2Q13 ISG Outsourcing Index

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The ISG Outsourcing Index (formerly the TPI Index) provides a quarterly review of the latest sourcing industry data and trends for clients, service providers, analysts and the media. For more than a decade, it has been the authoritative source for marketplace intelligence related to outsourcing transaction structures and terms, industry adoption, geographic prevalence and service provider performance.

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2Q13 ISG Outsourcing Index

  1. 1. Hosted by: Ashwin Shirvaikar, Citi 11 July 2013 The Global ISG Outsourcing Index Second Quarter and First Half 2013 Market Data and Insights
  2. 2. © 2013 Information Services Group, Inc. All Rights Reserved isg-one.com *Contracts with ACV ≥ $5M from the ISG Contracts Knowledgebase® 2 Covering the state of the outsourcing industry for global, commercial contracts.* Welcome to the 43rd Quarterly Outsourcing Index Review Esteban Herrera Partner John Keppel Partner & President Dr. David Howie Partner
  3. 3. © 2013 Information Services Group, Inc. All Rights Reserved isg-one.com *Contracts with ACV ≥ $5M from the ISG Contracts Knowledgebase® 3 At a Glance 2Q13 2Q Y/Y 2Q Q/Q 1H13 1H Y/Y Scorecard ACV ($B)* Change Change ACV ($B)* Change Global Market $ 3.6 -40% -27% $ 8.5 -27% New Scope $ 2.6 -42% 0% $ 5.2 -34% Restructurings $ 1.0 -34% -57% $ 3.3 -13% Mega-relationships $ 0.7 -70% -52% $ 2.0 -32% ITO $ 2.3 -34% -26% $ 5.3 -27% BPO $ 1.3 -48% -28% $ 3.2 -27% Americas $ 1.2 -40% -42% $ 3.3 -29% EMEA $ 2.0 -23% -16% $ 4.3 -15% Asia Pacific $ 0.4 -71% -13% $ 0.9 -53%
  4. 4. © 2013 Information Services Group, Inc. All Rights Reserved isg-one.com *Contracts with ACV ≥ $5M from the ISG Contracts Knowledgebase® 4 ACV of $3.6B this quarter was down 40% Y/Y and 27% Q/Q. Half-year performance of $8.5B in awards was down 24% from a year ago and 27% sequentially. Quarterly Broader Market* Half-Year Broader Market Counts Broader Market Contract Award Trends $3.6 $4.9 $6.0 $4.4 $5.6 208 279267249243 2Q131Q4Q3Q2Q121Q4Q3Q2Q111Q4Q3Q2Q10 ACV ($B) Counts 487570602504472364298295261297 526 243 1,096 540 502 201312111009080706052004 1H Counts 2H Counts Avg of 5 Prior 1Hs Half-Year Broader Market ACV ($B)* $8.5 $11.5$9.7$11.9$9.6$9.6$7.6$8.5$8.2$8.4 $11.2 $7.4 $22.7 $15.8 $10.5 201312111009080706052004 1H ACV 2H ACV Avg of 5 Prior 1Hs
  5. 5. © 2013 Information Services Group, Inc. All Rights Reserved isg-one.com *Contracts with ACV ≥ $5M from the ISG Contracts Knowledgebase® 5 588912612644 17132320232318211323 186 258244 222232 274269 245 232 326 2Q131Q4Q3Q2Q121Q4Q3Q2Q111Q11 Mega-relationships, deals with ACV awards $100M +, were down 70% Y/Y and 52% Q/Q, while the smallest band band had the largest drop in number of contracts and ACV awarded from 1Q13. Broader Market ACV(B)* by Bands Broader Market Contract Trends for the Largest Deals Boarder Market Counts by Bands $5-39M $40-99M $100M +$5-39M $40-99M $100M + $0.7 $1.4$1.2 $1.7 $2.2 $0.8 $2.3 $1.7 $0.9$0.6 $1.0$0.7 $1.4$1.2$1.3$1.4$1.1$1.3 $0.7 $1.3 $1.9 $2.9$2.9$2.8$2.5 $3.4$3.1$2.7$2.8 $3.5 2Q131Q4Q3Q2Q121Q4Q3Q2Q111Q11
  6. 6. © 2013 Information Services Group, Inc. All Rights Reserved isg-one.com *Contracts with ACV ≥ $5M from the ISG Contracts Knowledgebase® 6 New Scope was down 42% Y/Y and flat Q/Q. Restructurings were down 34% Y/Y and 57% Q/Q. Quarterly New Scope vs. Restructuring ACV ($B)* Half-Year Restructuring ACV ($B)* Broader Market New Scope & Restructuring Trends $2.6$2.6 $4.5 $3.1 $4.7 $1.0 $2.3 $1.5$1.3 $0.9 2Q131Q4Q3Q2Q121Q4Q3Q2Q111Q4Q3Q2Q10 New Scope Restructuring $3.3$3.8$2.6$3.4$2.2$2.2$1.5 $3.5 $1.9$1.4 $2.6 $2.7 $2.8 201312111009080706052004 1H ACV 2H ACV Avg of 5 Prior 1Hs Half-Year New Scope ACV ($B)* $5.2 $7.7$7.1$8.6$7.4$7.4$6.1$5.0$6.3$7.0 $7.4 $4.9 $3.6 $2.4$2.5 $1.6 $1.5 $2.5$2.1 $7.6 201312111009080706052004 1H ACV 2H ACV Avg of 5 Prior 1Hs
  7. 7. © 2013 Information Services Group, Inc. All Rights Reserved isg-one.com *Contracts with ACV ≥ $5M from the ISG Contracts Knowledgebase® 7 ITO 2Q ACV of $2.3B was down 34% Y/Y and 26% Q/Q. The number of ITO contracts awarded dropped 24% Y/Y and 27% Q/Q. ITO Quarterly ACV ($B)* ITO Half-Year Industry ACV ($B)* ITO Contract Award Trends ITO Half-Year ACV ($B)* $5.3 $7.2$6.2 $9.2 $6.8$6.5$5.7$6.3$6.0$4.8 $7.5 $5.3 $14.7 $10.1 $7.2 201312111009080706052004 1H ACV 2H ACV Avg of Prior 1Hs $1.15 $1.21 $0.30 $0.90 $0.84 $0.29 $0.46 $0.17 $- $0.5 $1.0 $1.5 $2.0 Manufacturing Financial Services Telecom & Media Energy Travel, Transport, Leisure Business Services Healthcare & Pharma Retail Avg of Prior 5 1Hs 1H13 $2.3$3.0$3.4$2.7 $4.4 126 172165152159 2Q131Q4Q3Q2Q121Q4Q3Q2Q111Q4Q3Q2Q10 ACV Counts
  8. 8. © 2013 Information Services Group, Inc. All Rights Reserved isg-one.com *Contracts with ACV ≥ $5M from the ISG Contracts Knowledgebase® 8 Emerging cloud solutions are changing service provider and client behavior, and therefore contracting scale, especially in IT services outsourcing. Cloud Solutions’ Impact on ITO Contracting 23% 20% 9% 1% 1 3 ISG Provider Survey: Provider Pipeline Opportunities with Cloud Component 11% 9%7% 1% Percentage of ISG-Advised Contracts with Cloud Component Percentage of All ITO Broader Market Contract Awards* with a Cloud Component2 2009 2012 2013 85% 2009 2012 CRM IT Service Mgt ADM
  9. 9. © 2013 Information Services Group, Inc. All Rights Reserved isg-one.com *Contracts with ACV ≥ $5M from the ISG Contracts Knowledgebase® 9 The top service providers in the ITO sector based on 1H13 ACV awarded Top ITO Service Providers Across the Globe Note: Service providers in alphabetical order; no rankings implied. Placements based on ACV from commercial contract awards sourced from ISG Contracts Knowledgebase ®. Accenture* Atos Capgemini* CGI* Dell HCL* IBM* Infosys* Nihon Unisys Polaris Software TCS T-Systems* Virtusa Wipro Xerox* Accenture* AT&T BT Capgemini* CGI* Evry Gen-I HCL* HP IBM* Infosys* NTT Data Tieto T-Systems* Xerox* New Scope ITO Awards in 1H13 Restructuring ITO Awards in 1H13 * Present in both New and Restructuring lists
  10. 10. © 2013 Information Services Group, Inc. All Rights Reserved isg-one.com *Contracts with ACV ≥ $5M from the ISG Contracts Knowledgebase® 10 BPO 2Q ACV of $1.3B was down 48% Y/Y and 28% Q/Q. First-half ACV of $3.3B was off 27% Y/Y, but nearly reached the average of the five prior half years. BPO Quarterly ACV ($B)* BPO Half-Year Industry ACV ($B)* BPO Contract Award Trends BPO Half-Year ACV ($B)* $1.3$1.8 $2.5 $1.6$1.2 82 10710297 84 2Q131Q4Q3Q2Q121Q4Q3Q2Q111Q4Q3Q2Q10 ACV Counts $0.44 $0.72 $0.98 $0.17 $0.14 $0.29 $0.31 $0.10 $- $0.20 $0.40 $0.60 $0.80 $1.00 Manufacturing Financial Services Telecom & Media Healthcare & Pharma Business Services Energy Travel, Transport, Leisure Retail Avg of Prior 5 1Hs 1H13 $3.2 $4.3 $3.5 $2.8$2.8$3.1 $2.0$2.2$2.2 $3.6 $3.7 $3.6 $2.2 $3.1$2.8 $2.9$2.1 $3.1 $2.2 $8.0 $5.8 $3.3 201312111009080706052004 1H ACV 2H ACV (B) Avg of Prior 1Hs
  11. 11. © 2013 Information Services Group, Inc. All Rights Reserved isg-one.com *Contracts with ACV ≥ $5M from the ISG Contracts Knowledgebase® 11 Active Contract Counts Annualized Revenue ($B) The Broader Market, ACV > $5M, accounts for just over 90% of outstanding BPO value, leaving contracts with ACV of $2–5M with about a 10% share. However, over the last five years, BPO growth has been strong across both contract bands. An Expanded Look: BPO Active Contracts with ACV > $2M Share of Annualized Revenue ACV Band 5 yrs. ago Today Period Growth >$2 to $5M 6% 8% 72% > $5M 94% 92% 33% $24.1 $32.0 $1.6 $2.7 5 Years Ago Today ACV > $5M ACV > $2M to $5M 1,086 1,876 537 1,045 5 Years Ago Today ACV > $5M ACV > $2M to $5M Share of Contract Numbers ACV Band 5 yrs. ago Today Period Growth >$2 to $5M 33% 36% 95% > $5M 67% 64% 73%
  12. 12. © 2013 Information Services Group, Inc. All Rights Reserved isg-one.com *Contracts with ACV ≥ $5M from the ISG Contracts Knowledgebase® 12 454 440 1,041 184 534 HRO Contact Center Industry Specific Procurement F&A Note: Service providers in alphabetical order; no rankings implied. Placements based on ACV from commercial contract awards sourced from ISG Contracts Knowledgebase ®. Accenture Aditya Birla Minacs Accenture Accenture Accenture ADP Convergys Alliance Data Systems Capgemini Capgemini Aon Hewitt ExlService Capita ExlService ExlService Capita Genpact CSC Genpact Genpact Ceridian IBM Dell IBM IBM CGI SITEL First Data Infosys Infosys Fidelity TCS FIS Procurian TCS Futurestep TeleTech Fiserv TCS Wipro Genpact Vertex HCL Wipro WNS IBM Xerox TCS Xchanging Xerox NorthgateArinso Xerox TCS Top Service Providers in the BPO Market: ACV > $2M ↑9.9% ↓ 2.1% ↑ 2.2%↓ 0.2% ↓ 3.7% 12-Month Growth Rate of Active BPO Contracts Percentage of Market Share by Provider Types 64% 58% 49% 27% 4% 18% 21% 35% 55% 32% 23% 30% 38% 45% HRO Contact Center Industry-specific Procurement F&A India-heritageWestern-heritage Function-specific
  13. 13. © 2013 Information Services Group, Inc. All Rights Reserved isg-one.com *Contracts with ACV ≥ $5M from the ISG Contracts Knowledgebase® 13 Americas 2Q ACV of $1.2B was down 40% Y/Y and 42% Q/Q. Half-year ACV of $3.3B was down 16% from a year ago and 19% sequentially. Americas Quarterly ACV ($B)* Half-Year New vs. Restructured ACV ($B)* Americas Contract Award Trends $1.2 $2.1$2.0$1.7 $2.8 70 116 104 116 82 107 2Q131Q4Q3Q2Q121Q4Q3Q2Q111Q4Q3Q2Q10 ACV Counts $2.4 $2.3 $2.0 $1.3 $- $1 $2 $3 $4 $5 New Scope Restructuring Range of 5 Prior 1Hs Avg of 5 Prior 1Hs 1H12 1H13 Half-Year ACV ($B)* $3.3 $4.7$3.8 $5.8 $4.3 $3.0$3.1 $4.6$3.7$4.4 $3.8 $2.7 $8.5 $7.1 $4.3 201312111009080706052004 1H ACV 2H ACV Avg of Prior 1Hs
  14. 14. © 2013 Information Services Group, Inc. All Rights Reserved isg-one.com *Contracts with ACV ≥ $5M from the ISG Contracts Knowledgebase® 14 $0.32 $0.24 $0.07 $0.01 $0.13 $0.07 $0.16 $0.11 $- $0.05 $0.10 $0.15 $0.20 $0.25 $0.30 $0.35 $0.40 $0.45 $0.50 Canada Brazil Other LatAm Mexico 5 Prior Period Range 5 Prior Period Avg 1H12 1H13 $4.04 $2.86 $0 $1 $2 $3 $4 $5 $6 US The U.S. contributed most to the Americas ACV drop. Half-year U.S. ACV of $2.9B was down 29% Y/Y. ACV for industry segment leader Manufacturing was off considerably. Americas Contract Award Trends Detail Americas Sub-region Half-Year ACV ($B)* Americas Half-Year Industry ACV ($B)* $0.5 $0.9 $0.8 $0.3 $0.2 $0.1 $0.2 $0.2 $- $0.5 $1.0 $1.5 Manufacturing Financial Services Telecom & Media Healthcare & Pharma Business Services Retail Energy Travel, Transport, Leisure Avg of 5 Prior 1Hs 1H13
  15. 15. © 2013 Information Services Group, Inc. All Rights Reserved isg-one.com *Contracts with ACV ≥ $5M from the ISG Contracts Knowledgebase® 15 EMEA ACV of almost $2B was down 23% Y/Y and 16% Q/Q. Half-year ACV of $4.2B was down 15% from a year ago and 29% sequentially. EMEA Quarterly ACV ($B)* Half-Year New vs. Restructured ACV ($B)* EMEA Contract Award Trends $1.9$2.3$2.5$2.3$2.4 109 133 115 105105 2Q131Q4Q3Q2Q121Q4Q3Q2Q111Q4Q3Q2Q10 ACV Counts $3.6 $1.4 $2.4 $1.9 $- $1 $2 $3 $4 $5 New Scope ACV Restructuring ACV Range of 5 Prior 1Hs Avg of 5 Prior 1Hs 1H12 1H13 Half-Year ACV ($B)* $4.2$5.0$5.0$5.5 $4.1 $5.9 $3.3$2.9$4.1$2.9 $6.0 $4.1 $11.0 $7.0 $5.1 201312111009080706052004 1H ACV 2H ACV Avg of Prior 5 1Hs
  16. 16. © 2013 Information Services Group, Inc. All Rights Reserved isg-one.com *Contracts with ACV ≥ $5M from the ISG Contracts Knowledgebase® 16 DACH ACV fell 24% from the 1H12 and 58% sequentially. Manufacturing and Financial Services industries were down 38% from last year’s first-half results. EMEA Contract Award Trends Detail $2.13 $0.81 $0.83 $0.42 $0.30 $0.21 $0.22 $0.09 $1.58 $0.61 $1.03 $0.44 $0.16 $0.18 $0.12 $0.12 $- $0.50 $1.00 $1.50 $2.00 $2.50 UK & Ireland DACH Nordics Benelux France Southern Europe Africa & Middle East E. Europe & Russia 5 Prior 1H Range 5 Prior 1H Avg 1H12 1H13 EMEA Half-Year Sub-region ACV ($B)* $0.9 $0.9 $0.8 $0.4 $0.7 $0.2 $0.1 $0.2 $- $0.5 $1.0 $1.5 Manufacturing Financial Services Energy Telecom & Media Travel, Transport, Leisure Business Services Retail Healthcare & Pharma Avg of 5 Prior 1Hs 1H13 EMEA Half-Year Industry ACV ($B)*
  17. 17. © 2013 Information Services Group, Inc. All Rights Reserved isg-one.com *Contracts with ACV ≥ $5M from the ISG Contracts Knowledgebase® 17 AP ACV of $410M in 1Q13 was down 71% Y/Y, but only 13% Q/Q. First-half ACV of $880 M was off 53% for 1H12 and 34% from 2H12, on a very tough 2012 compare. Asia Pacific Quarterly ACV ($B)* Half-Year New vs. Restructured ACV ($B)* Asia Pacific Contract Award Trends $0.41$0.47 $1.39 $0.35$0.34 2930 48 2831 2Q131Q4Q3Q2Q121Q4Q3Q2Q111Q4Q3Q2Q10 ACV Counts $1.77 $0.08 $0.76 $0.12 $0.0 $0.5 $1.0 $1.5 $2.0 New Scope ACV Restructuring ACV Range of 5 Prior 1Hs Avg of 5 Prior 1Hs 1H12 1H13 Half-Year ACV ($B)* $0.88 $1.85 $1.00$0.67 $1.28 $0.67 $1.16$0.97 $0.43 $1.08 $1.3 $0.7 $3.19 $1.76 $1.10 201312111009080706052004 1H ACV 2H ACV Avg of Prior 5 1Hs
  18. 18. © 2013 Information Services Group, Inc. All Rights Reserved isg-one.com *Contracts with ACV ≥ $5M from the ISG Contracts Knowledgebase® 18 Lower large-deal activity impacted regional leaders ANZ and India, which returned ACV results down by 50% and 64% respectively from the last half of 2012. Asia Pacific Contract Award Trends Detail Asia Pacific Half-Year Sub-region ACV ($B)* Asia Pacific Half-Year Industry ACV ($B)* $0.37 $0.93 $0.16 $0.18 $0.21 $0.01 $0.19 $0.17 $0.34 $0.11 $0.06 $0.02 $0.00 $0.10 $0.20 $0.30 $0.40 $0.50 $0.60 $0.70 $0.80 $0.90 $1.00 ANZ India and South Asia Japan ASEAN Greater China South Korea Prior 5 1H Range Prior 5 1H Avg 1H12 1H13 $0.09 $0.10 $0.12 $0.20 $0.04 $0.18 $0.01 $0.14 $- $0.3 $0.5 Telecom & Media Financial Services Manufacturing Travel, Transport, Leisure Business Services Energy Retail Healthcare & Pharma Avg of 5 Prior 1Hs 1H13
  19. 19. Special Topic for Second Quarter 2013 Dr. David Howie Partner
  20. 20. © 2013 Information Services Group, Inc. All Rights Reserved isg-one.com *Contracts with ACV ≥ $5M from the ISG Contracts Knowledgebase® 20 Impact of Expected Consolidation Why all this talk of Mergers and Acquisitions? We are hearing increased chatter around potential M&A activity as Service Providers look for new ways to grow. We’ve Seen It Before  If history holds, 30 – 40% of the current Top-20 providers may exit the market. 50% Five of the Top-10 Chinese domestic providers we identified just two years ago are no longer active in the market in their prior form.
  21. 21. © 2013 Information Services Group, Inc. All Rights Reserved isg-one.com *Contracts with ACV ≥ $5M from the ISG Contracts Knowledgebase® 21 Why Acquire ?  Respond to potential U.S. visa reform  Look to kick-start BPO growth, particularly for specific capability plays  Manage risk through reducing the dependency on flagship clients, particularly in Financial Services and Healthcare Examining the Characteristic of Potential M&A Candidates ISG has a unique perspective, informed by our data and market activity, on what might make a service provider a potential target for M&A activity. Who are the Acquisition Candidates ? 2 Years Prior to Acquisition Year of Acquisition We have spotted historical evidence of a correlation between negative New Scope bookings growth, and the likelihood of a firm being taken off the market. New Logo Bookings of Acquired Providers
  22. 22. © 2013 Information Services Group, Inc. All Rights Reserved isg-one.com *Contracts with ACV ≥ $5M from the ISG Contracts Knowledgebase® 22  Broader market ACV declines on a shortage of the largest deals  All regions experience 1H weakness in both New Scope and Large Deal ACV, yet Restructurings remain steady  Manufacturing falls across all regions, but several industry segments out-perform their prior-five-year average  ITO awards and ACV continue to struggle, while the number of BPO awards are up for the half  ISG expects an uptick in 2H13 results, led by EMEA, based on pipeline and provider insight information  1H13 BPO ACV weakness does not indicate a turn from BPO’s recent impressive gains, as activity levels remain strong  More volatile AP market makes calling a downward trend there ill-advised, especially given the stellar 2012 results, yet the downward trend bears watching 2Q13 & 1H13 ISG Outsourcing Index Summary and Outlook summary market outlook market
  23. 23. © 2013 Information Services Group, Inc. All Rights Reserved isg-one.com *Contracts with ACV ≥ $5M from the ISG Contracts Knowledgebase® 23 Please contact us with your questions and comments. Learn More --- Media Contacts --- ► John Keppel President +44 (0)7879 432 212 john.keppel@isg-one.com ► Alex Kozlov Director, ISG +1 617 558 3377 alex.kozlov@isg-one.com blog.isg-one.com ► Jim Baptiste Matter Communications for ISG +1 978 518 4527 jbaptiste@matternow.com
  24. 24. Second Quarter and First Half 2013
  25. 25. © 2013 Information Services Group, Inc. All Rights Reserved isg-one.com *Contracts with ACV ≥ $5M from the ISG Contracts Knowledgebase® 25 The ISG Outsourcing Index has moved to ACV as the primary measure of the Broader Market. In transition, we will continue to provide a high-level TCV view of the market via a Scorecard analysis. 2Q13 and 1H13 TCV Scorecard *Contracts with TCV ≥ $25M from the ISG Contracts Knowledgebase® 2Q13 2Q Y/Y 2Q Q/Q 1H13 1H Y/Y Scorecard TCV ($B)* Change Change TCV ($B)* Change Global Market $ 18.6 -29% -12% $ 39.7 -22% New Scope $ 13.9 -30% 30% $ 24.6 -29% Restructurings $ 4.8 -28% -54% $ 15.1 -4% Mega-deals $ 2.9 -54% -42% $ 7.9 0% ITO $ 11.0 -30% -12% $ 23.4 -28% BPO $ 7.6 -28% -11% $ 16.3 -9% Americas $ 6.0 -40% -34% $ 15.2 -28% EMEA $ 10.4 -10% 5% $ 20.2 -11% Asia Pacific $ 2.2 -53% 6% $ 4.3 -37%
  26. 26. www.isg-one.com Information Services Group is a leading technology insights, market intelligence and advisory services company, serving more than 500 clients around the world to help them achieve operational excellence. ISG supports private and public sector organizations to transform and optimize their operational environments through research, benchmarking, consulting and managed services, with a focus on information technology, business process transformation, program management services and enterprise resource planning. Clients look to ISG for unique insights and innovative solutions for leveraging technology, the deepest data source in the industry, and more than five decades of experience of global leadership in information and advisory services. Based in Stamford, Conn., the company has more than 800 employees and operates in 21 countries. knowledge powering results®

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