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Sourcing Market Overview
The document provides an overview and analysis of the global outsourcing market in Q3 2013. Some key points: - Q3 2013 saw the best performance ever for both outsourcing contract value (ACV) and number of contracts awarded globally. ACV was up 1% year-over-year to $5.6 billion. - The EMEA region saw its strongest third quarter performance ever, with ACV of $3.5 billion, up 16% year-over-year. DACH, France and Southern Europe regions performed particularly well. - ITO also saw its best ever third quarter, with ACV of $4.4 billion, up 15% year-over
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Sourcing Market Overview
- 1. ISG 2013 EMEASIC Market Update John Keppel, Partner & President, ISG, North Europe 22nd October 2013 #ISGSIC © 2013 Information Services Group, Inc. All Rights Reserved. Proprietary and Confidential. No part of this document may be reproduced in any form or by any electronic or mechanical means, including information storage and retrieval devices or systems, without prior written permission from Information Services Group, Inc.
- 2. Market Snapshot What doesthe rearview tell us? © 2013 Information Services Group, Inc. All Rights Reserved
- 3. A turbulent periodsome winners and some losers… 1 Global Outsourcing Spend ($B) Americas EMEA 2 Asia Pacific Post Recession: EMEA is Up Americas EMEA Asia Pacific $88 $10 $38 $100 $11 $102 $11 $104 $11 11% 11% $42 $47 $50 $51 43% 50% $40 $41 $43 $41 $41 46% 39% 2008 3 $93 $11 2009 2010 2011 2012 2008 2012 Indian Service Provider Market Share Has Doubled Global Outsourcing Spend Today 4 Yrs Ago 18% 7% 2008 4 $ 2012 $88 B ↑18% $ $104 B 1 and 2 Quadrant Data excludes all government and telco to telco transactions © 2013 Information Services Group, Inc. All Rights Reserved 3
- 4. Q3 2013 View Whatdoes the world look like now? © 2013 Information Services Group, Inc. All Rights Reserved
- 5. Broader Market ContractAward Trends 3Q Broader Market ACV of just under $6B was up 1% Y/Y and up 65% Q/Q and resulted in the best third quarter ever. Year-to-date Broader Market ($B)* 1H ACV 3Q ACV $4.4 $5.6 $5.7 $3.9 $4.1 $7.6 $9.6 $9.6 $12.0 $9.8 $11.8 07 08 09 10 11 12 $3.7 $3.5 $2.6 $2.9 $8.4 $8.2 $8.5 2004 05 06 $5.8 $8.3 2013 Year-to-date Contracting Counts 1H Counts 96 297 2004 191 115 262 129 149 295 299 364 05 06 07 08 © 2013 Information Services Group, Inc. All Rights Reserved 3Q Counts 208 228 472 505 09 10 273 255 353 604 601 485 11 12 2013 5
- 6. Broader Market NewScope & Restructuring Trends New scope ACV of $3.2B was off 19% Y/Y against a tough 3Q12 compare, but up 21% Q/Q. Restructuring ACV of $2.6B was the highest quarter to date. New Scope Year-to-date ACV ($B)* 1H ACV Restructuring Year-to-date ACV ($B)* 1H ACV 3Q ACV $2.6 $3.9 $2.8 $3.1 $3.1 $2.3 $3.2 $2.0 $7.4 $8.7 $7.1 $8.0 $7.4 $7.0 $6.3 $5.0 $6.1 $5.1 $2.4 $2.5 2004 05 06 07 08 09 10 11 12 2013 $1.3 $1.0 $1.4 $1.9 2004 05 New Scope Year-to-date Counts 1H Counts 75 91 249 211 2004 05 109 128 154 232 245 291 06 07 08 $0.6 $3.5 06 365 171 392 © 2013 Information Services Group, Inc. All Rights Reserved 10 $2.6 $2.6 $3.8 $3.2 11 12 2013 $1.0 $1.0 $1.8 $2.5 $1.5 $2.2 $2.2 $3.4 07 08 09 10 1H Counts 3Q Counts 205 198 238 453 454 352 21 48 09 $1.8 $0.7 Restructuring Year-to-date Counts 3Q Counts 172 3Q ACV 11 12 2013 24 51 20 63 2004 05 06 36 57 68 57 115 21 54 37 73 107 113 151 147 133 07 08 09 10 11 12 2013 6
- 7. Broader Market ContractTrends by Deal Size Ten Mega-relationships were awarded in 3Q13, yet the market is being driven increasingly by smaller contract awards. Boarder Market Quarterly ACV(B)* by Bands $5-39M $2.7 $3.1 $3.6 $40-99M $1.7 $2.3 3Q11 4Q $2.2 $0.8 1Q $100M + $2.5 $2.8 $2.9 $2.8 $1.3 $1.1 $1.4 $1.3 $1.2 $1.4 $1.7 Broader Market Quarterly Counts by Bands $5-39M $3.3 246 270 $40-99M $100M + 323 296 241 226 242 256 187 $1.9 $0.7 $0.9 $1.1 21 18 23 23 20 23 13 16 20 $1.0 $1.4 $0.7 $1.4 6 12 6 12 9 7 8 5 10 2Q 3Q12 4Q © 2013 Information Services Group, Inc. All Rights Reserved 1Q 2Q 3Q13 3Q11 4Q 1Q 2Q 3Q12 4Q 1Q 2Q 3Q13 7
- 8. ITO Contract AwardTrends 3Q ITO ACV of almost $4.4B was up 15% Y/Y and 100% Q/Q. ITO ACV performance was the best third quarter ever. ITO Year-to-date ACV ($B)* 1H ACV 3Q ACV $1.6 $6.3 $1.9 $5.7 $2.6 $4.8 $2.4 $6.0 $3.0 $6.5 $6.8 2004 05 06 07 08 09 $2.8 ITO Year-to-date Counts 1H Counts 119 70 72 95 184 165 173 194 230 06 07 08 62 2004 05 131 320 316 09 10 © 2013 Information Services Group, Inc. All Rights Reserved $3.9 $7.3 11 10 $3.8 $6.3 $9.2 12 YTD 3Q12 166 164 247 377 374 11 $4.4 $5.3 2013 ITO YTD Industry ACV ($B)* 3Q Counts 136 $3.2 12 298 2013 Manufacturing Financial Services Telecom & Media Energy Travel, Transport, Leisure Healthcare & Pharma Business Services Retail YTD 3Q13 $0.69 $0.67 $0.64 $0.36 $2.04 $2.58 $1.31 $1.38 8
- 9. BPO Contract AwardTrends 3Q BPO ACV of just under $1.4B was down 29% Y/Y but up 5% Q/Q. YTD performance slowed as BPO dropped 31% from a year ago. BPO Year-to-date ACV ($B)* 1H ACV $0.9 $3.6 $1.1 $2.2 06 $1.3 08 07 $1.1 $2.8 09 10 BPO YTD Counts 1H Counts 34 45 113 97 2004 05 57 54 72 122 105 134 06 07 08 72 152 189 09 10 © 2013 Information Services Group, Inc. All Rights Reserved $3.5 $2.9 11 $1.9 $4.5 $1.4 12 2013 $3.1 BPO YTD Industry ACV ($B)* YTD 3Q12 3Q Counts 97 $1.7 $1.2 $3.1 $1.0 $2.0 05 2004 $1.0 $2.2 3Q ACV 107 91 106 227 227 11 12 187 2013 Financial Services Manufacturing Telecom & Media Energy Travel, Transport, Leisure Business Services Healthcare & Pharma Retail YTD 3Q13 $1.18 $0.68 $1.08 $0.45 $0.37 $0.17 $0.33 $0.17 9
- 10. Top Service ProvidersAcross the Globe 85% of the Top 20 ITO Provider list is unchanged from previous years. The Top 20 BPO group has more turnover, yet 40% of Top BPO providers do repeat year-to-year. ITO 2013 YTD BPO 2013 YTD ► Accenture ► Infosys ► Accenture ► Fidelity ► AT&T ► Mahindra Satyam ► Aditya Birla Minacs ► HCL ► Nihon Unisys ► Allscripts ► Polaris Software Labs ► Aon Hewitt ► StarTek ► Singtel Optus ► Capgemini ► Atos ► BT ► Capgemini ► CGI ► CSC ► Dell ► HCL ► HP ► IBM ► TCS ► T-Systems ► Wipro ► Xerox ► Atos ► Capita Group ► CGI ► Communisis ► CSG ► Infosys ► TCS ► Virtusa ► Wipro ► WNS ► Xchanging ► Xerox Note: Service providers in alphabetical order; no rankings implied. Placements based on ACV from commercial contract awards sourced from ISG Contracts Knowledgebase ®. © 2013 Information Services Group, Inc. All Rights Reserved 10
- 11. EMEA Contract AwardTrends EMEA 3Q ACV of $3.5B was up 16% Y/Y and 88% Q/Q. The strongest 3Q ACV ever was driven by nine Mega-relationships and very high contracting activity. EMEA Year-to-date ACV ($B)* 1H ACV 3Q ACV $2.0 $1.3 $2.1 $1.3 $1.5 $2.9 $4.1 $2.9 $3.3 2004 05 06 $5.9 07 08 44 45 128 115 2004 05 94 66 63 113 125 171 06 07 08 09 201 102 204 $3.1 $3.5 $5.6 $5.0 $5.1 $4.3 10 11 12 2013 Segment Details Like-Quarter ACV ($B)* Prior 5 Like-Qtr Range 3Q12 3Q Counts 94 $3.2 $1.6 $4.1 YTD Counts 1H Counts $2.0 124 111 176 $4 272 252 245 $2 Avg of 5 Prior Like-Qtrs 3Q13 $2.9 $1.8 $1.7 $0.6 $0 09 © 2013 Information Services Group, Inc. All Rights Reserved 10 11 12 2013 New Scope Restructuring ITO BPO 11
- 12. EMEA Contract AwardTrends Detail DACH, France and Southern Europe had strong quarters, up Y/Y and Q/Q. YTD, Transportation was up 88%, while weakness persisted in FS and Manufacturing. EMEA Sub-regions 5 Prior Like-Quarter ACV ($B)* Prior 5 Like-Qtr Range Avg of 5 Prior Like-Qtrs 3Q12 3Q13 EMEA Industries YTD ACV ($B)* YTD 3Q12 YTD 3Q13 Financial Services $1.6 $1.4 Manufacturing $1.2 $2.3 Travel, Transport, Leisure $1.02 $1.0 $0.8 $0.6 $0.55 $0.38 $0.21 $0.2 $0.21 $0.31 $0.04 Nordics DACH Africa & Middle East © 2013 Information Services Group, Inc. All Rights Reserved France Benelux Southern E. Europe Europe & Russia $1.2 Telecom & Media Business Services $0.0 U.K. & Ireland $1.2 Energy $0.84 $0.4 $1.6 Healthcare & Pharma Retail $0.6 $0.5 $0.2 $0.2 12
- 13. The Next Generationof Sourcing What Happens Next? © 2013 Information Services Group, Inc. All Rights Reserved
- 14. This time lastyear we introduced the 4th Generation concept Hang on a minute it is only 2013! What happened to 10 year cycles of change? 1990 2000 2010 ? Dynamic Pluralistic Bipartisan Monolithic But we didn’t see huge evidence in 2012 deal data to really frighten us? © 2013 Information Services Group, Inc. All Rights Reserved 14
- 15. Things sure gotreal in Q3 2013 Are we seeing the Generation 4 impact revealed in the numbers? BEST 3Q PERFORMANCE EVER FOR BOTH ACV AND NUMBER STRONGEST 3Q ITO PERFORMANCE EVER OF CONTRACTS AWARDED Boarder Market Quarterly ACV(B)* by Bands $5-39M $40-99M $5-39M 246 $1.9 OVER PREVIOUS HIGH WATER MARK BUT VALUES HOLDING Broader Market Quarterly Counts by Bands $100M + $3.6 $2.7 $3.1 $2.5 $2.8 $2.9 $2.8 NEW SCOPE COUNTS UP 20% EMEA HAS STRONGEST 3Q PERFORMANCE EVER 270 $40-99M $100M + 323 296 241 $3.3 226 242 256 187 $1.3 $1.1 $1.4 $1.3 $1.2 $1.4 $0.7 $0.9 $1.1 21 18 23 23 20 23 13 16 20 $1.7 $2.3 6 12 6 12 9 7 8 5 10 3Q11 4Q $0.8 1Q $2.2 $1.7 $1.0 $1.4 $0.7 $1.4 2Q 3Q12 4Q © 2013 Information Services Group, Inc. All Rights Reserved 1Q 2Q 3Q13 3Q11 4Q 1Q 2Q 3Q12 4Q 1Q 2Q 3Q13 15
- 16. The Crowded spacebecomes the Clouded Space! We were just getting used to Multisourcing! G-2000 Companies Who Source by Sourcing Strategy 2010 64.1% 2005 2000 47.5% 32.6% 18.4% 27.5% 41.9% 17.5% 25.0% 25.6% True Multi-Source Environment Multi-Source where one Service Provider wins 80% of spend Single Source + © 2013 Information Services Group, Inc. All Rights Reserved 16
- 17. ISG’s Prediction: TheFuture of Sourcing Confederation brings new players, more automation, provides room for XaaS solutions and requires Service Integration. Market 5 - 10 Years Ago Last 3 Years Strategic & Selective Sourcing All Towers Next 3 to 5 Years Multi-Sourcing Confederation Service Integration Tower Function OR Infrastructure ADM Function Tower BPO Function(s) Function Function Tower Function Tower Function Functional Out-Tasking EMC SFDC Akamai Google VMWare Amazon Hitachi IBM iPSoft Workday Oracle etc. Internal Shared Services/Captives Importance of Labor Arbitrage © 2013 Information Services Group, Inc. All Rights Reserved Importance of Software, Platforms, Labor Automation, & Scalability 17
- 18. Disruptive Technologies DrivingChange….. ….and shaping the CIO Agenda and CxO’s management & business influence. Social Media Collaboration Mobility BYOD Analytics & Big Data Cloud Computing & Storage © 2013 Information Services Group, Inc. All Rights Reserved Continued cost pressure and the increasing importance of e-commerce are significant influences that ISG observes on current client sourcing activity. Recent buying patterns demonstrate cost objectives are still primary, but the focus is shifting fast in 2013 toward more business oriented sourcing objectives with innovation and new capabilities at the core. The wave of necessary ERP upgrades will change the market and facilitate opportunities for outsourcing service providers. 18
- 19. Key Long-Term Shiftsin Buyer Behaviour (linked) We shared ISG’s perspective on 1 & 2 in 2012, the interest in vertical BPO is a symptom, these three represent a perfect storm for providers unwilling or unable to change. 1 Shift in Enterprise Decision Maker’s Solution Requirements IT Buyers 3 Business Need 2 Shift in Pricing Requirement to Consumption or Outcome Pricing Bands Utility Pricing Shift in BPO Enterprise Purpose Spurring Activity Traditional Back-office Industry Specific $ © 2013 Information Services Group, Inc. All Rights Reserved 19
- 20. These changes haveimplications for us all… As our clients needs shift to take advantage of their new realities our services must also adapt to maintain our position and relevance. For us the need was perhaps more urgent we began our change 3 years ago. ► ► ► ► ► ► ► ► ► © 2013 Information Services Group, Inc. All Rights Reserved Is a market navigator for clients Is an advisor on change enablement Is a market research provider Is a managed services provider in post contract support Has emerging technology analysts Has a Cloud business unit Initiates solution led procurements Is redefining the sourcing of the future (5G) Is partnering with key industry participants 20
- 21. Competition What are theothers experiencing? © 2013 Information Services Group, Inc. All Rights Reserved
- 22. A Tale ofTwo Groups It was good while it lasted but the world is changing fast on everyone… Market Share Shifts 2009 - 2012 CAGR Disparity 2005 - 2012 India-heritage Providers India-heritage 2005 ACV Awards 13% 7% ACV Western-heritage Providers © 2013 Information Services Group, Inc. All Rights Reserved 12% 32% 9% Awards 7% 2009 2012 16% 0.4% Western-heritage 22
- 23. Key Long-Term Shiftsin Buyer Behaviour (linked) 1 Continue Winning in the Mature UK and US Restructuring Markets 2 India-heritage Restructuring ACV Market Share 20% 4% 2005 3 2009 $ India-heritage BPO ACV Market Share 36% 16% $ 2012 Investment Make New Inroads into the Global Public Sector Markets $$$ Capitalize on BPO Growth via Investment in Vertical Solutions 2005 4 $ 2009 Increase European Market Share via Enhanced Offshore Value Prop India-heritage European ACV Market Share 7% 2005-08 © 2013 Information Services Group, Inc. All Rights Reserved 2012 Investment 13% 2009-12 23
- 24. Staying Ahead: Whatgot you here will not get you there. Larger providers grapple with higher overhead costs and change resistance. India-heritage providers need new growth engines and face new economic realities. Smaller players may make some gains, expect more consolidation. Capturing the Expected Growth in the Mid-Market ► India-heritage Providers have proven offshoring credentials. ► Western providers have started to create dedicated mid-market organizations Lower Cost of Switching Puts Everybody on Notice ► Equal threat to all providers, no matter their heritage. ► Incumbency advantage disappearing as transitions become less painful. ITO Challenge ► Get familiar with the new buyers of emerging technologies, who sit outside the CIO’s organization. BPO Challenge $ ► Pay for outcomes, rather than for bodies/volumes is becoming the norm. ► Industry or process oriented solutions built on scalable and flexible (cloud) infrastructure are generating interest. © 2013 Information Services Group, Inc. All Rights Reserved 24
- 25. Q&A © 2013 InformationServices Group, Inc. All Rights Reserved
- 26. #ISGSIC www.isg-one.com knowledge powering results® InformationServices Group is a leading technology insights, market intelligence and advisory services company, serving more than 450 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.