the underlying economic the underlying operational measures are exactly the same as in the others.
On the GXL side, you've changed the product or you relabeled it. What areas were you specifically trying to address when you looked at the, the product to make it, we're trying to make it more sticky. We're trying to bring together a bunch of different functions. I'm just trying to understand the difference between GXL and, you know,
for RSVP.
So the main thing we were doing is building a very strong value proposition, the same very strong value proposition that we have in IT or market and supply chain. And, if you compare and Mike talked a little bit about this, which is we, the content is there's a lot more content in the GXL products than in the legacy Leadership Council Products. The Legacy Leadership Council Products were much narrower set of content. And it varies by group by, group, but you can think it's whole number of multiples, more content. In some cases, maybe as much as 10 times more content, in the GXL products.
And the way we get that is first, within the business function itself, there's a broader set of content. So for example, in finance, If you had audit and risk, you'd only get audit and risk now, but you in addition to audit and risk, you may get financial planning, etcetera, because they care about those things. So you get more actual business content first. The second thing is there's IT content that is relevant that we already had existing that is relevant for a finance leader. And so we take that IT content, like on Financial Planning Systems or on analytics, which are a very big deal.
In fact, it If you look at the issues CFOs care about, half of them are technology related. So we added the business content that's much broader We then took the technology content that we already had and then tailored it for, for, CFOs. Then in addition to that, there's, some content that is very relevant across many different functions. And an example of that would be developing talent. When you're developing talent, many of the same principles apply in, whether you're developing talent in IT, in finance, in sales, Some of the basics of that apply across the, across the business.
And so we have this cross functional content. When you add all that together, the amount of content you would get more would kind of think about ranging from five times as much as you had in a leadership council to ten times as much. So it's it's a lot more content. And then on top of the content I mentioned, we've you know, I talked about the events that we've added. Events are what people get value.
We've added a number of events and made those events actually conferences, I should say, conferences, and we made those conferences also much more robust than even the ones that existed where they existed in the past. And then the actual, productization itself, uses the great search function that we just talked about, the world class search function and those other kinds of capabilities that are built into the to the Gartner for, IT leaders, marketing leaders, finance leaders. Now they all have the same product kind of back, support that we've had in the past just in IT. And so the whole point really is to have that very strong value proposition and make that value proposition just as strong in all the other functions as it was in IT market splashing.
I think we've got time for 2 more.
Brian,
How are you doing? Ryan Leonard from Barclays. So you've mentioned the success in putting the playbook to work in supply chain and marketing. And I guess the big difference that I see is that you have a book of CV already in place with the legacy CEBP. So you're kind of working on maintaining what was already there in addition to accelerating growth and presumably the 40 percent of sales hires are dedicated towards new sales.
So maybe can you walk us through the attrition that you've talked about what are your assumptions kind of baked in for 'nineteen? How operationally you kind of go about maintaining levels and what gives you confidence there's not further to go before we see normalization.
Yes. Good afternoon, Ryan. The, from an attrition perspective, the way we've thought about and modeled into 2019. And you kind of get a sense of it from the sensitivity table. That we walk through.
Essentially, if you take the mix of GXL CV, which is about a third of the $600,000,000 and it means 2 thirds is the legacy stuff and apply the rates we talked about, on the earnings call last week where it's roughly 30% attrition rate on the legacy side and a, 80-twenty percent attrition rate, sorry, on the, on the GXL side, you get a weighted average attrition rate around 27%, which is roughly flat for what we did in 2018. And so We're not standing still and assuming that, oh, wow, we just hope we get that same attrition rate on the legacy stuff. So Chris alluded to it. Jean alluded to or directly said it. Jean alluded to it.
I alluded to it as well. We have a significant number of retention programs that we have in place. Supporting both the GXL, subscribers and the legacy subscribers. And so we're working very hard to make sure that the attrition actually improves, on the legacy side and on the GXL side. So we're doing both of those things.
But again, if you use that sensitivity table that we walk through, even with a no improvement in attrition, and new improve no improvement in new business productivity, you run the math with our 790 AEs we had on board at the beginning of 2019, you get roughly 8% contract value growth.
Got it. And one more if I could sneak it in. So obviously the hiring plans for next year, 14% to 16% in GBS 11% in GTS. But if we get to halfway through the year and GTS is flat to accelerating, Is it fair to assume that you would take that as an example of when you would like to reinvest as you talked about? That gives you a good return.
Yes, this is earlier. The way that we decide how faster do our sales force, down both GTS and GBS, is looking at the bandwidth of those managers. And so as we get through the year, we see that it looks like the managers have bandwidth or that we can promote more managers and create more managers, which we do all the time, then we'd accelerate that growth rate. And similarly, if we saw that the bandwidth wasn't really working, we'd be at the lower end of the range.
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Gene, I know you don't have many direct competitors, but if you could just give us a quick update on the competitive environment and then Craig, if you could talk a little bit about the M and A pipeline, you haven't been so active since the CEB deal and you've been de levering and any sort of specific, just specifics on cash flow general, like, return to shareholders now that you've reached your leverage target. Thanks.
So with regard to competitors, we have a very strong value proposition. And when we go and talk to clients and talk to them about our different products, the GXL products and other ones that we have, it is very, very infrequent, think less than 1% of the time. That there's another that there's someone that would be called competitive in that deal. Usually, either we win the deal or it's no decision. And as opposed to, they went to someone else.
And that's true for all of our products across every single one of the enterprise functional areas we talked about.
In terms of capital allocation, Tony, you know, as we we went through, and as you noted, we're back to our rough leverage targets of where we wanted to be. We generate a lot of free cash flow, and we expect to generate lots of free cash flow into the future. Tax Reform now gives us the ability to actually leverage almost all of our global cash flow, which we weren't able to do in the past, and we want to put that back to use. We talked about really 3 uses, obviously, reinvesting into the business, which will continue to do returning capital returning capital to shareholders through our buyback programs, and, strategic value enhancing M and A. On the M and A front, the way to think about our pipeline or the way we're thinking about M and A, we've got a corp dev team 2016 2017 was really focused on, buying CEV and L2.
2018 was really focused on divesting a number of small business. And, you know, I'd argue we did a really fantastic job both in terms of the speed and the value we got for those deals. And now the team is back focused and they were always focused on that, but now even more focused on M and A opportunities into the future. I'm not going to get into specifics of what we're looking for, but our expectation and the bulk of our pipeline, as you'd imagine, our small and medium sized tuck in type deals, that that we'll be looking at. In absence of that and actually because of our free cash flow, capability, I'd say, in addition to that, we will always be looking at ways we can return capital to shareholders through our buyback programs We did $260,000,000 worth of that in 2018.
We've got over $850,000,000 on our authorization plus plenty of cash flow and balance sheet, flexibility if we should need it. And, you know, we'll treat it the same way that we showed you what we've done over the last decade where think we've done a good job of both strategic value enhancing M and A and returning capital through our buyback programs.
Great. Well, thanks for your questions. So here's what you should take away from today's session. We're living in accelerated times. Enterprises need to constantly evolve to stay ahead of the competition.
Leaders across the enterprise, HR, finance, IT, legal, sales, they all need help with their make or break initiatives. Gartner is the best source of that help. We have an indispensable unrivaled value proposition, a vast market opportunity, and through a consistent execution of the Gartner Formula, we know how to capture that opportunity. We've applied the Gartner Formula in GTS and delivered long term sustained double digit results. We're applying the Gartner formula in GBS and expect to achieve long term sustained double digit results beginning in 2019.
With the culture continuous improvement and continuous innovation, we get better, stronger, faster, year after year. And we're in the best position we've ever been in to provide sustained double digit growth across all of our key financial metrics. We hope you found this session useful to deepen your interest in Gartner, and we look forward to updating you on Gartner's progress throughout the coming year. Thanks for joining us today. And happy Valentine's Day.