Ladies and gentlemen, please welcome to the Stage Group Vice President, David Cohen.
Good morning. And welcome to Gartner Investor Day 2018. 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 first partner, Investor Day, where you've been following the company for a number of years, we believe you will leave with a greater appreciation for the opportunity we have to sustain double digit growth for years to come.
Today, you will hear a compelling story of Gartner and his relevance for investors seeking long term sustained double digit contract value, revenue, earnings and free cash flow growth. We will begin with our CEO, Gene Hall, will describe Gartner's unique business and our powerful history of discipline execution applying operational excellence to drive growth and shareholder returns. Peter Sandegard, our head of research and advisory, will share a compelling view of Gartner's unrivaled content created through the combination of Heritage Gartner and Heritage CEB. After a short break for lunch, Joe Beck, our Head of Global Technology Sales, will demonstrate how we will continue to deliver on our proven track record of sales excellence in the technology space. Then Chris Thomas, our Head of Global Business Sales, will describe how we are bringing to our sales excellence playbook, to the full set of enterprise functions.
Following the sales discussion, Craig Safian, our CFO, We'll return to our market opportunity and detail the attractive business model, investments in the business and capital deployment strategy. He will translate what you will have heard from Jean, Peter, Joe, and Chris into the financial model that generates double digit profit and free cash flow growth.
Where do we invest first? Our benefits program competitive.
What's the right strategy for growth? How might you be
ready for digital transformation? How do we change your leadership mindset?
These are the questions clients ask more often. With greater urgency, across the entire C suite as technology plays a more pervasive role in every core business function, in the U. K. In the U. K.
The information and the insights to help leaders and their teams across every major function meet those challenges. And navigate an evolving technology landscape. We empower organizations to succeed Gartner is serving enterprises of all sizes in every industry worldwide across all functions in the enterprise. Welcome to Gardner Investor Day 2018.
Ladies and gentlemen, Please welcome to the Sage Gartner CEO, Jean Hall.
Good morning, and welcome to Gartner Investor Day. Digital business is here to stay. Expectations are high. Industries are being reshaped. And everywhere you look, change is the single biggest constant.
And who do enterprises around the world of all sizes in all industries depend on to survive and thrive in this environment? Gartner. And for investors seeking sustained double digit free cash flow growth, Gartner is an unrivaled opportunity. Today, you'll get a detailed overview of our business. I'll share our strategy to create extraordinary value through the CEB acquisition.
And you'll see how we continue to drive double digit growth in our key financial metrics over the long term. Now before I get started, I'll take a minute to introduce our operating committee members that are with us here today. So I'm gonna start with those who you'll hear from later on. We have Peter Sodergaard, who leads our global research and advisory team. You'll hear from Joe Beck and Chris Thomas who lead our global sales organizations.
Most of you know, our Chief Financial Officer, Craig Safian And the other members of our team are here, our Head of Worldwide events, Alan Dawkins, our Head of Consulting, Scott Henssel. Tim Davis, who leads our Global Products And Services organization. David Mupay, who heads up our Digital Markets segment, Robyn chronic, our Head of Human Resources, our Chief Information Officer, Mike D. Liberto and our General Counsel And Corporate Secretary, Jules Kaufman. So during our break and after presentations, please get to know our team.
And with that, let's get started. So Gardner has about $4,200,000,000 in revenues and more than 15,000 associates. We serve almost 12,000 Enterprises in 100 countries around the world. We operate in 4 business segments, research, events, consulting, and Tal assessment and other. Now our events segment is about 10% of our business, Our singular mission and events is to make every conference we produce the must attend event for the communities that we serve.
By combining the outstanding value of our research, with the magic of live events, every conference we produce becomes the most important annual gathering for the executives at the beginning of every year, just to sign up to attend their annual Gartner conference. Last year, our Heritage Gartner events, tracked at about 64,000 attendees from around the world. And that included more than 10,000 chief information officers. We delivered 65 conferences, serving IT supply chain and marketing throughout the world. With the acquisition of CEB, we added destination events that go beyond IT.
We also added almost 200 invitation only C level Avanta Regional Summits. And together, these attracted an additional 18,000 attendees. Consulting makes up about 8% of our business. The Gartner Consulting segment is an extension of Gartner Research. And it provides clients a deeper level of involvement through extended project based works that helps them execute on their most strategic initiatives.
The Gartner Consulting is highly differentiated. 1st, we're independent objective. We'd also software don't sell hardware and we don't do implementation services. Secondly, all of our engagements are powered by Gartner Research. The best content insights available anywhere.
And thirdly, we have the largest proprietary database of IT And Business Performance Metrics in the world. As we announced last week, we concluded that talent assessment is not a strategic fit and have reached an agreement to sell this business. Research is our largest and most profitable segment, representing about 75% of our revenues Our Research And Advisory segment sits at the core of Gartner's unique and competitively differentiated value proposition. We have over 2000 global thought leaders who create world class insights, best practices, peer exchanges and implementation guides across every major function. We deliver this value through a cloud based subscription service, and one on one interactions with our research analysts and advisors.
We have a very strong value proposition. First, we provide our clients world class insights and how to achieve their most important priorities. For clients who are making major purchases, we offer advice on the best solutions for their needs, and we also show them how to get the best pricing and terms. No leader could be fully effective without knowing the relevant benchmarks. So we provide benchmarks that help leaders understand which parts of the organizations are performing well and which have significant opportunities for improvement.
We offer unprecedented networking across peers who have or are facing similar challenges and want to learn from each other. And finally, we provide clients with the insights that they need to personally be at the top of their game. Each of these are of tremendous value, but collectively, they're even more valuable. Because of our syndicated research approach, where we write insights once, and many clients can use them, We offer these incredible insights for a price that's a tiny fraction of the value. Even our largest clients, Gartner's a cost that's almost always significantly less than 1% of their budgets.
There is no other place that our clients could get such valuable insights at such a modest cost. And that's why our clients stay with us. Renewed high rates, and on average, spend more with us year after year. Now I'm going to give you some historical perspective on Gartner to help explain our business strategy. And I joined Gartner in 2004.
And the years leading up to that time, Gartner contract value had been shrinking. The leadership team didn't believe the research business could grow. But it was clear that there were substantial opportunities for improvement and strength to leverage to get the business growing. So first, A large part of our research content was on topics that weren't important to clients. So we realigned our analysts to write about the topics that mattered most to our clients.
We ensured that our advice was relevant, current, and compelling. And we call this indispensable insights. The Gartner had a lot of talented associates, but many of the most senior leaders didn't have the skills to take Gartner forward. So we upgraded the leadership team. In addition, we made sure that any talent gaps throughout the organization were addressed.
We call this developing exceptional talent. The sales organization was missing many of the elements to be successful as a growth company, Things like sales training, territory planning, and a good CRM system. We address these areas, and we call it sales excellence. But even with great research and sales excellence, other parts of the organization are needed to grow successfully. You need a strong sales recruiting capability.
You have to continue to develop compelling new products and finance has to manage invoicing collections and cost effectively And we call this the enabling infrastructure. So we put these elements in place as well. We then started to build the culture and management systems to drive globally consistent execution of best practices. With these elements in place, we grew our sales force. And our contract value went from shrinking to growing.
Contract value accelerated at a compound to a compound annual growth rate of 10% per year between 2000 and Now even though our contract value growth accelerated dramatically, we know that we needed to continue to improve over time. So we also built a culture of continuous improvement and continuous innovation to accelerate our initial success, I'm sorry, to sustain and accelerate our initial success. While this chart represents what we call the Gartner formula that the leadership team used to drive growth, In the middle are the first four elements I just discussed: indispensable insight, exceptional talent, sales excellence, and enabling infrastructure. Then for all of these, we drive globally consistent execution of best practices and continuous improvement and continuous innovation. And these are the elements that have driven our sustained double digit growth.
Now they also provide a very large market opportunity. We developed a detailed bottoms up estimate of that market opportunity. Is based on looking at the actual number of companies, the specific roles within each company, and pricing for the appropriate products for those roles. Using this approach, the market opportunity for technology is about $55,000,000,000. And that gives us potential for sustained double digit growth.
At the end of 2009, we entered a new functional area supply chain. And we did this through an acquisition of a company called AMR Research. The AMR acquisition demonstrated that the syndicated research approach was just as applicable to supply chain professionals as to technology professionals. But AMR had similar operational issues as Gartner had had in 2004. With the result of contract value been shrinking in the years before the acquisition.
After acquiring AMR, we applied the Gartner formula to the supply chain business. Because of our continuous improvement in continuous innovation, our formula was even better than what we had applied to accelerate Gartner's growth back in 2004. Now we continually made improvements to the formula, But to simplify, I represented this as versions 2 and version 3. The result Between 2010 2017, the supply chain business accelerated to a compound annual growth rate of 24% per year. And by entering the Supply Chain business, we expanded our market opportunity.
Supply Chain added an additional $23,000,000,000. So now we had a total market opportunity of about $78,000,000,000. In 2012, we decided to enter another new functional area, marketing. There was an unprecedented amount of change going on from marketing professionals. There was explosion in new digital media advertising options.
Now you know the names, Google, Facebook, Twitter, Snapchat, and all the others. Marketers had to decide not just what traditional media to use, but how, when to use these new digital media alternatives. And to make it worse, the digital media alternatives were changing on a daily basis. These marketing professionals needed help and they do it. Now based on our technology and supply chain experience, we knew our syndicated research approach would be the best solution.
Our first choice, which require business like we do with AMR and supply chain, but no suitable candidates were available. So we entered marketing from scratch. We built the business organically, whether we hired analysts to develop our initial research. We turned that research into a product. We hired salespeople to sell the product.
We applied the Gartner formula. And of course, we continuously improved and innovated over time. So this Gartner formula was even better than the one initially used for supply chain. So the result, our marketing business exploded. From a standing start, contract value grew at a compound annual growth rate of And even better, it expanded our market opportunity by another $25,000,000,000.
So we now had a total market opportunity of a little over $100,000,000,000. Now, of course, while we were entering the supply chain and marketing markets, we still had a large technology business. We applied to continually improving Gartner Formula to our traditional technology business. The result Growth in the IT business accelerated to a compound annual growth rate of 14% between 20092017. So we accelerated growth in our original technology business.
While we entered the supply chain and marketing businesses, both of which grew even
faster
compound annual growth rate of about 13 percent a year from 2004 to 2017, as you can see on the chart. Now that is the power of the Gartner formula. As you're here from Craig later, our contract value growth converts into free cash flow growth, Free cash flow grew at a compound annual growth rate of 23% per year during the same period. We're living in a time of unprecedented change. 3 mega forces are at the heart of this change.
First, technology is becoming pervasive across every functional area of the enterprise. Cloud Computing and open source tools have hugely lowered entry barriers for application developers. And as a result, there's been a tremendous acceleration of innovation in applications. And we see the consumer apps for smartphones, but it's also true for corporate applications. For example, HR self-service allows HR organizations to provide better service at lower cost to the company.
HR departments are increasingly using analytics to determine which applicants are the best fit for any particular job. The same is true for all the other corporate functions. Technology has become becoming an important part of the job in every function across the enterprise. And the pace of technology driven change and impact is only accelerating. Artificial Intelligence, Machine Learning, natural language processing are just beginning.
And I could go on and on. The second megaphorce is technology based disruption. Holy disagrees will be disrupted by technology driven innovation. The scope, scale, and economic impact of technology is enormous. It's driving massive change in every industry, every government, in every country around the world.
And you know the common examples. Online retailing continues to destroy brick and mortar retailers. Online marketing from search engines, Facebook, and the like, have decimated traditional media. Airbnb, VRBO and the like, are threatening traditional hotels. Even a state industry like automotive is being disruptive.
Last year, the market capitalization of Tesla, which is a ten year old company, exceeded that of Ford, which is a 100 drill company. And just last week, Amazon announced they may go into direct competition with UBS and FedEx. In today's world, every leader in every enterprise, in every industry must worry about technology based disruption. The 3rd megaphorce is sustained macroeconomic and political uncertainty. The rate of change in the global economy has accelerated and clients want our help in determining how best to adapt to these changes.
For example, when Brexit was announced, many of our clients with our help to determine how their organizations and strategies should change in response. The impact of these mega forces represents a huge opportunity for Gartner. Clients in every populated business need help, and they may know it. These pressing client needs come at a great time for Gartner as well. We have the technology expertise to help in every functional area of the business.
But outside of marketing supply chain, we lacked the research and sales team to provide the functional business expertise And that's where CEB comes in. CEB has deep business expertise across the functional areas of the enterprise. HR, finance, sales, product, legal, the rest, but they lacked technology expertise that has become so important. The combination of Gartner plus CEB allows us to address both the business and the technology issues across every functional area of the enterprise. This is The opportunity that we saw with CEB is analogous to that of Gartner when I joined back in 2004.
CEB contract value had been flat to shrinking, yet they were an ideal candidate for growth. So of course, we're going to apply the Gartner formula to the combined business. Now this acquisition couldn't come at a better time. We've spent more than a decade continuously improving, innovating the elements of the Gartner Formula. It's the best it's ever been.
You've shown that the Gartner Formula works on supply chain and marketing, generating even higher growth rates in the double digit growth in technology. We have a deep bench This is the leadership team that helps develop the Gartner formula, beginning back in 2005. They applied it successfully to supply chain and marketing. They helped improve and innovate on the formula, which resulted in more than a decade of consistent double digit growth. So we're going to apply the Gartner Formula to the CEB functional areas.
And when we do, We expect to achieve sustained double digit growth. This is going to give us an even larger market opportunity, We estimate that the combined market opportunity for all nine functional areas is almost $200,000,000,000. Now that compares to today's contract value of about $2,800,000,000. And with this nice market opportunity, we can go at double digit rates for a very long time.
We want
to coach the integration of CDB to achieve aggressive double digit growth while effectively managing risk. As I've discussed prior to the acquisition, Gartner was in 3 functional areas: technology, marketing, and supply chain. CV covered most of the functionalities across the enterprise, including some that overlap with Gartner. So we combined the overlapping areas. We merged the technology salespeople from Heritage Gartner with those in the Heritage CV sales team pretty a single technology sales team that you see on the chart.
We also merged the Heritage Gartner Marketing team into the Heritage CEP sales and marketing team, pretty a single sales and marketing team, again, as you see on the chart. Now having combined the overlapping areas, we organized to maximize growth while minimizing And one of the major risks was ensuring that the Gartner Technology business continued to grow at double digit rates uninterrupted. So we took the combined heritage Gartner and heritage CIBE technology organizations and created a dedicated organization just focused on technology. We call this team Global Technology Sales or GTS for short. Now, for this team, virtually nothing has changed organizationally as a result of the acquisition.
And they get a new, new enhanced product to sell that combines Gartner and CB Technology Research. As I discussed earlier, this approach is working as planned. Global Technology Sales has maintained strong performance. You'll hear more about their performance from the experience leader of this team Joe Beck later today. Now second priority was to maximize growth in the business areas by implementing the Gartner formula quickly and seamlessly.
So we set up a second sales organization supporting all the enterprise roles beyond IT. Now this includes supply chain, It also includes the combined sales and marketing team, and we included other business sales teams from Heritage CEB. Now this team is called Global Business Sales or GBS, as you can see on the right side of the chart. It's led by Chris Thomas, who's a seasoned Gartner veteran. Chris was a major contributor in creating and evolving the Gartner Formula.
And you'll hear from him later today as well. By including the Heritage Gartner Supply Chain And Heritage Gartner Marketing and the new GBS organization, We've ceded GBS with experienced Gartner leaders to facilitate implementation of the Gartner formula throughout this team. And we completed the reorganization as of January 1st this year. Now as a result, we will no longer report Heritage Gartner and Heritage Ceb contract value. They no longer exist individually.
To help you understand our business, we will report technology contract value and business contract value. Now, shown in the chart, if we had reported in this manner during 2017, technology growth rate would have been about 13%, and ending contract value of about $2,200,000,000. Global business sales would have ended 2017 with a growth rate of 8% And our NDA contract value would have been around $600,000,000. And of course, the combined growth rate remains the same at about 12%. The CB acquisition and post merger integration have gone exceptionally well.
We announced our acquisition of CB in January of 2017. There was uncertainty as to the time required for due diligence, branch of financing and the required regulatory approvals. So based on typical timelines, we laid out a plan for completing the acquisition. We satisfied all the requirements and closed the CP acquisition early April which is faster than our initial plan. There's also uncertainty as to
how fast we
can proceed with integrating CEP into Kartner. But during due diligence, we determined that we would be able to pursue an extremely aggressive timeline for integrating CEVD and preparing for accelerated growth. Once the acquisition closed, we pursued this aggressive integration. So as of today, we have fully integrated the 2 organizations. Now, this was a simple task, as it involved integrating about 5000 Heritage CV Associates with about 10,000 Heritage Gartner Associates, all the while continuing to grow our traditional business at 15%.
While the 2 research organizations have been integrated, the product teams have been integrated, they have Heritage CEB Destination events, and Evonzo businesses have been integrated into the Heritage, Gartner Events business, and the staff functions, such as HR, finance, and IT have been integrated. We've met our expectations on capturing synergies. We determined that the talent assessment did not fit strategically, set up as a stand alone business, and have reached an agreement to sell that business. We've also accelerated the investments needed to drive future growth using the Gartner Formula. We developed a new set of we developed a new set of products.
We introduced improved commercial terms. We strengthened customer service improving retention. Perhaps most importantly, for the first time in recent CV history, we accelerated hiring As of today, we've accelerated growth in our direct sales force from 0 to approximately 18% year over year. And we've also expanded our sales support team by more than 20%. And all of these actions and investments were in a much faster timeline than we anticipated when we announced the transaction.
And they're already having an impact. Heritage CV contract value went from negative 1% growth in 2016, deposit 2% in 2017, which reversed a declining growth trend. Wealth retention improved by 6 percentage points, which is a remarkable improvement in a and accelerated growth investments. Together with our initial operating results, give us a high degree of confidence that we're well in the way to achieving our strategic objectives and delivering consistent double digit growth over the long term. In short, the CV acquisition and integration is proceeding ahead of our initial expectations.
Here's what you should take away from my remarks. We know how to successfully grow a syndicated research business. Beginning 2004, we developed the Garter Formula for sustained double digit growth. We have a culture of continuous improvement and continuous innovation. We get better, stronger, faster year after year after year.
We've achieved sustained double digit growth in technology, supply chain and marketing by applying the ever improving Gartner Formula. The combination of Gartner Plus CEB gives us the capabilities to address critical client needs in technology and business across every major function in the enterprise. And it also expands our market opportunity. We have an experienced, highly capable leadership team that has the bandwidth to make the CEG acquisition a success. We've organized our integration approach to maximize growth in both technology and business areas, while minimizing risk.
We are in the best position we've ever been in to provide sustained double digit growth across Now, to deepen your understanding of Gardener and our expanded research and advisory capabilities, I'd like to introduce Peter Sondergard. Peter's our Global Head of Research And Advisory. He's lead partner research in 2004, and he steadily evolved his organization with and as a part of the Gartner formula. He's been with Gartner for more than 25 years. No one can tell the story of our research advisory business better than Peter
Thank you, Jean, and good morning, everyone. This morning, I will show you the details of the Gartner Formula that Jean talked about. I will show you how the integration of CEB And Gartner will lead to an efficient scalable and unrivaled research and advisory model, essentially, how we are better together. Secondly how we will drive substantially higher leverage of Gartner's content And lastly, enable Gartner to cover an ever increasing urgency in addressing the issues of functional leaders in every organization. The integration of CB and Gartner brings together 2 powerful research models.
The Heritage Gartner Research And Advisory Organization based on an analyst expert led research model, serving IT, supply chain and marketing. And the Heritage CD Research Advisory Organization, which relies on a best practice peer network research model, serving HR, finance, sales and legal, as well as 2 of the functions Gartner also addressed IT And Marketing. Together, these 2 organizations enable Gartner to combine the strengths of both research models. So first, let me show you how we have applied the Gartner formula to create 1 research advisory organization, with globally consistent practices proven to drive continuous improvement, Now as G outlined, Gartner now serves the major functional executive roles and their direct reports in all organizations. As a consequence This is also how the new research and advisory organization is structured in specific practices mirroring the functions, such as our finance practice, our IT practice, our sales practice and so forth.
And as you'll hear from Joe Beck and Chris Thomas, Gartner's Salesforce, is similarly organized around these functions. In each research advisory practice, we cover the topics that matter most to the top functional leaders as well as their direct reports To illustrate this, let's look at HR and the roles we cover here. At the center, we have the head of HR, or the Chief Human Resource Officer. Now in addition to writing research and giving advice to the head of HR, The HR practice in Gartner also writes research and advises the key leaders reporting to the Chief Human Resource Officer. Rolls such as the head of recruiting or the executive responsible for comp and benefit and so forth.
So let me then show you exactly how we impactful component of the integration between CB and Gardiner is the ability to create a valuable and far more efficient and scalable approach to creating content and advice. To advise specific roles on their distinct research models. A research model is a way content is created. Each research model is unique in The first research model is the analysis and evaluation research model. This is the heritage Gartner approach to creating content.
A research model that creates advice based on the experience of the This is the model that fuels Gartner's double digit top line growth and is an efficient approach to advising senior leaders on future trends and current decisions. The second research model is the peer and practitioner research model. This is the heritage CV approach to creating content. This is a research model that it relies on experienced researchers and advisors to extract best practice templates models and key insight from member clients. The heritage CV model is different than the heritage Gartner research model.
It is more effective and more efficient at uncovering best practices and tools and templates. Now you heard Jean talk about our strong value proposition. Here, we've just strengthened 2 of them, insights and connecting with peers. Combined the 2 models create better client value for all functional organizations that we equally exciting is that the integration also enabled us to create a 3rd research model. A quantitative research model, one that leverages data analysis tools to extract insight, which is then displayed using visualization tools.
And it was the size of the combined organization that allows us to create at scale this third research model. This is a model that includes benchmarking, another of the 5 elements of our value proposition. Each organization had some benchmarking and quantitative analysis, but our capabilities are stronger than now that we bring them together in this new research model. Each of the functional practices in the new combined Gartner Research Advisory organization operate all 3 research models. For example, in the marketing practice, we have content created by analysts, the heritage Gartner approach, content created by researchers and advisors from the heritage CV approach and data visualized through our new quantitative researcher model.
The output of each research model is seamless client experience in the new products thereby providing indispensable insight and advice and tools. The ability to combine these 3 research models allows Gartner to create value for clients that neither organization would have been able to do independently. We achieved scale as one organization. And that scale, as one organization is pretty impressive. We are now more than 2000 analyst advisors and researchers covering topics important to all major functions.
They are based in 38 countries around the world, serving clients in over 100 countries. In the new research advisory organization, we have applied Gartner's formula for globally consistent execution. And we have done that already now by deploying 1 customer relationship management platform for everybody to interact with clients. One content planning and collaboration platform and one approach to driving content leverage across all functions. So for all 2000 experts, one platform.
And there is tremendous power in bringing these brilliant minds together. And I'd really like to give you an example of this. 2 associates, One from Heritage Gartner and the other from Heritage CV discovered the power of better together. Alan, an analyst from Gartner's team covering HR Technology, was looking for a way to test the hype around artificial intelligence in the recruiting space. She met Dion, a principal executive advisor leading the CEB recruiting Leadership Council.
In a research community meeting, this is where all of our thought leaders, join together to compare ideas, they came up with this great little finding. Great things came out of the encounter. Dion contacted Helen and said, I can help you put you in contact with one of the senior leaders in the Fortune Fifty organizations who has discovered ways of using artificial intelligence in a very sophisticated Helen was able to test her hypothesis and Dion learned more about artificial intelligence that he had ever thought was possible. These moments happen throughout the new research and advisory organization now. But let's step back and look at how this in the client's mind translates into value.
During the summer sections of the value of the 2 research models. We first asked them what they need when becoming a client of each organization. Now as you can see from Heritage Gardner, they got much more of a technology perspective, that should be the result given Gartner's size in covering technology. But these clients also get more insight into strategy and trends. Heritage CV, on the other hand.
Provides more of a business perspective, better understanding of how to deal with execution and implementation. Again, that would have been expected given the fact that the research model is based on best practices and peer insight and has a significantly higher focus on business issues. Now on the right hand side, you see how these needs are met. So from a heritage Gartner perspective, this is done through analyst advice, advice that anticipates the impact of things anticipates the future and provides strategic guidance. From a heritage CV perspective, this is provided through peer experience, understanding how others do things, understanding what the best of the best do and then preparing insight and advice through case studies, tools and templates.
So as you can see, the combination of both is much stronger than each independently. Our work now consists of optimizing areas where there's overlap, allowing the most efficient and scalable research model to focus on its strengths. In our second section, let's now explore how the scale of the 3 research models and the ability to cover the most important priorities of all functional leaders make Gardner unique. How this allows us to take relevant content from one functional area and leverage it across all functional areas. Essentially write once, leverage many times.
First, as I said, we cover the topics
the organization.
And to help functions be successful in those areas, require that we provide insight and advice to the critical roles in each functional organization through leaders to expert professionals. Now today, we do that in the IT space and have products for each level. As you can see, by the blue dots on the slide, we are then also well on our way to do that elsewhere, but have more to do. This means we continue to have opportunity to expand, to grow the business substantially. Within each of the functional areas, we then organize our experts and the way we create the content around the issues that are most important to our clients.
We continuously update this. Moving resources to the areas that are most critical at any given time. In fact, every year, we cover and conduct more than 400,000 interactions with senior executives in almost 12,000 client organizations. This is how we are uniquely positioned how things are changing. And in today's business climate, they're changing fast.
Really fast. Some of the content that we create in one functional area is relevant across several or all of the functional areas that we cover. First and foremost, this is true with regard to Gartner's heritage coverage of technology. As Jean said, we're seeing a fundamental change in business as a result of technology. This means technology is important to leader.
And Gartner's coverage in the technology areas enables us to take relevant content and then move that to other parts of the organization. An example of this is artificial intelligence. Let's hear from one of our experts as to the importance of that topic.
Artificial intelligence systems improve their own behavior and their own performance over time using the data that they ingest and in some cases, even the outcomes that they themselves produce, our clients tell us what matters to us is artificial intelligence makes it possible for us to automate processes that we never could before, especially non routine processes, AI performs in a way and accomplishes things that up until now, we thought only humans could do. So we take these insights and we convert them into immediate responses to customers or to employees or suppliers or to someone else to constituents in a way that we never could before artificial intelligence made it possible to do so.
With Andrews is one of many experts we have in artificial intelligence, he's a really cool and bright guy. As you clearly heard, would say, AI is a critical topic now, and artificial intelligence is important to all roles. We can make the content and advice that Witt and his colleagues around the world create on artificial intelligence available to all functional leaders. In fact, more than 70 analysts and advisors from the combined research organization recently contributed to a large body of research on artificial intelligence. And we made sure that that was done in the context of the specific functional leaders.
We made that available across all of the different areas. And that's not the only broad topic that is relevant to business leaders. There are many others Similarly, in Heritage CB, there are business topics that are pivotal to all roles. One such topic is talent. According to Gartner's 2017 CEO survey, Talent is now among the top priorities of CEOs.
That kind of makes it the top priority for all functional leaders. CB's HR practice has deep knowledge about the best practices tools and templates leaders use to create what is called the next generation workforce, what you do with talents, We have in our new products made our insight and content around talent available for all functional leaders. Ultimately, as you can see, we have deep understanding in the issues that are important to each functional leader And where possible, we will make some of that content that is relevant to others available to the entire organization. Assuming, of course, that they are clients. Topics such as digital business cost optimization, or as I said, talent are relevant to all.
Gartner has substantial depth and breadth of expertise in these and many other areas. By having all key functional leaders as seat holders of Gartner, We can create a common vocabulary and provide frameworks for leadership teams to become successful and jointly solve the priorities of the organization. As I've shown, the Gartner CEV combination has an unrivaled scalable and efficient research model now. And I've shown how we leverage expertise in one area, that is relevant in others and how this drives an exponential increase in the use of our content and thus value to the client, right, once, leverage many times. But one question remains: Is there the same sense of urgency in functional roles, such as HR, finance, and sales as there is in IT.
Our third section lets us look at the priorities of selected functional leaders and whether or not there is that same sense of urgency. And therefore, a need for continuous advice. It is or should be Now clear to everyone that technology is changing business. Each of these technology areas have a profound impact on business and society as a whole. They impact all functions within an organization.
Furthermore, to provide a little extra color, Over the last 7 years, 4 technology trends have impacted business continuously. We have called these the nexus of forces. In fact, I spoke about these at our 2012 investor meeting. The nexus of forces are cloud, which is changing cost and speed of execution of business. Mobile, changing how business and all functions interact.
Social or collaboration, which is changing the nature of work. And lastly, data or information allowing for hyperscale competition. So technology is changing everything and disruptions from technological breakthroughs are directly impacting CIO. This obviously, therefore, creates a sense of urgency within IT But it also changes business overall, and therefore, the sense of urgency within business functions, whether it is sales or HR or finance marketing or whatever other functional role. Now we surveyed a number of business function late 2017 to understand Let me show you overall coordinates the organization's focus around the war for talent HR has pressing priorities right now.
1st, coordinating employee interactions at a time when people expect technology in the workplace to be at least as good as what they use in their daily lives. Secondly, how to drive team based performance management in a world where annual performance management conversations are no longer sufficient. And then thirdly, how to digitalize IT? All three of these priorities and involve technology. HR is defined by technology and changes at the speed of technology.
Now let's hear from a few of our experts around what they see as important in HR right now.
Today's HR leaders face tremendous pressure to create immediate and measurable business impact. Gartner Equib's chief human resources officers and their teams to navigate the complexities of talent acquisition and change management in a global digital business world.
When we talk to organizations right now, well over 2 thirds of them are expecting much more change the next 3 years. Right now, what companies really need to do is to make sure that they have a process for managing through that change, not just from a top down level, but also their employees so that they can accept the changes that they want to implement in their organization and then go on and prepare for the next ones, which are inevitably coming.
The future of change management is really, when we're not using the term change anymore, when we're talking more about the business and the fact that change is a part of business. Perhaps the biggest place where the role of HR executives have been changing is that in some ways, they're no longer the chief human resources officer. They're much more the chief change officer in the in the U. S. Market.
So we have a bigger impact in the markets that we operate in. And almost every executive that we work with is faced with this question of how do I build a change capable organization and how do I manage all of the changes that are happening in my company. The first thing that we do with the organizations that we work with is give them insight to help them kind of stay ahead in terms of
what's going on. Second thing
that we do is provide a whole set of benchmarking tools to help them better understand where they fit and how they compare to other organizations. And the third thing that we do is actually help organizations upgrade for practices.
We're able then to really study what leading companies do and develop best practices, case studies for other companies to follow. And then we build tools off of the back of that to help companies accelerate through the process of their own change management and to get to the better answer quicker
In HR, change is accelerating. In HR, technology is escalating that pace of change. But let's look at finance. Leaders including the CFO are being challenged by technology. Some of the top issues of finance leaders are cost optimization, especially leading those efforts across the organization.
Mastering disruptive new weapons to achieve business growth. Essentially, technologies such as analytic tools, algorithms and artificial intelligence. And lastly, talent. The issue shared by all leaders as I outlined earlier. Again, these 3 priorities for finance leaders are directly impacted by technology or are issues that are business related and shared with other functional leaders in the organization.
Talent is also the top priority for sales leaders. And while the 2 other priorities that you see here at the surface don't reflect the importance of technology, the solution to both lies in using emerging technologies to drive new customer acquisition and existing customer retention and an account growth. So as you could see, all functions are impacted by technology and a series of other shared business challenges such as talent. So there is a sense of urgency and speed That is why our market opportunity is so large. Gardiner's research business model of continuously working with senior leaders is therefore the most efficient model to address these issues.
As Gene outlined, these issues are addressed by Gartner's strong value proposition. Gartner Research addresses all elements of the value proposition. Best practices to solve today's problems and address future strategic questions. The ability to manage costs effectively, to benchmark their performance, to learn from peers and continuously stay abreast of new trends. Working with Gardiner is by far the most efficient, agile, and cost effective way to address these five needs.
Our research and advisory is part of the Gartner Formula. We're responsible for creating the indispensable insight that Jean talked about. Insight that is unrivaled. That insight is unrivaled because of the CEB Gartner combination. We are truly better together.
The insight is unrivaled because we're leveraging across the enterprise right once use it many times over a broad array of leaders. And finally, that insight is unrivaled because we understand what is most urgent and most relevant to senior leaders today. Humbley, who else in the marketplace can say that?
Well, thanks, Peter.
Now you just heard how our combined research and advisory segment 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 double digit growth.
We're now going to take
a short break, and we're going to serve a light lunch. And when we return from the break, you'll hear how we've set up our sales teams to drive double digit growth.
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As technology plays a more pervasive role in every core business function, leaders are looking for answers. Gartner is serving enterprises of all sizes in every industry worldwide across all functions in the enterprise. Welcome back to Gardner Investor Day 2018.
Ladies and gentlemen, please welcome back to the Stage Gene Hall.
Welcome back. I hope you're able to take advantage of the lunch break to meet some of our operating community members and also network with each other. So now I'd like to introduce you to Joe Beck, who runs our Global Technology Sales Organization. As I described earlier, this team is composed of Heritage Gartner And Heritage CB Technology Sales Professionals. Joe came to Gartner through an acquisition back in 1997.
And in the 20 plus years since then, he sailed various roles of increasing responsibility in sales. He's led and evolved with the Gartner formula for growth, and he knows how to drive globally consistent execution of our sales excellence playbook.
Joe is
going to talk about our sales capabilities to capture our opportunity in the technology market. So Joe? Thank
you, Jean. And good afternoon, everyone. In my role as EVP of Global Technology Sales, GTS, for short, I have the privilege of leading a strong, passionate and best in class sales organization that knows how to leverage our proven practices to drive growth. Global Technology Sales has 2,200,000,000 contract value and is comprised of roughly 2700 sales professionals who sell our indispensable research into nearly 12,000 enterprises in more than 100 countries around the world. And as a result, we've delivered a sustained track record of success.
Building upon what you've already heard from Jean and Peter, I'll give you a brief overview of the large opportunity we have and our unrivaled capabilities as an organization to continue our trend of double digit growth. Our strategy is and has been to sell to and serve every level of the IT organization. By understanding the to align our IT
expertise
and then broadly into the IT organization to help them execute. This seat based model enables us to deliver in credible value to individuals and their teams, while expanding our overall opportunity within the account. I believe that every existing GTS client And that's just with our 12,000 enterprise accounts that our clients today. We've identified over 138,000 and enterprises that can and should be our clients. We've captured less than 9% of these available enterprises which means our market opportunity in GTS is huge.
We know how to capture this opportunity We've honed and refined our practices over the years and we execute those practices consistently across the globe. As you heard from Jean, our clients are being impacted by 3 mega forces and all are being impacted by technology. IT is changing the game, and we know how to help our clients harness the power of technology. Our technology insights, advice and tools are currently being used by IT Leaders and their organizations to manage through these mega forces. Whether their companies are being forced to cut costs or fueling growth.
Let me illustrate Some companies are being forced to cut costs. If they ever want to recover from this position, these companies have to cut the right costs. They shouldn't just randomly cut 10% to 20% of their budgets across the board. We know how to work with these clients. To identify opportunities to drive efficiencies in their business.
We show them how to leverage technology to reduce costs we help them purchase the right technology for their environment at the optimal price. And we continuously work with them on their priorities to return to growth. In order to achieve these objectives. On the other end of the spectrum, we have companies that are They want to leverage technology to get ahead of the competition or even disrupted entirely. One of our clients, a major retailer, is tasked with digitizing their processes and moving to the cloud so they can expand their market opportunity and drive revenue growth.
The CIO in each of her team members is actively leveraging Gartner insights. From strategy to execution. In another instance, a manufacturer is embedding software intelligence into its heavy machinery to continuously monitor performance. This way, they can fix breakdowns remotely as they happen and ultimately solve problems before they even occur, around predictive analytics, mobility, AI, and more. As you can see, we can assist our clients in cost cutting, or to fuel growth.
And with most of our clients, we're helping them with both. We have solutions for every environment in every role of an IT organization from the CIO in their direct reports down into their organization. We know how to help those individuals with their business priorities. We've trained our sales teams and they know how to align with the integration of technology from Heritage Gardner And Heritage CEB, our products have never been more powerful. Last August, we launched a team based product that incorporates the best of both, and it already has great traction.
And our sales leaders and their teams
launched a new product that incorporates best of both content. Our teams and our clients are elated about what has come. They have said both sides that this is the best product they've seen They've incorporated strategy and peer to peer insight, which has really driven how to execute and come to Gartner as their true partner. From a product perspective since the acquisition, I have seen huge excitement, not only from my sales teams, but from our clients, it's provided our sales teams with additional avenues of opportunity. It's given our clients additional value from combining Heritage Gartner and Heritage CEB.
And we've seen a robust change in the way we can work with clients.
Aaron is a world class sales leader with a world class sales team. To support Aaron and 100 of sales leaders like her throughout our organization, we leverage our enabling infrastructure and place a heavy us on recruiting, training, tools and best practices that will lead to ongoing success. We start by recruiting top talent. Gartner has invested in a robust recruiting engine that is hiring 10 year sales professionals as well as recruiting from college campuses. We steadily have grown head sales count 15% annually and to ensure we nurture and develop that talent we offer best in class training.
This includes a 6 week sales academy, which focuses on the sales excellence playbook, for both driving retention and growth. By the time our new sales people take on a quota bearing role, they understand the economics of our business and how to execute. They've been trained on proprietary tools and best practices and our sales leaders know how to coach these individuals to identify opportunities in their territories and prioritize those opportunities so they become productive as quickly as possible. We have a strategy to meet our clients where they are. That is we hire salespeople in those geographies where the opportunities sit.
We ended 2017 with a sales team 3 times larger than it was 10 years ago. We're a diversified group, with nearly 50% of our salespeople based outside of North America. They call on all industries in every region of the globe and size enterprise. This gives us the ability to drive deeper levels of relationships and engagement with our clients. We have agile territory planning capabilities.
We know the skills and traits that lead to success in sales, things like work ethic, perseverance, and having a no limits mindset. The Gartner culture is unparalleled. Our teams are true professionals They build strategic relationships. We have a highly collaborative culture that supports the use of Leading Edge tools and best practices. We have innovative products, and there are tremendous upward mobility opportunities.
All this makes Gartner sales a highly sought and replaced to build long term sales career. With market leading compensation, the ability to interact with the C level and work alongside some of the brightest minds in technology. With that, we are regularly recognized as a best place to work. In closing, what you should know about Global Technology Sales is that we are a We have tremendous opportunity ahead of us and we know the right things to do to capture that opportunity. We wrote the sales excellence playbook.
We're driving globally consistent execution of those plays, and we deliver incredible value whether clients are in distress or harnessing technology to drive growth. We have the opportunity and the capability to continue to grow
Thanks, Joe. So Joe just described how we build the strong sales capabilities that are fundamental to the Gartner formula and also how execution of these capabilities will continue to drive double digit growth for years to come. I'll now introduce you Now, this team works with the functional areas beyond technology. Chris has been a member of our operating committee since 2013. And E2 has a long history with Gartner.
He's been with us for 18 years. Throughout his tenure, Chris has held various roles increasing responsibility in our sales and 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 double digit growth. Chris is going to talk about how his team is leveraging Gartner Formula to accelerate growth in GBS.
Chris?
Thank you, Jean. Good afternoon, everyone. You just heard from
Joe, that global technology sales has the opportunity, the strategy and the capabilities to drive sustained double digit growth over the long execution, I am confident Global Business Sales can and will grow as fast as Global Technology Sales. We've been on the journey of building and applying the Gartner Formula before, as you've heard today. And I was part of that as a leader growing the technology supply chain and marketing businesses. Our journey now is to apply that same Gartner Formula, at an even faster rate. So let me share in more detail why I'm so confident global business sales or GBS for short can accelerate our growth rate over time to that of global technology sales.
It's a 3 part story. Who are we? How have we reset the foundation? And how are we applying sales excellence to drive accelerated growth? So who are we?
Today, global business sales represents over $600,000,000 in contract value. Selling into all functions in the enterprise beyond IT. These include sales, marketing, supply chain, HR, finance, legal, and others. GBS currently has a little over 700 quota bearing salespeople across all of these practices. GTS salespeople aligned to the IT function alone.
The GBS team today is concentrated in the U. S. Where 73% of our salespeople are based. Not only do we have an opportunity to significantly grow our teams here in the U S for many years to come, but also to accelerate growth globally. Fueling our global expansion will be the existing on the client base and our in country, infrastructure and expertise.
Leading these teams, we have the best of both, business savvy, tenured professionals from Heritage CEB, combined with some of our very best heritage Gartner leaders. With proven expertise in executing our sales excellence playbook. Together, they know how to lead these teams to deliver sustained accelerated growth. They understand that we need to 1st reset and execute on a number of disruptive, yet important changes to build a strong foundation for growth. These changes create the right conditions to then overlay our sales excellence approach to create strong momentum.
This reset began last year with creating organizational simplicity, as Peter talked about. This is about the power of alignment with salespeople dedicated to a single function. We then refocused the sales team on Our research growth is fueled through seat based solutions versus enterprise agreements. So we accelerated this transition as well. Introducing seat based offerings across all the major functions.
Along with these product changes and the additional value they offer, We eliminated discounting, and we then established a rhythm of consistent price increases. Now, all of this is a familiar story for me. Over my 18 years here at Gartner, I've led sales teams through each of these before. In our technology, supply chain, and in our marketing businesses. In each case, they created a foundation for sales excellence and accelerated our growth.
And they will now do the same for us in GBS. In FANG, just to go a little deeper into one of these areas, I mentioned the shift from enterprise licenses to seat based solutions. And I want to return to that story because it shows how just one reset can have such a profound impact on the success of our business. Back in the days when we were selling enterprise licenses to our IT clients We knew there were many individuals within our enterprise clients who needed our help. With an enterprise agreement, they all had access to our content.
But very few actually leveraged that access. We discovered that those who used our content most were almost always located in the same division or geography as the person who signed the contract. Beyond that, many never even knew they had access, even worse, because there was no contract value growth potential once an enterprise agreement was sold, Gartner salespeople were not motivated to support these clients locally, even though they needed our help. Moving to seat based solutions dramatically increased our ability to deliver greater value to our clients, while also accelerating our growth. In previous conversations with my sales teams, I'd asked them at that time how many prospects they had.
Before the change, They were given the account of enterprise prospects 10 or 20. After the change to Seabased, they were able to give me names of individuals in each of those enterprises that now numbered in the hundreds. This transition from enterprise to seed based was game changing for us. Back then, and it is game changing for us now in GBS, representing new business migration and retention improvement opportunity. Executing rapidly and setting around these disruptive, yet foundational changes positions us well to now apply the key elements of our sales excellence approach to enable accelerated growth.
We know that to succeed, we need to drive toward building the right team focusing on the right opportunity, recruiting to achieve the right sales capacity, creating the right capabilities and relentlessly executing sales best practices. And I am so excited because we are well on our way with each of these. Let's start with the right team. The GBS team has responded better than I could have ever hoped for as we combine the 2 organizations and now firmly believes our business can and will grow faster. Let's hear from 3 of our Heritage CEB sales associates.
As they share their thoughts on Gartner and the opportunity ahead.
It's been fantastic to join the Gartner family. First and foremost, you can tell that you work for a sales driven organization and that sales sits in the middle of everything we're trying to do, which is grow the business in a healthy and sustained way. This is the company that has proven itself to be a sales oriented company that's grown at a high clip for 30 quarter straight, which to me is awesome.
In sales, there are limitless career development opportunities for folks like me and other sales professionals across the team. It's fantastic we get to interact with clients at the highest level.
My team is excited this year. They're being given a chance to sell more complex, strategic, frankly, high price point deals. Deals that get us to the 6 figure range for the first time in my program's 10 year history. I'm excited to have my first conversation represent a $100,000 price tag to a CMO and not have them flinch because it's that.
Gartner's been investing in our growth, both as individuals and as a sales team.
I feel like I received so much coaching from our leadership coaches from my boss to make myself a better stronger leader. So I feel like I grow each day in the business.
And what's even more exciting is we have a set of proven practices and tools that will enable us to be successful in world class of what we do.
So as you heard there from Peter, Gail and Christman, they see the opportunity. They are highly motivated, engaged, excited and open to change. And the same is true across the entire GDS sales team. Sales attrition, as an example, through 2017 was down over 6 points. The impact, fewer open territories.
And with fewer open territories coming into 2018, we have a great opportunity to leverage our engaged and more tenured associates to help drive our growth. Team for tomorrow. Let's now turn And I am confident that you will conclude that it's not about future runway. It's about how fast we can hire to capture it. Gene and Peter discussed the pace of change and the impact of technology, creating urgency for all functions in the enterprise.
Leaders in every function in every industry and every geography need help, and we are uniquely positioned to offer that help. I attended a Gartner Supply Chain event last week focused on the complexity and pace of digital business transformation and its impact on supply chain. Rapid transformation was at the core of almost every presentation and conversation throughout the event. Driving that transformation? Technology.
Yes. Technology dominates the word cloud because it's changing the role of every supply chain professional at an unprecedented rate. But it's not just supply chain. Technology is central. To all the roles we serve, creating opportunities as we shift to selling to individuals with seat based solutions at all levels and within all functions.
Let's hear now from Margo Aronson, an account executive in Arlington, as she talks about the same opportunity.
I am currently on the HR practice, but I was previously on the finance practice. Before the acquisition, there were a of barriers that I face when selling to business leaders, the first being that the, the role of the CFO and CHRO are constantly evolving, there's much more complexity in environment and technology literally is impacting everything that we do. Business leaders are, are required to leverage technology now in order to make the right decisions for their organizations. So in the past, when a CFO would ask me if we had any resources related to making that decision. Those conversations would end in, you know, talk to you in a year.
And we would have to, you know, literally walk away in these deals because of it. With a fee based product, I have the opportunity to learn more about the challenges that business leaders are facing. In understanding their challenges, I can direct them to the content that will help them the most, which will have significantly more value on an individual basis. With Gartner for HR leaders and Gartner for finance leaders, we are able to provide not only the role expertise but also the technology expertise to support those really important decisions.
We have thousands of addressable enterprises and even more organizations, divisions, and functions within each to target. Currently, we have only 700 sales associates. The growth opportunity is before us, but only if we apply the Gartner Formula and consistently grow our sales headcount. Let me share just one example to give you a feel for the magnitude of the we have in growing sales capacity. But because this example is so compelling, let me ground you in the fact that Consistent with our track record of success, we will grow methodically deliberately and in alignment with the capacity of our sales leaders.
This example considers the opportunity in the sales function alone. Let's say we only sell sales solutions to the 12,000 enterprises that our existing GTS clients today. Let's assume to be hugely conservative in that we achieve only half the average contract value per client as in GTS, around $90,000 or just 2 or 3 seats per enterprise. This would equate to over $1,000,000,000 in contract value in the sales practice, from less than 100,000,000 today. And this is just selling to existing GTS clients alone.
And only half the average contract value per enterprise. Clearly, our opportunity is even greater than this as we expand our product set and our sales capacity, allowing us to further increase the CV per client, sell to all enterprises and replicate this opportunity across all major functions. Thanks to the success of our rapid integration, we are often running already. We've already added over 80 highly qualified salespeople to our team. And as I mentioned, we will continue to add sales capacity, consistent with our ability to deliver on the Gartner Formula.
The right team and enormous opportunity, the right sales capacity, essential elements of sales excellence, But without exceptional capabilities, and service to deliver value across all levels of the organization. Peter shared a compelling story of how we're combining the best of heritage EUV research, products and service with the best at Heritage Gartner, and they are delivering. We are already seeing the early impact of this indispensable insight and support with wallet retention up 6 percentage points in 2017. That brings us to best practices, our real secret source, Gartner's sales excellence playbook. It is a true differentiator and drives our economics.
So much so that our investors will appreciate we hold it close to the best. Suffice to say that our proven practices are based on years of success. These are evidence based successful practices disseminated across the organization and to every member of the team. The Gartner Sales Excellence Playbook, driving recruiting, training, tools and best practices, delivers in GTS. It drives success in marketing and supply chain.
It works in Global, Large And Mid sized Enterprises. It works across regions And Industries. And it will work within Global Business Sales. Our progress on this has been immediate and measurable. We are fully leveraging Gartner's enabling infrastructure.
Every hire we're making in GBS is now leveraging the same sales recruiting team and proven practices as GTS. Sales, training and academies for new hires tenured associates and managers is being led by our sales training center of excellence. We've moved the entire GBS team over to the Gartner sales compensation plan. We've launched seat based products across all major functions. We've eliminated discounting, and we've implemented numerous proven practices behind improved retention and accelerated growth that are already bearing fruit.
But this is just the beginning. There is much to be done, and execution is the watchword. So I'll close by returning to our goal, sustained long term double digit growth for global business sales. We know what sales excellence looks like, building the right team, focusing on the right opportunity, recruiting to achieve the right sales capacity. Creating the right capabilities and relentlessly executing sales best practices.
We are well on our way with each of these. Driving this change will not be easy, and it will take time, but we know the right things to do and how to get them done. And I am confident that global business sales over time will grow as fast as GTS. Thank you.
It's Chris
Well, as you heard from Chris, we know how to be successful selling syndicated research. We've invested in the Global Business Sales team, and we're confident it's going to grow at double digit rates over the long term. Now our Chief Financial Officer, Craig Safian, will walk you through the fundamentals and economics of our business and clear strategies around sales and how we've rationalized CEB from a finance perspective. Craig's been with Gartner for over 15 years. Prior to becoming our CFO, he led strategic planning, corporate development and our corporate and business unit finance functions.
Craig brings a unique combination of strategy, a deep understanding of our business and its economics and finance and accounting leadership is uniquely talented, both strategically and operationally. And his contributions to Gartner have continued to expand since he took over as our CFO 3 and a half years ago. Correct?
And good afternoon, everyone. Every presentation today demonstrates the power of Gartner's winning formula. From our indispensable insight and exceptional talent to sales excellence and enabling infrastructure. Now, what happens when we bring this winning formula to a larger market opportunity? Make smart, strategic investments and drive the results through Gartner's attractive business model, we generate long term sustained double digit growth.
Double digit percentage growth days to help you understand in more detail the opportunity, Gartner's business model that allows us to maximize the opportunity and the investments we're making to ensure sustained success. The Gartner formula, combined with the Gartner business model, have consistently delivered double digit growth. We believe the same formula and the same model now applied across all enterprise functions will deliver double digit free cash flow growth long into the future. So let's get started. Prior to the acquisition of Ceb, Gartner already had a significant opportunity in front of us.
Now with CEB, providing the ability to serve every other major business function, that opportunity is even greater. Let's drill down a little further on what that looks like. There are essentially 2 main components to our market opportunity. And as you'll see, we're under penetrated on both. 1st, let's walk through the details of our calculations of the addressable market.
As we've done detailed work in understanding the opportunity in the 100 plus countries in which we do business, we've built a robust territory planning and management data set. In our planning systems, we've identified 138,000 enterprises around the globe who are large enough and have enough budget to be Gartner customers. Now these 138,000 enterprises, they're not hypothetical We know the names and addresses of each and every one of them. Well, many people ask, how can that number be so large? Well, it comes back to what we do and the roles and functions that we serve.
The indispensable insights that Peter's team creates They matter to an enterprise, whether they are a global 500 company or 1 with $100,000,000 in revenue. Those insights are important, whether you are located in the U. S, Germany, Dubai, China, Brazil or Australia. And the insights are of value, whether you're in the financial services, manufacturing, media, or energy industries. As well as the public and not for profit sectors.
It's why our addressable market is so large and puts us in a unique and enviable position. Next, we've done detailed analytics on how each of these functions we sell to is organized within an enterprise. As an example, let's look at the technology business. The same logic would apply across all the functions we serve. Just about every enterprise in our addressable market, has a CIO.
In fact, many global enterprises have more than 1. And then we look at how many direct reports that CIO has. And then how big their teams are. And then finally, how many frontline professional teams there are to sell to. When then we look at our products, that are actually targeted for each of these roles and our current pricing.
Our CIO products are priced higher than the products from the C level direct reports and so on down the chain. We simply multiply the number of roles by our product voice price points. And that's how we calculate the addressable market, which as you saw earlier, is $55,000,000,000 in the tech function. We've done the same math for all the functions that we now serve. As we develop new products for each of those functions, it will potentially further expand that market opportunity.
As I mentioned earlier, we First, as we just detailed, there are roughly 138,000 enterprises globally that are large enough to get value out of Gartner offerings. We currently do business with about 12,000 of them. In fact, only another 30,000 of those enterprises or even in a Gartner salesperson's territory, which means there are 96,000 enterprises that we're not even talking to. The reason we're not, we don't yet have enough salespeople to cover that market. In the tech space, we only only have around 2700 salespeople and need a lot more to adequately cover the opportunity.
Across the other functions, now served by our global business sales teams, we only have roughly 700 sales people. So that alone amounts to an impressive opportunity. That is why we continue to add more salespeople to capture the addressable opportunity. As you can see here, we've been able to add several 100 net new enterprises per year over the past 5 years. We've been making steady progress on that side of the market opportunity equation.
The 2nd component of our addressable market opportunity is further penetration of our existing enterprise spending an average of just $181,000 per year on Gartner Research. And over the last several years in GTS, we've been expanding our penetration within those enterprises in addition to expanding the number of enterprises we sell to. In fact, 2 thirds of our growth has come from price and existing clients through upgrades, additional seats and additional buying centers. The other third of our growth has come from brand new enterprises. Another compelling aspect of our opportunity, growth within the enterprise.
The average CV per enterprise has significant room to continue to expand across all the functions that we now serve. To put that into focus, let's to put that into perspective, rather, let's focus in on the tech space, where we were actually much more penetrated than in the HR or finance space, for example. That average CV of $181,000 could represent as few as two seats. Were as many as 10, but on average, it's between 5 and 6 seats. Now that might sound okay but in the context of the addressable market, it's a tiny sliver.
We know that our clients that we can sell to. And that's just technology. And then the other functional areas, we are just getting started. The market opportunity is one of the reasons we've been able to drive consistent double digit top line growth in the Heritage Gartner Research business. It's why we know that Joe's team will continue to drive accelerated CV growth in GTS and now Chris's team is leveraging the same elements of the Gartner Formula for GBS.
So they can run the same play across the business functions that they serve. Where there's even greater opportunity given the lack of penetration and the sheer scope of the market. Chris shared a pretty compelling opportunity. He took one function for sales. He assumed we sold just to existing GTS clients.
He assumed we do just half the average CV per client, and that resulted in $1,000,000,000 of contract value The market opportunity will continue to be both a combination of getting new clients and further penetrating our existing base. What that all means is we'll continue to grow our sales force in technology and business sales. Focus on productivity and capture that opportunity across all functions in the enterprise. This is why we're so confident in our ability to drive sustained double digit top line growth. The opportunity is vast.
It's measurable, and we know how to get it. Once we capture that opportunity, we convert it into incremental contract value. And we have a simple, successful and highly effective financial model generate significant amounts of free cash flow. So let's look a little more closely at those economics and what makes that model so attractive? As a reminder, 75% of our business is a recurring revenue business.
Gartner Research is, of course, is at the heart of that So I'll focus on that model. Research has a lot of very attractive attributes. It's a recurring revenue business with very high renewal rates. It's a leveraged business with high contribution margins. We write a piece of research once, and we sell it over and over and over again.
Perhaps most importantly, it's a cash flow machine. We invoice and collect upfront producing a negative working capital dynamic, Put simply, we collect fees well before we recognize and deliver the services. And the business inherently has low capital requirements. And as Jean pointed out earlier, we also have a world class events and consulting business that directly complement and fuel our research business. So at a high level, our model is relatively simple and very compelling.
We sell the great research that Peter talked about. Clients buy and renew it because of its unrivaled value to them. It shows up in contract value. We invoice and collect the cash upfront. And it converts ratably to revenue over the life of the contract.
Jean talked about the strategic merits of bringing Gartner and CEB together. One of the biggest advantages is that the heritage CEB research model has the exact same financial characteristics as the Gartner Research model, exactly the same. Traits, by the way, that are only amplified by accelerating growth in contract value, which accelerates growth in revenues. And thanks to the fundamentals of our financial model we've historically delivered free cash flow well in excess of net income. In fact, if you look back, we've consistently delivered year over year free cash flow growth roughly in line with our revenue and EBITDA growth.
For 2018, the midpoint of our guidance which is shown behind me is to again deliver double digit growth to revenue, EBITDA, and free cash flows. In 2018, the mid point of our free cash flow guidance calls for $471,000,000, and we expect to continue this growth trend into the future. It's important to understand how our financial model operates from contract value to revenue all the way through to free cash flow. Let's start with an illustrative example of how we generate contract value growth for the Heritage Gardener Research business. We start a year with $100 of contract value.
Our client attrition runs at 16%. We drive growth consistently in three areas. First, we raise our prices each and every year. 2nd, we're able to further penetrate our existing clients through upgrades, selling additional seats, and finding new buying centers. And third, we've added several 100 new enterprises every year.
Again, 2 of the growth comes from existing enterprises and 1 third from new enterprises. That's how we've delivered 15 percent organic CV growth for the Heritage Gartner Research business in 2017. And it's the way we'll do it across both GTS and GBS going forward. The contract value we create gets recognized ratably over
the life of the subscription,
whereas revenue is recognized as delivered for the events consulting TA and others and TA and other segments. As we've discussed in the past, the target gross contribution margin for our research business is 70%. This ensures we have the right analysts, product innovations and services in place to deliver value to our clients. Our other business segments have strong contribution margins, but they don't compare to the combination of the size and absolute margins of our research business. When you combine all of our business segments, the all in gross margin is roughly 63%.
Our SG and A expense is roughly twothree selling and onethree G and Historically, the selling expense portion has grown faster than revenues, while G And A has grown modestly slower than revenues. Our largest incremental investment consistently has This also includes ensuring that we have all the right enabling infrastructure to support our growth, including things like recruiting and training capacity. The best technology, world class office environments, and all the other important sales support functions. Over the last several years, this equation has netted EBITDA the EBITDA we generate converts to free cash flow with impressive efficiency. This efficiency, which applies to the adjusted net income conversion as well, is a function of the modest capital required to drive growth and the attractive negative working capital model we talked about earlier.
Over the long term, So we walk through the market opportunity, how it's so large and there for us to capture. We also talked about all the attractive attributes of the Gartner business model, Now let's talk about not only how we continue to drive sustained double digit growth on the Heritage Gartner side, but also how we migrate CEB over to the benefits of the Gartner Growth model.
Those of you who know
the Gartner model, know that we are consistently investing in the capacity of our sales force, which is our most powerful lever for driving growth. When we hire a new salesperson, there is an economic lag to the benefit. When we decide we're going to grow, we have to line up the other enabling investments to hire, train and deploy the best talent. That means we have to make sure that we have hire the right number of recruiters, have the appropriate number of world class trainers ready to train them and have the best space to accommodate that growing organization in the right places. That's all part of the enabling infrastructure from the Gartner Formula that Jean mentioned.
Then we recruit and hire great salespeople. We get them trained, which entails 6 to 8 weeks of world class training on Gartner's best practices, our value proposition, our products, all the things that comprise our sales excellence playbook, another component of the Gardner formula. Next, we get them in territory. On average, it can take about 4 months for them to get their first sale. So in their 1st year, they're about half as productive as the average salesperson.
In their 2nd year, they're about the average. In their 3rd year, they're at full productivity and they're highly profitable. And the benefit accumulates into year 4 and beyond in terms of even greater profitability. This is because of the lifetime value of the recurring revenue that they're selling. The productivity this productivity curve has been one of the major ingredients for Gartner's growth and success over the last decade.
With the rapid integration of CEB and the large market opportunity, We saw the potential to more quickly leverage the Gartner formula to accelerate the growth of that business. Now, from a P and L perspective, it is a jolt. Because CEB hadn't grown their sales force in years, and we very rapidly added 18% growth. We expect the new GBS hires to follow the same productivity curve that we've experienced historically. And as you can see, based on that productivity ramp, The investments begin to yield really attractive returns in year 3 and beyond.
That's why we're making those investments. It's all about driving sustained double digit growth rates to our top line. We applied this formula successfully for the last decade serving technology professionals. We applied it successfully for supply chain professionals with even higher growth rates. We applied it successfully for marketing with even higher growth rates.
And now we're going to do exactly the same for HR, finance, sales and all the functions across the enterprise. So the investment we're making in sales is crucial And if we expect to maximize the return, we have to be willing to make investments in enabling infrastructure to support it I touched on a few like recruiting, training, and facilities. Beyond that, we have to equip sellers with all the supporting pieces to help them succeed. For example, we've invested in and built a CRM tool with artificial intelligence that prioritizes actions for our sales and service people. We've built technology and deployed a team, which we call DealHub, which eliminates administrative tasks for our frontline sellers.
So they can spend more time with their clients, selling. And we've invested in and build regional and global centers of excellence. So that certain processes are done more efficiently, more cost efficiently and more productively. In GTS, we've developed that highly sophisticated, highly efficient engine of support, proven practices with a focus on continuous improvement. They've been key to our ability to hire, train, deploy and grow the productivity of our sales force.
And we're already bringing that to bear for GBS.
This is how we do
it in sales, but we apply the same investment philosophy and best practices across all areas of our business. From a heritage Gartner and heritage CEB split to now looking at Global Technology And Global Business roles. Going forward, this is how our contract value metrics on a quarterly basis. In the appendix, you'll find the quarterly details of how the updated technology and business roles performed if reported as GTS and GBS. At the highest level, we ended 2017 with $2,800,000,000 of combined contract value That would be 12% growth and represents 79% of the total, and GBS grew 8% in 2017 and represents 21% of total CV.
Over the next few years, given the market opportunity and in 2019 and to grow between 12% 14% in 2020. Over the longer term, our objective is to grow both GTS and GBS at a rate of 12% to 16% annually. This would represent significant acceleration of the GBS business. From a total company perspective, this would equate to double digit growth in revenue and EBITDA with steady margins. And because of our low capital intensity and negative working capital model, we'd expect to grow free cash flow at double digit rates as well.
Gartner is a growth company. The Gartner formula and the Gartner business model are geared for growth, particularly around free cash flow growth. Cash flow that we will use Since closing our acquisition of CEB, we've reduced our gross debt from around $3,600,000,000 to $3,300,000,000. In January, we repatriated around $250,000,000, which we used to further pay down our outstanding debt balances. Going forward, we will also have the And with a signed agreement on the talent assessment business, we'll be able to utilize those proceeds to additionally reduce our leverage once that deal closes.
Assuming a timely close, we will be approaching our gross leverage target of 3 times EBITDA by the end of 2018. Ahead of our original schedule. Our long term view has always been that debt should be a permanent fixture on our balance sheet That means we will be able to return to our long standing capital allocation strategy. Like our relatively simple model to drive double digit free cash flow growth, Our capital deployment strategy is also simple and has been consistent over time. After ensuring that we have appropriately invested in our business to sustain long term double digit growth, we use our free cash flow and available balance sheet flexibility for strategic value generating acquisitions and to return capital to our shareholders through our share buyback programs.
As you've heard throughout the day, Gartner has a formula for growth. With our ample market opportunity, we can continue to for a very long time. And now we serve all the other functions across the enterprise, providing even more runway for us to apply that formula for accelerated growth. Accelerated growth that will flow through our very attractive business model with recurring revenues with high renewal rates and high gross contribution margins. That structurally generates huge amounts of cash flow.
To support sustained growth, we are going to continue to invest in our business. That means expanding sales capacity but also investing in all the enabling infrastructure and talent acquisition that we know is required to support our growth. By following the Gartner formula and harvesting the benefits of the Gartner business model, we expect to drive double digit growth to revenues earnings and free cash flow.
See some of you are already doing. We'll bring a microphone over. And, we ask that you wait till you have the microphone to ask the question. So with that, is that Mana? We'll begin.
Hey, guys. This is Manav with Barclays Capital. So my first question is, you know, early in the slide deck, Gene, you had that nice illustrative shot showing the accelerated timeline versus the original timeline. And I was hoping you could just put some numbers around that because when you obviously first pitched the deal, you said double digit accretive, 50,000,000 synergies and then double digit growth. So it sounds like all of today was about the growth.
So what happens to the other two pieces?
So again, as I said, once we got into the acquisition and we did due diligence, we found that we could move faster than we thought we would originally be able to move to get to capture this huge market opportunity we have and get to double digit growth even sooner as well. And so we chose to take the investment in things like accelerating the growth in Salesforce and building the enabling infrastructure, as, Craig talked about, things like recruiting capacity, training capacity, things like that. Sooner than we otherwise would have. And that's kind of what happened in that part, that piece of the strategy.
Okay. So then going forward, should we just assume that every so with the productivity, there should be inherent margin improvement. You reinvest all that margin improvement for the growth And then maybe, Craig, if you just address free cash flow conversion, generally speaking.
Sure. So you're spot on on the margins. We are a growth company, and we're going to continue to make sure that we make the right level of investments to support and drive sustained double digit top line growth well into the future. In terms of the cash flow conversion, again, what we've seen historically with our model is that, revenue, EBITDA, free cash flow grow at roughly the same rates. As we de lever, We obviously have more opportunity to drive more free cash flow, which is a great benefit of our model.
And over time, as we've talked about the net income or adjusted net income to a free cash flow conversion. Obviously, it's a little bit lower now given the CB acquisition, the significant debt service. But again, as we de lever, we do expect that, that conversion rate to get back to roughly where we've been prior to the acquisition. And again, the primary driver of that will be acceleration to the heritage CEB, now GBS contract value, which will really get that negative working capital benefit flowing through and support, increase in that conversion rate.
Hi. Just to follow-up on the target for global business sales, I guess, low double digits next in 'nineteen and I think, what you say, 12 to 14. It's a different target than what you talked about before. So it looks like adding in supply chain and marketing gave you almost 6 points of growth for 2017. So if we applied that same math to 2020, I guess, help us reconcile versus the prior commitment for double digit growth in CEB in 2020, because it would seem like you could get there without necessarily reaching that.
What I'd say, thanks, Tim. What I'd say is that, of that GBS portfolio, still 75% of it is made up of the heritage CEB contract value. So any move upward is still a pretty significant acceleration. In that heritage CEB contract value.
Okay. And just the long term target, I guess relative to free cash flow even there, the fact is not growing faster. Why wondering if you're paying down debt, buying back stock, deploying capital And if you expect the conversion to improve, why wouldn't it grow faster than revenue?
Well, we'd expect, everything we're doing is about accelerating the top line growth as well. And so again, if you think about the ranges we gave, we expect the revenue, EBITDA, free cash flow, year over year growth to be in that same 10% to 14% range. There is the opportunity potentially as we accelerate, really accelerate the GBS business and actually get continue great growth and or acceleration on GTS for that potentially to grow a little bit faster. But as we've experienced with our model over the last decade, generally speaking, revenue EBITDA free cash flow have moved roughly in tandem.
Tony's got a question, I think.
You don't mention AI a lot in the presentation and I was just wondering if there were areas within your business that you've been able to either use AI or other leverage other research insights within technology to maybe either expand margins already or areas where you could expand margins using that in the future?
So, being a technology company, we want to make sure we're through that we use technology fully in our business as well. So we do use artificial intelligence in number of areas. So one exam, advise our sales people on what the best actions that they should take to maximize sales in their territory. Similarly, for our service people, advise our sales people on what the best actions that they should take to maximize sales in their territory. Similarly, for our service people, we have a tool that does a similar kind of thing, which is the user's artificial intelligence to say when a service person comes in in the morning, what are the most important things they should do?
Which clients should they call first? When they call those clients, what are the things they should talk about? And then also, what's pretty information pulled in from wherever it is in the world, pulled that information to have it right up for them. We also use things like natural language processing where we use you know, we have a tool that actually uses both natural language processing and artificial intelligence for scheduling our analysts. One problem we have is we've got over 2000 of analysts and advisors, clients have the clients who have the entitlements can talk to them, and we have to match the client with the right advisor in the right time and the right time zone, etcetera.
And so we have a system that uses both natural language processing so that client can type in a request in their natural language and then use these artificial intelligence to figure out which is the right analyst, that will be available at the right time and in the right language to answer the specific question they asked in the way they asked it. And there are many other examples, but we're very keen to make sure we fully utilize all the capabilities of technology in our business.
And just as a follow-up, I was hoping you could give some color on trends in Salesforce retention, both for the legacy CEB as well as legacy Gartner and how you expect those to trend going forward?
So as Chris Thomas mentioned, for our legacy CEB sales force, their attrition before the acquisition was a bit higher than ours. As we announced the acquisition, we talked to this EV former C, they're the Heritage CV salespeople, and they understood kind of what it's like to be a sales bridge partner. That retention dropped by 6 percentage points, 600 basis points. Which is pretty striking, it's been high for quite a while. The Gartner sales retention has been about the same.
It's always been, which is low for a direct sales force.
Think, Jeff has a question
Yes. Thank you, Jeff Meuler from Baird. Can you just help me understand the CEB Salesforce post acquisition? How much of their time was spent not selling? Like, were they going through the Gartner training programs for a period of time?
Or is it more about just the disruption to them from needing to learn supply chain business, like how long does it typically take for people to learn to, to, sell under your approach?
So with, CEB, one of the choices we made, and Chris mentioned this to his, is we wanted to get as many of the disruptive changes done in 2017 as we could. We couldn't get all of them. We wanted to get as many as we could in 2017. So that as we went into 2018 and beyond, we had a pretty clear runway. And so we they went through the Heritage CEB salespeople went through a lot of very difficult changes.
So for example, they used to be able to discount the way we approach clients is, we have a high value product. There's no need to discount. That's different if you've been selling using that approach. Chris went through and talked about how, credit as well, where they used to sell enterprise agreements. That's, you know, that's a different talk track, which says, Hey, if you buy it, you get it for the whole company, versus saying, we're going to sell each person one at a time.
That's a very different kind of a sale. And at the heart of it too, the way that we sell sales execution playbook that Chris talked about is also very different, compounding that the compensation systems were different have what we think is a compensation system that really drives high performance. It is a core part of our sales execution playbook. And so we had to educate them on that. And so they had both a number of actual changes in how they do selling that they had to go through and adapt to.
In addition to that, then we did have to take them offline some. For training, we haven't done it so much as we like, with a new salesperson, we train them 6 or 8 weeks before they started the job. Here, we've done it in a more piecemeal fashion where we've taken elements of time and train them for 2 reasons. One is, so that we wouldn't have our sales creator in a 6 or 8 week period because everybody is in training as opposed to selling. But also so that people could absorb what they're learning in bite sized chunks and then apply it as they go through their selling process.
And so, as I said, most of that disruption we got through in 2017, we have really one other major disruption that we're going to have in 2018, which is we didn't, we weren't able to get all the systems conversion done. So we're bringing all of the, for, all of the Heritage EV salespeople onto this incredible AI based system that I talked about a moment ago, which is really, actually, really terrific. They're dying to get on it. We're moving developers quick as we can. We started that transition, but it'll take a couple more months before they're all in that system.
And so, again, the majority of the change, majority disruption happened in 2017. There's still a few follow on things that they're going to have in 2018. In addition, just because we had them stop discounting 2017, head of Sarshawn Enterprise Agreements doesn't mean that after 2 months of doing that, they're up to 100%. It's going to take probably a year for them to get to 100% confidence in taking the new commercial terms, the new selling approaches that we have.
Okay. And then on, as you combine the best of Gartner with the best of Ceb from product perspective. Is it just that there's new products that you can drive cross seller upsell to that drives increased pricing? Or does it also result in a greater than historical average pricing increases just across the business?
So for like to like products, our price increases are going to be traditional of what we've done. On the, so on the, Gartner, on the global technology sales side, we have a new product, which Joe talked about where we've taken the the Gartner Technology Research and combined it with the CEB Technology research, it incorporates the different research approaches that Peter talked about And we've made a new product, we've priced that new product at a premium, and then, that new product obviously is for sale to new clients, In addition, we're going back to 100 percent of our existing clients and asking them to upgrade. We think that we got a good, we started a good path of upgrades already, And we expect that those upgrades will continue over the next probably 3 to 4 years because it takes time for all the contracts coming for renewal as well as to get to all the clients and explain the value of the new product. It's a really great new product. And so when we do, when the clients understand the value, the take rates are very good.
That's what Aaron had talked about during Joe's presentation was really the power of bringing those 2 products together and how excited our clients were about it and our salespeople were. I mean, the other thing I'd add, Jeff, just on the GBS side, Essentially, we are turning everything into seed based products that are combining the best of, the heritage CEB research for financial professionals HR professionals, sales professionals, etcetera injected with the right and relevant, heritage Gartner research that Peter talked about. In creating new products, Gartner for finance leaders, Gartner for HR leaders and so on and so on. So we have the benefit of the better product on the technology side. And we absolutely have the benefit of the better product on the, on the GBS side.
And again, it's going from converting what used to be an enterprise licensed product to a more traditional Gartner style seat based product.
Yes. Thank you. Gary Bisbee from RBC. So I appreciate all the positive forward looking commentary, I can't resist going back to last week's earnings for a question. So when we go back to April, when you first gave guidance including CEB.
And then we look at the final 2017 results. SG and A was like $80,000,000 higher run rate certainly north of $100,000,000 higher than what the model had anticipated at that point. I think we'd love to get some color. What are the key components of that? Where did that come from?
And really, the thought process in asking the question is, how much of it is sales related that you will expect to get a return on, presumably in the near term? Maybe that's more 'nineteen sales than 'eighteen versus how much was backfilling under investment by the prior CEB team. And are there other big buckets other than those 2?
Absolutely, Gary. No problem. So there were 3 primary factors. 1, I would put as a challenge category and 2, actually representing positives or opportunities. First, we were really challenged by underperformance.
So underperformance in our events business, in consulting, a modest decline in Heritage CEB Research Revenues and continued declines on the talent assessment business. Now as we mentioned on the Q4 call, advanced bookings for events are up. So that's positive as we head into 2018. Backlog in consulting is also up nicely, positive 2018. CEB contract value growth has actually reversed its trend from declining to actually growing 2%.
As Jean mentioned, and we're selling the talent assessment business. So it's category number 1. Category number 2, which was good news, is, Joe's sales team had an amazing 4th quarter. And exceeded our expectations. And so there were additional incentive expenses, that we had to book in the fourth quarter of 2017.
And then finally, category 3 is we made a number of conscious investments to support sustained double digit long term growth. So in GTS or Heritage Gartner, sales, we invested in reducing the level of open territory. And that's why headcount growth for the full year was 16% as opposed to the 12% or 13% we had guided. In GBS, we invested in jolting them with growth and growing 18% where they previously hadn't grown. In Avanta, which is part of our events portfolio, we had to strengthen, rebuild and strengthen the leadership team.
And then finally, we had to make all of the enabling infrastructure investments to actually be able to support us on an ongoing basis. So things like sales recruiting and sales training and things of that nature. And so if you think about the the 3 category. Those are the 3 categories. And I gave you a laundry list.
Each of them had an impact on that 2017 2018 run rate result.
So it sounds like that 3rd category was really the one that flows over more into this year. And as we look at the SG and A, there doesn't appear to be like any step down or slowing in growth. In fact, continues to be charging ahead. So, I guess two questions, like what is the timing of getting a return and all this investment today? Or should we think acceleration more in 'nineteen because of this, because I, following another question, 8% GBS CV growth last year to double digit next year.
That's just not much improvement. Now, I suppose double digit could be a lot more than 10. Right? But, but it just doesn't, it doesn't feel like we're getting payback on a big piece of this significant investment that you've made in the last 9 months?
Yes. I'd say 2 things and then feel free to jump in. One is I think I mentioned, during Tim's question, Again, 75% of that GBS portfolio is heritage CEB. And so we had a great year on the supply chain and marketing businesses within Gartner. We expect that to continue.
But to get from 8% to 10%, you have to have significant acceleration in the heritage CEV functions that we're serving as well. And so it definitely requires a pretty big step up. And again, we think we're on a really great path there. In terms of the retention rates that Chris mentioned as well as all the other investments we've made to actually support that so that it's not a one time step up, it's actually sustained double digit growth. I mean, the other one other thing I'd add Gary is the investments are across the board.
And so I know it looks like, Ceb related investments, but as I mentioned, in GTS going from 12% or 13% growth to 16% growth on the sales force, there's a cost associated with that. There should be huge long term benefit from that as well.
So let me ask Gary's question in a different way. When do you expect to see margins start to expand again? We have to hit the CEB growth target for them to start to go up? Or are you comfortable committing to margin expansion prior to that? You want me to take?
Yes.
So, hopefully, what you were able to take away from today is we're a growth company. And we've got that great giant growth opportunity to go after. That said, we need to make sure we're continuing to invest to go get that opportunity. And so we actually fundamentally believe that over the long term, we can drive more shareholder value by investing to drive sustained growth than in trying to chase margins. So fundamentally, growth story and investing to support sustained long term double digit growth.
Okay. And then on the second question that I have, You talked about how CEB Salesforce never asked for price increases or I'm not sure if that's accurate you can describe for me what happened there. Maybe they gave discounts. And Gartner's product had always gotten a price increase. So my question is, what's the true difference between the two products and why wouldn't that company be asking for price increases if their product was at par with yours or perhaps better?
So the, My comment was not about price increases. It was about discounting. So when they go to a client, we've had a policy, since shortly after I joined of no discounting. And the reason for that is that, it's a sales tactical decision. And the reason we did it is not just because of the additional revenue we get from it, but it forces the discussion with a client to be about the value you're going to provide.
That's really the even bigger impact than the incremental revenue you get. It is the only thing to discuss with a client then for a salesperson is how we're going to provide value. What happens when salespeople are if salespeople can discount, first, there's a lot of internal, energy that goes around deciding how big the discount should be. And then secondly, when the salesperson is off to the client, there's a lot of discussion on how big the discount should be. We want our salespeople talking about the value we're going to provide because that not only helps facilitate the initial sale, it also means higher retention down the road.
And so if you don't discount, you get more revenue upfront, you get a client that understands the value who's going to stay with you longer. And you have a discussion that's about value, not about price. And so there are a lot of companies at a discount. In our particular product, understanding what we do, there's no need to discount. Gartner did, before 2004, Gartner did as well.
And this is a management decision. It's not about it's a plenary of the product. It's a manager decision for our market. Her, they didn't have to discount, but they did. We stopped that again as a tactical sales decision so that the discussion with the client is all about value.
That's exactly what happened. Part of the reason that we picked we our growth picked up retention picked up, etcetera, is we our salespeople were clocking to the client about value, not about the pricing discount.
This is Catherine from BlackRock. I had a question on, how we should think about I can, I see how the value of the product grows over time, just given the trends in the market and what you
guys are doing? So there's a
lot of potential for growth. And I think what I'm hearing is that it wouldn't actually be unreasonable to see margins go down, maybe for a couple of years just because you could have accelerating revenue growth. It could even be, I don't know, 12% to 14% or depending on productivity, Salesforce growth. But if you're kind of hewing to double digit free cash flow growth, call it 10%, and there's so much runway mathematically that would get you to, margin declines. And is that something that we should kind of expect, given, you know, we can, our eyes on the prize, so to speak, 5 years out, but just to set expectations.
So the way that we determine how fast to grow is based on our operational capability, So we look at each of our 1st line sales managers and our sales forces, and we and there's about 300 of them, and we looked at individually and say, Given those sales managers, what's their capacity for growth? How many could they take on extra salespeople? We also have new sales we promote people and they're brand new sales managers as well. And we have to assess their capability for how many, how much growth they can have. And so we do an assessment, and we do this continually.
This isn't just one a year. We do this continually. We're assessing what's the capacity for the, especially the first level management team to absorb additional growth. And then we basically set our growth, our growth plan, based on what the management capacity is. So the reason we've grown the technology, the global technology sales team, and the range of 15% over the last few years, is that's the rate at which we saw the management team could absorb it.
If you look at, marketing, you saw it grew much faster than that, and that's because we were able to set up in a way, that we could actually have more management bandwidth and could grow faster. And the same thing was true of supply chain. Based on what we know today and the management capacity, we think that our margins as we have them today are totally adequate to fund the ongoing growth that we see based on the management capacity we have. So I wouldn't expect margins to deteriorate.
Think we're just about out of time. So Please note, we'll have a survey that you'll receive, via email from, Gartner Finance Practice after the event. The the replies will only be made available to on an aggregated basis. We appreciate you taking the time to survey to help us improve for the next Investor Day. So, with that, Jean will make some closing remarks.
So first, I want to thank everyone for joining us today. We hope you found this session valuable in deepening your understanding of Gartner. We get better, stronger, faster, year after year after year. Beginning 2004 we developed the Gartner Formula for sustained double digit growth. We continually improved and iterated.
The combination of Gartner plus CEB gives us the capabilities to address critical client needs in technology and in business across every major function in is the bandwidth to make the CEB acquisition a success. We've organized our integration approach to maximize growth in both technology and business areas while minimizing risk. We are in the best position we've ever been in to provide sustained double digit growth across all of our key metrics. I look forward to reviewing Gartner's progress at our upcoming earning calls throughout the year, and thanks again for joining us today.