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The TPI Index
Darrin Peller, Barclays Capital
First Quarter 2012
April 12, 2012
Global Sourcing Market Data and Insights
© 2012 Information
Services Group, Inc. All Rights Reserved
ISG-one.com
*Contracts with TCV > $25M
Partner & President Research & Managed Services and Chief Marketing Officer, ISG
Partner & President North Europe, ISG
Duncan Aitchison
Covering the state of the outsourcing industry for global, commercial contracts with total contract value greater than $25 million.
Welcome to the 38th Quarterly Outsourcing Index Call
John Keppel
2
Paul Reynolds Chief Research Officer, ISG Momentum
© 2012 Information
Services Group, Inc. All Rights Reserved
ISG-one.com
*Contracts with TCV > $25M
“ 3
At A Glance
“
GLOBAL BROADER MARKET AWARDS AND TCV DROPPED ON THE HEELS OF RECORD 2011 RESULTS
RESTRUCTURINGS NOTABLY ↑ Y/Y, WHILE NEW SCOPE TCV CONTINUES TO DECLINE
EMEA TCV DECLINES ON DEARTH OF LARGE DEALS
AMERICAS TCV ↑ Q/Q STRONG RESULTS INCLUDE THE LONE 1Q11 MEGA DEAL
Score Card
1Q12 TCV ($B)
Q/Q Change
1Q Y/Y Change
1Q12 Counts
Q/Q Change
1Q Y/Y Change
Global Market $ 18.7 -35% -22% 184 -18% -31%
Mega Deals $ 1.5 -83% -93% 1 -80% -67%
New Scope $ 10.7 -45% -46% 137 -23% -35%
Restructurings $ 8.0 -13% 82% 47 2% -18%
ITO $ 12.6 -37% -20% 120 -22% -29%
BPO $ 6.1 -30% -27% 64 -11% -34%
EMEA $ 8.6 -53% -32% 79 -23% -37%
Asia Pacific $ 1.8 -33% -36% 18 flat -55%
Americas $ 8.3 8% -3% 87 -16% -14%
© 2012 Information
Services Group, Inc. All Rights Reserved
ISG-one.com
*Contracts with TCV > $25M
$21.7 $28.1 $31.6
2 Prior Qtrs Avg
$29.9
2Q101Q104Q09
$18.7 $28.7 $27.1
$19.6 $24.0 $24.8 $18.4 $21.7
$28.1
1Q12 4Q 3Q 2Q 1Q11 4Q 3Q 2Q 1Q10
4
1Q12 TCV declined a substantial 35% Q/Q and 22% Y/Y, not unexpected after a strong third and fourth quarter 2011.
Broader Market Contract Award Trends
Quarterly TCV ($B)* Comparison
$17.2
$29.0 $28.1
2 Prior Qtrs Avg
$28.5
2Q061Q064Q05
↓40% ↓27%
The TCV Hangover Effect - Previous Quarterly Precedence
↓35%
© 2012 Information
Services Group, Inc. All Rights Reserved
ISG-one.com
*Contracts with TCV > $25M
5
Only one was signed in 1Q, an ITO mega deal in the Americas valued at $1.5B. 1Q12 Mega Relationship counts were the 3rd highest in three years.
Broader Market Mega Deals & Relationships Trends
$0.9
$1.8
$0.5
$1.6
$0.9
7
11
3
7 6
1Q12 4Q11 3Q11 2Q11 1Q11 4Q10 3Q10 2Q10 1Q10 4Q09 3Q09 2Q09 1Q09
ACV (B) Counts75% of 1Q Mega Relationships are Restructurings
$1.5
$8.8
$4.1 $7.1
$2.0
1
5
3 4
2
1Q12 4Q11 3Q11 2Q11 1Q11 4Q10 3Q10 2Q10 1Q10 4Q09 3Q09 2Q09 1Q09
TCV (B) Counts
Mega Deal TCV ($B)* Comparison
Mega Relationship ACV ($B)* Comparison
© 2012 Information
Services Group, Inc. All Rights Reserved
ISG-one.com
*Contracts with TCV > $25M
$58
$65
$74
$66
$71
2Q11-1Q12
2Q10-1Q11
2Q09-1Q10
2Q08-1Q09
2Q07-1Q08
New Scope TCV
6
While down 13% Q/Q, 1Q12 Restructuring TCV almost doubled Y/Y. New Scope was off by nearly 50% Q/Q and Y/Y.
Broader Market New Scope & Restructuring Trends
New Scope vs. Restructuring TTM TCV ($B)* Comparison
66% of Large Deals ($100M - $999M TCV) have been Restructurings in the past 3 quarters
$10.7
$19.5 $19.6 $17.2 $16.4
$8.0 $9.2
$4.4
$11.0
$3.8
1Q12 4Q 3Q 2Q 1Q11 4Q 3Q 2Q 1Q10 4Q 3Q 2Q 1Q09
New Scope Restructured
New Scope vs. Restructuring Quarterly TCV ($B)* Comparison
$36
$24
$27
$22
$14
Restructuring TCV
© 2012 Information
Services Group, Inc. All Rights Reserved
ISG-one.com
*Contracts with TCV > $25M
7
ITO experienced Q/Q decreases of 22% in counts and 37% in TCV. ITO mirrors the Broader Market pattern of a ‘hangover’ quarter following two robust quarters.
ITO Contract Award Trends
Top ITO Providers by TTM TCV
Note: Service providers in alphabetical order; no rankings implied. Placements based on 2011 TCV commercial contract awards sourced from ISG contracts database.
$12.6
$20.0
$15.6
$22.2
$13.0
1Q124Q3Q2Q 1Q114Q3Q2Q 1Q104Q3Q2Q 1Q09
Quarterly TCV ($B)* Comparison
New Scope vs. Restructuring TTM TCV ($B)*
$37.8
$47.0
$55.1
$39.9
$45.3
2Q11-1Q12
2Q10-1Q11
2Q09-1Q10
2Q08-1Q09
2Q07-1Q08
New Scope TCV
$26.2
$17.8
$20.8
$16.4
$10.1
Restructuring TCV
New Scope
Accenture BT
Capgemini Cognizant
CSC Dell
Fujitsu HCL HP
IBM Infosys
TCS Telstra
T-Systems Xerox
Restructuring
Atos BT CGI CSC Dell HCL HP
IBM Infosys Xerox
© 2012 Information
Services Group, Inc. All Rights Reserved
ISG-one.com
*Contracts with TCV > $25M
$6.1
$8.7 $8.3
$5.9 $7.2
1Q12 4Q 3Q 2Q 1Q11 4Q 3Q 2Q 1Q10 4Q 3Q 2Q 1Q09
8
BPO experienced Q/Q decreases of 10% in counts and 30% in TCV. The Q/Q comparison is tough against the strong 2011, the result of Mega Deal activity.
BPO Contract Award Trends
Quarterly TCV ($B)* Comparison
Top BPO Providers by TTM TCV
Accenture Capgemini
Capita Carillion
Cognizant Genpact
HCL IBM
Infosys Logica
RR Donnelly Sabre TCS
Xchanging Xerox
New Scope vs. Restructuring TTM TCV ($B)*
$20.3
$17.9
$18.9
$26.5
$25.5
2Q11-1Q12
2Q10-1Q11
2Q09-1Q10
2Q08-1Q09
2Q07-1Q08
New Scope TCV
$9.8
$6.2
$6.6
$5.7
$3.9
Restructuring TCV
Note: Service providers in alphabetical order; no rankings implied. Placements based on 2011 TCV commercial contract awards sourced from ISG contracts database.
© 2012 Information
Services Group, Inc. All Rights Reserved
ISG-one.com
*Contracts with TCV > $25M
$8.6
$18.3
$12.7 $12.2 $9.2
1Q124Q3Q2Q1Q114Q3Q2Q1Q104Q3Q2Q1Q09
9
1Q12 TCV was down 53% Q/Q and 32% Y/Y. The ‘hangover’ effect and, potentially, Eurozone financial concerns impacted results.
EMEA Contract Award Trends
Quarterly TCV ($B)* Comparison
$31.7
$32.6
$38.5
$31.3
$39.2
2Q11-1Q12
2Q10-1Q11
2Q09-1Q10
2Q08-1Q09
2Q07-1Q08
New Scope TCV
$21.3
$11.9
$8.8
$12.1
$4.7
Restructuring TCV
Quarterly TCV ($B)* Comparison New Scope vs. Restructuring TTM TCV ($B)* Comparison
© 2012 Information
Services Group, Inc. All Rights Reserved
ISG-one.com
*Contracts with TCV > $25M
$1.8
$2.7 $2.8
$1.4 $1.6
1Q124Q3Q2Q1Q114Q3Q2Q1Q104Q3Q2Q1Q09
10
AP contracting counts were flat Q/Q. However, TCV was down by one-third both Q/Q and Y/Y, ending up well below the recent first-quarter average.
Asia Pacific Contract Award Trends
Quarterly TCV ($B)* Comparison
New Scope vs. Restructuring TTM TCV ($B)* Comparison
$5.6
$8.8
$9.0
$9.8
$7.6
2Q11-1Q12
2Q10-1Q11
2Q09-1Q10
2Q08-1Q09
2Q07-1Q08
New Scope TCV
$2.7
$2.5
$3.2
$1.3
$1.6
Restructuring TCV
© 2012 Information
Services Group, Inc. All Rights Reserved
ISG-one.com
*Contracts with TCV > $25M
$8.3 $7.7 $8.5
$14.6
$9.4
1Q124Q3Q2Q1Q114Q3Q2Q1Q104Q3Q2Q1Q09
11
Americas TCV rose 8% Q/Q, making it one of the three highest quarters since the beginning of 2010. Americas posted the only 1Q12 Mega Deal.
Americas Contract Award Trends
Quarterly TCV ($B)* Comparison
New Scope vs. Restructuring TTM TCV ($B)* Comparison
$12.1
$9.6
$15.4
$8.6
$7.7
Restructuring TCV
$20.7
$23.5
$26.5
$25.2
$24.0
2Q11-1Q12
2Q10-1Q11
2Q09-1Q10
2Q08-1Q09
2Q07-1Q08
New Scope TCV
Special Topic for First Quarter 2012
Paul Reynolds Chief Research Officer,
ISG Momentum
12
© 2012 Information
Services Group, Inc. All Rights Reserved
ISG-one.com
*Contracts with TCV > $25M
310
570 690
13
Contract expirations are occurring at a faster rate as the result of dramatically increased transaction counts and declining average contract durations.
Anticipating Increased Restructuring Volume
5
6 933
377
2011 2002
Average Duration
Contract Awards
Record Levels of Expiring Contracts
Trends Impacting Restructuring Volumes
2012e 2007
↑ 20% Y/Y
2011
↑ 250%
↓ 1 Yr.
© 2012 Information
Services Group, Inc. All Rights Reserved
ISG-one.com
*Contracts with TCV > $25M
14
Contract renegotiations can be driven by either the client or the service provider, but the leverage is, more often than not, with the Client.
Motivations Behind Preemptive Renegotiation Efforts
Client Motivations Provider Motivations
Increase Scope or Service Levels Reduce Price for Existing Scope
Add Emerging Services
Chance for Sole Sourced Renewal Retain Full Scope Introduce New Services
Restructuring creates the opportunity for Best-of-Breed providers to win new clients looking for targeted solutions
© 2012 Information
Services Group, Inc. All Rights Reserved
ISG-one.com
*Contracts with TCV > $25M
37%
32%
18%
13%
Americas-heritage Niche Providers India-heritage Major European
15
Applying the 80/80 rule: 80% of the time a deal is renegotiated with the incumbent provider, and they typically retain about 80% of the scope.
Who will win these restructurings?
2012 Restructuring
by Provider Share of ACV
© 2012 Information
Services Group, Inc. All Rights Reserved
ISG-one.com
*Contracts with TCV > $25M
16
Global Broader Market ↓1Q12 loses momentum after two quarters of impressive growth
Restructuring TCV ↑ Q/Q, not enough to make up for New Scope declines
Short fall in previously robust EMEA TCV had the greatest impact on the market
ITO and BPO ↓ Q/Q in contract number and TCV
New Scope ITO ↓, but New Scope BPO ↑ in the last Trailing Twelve Months
Look for a soft first half 2012 and a reviving second half
Restructuring 2H12 activity may lead an upswing in the overall market
1Q12 TPI Index Summary and Outlook
summary market
outlook market
© 2012 Information
Services Group, Inc. All Rights Reserved
ISG-one.com
*Contracts with TCV > $25M
Learn More
17
Please contact us with your questions and comments.
--- Media Contacts ---
► John Keppel ► Duncan Aitchison
www.considerthesourceblog.com
Partner & President Research & Managed Services and Chief Marketing Officer +44 (0)7879 432 212 [email protected]
Partner & President North Europe, ISG +44 (0)1628 21702 [email protected]
► Paul Reynolds Chief Research Officer, ISG Momentum +1 508 625 2194 [email protected]
► Andrew Park Director, Global Communications & Branding, ISG +1 919 259 9252 [email protected]
► Rhena Wallace Cohn & Wolfe for ISG +1 212 798 9832 [email protected]
www.isg-one.com