sourcing market overview
DESCRIPTION
The ISG 2013 EMEA SIC Market Update from John KeppelTRANSCRIPT
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John Keppel, Partner & President, ISG, North Europe 22nd October 2013
ISG 2013 EMEA SIC Market Update
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What does the rearview tell us? Market Snapshot
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A turbulent period some winners and some losers…
1 and 2 Quadrant Data excludes all government and telco to telco transactions
Global Outsourcing Spend ($B) Post Recession: EMEA is Up 1 2
Indian Service Provider Market Share Has Doubled
Global Outsourcing Spend 3 4
$40 $41 $43 $41 $41
$38 $42 $47 $50 $51 $10 $11 $11 $11 $11 $88 $93 $100 $102 $104
2008 2009 2010 2011 2012
Americas EMEA Asia Pacific
46% 39%
43% 50%
11% 11%
2008 2012
Americas EMEA Asia Pacific
7%
2008 2012
18%
4 Yrs Ago Today
$ $88 B $104 B
$ ↑18%
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What does the world look like now? Q3 2013 View
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Broader Market Contract Award 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)*
$8.3 $11.8 $9.8 $12.0 $9.6 $9.6 $7.6 $8.5 $8.2 $8.4
$5.8 $5.7
$5.6 $4.4
$4.1 $3.9 $2.9 $2.6 $3.5 $3.7
201312111009080706052004
1H ACV 3Q ACV
Year-to-date Contracting Counts
485 601 604 505 472
364 299 295 262 297
353 255 273 228 208
191 149 129 115 96
201312111009080706052004
1H Counts 3Q Counts
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Broader Market New Scope & 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)*
Restructuring Year-to-date ACV ($B)*
New Scope Year-to-date Counts
Restructuring Year-to-date Counts
$5.1 $8.0 $7.1 $8.7 $7.4
$7.4 $6.1 $5.0 $6.3 $7.0
$3.2 $3.9 $3.1 $2.6 $3.1 $2.8
$2.3 $2.0 $2.5 $2.4
201312111009080706052004
1H ACV 3Q ACV
$3.2 $3.8 $2.6 $3.4 $2.2 $2.2 $1.5 $3.5 $1.9 $1.4
$2.6 $1.8 $2.5 $1.8 $1.0 $1.0 $0.7 $0.6
$1.0 $1.3
201312111009080706052004
1H ACV 3Q ACV
352 454 453 392 365
291 245 232 211 249
238 198 205 171 172
154 128 109 91 75
201312111009080706052004
1H Counts 3Q Counts
133 147 151 113 107 73 54 63 51 48
115 57 68 57 36 37
21 20 24 21
201312111009080706052004
1H Counts 3Q Counts
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Broader Market Quarterly Counts by Bands
10 5 8 7 9 12 6 12 6
20 16 13 23 20 23 23 18 21
323
187
256 242 226 241
296 270
246
3Q132Q1Q4Q3Q122Q1Q4Q3Q11
Broader Market Contract Trends 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
$1.4 $0.7
$1.4 $1.0 $1.7 $2.2
$0.8
$2.3 $1.7
$1.1 $0.9 $0.7 $1.4 $1.2 $1.3 $1.4 $1.1 $1.3
$3.3
$1.9 $2.8 $2.9 $2.8 $2.5
$3.6 $3.1 $2.7
3Q132Q1Q4Q3Q122Q1Q4Q3Q11
$5-39M $40-99M $100M + $5-39M $40-99M $100M +
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ITO Contract Award Trends
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)*
$5.3 $7.3 $6.3
$9.2 $6.8 $6.5 $5.7 $6.3 $6.0 $4.8
$4.4 $3.8 $3.9
$3.2 $3.0 $2.6 $1.9 $1.6 $2.4 $2.8
201312111009080706052004
1H ACV 3Q ACV
ITO Year-to-date Counts
ITO YTD Industry ACV ($B)*
298 374 377
316 320 230 194 173 165 184
247 164 166 131 136
119 95 72 70 62
201312111009080706052004
1H Counts 3Q Counts $2.04
$2.58 $0.69
$1.31 $1.38
$0.67 $0.64
$0.36
Manufacturing Financial Services Telecom & Media
Energy Travel, Transport, Leisure
Healthcare & Pharma Business Services
Retail
YTD 3Q12 YTD 3Q13
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BPO Contract Award Trends
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)*
BPO YTD Counts
BPO YTD Industry ACV ($B)*
$3.1 $4.5
$3.5 $2.9 $2.8 $3.1 $2.0 $2.2 $2.2
$3.6 $1.4
$1.9 $1.7
$1.2 $1.1 $1.3 $1.0 $1.0 $1.1
$0.9
201312111009080706052004
1H ACV 3Q ACV
187 227 227
189 152 134 105 122 97 113
106 91 107 97
72 72 54 57
45 34
201312111009080706052004
1H Counts 3Q Counts
$1.18 $0.68
$1.08 $0.45
$0.37 $0.17
$0.33 $0.17
Financial Services Manufacturing
Telecom & Media Energy
Travel, Transport, Leisure Business Services
Healthcare & Pharma Retail
YTD 3Q12 YTD 3Q13
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Top Service Providers Across 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.
Note: Service providers in alphabetical order; no rankings implied. Placements based on ACV from commercial contract awards sourced from ISG Contracts Knowledgebase ®.
BPO 2013 YTD
ITO 2013 YTD
► Accenture ► AT&T ► Atos ► BT ► Capgemini ► CGI ► CSC ► Dell ► HCL ► HP ► IBM
► Infosys ► Mahindra
Satyam ► Nihon Unisys ► Polaris Software
Labs ► Singtel Optus ► TCS ► T-Systems ► Wipro ► Xerox
► Accenture ► Aditya Birla
Minacs ► Allscripts ► Aon Hewitt ► Atos ► Capgemini ► Capita Group ► CGI ► Communisis ► CSG
► Fidelity ► HCL ► Infosys ► StarTek ► TCS ► Virtusa ► Wipro ► WNS ► Xchanging ► Xerox
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EMEA Contract Award Trends
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)*
YTD Counts
Segment Details Like-Quarter ACV ($B)*
$4.3 $5.1 $5.0 $5.6 $4.1
$5.9
$3.3 $2.9 $4.1 $2.9
$3.5 $3.1 $3.2 $2.0 $1.6
$2.0
$1.5 $1.3 $1.3
$2.1
201312111009080706052004
1H ACV 3Q ACV
245 252 272 204 201
171 125 113 115 128
176 111 124
102 94 94
63 66 45 44
201312111009080706052004
1H Counts 3Q Counts
$1.8 $1.7
$2.9
$0.6 $0
$2
$4
New Scope Restructuring ITO BPO
Prior 5 Like-Qtr Range Avg of 5 Prior Like-Qtrs3Q12 3Q13
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EMEA Contract Award Trends Detail
DACH, France and Southern Europe had strong quarters, up Y/Y and Q/Q. YTD, Transportation was up 88%, while weakness persisted in FS and Manufacturing.
EMEA Industries YTD ACV ($B)*
EMEA Sub-regions 5 Prior Like-Quarter ACV ($B)*
$0.84
$0.38
$1.02
$0.21 $0.21 $0.31
$0.55
$0.04 $0.0
$0.2
$0.4
$0.6
$0.8
$1.0
$1.2
$1.4
$1.6
U.K. &Ireland
Nordics DACH Africa &Middle
East
France Benelux SouthernEurope
E. Europe& Russia
Prior 5 Like-Qtr Range Avg of 5 Prior Like-Qtrs 3Q12 3Q13
$2.3
$1.6
$1.2
$1.2
$0.6
$0.5
$0.2
$0.2
Financial Services
Manufacturing
Travel, Transport,Leisure
Energy
Telecom & Media
Business Services
Healthcare & Pharma
Retail
YTD 3Q12 YTD 3Q13
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What Happens Next? The Next Generation of Sourcing
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This time last year 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 ?
Monolithic
Bipartisan Pluralistic
But we didn’t see huge evidence in 2012 deal data to really frighten us?
Dynamic
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Things sure got real in Q3 2013
Are we seeing the Generation 4 impact revealed in the numbers? BEST 3Q PERFORMANCE EVER FOR BOTH ACV AND NUMBER
OF CONTRACTS AWARDED
STRONGEST 3Q ITO PERFORMANCE EVER
EMEA HAS STRONGEST 3Q PERFORMANCE EVER
NEW SCOPE COUNTS UP 20% OVER PREVIOUS HIGH WATER MARK BUT VALUES HOLDING
Broader Market Quarterly Counts by Bands
Boarder Market Quarterly ACV(B)* by Bands
$1.4 $0.7 $1.4 $1.0 $1.7 $2.2 $0.8
$2.3 $1.7
$1.1 $0.9 $0.7 $1.4 $1.2 $1.3 $1.4 $1.1 $1.3
$3.3 $1.9
$2.8 $2.9 $2.8 $2.5 $3.6 $3.1 $2.7
3Q132Q1Q4Q3Q122Q1Q4Q3Q11
$5-39M $40-99M $100M + $5-39M $40-99M $100M +
10 5 8 7 9 12 6 12 6
20 16 13 23 20 23 23 18 21
323
187 256 242 226 241
296 270 246
3Q132Q1Q4Q3Q122Q1Q4Q3Q11
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The Crowded space becomes the Clouded Space!
We were just getting used to Multisourcing!
G-2000 Companies Who Source by Sourcing Strategy
64.1%
47.5%
32.6%
18.4%
27.5%
41.9%
17.5%
25.0%
25.6%
2010
2005
2000
True Multi-SourceEnvironment
Multi-Source where oneService Provider wins80% of spendSingle Source
+
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Strategic & Selective Sourcing Multi-Sourcing Confederation
ISG’s Prediction: The Future of Sourcing
Confederation brings new players, more automation, provides room for XaaS solutions and requires Service Integration.
Internal Shared Services/Captives
Function
Function
Function
Function
Function
All Towers
OR
Infrastructure
ADM
BPO Function(s)
Tower
Tower
Tower
Tower
Service Integration
Market 5 - 10 Years Ago Last 3 Years Next 3 to 5 Years
Function
Importance of Labor Arbitrage
Importance of Software, Platforms,
Labor Automation, & Scalability
EMC Akamai
VMWare Hitachi iPSoft Oracle
SFDC Google Amazon
IBM Workday
etc.
Functional Out-Tasking
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Disruptive Technologies Driving Change…..
….and shaping the CIO Agenda and CxO’s management & business influence.
Social Media Collaboration
Computing & Storage
Cloud
Mobility BYOD
Analytics & Big Data
Continued cost pressure and the increasing importance of e-commerce are significant influences that ISG observes on current client sourcing activity.
The wave of necessary ERP upgrades will change the market and facilitate opportunities for outsourcing service providers.
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.
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Key Long-Term Shifts in 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.
Shift in Enterprise Decision Maker’s Solution Requirements
Shift in Pricing Requirement to Consumption or Outcome
1 2
IT Buyers Business Need Pricing Bands Utility Pricing
Shift in BPO Enterprise Purpose Spurring Activity
3
Traditional Back-office Industry Specific
$
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These changes have implications 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.
► 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
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What are the others experiencing? Competition
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CAGR Disparity 2005 - 2012
Western-heritage
A Tale of Two Groups
It was good while it lasted but the world is changing fast on everyone…
Market Share Shifts 2009 - 2012 India-heritage Providers
Western-heritage Providers
India-heritage
32% 16%
7% 0.4%
2005 2009 2012
7% 9%
13% 12%
ACV Awards
ACV Awards
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Key Long-Term Shifts in Buyer Behaviour (linked)
Continue Winning in the Mature UK and US Restructuring Markets
Capitalize on BPO Growth via Investment in Vertical Solutions
1 2
Make New Inroads into the Global Public Sector Markets
3 Increase European Market Share via Enhanced Offshore Value Prop
4
India-heritage Restructuring ACV Market Share India-heritage BPO ACV Market Share
India-heritage European ACV Market Share
4% 20%
2005 2009 2012
$ Investment
16% 36%
2005 2009 2012
$ Investment
$
2005-08 2009-12
13% 7%
$ $ $
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Staying Ahead: What got 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. $
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Q&A
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