2012 © Elix-IRR Partners LLP · • Global Trends in Outsourcing & Offshoring • Global...

2012 © Elix-IRR Partners LLP

1

2 2012 © Elix-IRR Partners LLP

INDEX

Chapter Page

1. INTRODUCTION

• Highlights of the 2012 Report

4

5

2. EXECUTIVE SUMMARY 7-10

3. WHY

• Outsourcing Drivers are Changing

• Regulatory Environments

• Global Strengthening of Regulatory Regimes

• Regulation Breadth under RRP – Opportunities for the Industry

• Focal Points for RRP

12

13

14

15

16

4. WHAT

• Global Trends in Outsourcing & Offshoring

• Global Outsourcing Activity in FS 2008-11

• Regional Trends in Deal Activity

• FS Back Office Outsourcing Candidates

• BPO Trends in the Outsourcing Market

• ITO Trends in the Outsourcing Market

• KPO Trends in the Outsourcing Market

18

19

21

23

25-31

34-37

39-42

5. HOW

• FS Sourcing Strategies

• Achieving Strategic Goals

• Service Management Frameworks

• Market Analysis: Lessons Learned

44

45

46-52

53

6. WHERE

• Global Trends

• Focus on Africa

• Near shore out sourcing

55

56-59

60-61

7. WHO

• Top 15 Global FS Deals by Value

• Regional Analysis of Global Top 10 FS Deals

• Top 10 FS Outsourcing Deals in North America

• Top 10 FS Outsourcing Deals in EMEA

• Top 10 FS Outsourcing Deals in Asia Pacific

• Regional Summary of Key Trends

63

58-68

66-68

70-73

75-77

78

8. ELIX-IRR’S FINANCIAL SERVICES TRANSFORMATION CAPABILITIES IN SUPPORTING OUR CLIENTS 79

9. CONTACT US 80

10. Annex A 81


1. Introduction


This is the third year Elix-IRR has produced Trends in Outsourcing & Offshoring in the Financial Services Industry. This study is widely read by senior executives in financial institutions and the service providers and consultancies within the sector.

The insights have been broadly recognised as valuable contributions to the considerations of Financial Services (FS) institutions furthering their regional and global sourcing strategies in the wake of the global financial crisis.

As with previous years this research will provide an overview of the trends in outsourcing and offshoring by major financial institutions in the last 4 years, focussing in detail on performance in 2011 and making predictions as to the conclusion of 2012. We will cover:

The study also provides supporting data for the current outsourcing landscape for the FS industry. A glossary of terms has been provided in Annex A for reference.

1. Introduction

Why • The pre-eminence of regulatory focus in shaping the

overall FS landscape continuing in 2012

What

How

Where

Who

• Functions and trends seen in the outsourcing deals in 2011 outsourced/offshored

• Sourcing best practice as outsourcing arrangements mature

• The popular and emerging locations for delivery of outsourcing activity

• A summary of major outsourcing transactions by key FS players and service providers


Highlights of the 2012 Report

The following are key sections and insights to this 2012 report, bringing new perspectives and

industry insights from Elix-IRR.

New Regulation

changes the way FS

institutions work with

Service Providers

This section describes how the regulatory environment surrounding the FS industry in 2012 is

increasingly coming to shape relationships with service providers

We analyse in detail Recovery and Resolution Plans, as a culmination of many of the regulatory

objectives of the past year, and where opportunity might arise for the industry

Top 10 Global FS

Outsourcing Deals by

Region

This section presents the top ten FS outsourcing deals for each of these regions: North America,

EMEA and Asia Pacific

Information on deal ranking, company name, service provider, total contract value, outsourcing

domain and key descriptions of activities

Annual Review of

Deal Activity

We take our annual look at market activity from 2011, both new deals and renewals, and assess

the latest trends from BPO, ITO, KPO and geographical perspectives

The role of Service

Management

Understanding some of the key levers to executing a best practice sourcing strategy is key

We assess how effective management of service providers lies at the heart of a successful

outsourcing relationship

Global Trends in the

Market - Major

Activity Locations

We cast our eye across the globe to find out where major industry activity has occurred

Following on from our last report, our experts update the situation in Africa, an emerging location

for outsourcing activity


2. Executive Summary: FS Outsourcing Trends from 2011

and 2012 So Far


Executive Summary

1. Reasons for Outsourcing and Offshoring

Tactical sourcing strategies have achieved cost reductions and

productivity gains in the last 2-3 years

Increasing desire in 2012 to move to transformational outsourcing

to realise enterprise-wide productivity gains, global synergies and

increased margins

Companies continue to look towards suppliers to help

commercialise their assets, but the development of internal

commercial skills in the sourcing function is becoming more

prevalent

Internal sourcing departments are becoming better equipped to

view the business and find economies of scale to optimise

vendor relationships as a whole

Tactical sourcing strategies evolve to meet the strategic change challenges

The global economy continues to show signs of recovery and

most global banks have shown improved profitability up to Q3

2012

Global regulators continue to impose tightening regulations in

order to affect behavioural change through policy and legislative

means

Ever-increasing capital requirements on banks from global

regulatory change are driving changes in business models

causing a greater focus on cost efficiency

Enhancing systems and platforms will help deliver full regulatory

compliance but changes to support models will be needed to

help deliver substantial cost reductions

Regulatory and market challenges ensure continued focus on cost models

Systems integrators will increasingly find opportunities to support

technical change across global technology platforms

Suppliers and vendors have continued to develop benefits from

process and technology innovation to improve the ‘speed to

market’ of new products and services because innovation comes

at a cost

By taking a strategic view of the entire change portfolio in 2012,

companies are starting to achieve greater synergies and will be

able to inter-lock the strategic change agenda with the service

management framework for a sustainable Total Cost of

Ownership

A growing need to look across the change portfolio


Executive Summary

Legacy outsourcing approaches are now being challenged to

leverage global synergies and economies of scale without falling

foul of cross border restrictions and cross border data restrictions

FS companies are building upon their existing, internal sourcing

skills by increasing commercial skills, negotiation techniques and

challenging suppliers to be more innovative

The front line business areas are increasingly engaging internal

sourcing resources in the forward planning for change to ‘achieve

more with less’

Tightening margins are generating increased demand for

transformational solutions with a rapid pay back

This puts renewed pressure on suppliers to deliver current

solutions quicker than they would have previously

Operating models are maturing and companies new to outsourcing have a shorter learning curve

2. Trends in Functions Outsourced / Offshored

FS Outsourcing market trends are showing signs of continued

recovery

In 2011 companies were prudent and looked to ‘traditional’ cost

reduction opportunities in the outsourcing market. In 2012 this is

continuing with a rise in ITO and BPO deals

New entrants to outsourcing were ‘mid-tier’ banking and

insurance institutions

In 2012 we have seen a rise in BPO and ITO deals, with some

also landing in 2013, as well as a number of renewals pending

As macro-economic instability continues however with further

state-aid investments made to boost growth, many large banks

have initiated the design activity for innovative large scale

outsourcing or further transformation of their existing support

models

Financial Services outsourcing returns to growth overall

3. Operating Models for Outsourcing and Offshoring


Executive Summary

India remains the dominant location, particularly for ITO services

however in the last two years salaries have risen circa 10-15%

(in $ terms), despite the slow economic recovery

Increasing pressures to near-shore in USA and EMEA brings

opportunities for markets in Asia, South America, Africa and

Eastern Europe. Drivers for these opportunities include

timezone benefits, higher quality and greater customer

satisfaction

Increasingly the middle office processing requirements

and KPO are being considered for outsourcing to

achieve further savings on labour arbitrage for perceived

specialist skills although near shore solutions are seen as

preferential

Africa emerging as a BPO location generating significant

market interest

Providers are coming away from traditional markets faced with

political pressure in advanced economies to ‘bring jobs home’

Traditional offshore locations of choice are under pressure

4. Popular and Emerging Destinations for Delivery

5. Major Outsourcing Deals and Key Service Providers

Leading service providers continue to achieve increases in

revenue, operating margin and headcount through acquisitions in

niche, analytical software, specialist processing services and

cloud–based technologies

We begin to see early acquisitions in the African region, with

contact centres, customer care and business continuity

services targeted

Service provider acquisitions in 2012


Sources: Elix-IRR analysis, IAOP, BPeSA, IDC, press releases

Executive Summary

Looking back on 2011, IBM lost its prime position in terms of

high-value contracts in North America and Asia Pacific

‒ In North America, T-System Services were awarded a

US$1.7bn ITO contract by Capital One

‒ In Asia Pacific, the outsourcing downturn was evident with the

largest outsourcing deal at US$307m, awarded by HDFC

Bank to Reliance

‒ In EMEA, IBM retained the top new deal with US$1.3bn with la

Caixa and a total regional value of $1.5bn

However IBM extended a significant joint venture deal with BNP

Paribas for data centre outsourcing

Near-shoring strategies by companies have had an impact upon

global service providers who offer ‘best shoring’ on the basis of

leveraging sales based on cost reduction through labour

arbitrage

IBM displaced in 2011 for largest new deal won (despite renewing the largest deal with BNP Paribas)

Large Indian players are adding to their capabilities in both

onshore and nearshore locations and growing their presence

outside India. Benefits include:

‒ High-quality, medium-cost back office and call centre

capabilities

‒ Availability of skills to service offshore clients is high

‒ Industry knowledge and experience

‒ Governmental incentives

When factored in these incentives have the potential to reduce

costs to a comparable level with India

A recent example of an Indian provider investing in emerging

markets includes WNS’ recent acquisition of South African

BPO provider Fusion Outsourcing Services

Indian providers invest in emerging markets

5. Major Outsourcing Deals and Key Service Providers (cont)


3. Why: Why the Regulatory Environment is

continuing to drive the shape of

Financial Services Outsourcing in

2012


Outsourcing drivers are changing, becoming more varied

and global in their reach

In our last report we focussed on outsourcing deals with innovation triggers resulting in product & process outputs.

In this report we note that the drivers for outsourcing continue to be affected by market headwinds and having to

comply with increasingly stringent regulation. As a consequence banks are looking for innovative sourcing

solutions that change the support cost paradigm while enabling focus on regulatory compliance.

We will be assessing regulatory drivers and how they provide new opportunities for the outsourcing industry.

COMMENTARY

Our report will be focussing on

the regulatory environment and

its effect on the outsourcing

market

We see increasing scrutiny

from regulators contributing to

decreasing RoE requiring

banks to emphasise cost

cutting

In turn this leads to a reduction

in investment appetite, even for

the regulatory and compliance

solutions

The cyclical nature of these

prevailing conditions is

amplified as they constrict and

tighten on banking operations

further. The over-riding risk

therefore is loss of competitive

advantage and market share


A greater variety of factors are now driving the

regulatory environments surrounding Financial Services

Political

Economic

Social

Technological

Legal

Environmental

Regulating to ensure financial institutions can support

themselves in times of stress and not depend on public money

Damaged reputations caused by on-going and highly publicised

incidents

Increased capital requirements levied by regulators

Direct/indirect cost-cutting in response to bottom line pressure

Lack of investment appetite driven by regional market instability

and the cost of capital pressures

Regulators prioritising protection of socio-economic stability

Head count reduction necessitates fewer people doing more

Key personnel have more personal regulatory responsibility

and less time available to focus on strategic direction

Reduction in investment programmes, priority given to

regulatory compliance

Complex highly integrated infrastructure leads to high indirect

costs of change programmes

Regulatory pressure globally

Emphasis on risk mitigation (financial and reputational)

Volcker Rule, FATCA, Dodd Frank, Basel II & III, RRP

Client Money Segregation, Transaction Reporting, KYC

Head count reduction and off-shoring

Focus on building footprint in faster growing markets

Ongoing buy side out-sourcing of processes and services

Customer

Regulators supporting customer freedom to switch between

banks

Sustained loyalty less assured as customers are better informed

to buy financial products and services

Three conclusions for the FS

Outsourcing Industry present

themselves:

1. Coupled with downward

pressure on margins,

regulatory pressures are

driving reviews of operating

costs, headcount and

business rationalisation and

transformation

2. The investment budget for

change and innovation will be

focused on regulatory,

compliance, cross-border data

protection initiatives and cost

reduction

3. Focussing on core banking

competencies will provide an

opportunity to evolve new and

existing shared services and

outsourcing arrangements;

driving financial institutions to

‘do more with less’

Given global regulatory

pressure these opportunities

are universal…


Greater variety of regulatory drivers are matched by a

global strengthening of regulatory regimes

EU Regulation • EMIR – aims to increase stability within OTC derivative

markets

• PRIPs – aims to achieve consistent and effective standards

for investor protection

• MiFID – aims to enhance investor protection, improve cross-

border market access and promote competition in the financial

markets across the EU

• AIFMD – to impact how AIFMs distribute funds and operate

business

Basel III Aims to strengthen regulation, supervision,

risk management and transparency by

regulatory standards on:

• Capital adequacy

• Stress testing

• Liquidity Stability

US Regulation • Dodd Frank

• Volcker Rule

• Financial Stability Oversight Council

• Securitization Reform

• Derivatives Regulation – increased

transparency

• Consumer Protection Reform

• Credit Rating Agency Reform

• Capital Requirements

• Living Wills

Bank Levies First proposed by IMF in 2010

• UK

• France

• Germany

• Austria

• South Korea

• Proposed – Netherlands ~2013

• Possible EU Financial Transaction Tax

Recovery & Resolution Plans (RRPs) Banks will be required to produce RRPs to give regulators a

crisis management plan setting out necessary steps and

powers to ensure bank failures are managed in a way to avoid

financial instability and to minimise public costs

• Regulated under the Dodd-Frank in the US

• June 2012 - European Commission adopted a legislative

proposal for bank recovery and resolution

COMMENTARY

Globally, regulators have

introduced greater levels of

stringency to banking

operations in order to

safeguard consumers and

public funds

In addition, a perfect storm is

being created by natural

downward pressure on margins

as the result of lower growth

occurring at the same time

The challenge for Financial

Services firms becomes how to

increase shareholder value

whilst satisfying regulators

This presents significant

opportunities for the

outsourcing industry as banks

look to how they can rationalise

and consolidate their activities

THE SOURCING OPPORTUNITY Smart players in the outsourcing industry will increasingly be seen tying outsourcing offerings to compliance requirements and bottom

line growth

Robust sourcing strategies and outsourcing firms’ capabilities offer a breadth of support that will be well placed to support Financial

Services clients meet their regulatory and financial challenges

The following section will focus on the rise of Recovery and Resolution Plans (RRPs). Perhaps one of the most relevant developments

in regulation for service providers in the last 12 months. RRPs are also one of the most wholesale from a compliance point of view,

bringing together many of the components of other regulatory initiatives (e.g. capital adequacy, robust liquidity positions, balance sheet

stability) with the practical measures to achieve either Recovery or Resolution. RRPs provide a stern challenge from the point of view of

both compliance and ongoing execution of business strategy

The concept of

regional regulation

is almost a moot

point for global

players with

entities & clients

spread across the

world


The breadth of regulation under Recovery and

Resolution Plans creates opportunity for the Industry

Global regulators are moving to safeguard the wider global economy from the fallout of another financial crisis in

the future. Analysis of the rise of RRPs reveals that alternative sourcing models can play a major role.

the CONTEXT

Globally financial authorities are taking a legislative, policy driven approach to transforming regulatory regimes

to ensure that banks “Too Big to Fail” can do so in an orderly manner thereby minimising risk to consumers,

taxpayers and deposit holders

This is being compounded by a general shift in emphasis from Bail “Out” to Bail “In” where large banks faced

with potential failure are being urged by Central Banks and regulators to recapitalise using private capital, not

public money. This results in significant restructuring of balance sheets and risk management portfolios

RRPs are being mandated in order to recover a bank from severe threats to its survival (Recovery) or wind the

bank up in an orderly manner protecting consumers and the public purse (Resolution)

the FOCUS

the COMPLEXITY

Systemically Important Financial Institutions (SIFIs) are the banks which will invite most scrutiny, particularly

SIFIs with global reach (G-SIFIs), due to the disproportionate consequences of disorderly failure from a

political, economic or socio-economic perspective

The complexity of achieving compliance is magnified when set against a backdrop of existing and

unprecedented regulatory change driven by major legislative or policy events such as Dodd-Frank, Basel III,

the Vickers Report (UK) and tightening margins

the CONCLUSION

All areas of banks will require both strategic and detailed analysis to understand which entities do what

business, how they are funded and how they might be allowed to fail

IS & IT strategies will form a core component to winding entities up as infrastructure, applications and users

will need to be segregated

Significant consideration will also need to be given to how can staff be safeguarded against the failure of a

particular entity so that they can continue to support surviving business

Changes to Operating Models, the need to segregate entities and the risk sharing potential of

executing the right sourcing strategies can lie at the heart of future compliance efforts

Systems integrators and major outsourcing firms have both the industry expertise and the technical

insight to play a major role in the diagnostics, planning and execution of RRP strategies


The focal points for RRPs are opportunity areas where

sourcing and outsourcing specialists can play a role

Elix-IRR’s work with major global banking institutions reveals recurring themes which come under scrutiny in

developing RRPs. Our analysis asserts that a number of these hold opportunities for the major outsourcing players.

Group Risk Assessment

Analysing the bank by entity to define the

most critical parts and any retail impact

Liquidity Recovery

Ensuring a robust liquidity position exists in

times of stress

Capital Recovery

Ensuring capital adequacy during times of

stress

Governance

Establishing management structures to

operate during times of severe stress

People & Organisation

Reviewing entity employment

arrangements and safeguarding the future

Support & Business Contingency

Ability to be able to segregate IT effectively

in failure without harming BAU elsewhere

Future commercial models will need to provide evidence of compliance to regulators, compounded

by ongoing scrutiny on cross-border data protection. However we envisage suppliers being able to

leverage this as an opportunity to innovate.

The importance of liquidity utilisation and it’s many drivers and usages is an area where banks are

struggling to provide the necessary data. Innovative vendors will be able to create utility solutions

to this emerging issue.

Robust sourcing strategies can help alleviate the pressure on CIOs to understand how to configure

their future IT landscape. In light of 20+ years of technology and group integration efforts careful

consideration will need to be given to how technology assets can be unwound in the event of

failure of a specific entity or group of entities.

The complexity of corporate structures and organisational design drives a level of complexity

which will be very challenging to unwind. Outsourcing players already engaged in BPO / HRO for

multiple parties should position themselves as solution providers able to support the wind-down of

entities whilst safeguarding staff from the failure of any particular entity and continuing to support

the remaining business.

KEY SOURCING CONCLUSIONS

Banks will be keen to remove assets from their balance sheets in order to aid their capital ratios

leading to broader opportunities for vendors to take over human capital & IT assets.

RRP FOCUS AREAS


4. What: Global and Regional Trends

Sourcing Market Analysis (BPO, ITO and KPO)


Global Trends in the Overall Outsourcing & Offshoring

Market

Overall growth of the outsourcing industry is picking up despite global economic pressures.

422389

371378

0

100

200

300

400

500 +4%

+8%

2011 2010 2009 2008

Growth in Outsourcing Market, 2008-2011

US$bn

0

100

200

300

400

500

2011

422

Non-FS

339 (80%)

FS

83 (20%)

2011

422

EMEA

143 (34%)

Americas

201 (48%)

Asia Pacific

78 (19%)

2011

422

KPO

11 (3%)

ITO

258 (61%)

BPO

153 (36%)

2011: Outsourcing Market breakdown by

type, region and vertical US$bn

Source: Evalueserve, 2011, IDC, 2012 & Elix-IRR analysis, 2012

CAGR

Note: Vertical-specific BPO not included

The outsourcing market grew by a nominal 8% from

2010 to 2011, an indication that the industry has

picked up pace after a fall in size from 2008 to 2009

EMEA and Americas still account for the majority of

the outsourcing market – though the Americas’ market

share is decreasing with a 5% growth rate from 2010

to 2011 compared to 12% in EMEA and 8% in Asia

Pacific. This reflects larger transaction values and the

trend towards expansion of contracts at renewal

Financial Services is the largest vertical for outsourcing

services accounting for some 20% by value

The US is the largest outsourcing consumer by country

and this will be the case for the foreseeable future

• Cost is still the main driver for outsourcing; however,

there are an increasing number of other factors that

play a role in the outsourcing decision process, e.g.

achieving speed, agility, flexibility and innovation as

well as access to technical and/or industry specific

expertise and skills

• We believe outsourcing advisory firms increasingly

influence the decision-making of buyers of outsourcing

services

• ITO and BPO outsourcing activity continue to generate

the largest proportion of revenue in the outsourcing

market


Global ITO and BPO Outsourcing Deal Activity in FS

BPO deals continue to show growth while ITO deals are declining from a high in 2010. Market activity in 2011, as in

2010, was driven by renewals and extensions and not by new outsourcing deals.

8.54.7 5.7

9.4

12.714.3 13.3

3.80

5

10

15

20

2009

16.5

2008

17.9

2011

19.1

2010

19.1 BPO

ITO

TC

V (

$ B

n)

New Deals: TCV of Global ITO vs. BPO

92.6114.7107.0

74.3 66.844.339.5

90.9

0

50

100

150

-10%

+8%

2011 2010 2009 2008

BPO

ITO New Deals: Avg Contract Value of Global ITO vs.

BPO

AC

V (

$m

)

49 66

66 68 51 34

32340

50

100

2011 2010 2009 2008

ITO renewed deals

ITO new deals

% o

f T

CV

Global ITO Deals New vs. Renewed Global BPO Deals New vs. Renewed

29 41 56 71

71 59 44 29

0

50

100

2010 2009 2008 2011

BPO renewed deals

BPO new deals

While the Total Contract Value of deals remained the same between 2010 &

2011, we have seen an increase in the proportion made up of BPO deals

ITO activity fell for the first time in 2011 when, despite growth in North America

and EMEA, the value of ITO deals in Asia Pacific fell by over 70%

BPO continues to trend towards previous 2008 highs, buoyed mainly by robust

growth in North America, particularly in the insurance sector

The trend towards a greater proportion of value coming from renewed deals

continues, with roughly two thirds of ITO TCV in 2011 being renewals

This is likely indicative of a maturing of the marketplace, with most companies

already having some level of outsourcing in place

The majority of contracts in the Asia Pacific region are new, possibly indicative

of the emergent market for outsourcing there

In addition to the increase in Total Contract Value of BPO deals and decrease of

TCV of ITO deals, we see a similar trend in the average contract value between

2010 - 2011

Where nervous markets saw BPO average contract values decrease 40% from

2008 to 2010, we see a trend towards recovery with BPO average contract values

up almost 50% in the last year

North America is the only region to have recorded a fall in average ITO contract

value, having a marked effect on the global average

The strong trend towards increased renewed deal proportions has continued, with

a full 71% of BPO TCV coming from renewed deals in 2011

The North American BPO market was biased towards new deals from 2008-2010,

before a sizable shift in 2011 to 80% of value being derived from renewals

A similar shift occurred in EMEA in 2010 and was sustained in 2011, possibly

indicative of market maturity

Note: The data above excludes South America

% o

f T

CV

%

%

%

%

%

%

%

% %

% %

%

BPO CAGR

ITO CAGR

%

%

%

%

Source: IDC


What: Regional Trends


The North American outsourcing market has shown a strong return to growth between 2010-11 as it recovers to 2008

levels. However, growth in EMEA has slowed down substantially, whilst no mega-deals over $500m have taken place in

Asia Pacific. Of the $19.1bn of new deals in 2011 $6.1bn were in North America, $12.2bn in EMEA and only $0.8n in Asia-

Pacific

Regional Trends in New Deal & Renewal Activity 2008-11

Colour Key:

Growth in Outsourcing is highest (hot)

Outsourcing activity is high and still growing (warm)

Outsourcing activity is decreasing (cooling)

Source: IDC BuyerPulse Contracts Database, August 2012

85 91

106

0

5

10

0

50

100

150

$ 6.1

62

2010

$ 3.9

2009

$ 4.4

2008

$ 8.8

+56%

-12%

2011

North America

To

tal

Co

ntr

act

Valu

e (

$ B

n)

No

. of D

eals

Whilst outsourcing activity has still not

returned to 2008 levels, the Total Contract

Value (TCV) increased by over 50%

between 2010-11

This positive trend is visible in both ITO

and BPO activity, with BPO showing very

substantial increases

TCV CAGR

EMEA

$ 8.4 $ 9.5

143

112

8988

0

5

10

15

0

50

100

150

0%

+14%

2011

$ 12.2

2010

$ 12.2

2009 2008

To

tal

Co

ntr

act

Valu

e (

$ B

n)

No

. of D

eals

The previously strong upward trend has flattened in

the past year, with a slight fall in Total Contract Value

EMEA deals accounted for ~ 64% of all global deals

in 2011

There has been an increase in the number of deals,

but a concurrent fall in their average value

TCV CAGR

25

35 35

26

0

1

2

3

0

10

20

30

40

2008

$ 0.7

-74%

+4%

2011

$ 0.8

2010

$ 3.0

2009

$ 2.5

Asia Pacific

To

tal

Co

ntr

act

Valu

e (

$ B

n)

No

. of D

eals

Whilst over the period there has still been

growth in Asia Pacific, we have seen a

very substantial decline of almost three

quarters of TCV over the past year

The most substantial fall was in BPO

activity, losing over 98% of total contract

value due to new contracts halving

compared to 2010

TCV CAGR


What: Sourcing opportunity for FS

Sourcing Type Analysis (BPO, ITO and KPO)


Investment Banking Wealth Management

Governance and Assurance

HR Finance Procurement

Retail Banking

Infrastructure Helpdesk Management

FM & Real Estate

FS Back Office outsourcing candidates

Research &

Analytics

Application

Legal & Compliance

OPERATIONS

SUPPORT FUNCTIONS

IT

CONTROL

In Elix-IRR’s experience, processes that are repeatable, high-volume and administrative in nature are potential

candidates for efficiency gains arising from outsourcing. In the following section we analyse the overall outsourcing

market in 2011 and then focus on the application of the following three sourcing types: BPO, ITO and KPO

RESEARCH AND ANALYTICS

BPO ITO KPO

Key


What: BPO Analysis


BPO Trends in the FS Outsourcing Market

Financial Services has been a critical driver in the growth on BPO volumes and values in the past. Elix-IRR believe there

is still significant value to be obtained by extending the scope of BPO to a broader set of functions across the back

office. Below we describe a selection of major processes which are typically retained, possible outsourcing candidates or

processes that are often outsourced

Key:

= Typically retained

= Possible candidate for Shared Service/Outsourcing

= Suitable for Shared Service/Outsourcing

Investment Banking Wealth Management

HR Finance Procurement

Retail Banking

FM & Real Estate

OPERATIONS*

SUPPORT FUNCTIONS*

• Operations

Control

• Business

Development

• Service

Management

• Confirmations

• Settlements

• Customer

billing

• Payments

Processing

• On boarding AML/KYC

Management

• Cash and Liquidity

Management

• Investor Custody

Services

• Collateral Management

• Business Development • Account

Services

• Data

Management

• Clearing and

Settlements

• Payments

Processing

• Origination /account

opening

• Account servicing

• Cash and Liquidity

Management

• Sales Generation

• Strategy

• Statements

• Card Manufacture

• Customer Queries

• Reconciliations

• HR Strategy

• Business Partners

• Recruitment

• Case Management

• Collateral

Management Units

• Budgeting Process

• Regulatory Reports

• Payments

• Accounts Payable

• Account Receivable

• Tax Filing

• Treasury

• Category

Management

• Procure to Pay

• Reporting

• Spend

Management

• Leasing

• Network and Space

Management

• Buildings

Maintenance

• Cleaning

• Reception

• Landlord Services

• Communications

• Transport Services

*Selected processes are intended to be indicative of the business areas under discussion. We do

not purport to be representing the totality of capabilities undertaken in the course of daily banking

business


Banking and Financial Institutions along with central and federal government clients, were critical in driving the

demand in the BPO market.

153

142138140

0

20

40

60

80

100

120

140

160

+8%

+3%

2011 2010 2009 2008

Total BPO Spend Globally

To

tal

Va

lue

of

Ou

tso

urc

ing

Sp

en

d (

$ B

illi

on

s)

CAGR

Source: Evalueserve, 2011, IDC, 2012 & Elix-IRR analysis, 2012

Overall BPO Trends in the Outsourcing Market

Note: Vertical BPO figures are not available within total global BPO spend figures.

However, the following pages show the break out of vertical BPO versus other

outsourcing domains for new deals. With the rise and increasing importance of vertical

BPO deals in FS over the past decade, we estimate that, for the FS market, vertical

BPO is at least as large as traditional BPO domains

BPO outsourcing has seen a moderate 3% growth over

the past few years, though this has picked up in 2011

There has been a noticeable increase in the number of

BPO deals over the last 12 months in both North

America and EMEA

Asia Pacific experienced a downturn in 2011 as the

global recession impacted the region

South Africa have introduced incentive schemes for job

creation and India service providers are increasingly

interested in the region for alternate delivery models

BPO demand in Financial Services is driven by demand

for credit card processing, insurance services,

investment bank processing and payment processing

Buyers are increasingly looking at bundled ITO/BPO

options, which reflects increasingly integrated sourcing

strategies

BPO vendors focus on strengthening operational

excellence capabilities, platform BPO assets, and

business analytical services as levers for the expansion

of existing deals, new deals and renewals

Latin America will continue to increase in attractiveness

as a near-shore destination for the US


FS BPO Activity by Outsourcing Domain

There has been a substantial rise in the value of Vertical BPO activity in North America. The same domain has shown

substantial falls in value in EMEA and Asia Pacific, respectively – it is, however, still the dominant BPO activity in all

regions.

BPO Sub-Domain Outsourcing Activity – based on 2011 TCV ($m)

Source: IDC, 2012, Elix-IRR analysis, 2012

There has been a substantial ($2.2bn) rise in the value of Vertical BPO activity in North America, and consequently, its share of all BPO

contract value has risen from 36% in 2010 to 82.8% in 2011. There were significant extensions to existing, large scale deals for periods

of 5 – 7 years, indicating a deepening of established relationships

Customer care contracts increased from a low base to $297m in EMEA, with a small number of deals in North America and none in

Asia Pacific. Globally, this has more than accounted for the fall in this domain in North America, showing an increase of 2% of global

BPO activity

HR Outsourcing fell by almost $400m in North America, having accounted for 46% of deals in 2010 to only 7.1% in 2011. This reflects

that the early advantages of HR outsourcing have been achieved and our experience is that new entrants to outsourcing will come to

the market with a multi-sourcing transformational strategy rather than labour arbitrage

F&A Outsourcing fell in Asia Pacific from 56% of all BPO deals in 2010. The trend for all support functions is to create organisation-

wide synergies with sourcing strategies

Key: HR = Human Resources

F&A = Finance & Accounting

Vertical BPO = BPO specific to FS Industry

Asia Pacific EMEA North America

Total: $3.3bn Total: $2.5bn Total: $4m


North America

*NOTE: Banking and Insurance operations processes include but are not limited to

– trade processing, loan administration, billing services, payments services,

document and data management, account processing and reconciliation etc.

Regional Analysis of FS Industry BPO Activity

EMEA

To

tal

Co

ntr

act

Valu

e

($m

)

Asia Pacific

While the number of deals happening each year has been

relatively constant over the period, the TCV has varied

substantially

There has been a substantial increase between 2010-11, although

TCV is still at around 20% below 2008 levels

The TCV of BPO has seen relatively little change over 2008-2011,

with a slight overall decline

It will be interesting to see whether 2012 and 2013 analysis will

show whether patterns of growth followed by decline persist

BPO activity has stalled in Asia Pacific, with TCV falling by 98%

from its high of 2010

Only three BPO deals occurred in the region in the last 12 months

compared to 13 BPO deals in 2010, highlighting the effect of the

economic crisis which has now hit the region (particularly Australia

and Japan)

5,539

3,282

1,4231,180

545555

41

0

2,000

4,000

6,000

0

20

40

60

-16%

2011 2010 2009 2008

2,4532,963

2,460

403031

0

1,000

2,000

3,000

0

20

40

60-4%

2011

42

2010 2009 2008

2,803

157

359

109

1311

7

3

0.0

100.0

200.0

300.0

400.0

0

5

10

15

-67%

2011

4

2010 2009 2008

$ CAGR

$ CAGR

$ CAGR

Overall activity in FS-specific BPO (banking and insurance operations processes*) has dipped below 2008 levels with

the majority of new deals being in EMEA.

No

. of D

eals

N

o. o

f Deals

N

o. o

f Deals

To

tal

Co

ntr

act

Valu

e

($m

)

To

tal

Co

ntr

act

Valu

e

($m

)

Source: IDC BuyerPulse Contracts Database, August 2012


KEY

FS BPO Average Contract Analysis by Region A

ve

rag

e C

on

trac

t V

alu

e

($ m

illi

on

)

North America

EMEA

Ave

rag

e C

on

trac

t V

alu

e

($ m

illi

on

)

Asia Pacific

Ave

rag

e C

on

trac

t V

alu

e

($ m

illi

on

)

BPO activity showed a substantial decline 2008-2009, which was sustained into

2010

Renewed contracts rose by 20% from 2008 to 2011, although new BPO contracts

have fallen further still and are now at 72% below 2008 level

Average Contract Value for BPO deals is far lower than ITO – particularly for renewals. The upturn in

Asia Pacific in 2010 has come to a halt – there were only three new deals in 2011.

Source: IDC Research, 2012, Elix-IRR analysis.

New deal figures in 2011 have still not returned to their 2008 highs, but have

picked up in the last year

Data on renewals shows more fluctuation than that of new contracts, but despite a

fall from the spike of 2010, Average Contract Values remain well up over the

period. This is a reflection of the number of contracts expanded on renewal.

• After a promising 2010, figures for both new and renewed contracts in 2011 have

crashed. In total there were three new deals in 2011, with an average value of just

over $1m, and no renewed contracts.

232617

83

190

2831

159

0

50

100

150

200

2011

-72%

+20%

2010 2008 2009

3526

76

102117

174

94

50

0

50

100

150

200

2009 2008 2011 2010

-65%

+132%

1

34

1317

0

171912

0

10

20

30

40

50

60

2008 2010 2009 2011

-100%

+37%

Renewals

New Deals


ISS manages and delivers facilities management services

to Barclays operations in the UK, Europe, the Americas,

Asia Pacific and the Middle East (July 2012)

ING sign new deal with

Cognizant to provide an

insurance and finance

business process centre of

excellence

MidSouth Bank outsources payroll and

HR services to Inova Payroll

Examples of BPO Outsourcing Activity

Zurich used Procurian and Genpact to

restructure and manage procurement

infrastructure

HCL Technologies set

up back-end processes

for loans, financial

products and customer

service at Citi (July

2012)

BACS payment debit

and credit processing

services are

outsourced by LBG

to Parseq (2011-

2014)

Wing Lung Bank outsources

operation management to

Accenture (deposits, loans,

payments and customer

servicing)


• Ongoing regulatory pressures and reducing margins have resulted in wholesale banks looking for

opportunities across their environment

• Banks are looking beyond labour arbitrage and seeking broad ranging productivity gains to:

• inter-lock the business strategy with sourcing approaches

• Obtain significant, step change savings over time

• Outsourcing will be more focused at achieving productivity gains

(and financial savings) across the enterprise

• KYC and Single Customer View strategies will develop further

and require elements of business process re-engineering prior to

outsourcing

• Increasingly a move to outsource payments processing in the

sector

BPO - Generic

Future Trends in BPO in Financial Services

• There will be a major focus on customer data sovereignty and the rapidly changing legislation on physical location of

data and its use. This has the potential to impact some BPO deals until specific countries / regulatory bodies clarify their

stance

• Service Management professionalisation – organisations will realise the value of a skilled, retained organisation to lead

on the refinement of supplier relationships and the longer term outsourcing benefits

• Emerging geographies in Asia Pacific, Africa and Latin America will contribute further in the next 12 months

• An increasing move to outsource payments processing in the

sector

• Considerations must be made in regards to data protection

and regulatory issues, as well as customer’s perceptions of

off-shore data access

• Larger U.S. banks often have their own payment ‘factories’

• Further outsourcing and offshoring is being considered by

banks and credit card operators to reduce cost and improve

margins

• New banks and innovative mobile payments operators have

more flexibility and have the potential to establish lower cost

payments operations by optimising locations world-wide

BPO - FS Specific

Snapshot: Trends in BPO Payments Processing


What: ITO Analysis


ITO Outsourcing: In Summary

As with BPO, Financial Institutions combined with central and federal government clients drove the demand in the

ITO market in 2011.

Key:




258

238226232

0

20

40

60

80

100

120

140

160

180

200

220

240

260

+8%

+4%

2011 2010 2009 2008

Total Information

Technology Outsourcing

Spend Globally

To

tal

Va

lue

of

Ou

tso

urc

ing

Sp

en

d (

$ B

illi

on

s)

There has been moderate growth in the total ITO spend

over the 2008-2010 period, with growth picking up

substantially to 8% in 2011

The key market drivers for ITO are cloud computing and

Remote Infrastructure Management Outsourcing (RIMO)

as well as consumerisation of data storage and social

media solutions

Industry-specific offerings will continue to increase, and

vendors must improve their knowledge of their client's

business and industry

Competition is fierce and margin pressures grow higher,

even as the market begins to improve

Striking the right balance between offshore, near-shore

and onshore offerings will be key to vendor success

ITO customers are still “testing” to find the right balance

between captive centres and outsourcing

CAGR

Infrastructure Helpdesk Management Application IT*

• Service Management

• Strategy &

Architecture

• Change

Management • Business

Requirements

• Solutions

• Development

• Testing

• Maintenance

• Data Centre

• Network Management

• VOIP

• Disaster Recovery

• Tier 1 call centre

• Incident

Management

*Selected processes are intended to be indicative of the business areas under discussion. We do not purport to be representing the totality of capabilities undertaken in the course of

daily banking business


Infrastructure services continue to dominate ITO activity in all regions followed by Applications Maintenance in North

America and Network & Desktop Outsourcing in EMEA and Asia Pacific.

ITO Sub-Domain Outsourcing Activity – based on 2011 TCV ($m)

KEY: ISO = Infrastructure Services Outsourcing HAM = Hosted Application Maintenance

AM = Applications Maintenance HIS = Hosted Infrastructure Services

NDOS = Network & Desktop Outsourcing


Infrastructure services, as in previous years, continue to be by far the most common form of IT outsourcing. ISO now accounts for over

80% of all ITO market activity, having risen by $550m in North America and $1200m in EMEA since 2010

In North America ISO dominates with 92.6% of market activity share

In EMEA and Asia Pacific, whilst still dominant, NDOS and AM activity also represent non-trivial proportions of activity

Other Sub-Domains do not contribute significantly

Market uncertainty and the pressure to improve bottom line returns from infrastructure estates is likely to be fuelling the dominance of

ISO. From a rationalisation perspective focussing on hardware procurement is an attractive option for quick savings, fuelling

outsourcing activity

FS ITO Outsourcing Domain Activity

Asia Pacific EMEA North America

Total: $2.8bn Total: $9.7bn Total: $755m


Average Contract Value in ITO has grown both in North America and in EMEA driven in the

main by renewals.


KEY

4577

4076

312

95

179

33

0

50

100

150

200

250

300

350

+229%

2011 2010 2009 2008

Renewed Deals

New Deals

Ave

rag

e C

on

trac

t V

alu

e

($ m

illi

on

)

North America

4075

132

72

377

278

84

152

0

100

200

300

400+36%

2011 2010 2009 2008

EMEA

Ave

rag

e C

on

trac

t V

alu

e

($ m

illi

on

)

34

7894

29 34

253

118

35

0

50

100

150

200

250

300

2009 2008

-86%

2011 2010

Asia Pacific

Ave

rag

e C

on

trac

t V

alu

e

($ m

illi

on

)

While the value of new North American deals has decreased overall since 2008, it

remains above 2009 levels

There is a tendency in North America for Total Contract Values to be largely

biased towards new deals one year, followed by a sizable shift to renewals the

next. This oscillatory nature is also visible in these Average Contract Values,

where the higher amplitude in renewed values is driven by a market shift towards

fewer, much larger deals.

• Having shown substantial growth prospects from 2008 to 2010, the size of the ITO

market in Asia Pacific has plummeted

• Renewed contract value fell by 86% in the year to 2011, and new deals by 56%

• The smaller quantity of deals in Asia Pacific means that a single very large deal can

drastically change the Average Contract Value. For example: in 2010, there was a

$1.08bn renewal deal, without which the ACV would have been <$67m.

FS ITO Average Contract Analysis by Region

After falling in 2009, the value of renewed deals has grown substantially in the

past two years

Conversely, after seeing a spike in 2009, new EMEA contracts have fallen an

average of 45% YoY throughout the 2009-2011 period. However, the number of

deals is growing YoY.


Examples of ITO Outsourcing

Financial Services has been a critical driver in the growth on ITO transactions in the past. Elix-IRR believe there is still

significant value to be obtained by extending the scope of ITO to a broader set of functions across the back office,

particularly driven by the increasing need for Banks to reduce IT related operating expenses.

Key:




Deutsche Bank IT service desk,

service operations and ITIL

services have been managed by

Tata Consulting Services since

September 2011

Ratnakar Bank outsources IT

Infrastructure to Netmagic

Solutions (10/2012)

Nordea outsources development

and maintenance of existing and

new applications in the areas of

risk management, treasury, human

resources and procurement

management to Accenture

(6/2012)

BT is helping CLSA to flex its communication and

IT requirements by implementing an innovative,

global utility based pricing model for BT's

networked IT services and the deployment of BT

Unified Trading for trading

communications


ITO Outsourcing will continue to be driven by large buyers negotiating global deals, but there may be

more innovation in sourcing strategies to allow commodity purchases from more than one enterprise-

wide supplier (internal marketplace). This will encourage supplier competitiveness and ensure best

value for money

Cloud computing will become increasingly mainstream with the initial security concerns allayed. There

will also be a greater potential to deliver customer-centric solutions such as the Single Customer View

Mature outsourcing organisations will seek to link business demand and ‘horizon plans’ to ITO to

ensure rapid ‘go to market’ delivery through robust Service Management

Spend Reviews due to lower margins and higher investment in regulatory change initiatives. Buyers

will challenge the suppliers to ‘do more with less’

Customer participation will increase because business customers will continue to want to work more

closely with ITO suppliers to understand how to make best use of virtual offices, collaboration software

and achieve more without business process re-engineering

Near-shoring will be more prevalent in response to government and economic pressures, especially in

the USA

Future Trends in ITO


What: KPO Analysis


KPO Outsourcing

Key:




Knowledge process outsourcing is being used to transform elements of the

operating models for complex, judgement driven and fee-earning activities within

Financial Institutions

The growing maturity of KPO service providers is allowing firms to use KPO as

an enabler of new operating models across a range of functions whilst

addressing potential challenges of talent retention in their home location

Research &

Analytics Legal & Compliance


• Market Abuse

• PA Trading

• Conflicts Control

• KYC

• Legal Drafting

• Anti Money Laundering

• Transcription and Document

Management

• Legal Research

• Quantitative Analytics

• Qualitative Analytics

• Industry Reports

• Market Intelligence

• Virtual Data Rooms


KPO usage continues to grow at a significant rate of just under 20% annually albeit from a low base as Financial

Service firms seek to deploy KPO solutions to knowledge intensive work processes.

KPO Trends in the Outsourcing Market

11.0

8.9

7.2

6.5

0

1

2

3

4

5

6

7

8

9

10

11

+24%

+19%

2011 2010 2009 2008

Total KPO Spend Globally

To

tal

Va

lue

of

Ou

tso

urc

ing

Sp

en

d (

$ B

illi

on

s)*

The growth in Knowledge Process Outsourcing (KPO)

continues into 2011, with a trend growth of 24% from

2010-2011

Total KPO spend in 2011 was almost 70% higher than in

2008

Competition is intensifying as KPO niche players are

increasingly challenged by major BPO providers

extending their services through acquisition

KPO is being used to transform the operating models for

complex, judgement driven and fee-earning activities of

a range of firms within Financial Services

The fastest growth in KPO is seen in:

Banking and financial research services

Quantitative analysis

Business information

An upcoming KPO area includes data analytics and

content monitoring and creation for social media

activities. In the last 12 months, an increasing number of

BPO service providers such as Capgemini have now

launched their social media management service, while

others such as Genpact have acquired a social media

analytics firms

CAGR

Source: Evalueserve, 2011

*Evalueserve revised published data for 2008-2010


Research &

Analytics Legal & Compliance


• Market Abuse

• PA Trading

• Conflicts Control

• KYC

• Legal Drafting

• Anti Money Laundering

• Transcription and Document

Management

• Legal Research

• Quantitative Analytics

• Qualitative Analytics

• Industry Reports

• Market Intelligence

• Virtual Data Rooms

Examples of KPO Outsourcing

Many of the leading investment banks, private equity firms and hedge

fund businesses now source equity research on a range of corporates

within different industry sectors from providers based largely in India.

This has included:

Quantitative modelling and valuation of companies based on quarterly

and annual filings

Detailed risk analytics to support business strategy formulation and

decision making

KPO is beginning to reach beyond simple analytics with firms starting to outsource higher value Knowledge-based

activity. Increasing margins is a driver but so is overall growth in M&A activity in the industry during 2011, which we see

continuing in 2012*.

Key:




Some large investment banks are increasing their use of external

counsel for initial drafting of contracts both for service provider

contracts and for client transactions. This practice enables firms to

reduce the number of permanently employed lawyers.

Large banks are also starting to move legal functions to near shore

locations as a way of reducing the cost of providing legal services to

the wider organisation

* Financial services M&A to drive growth in 2012,

www.investmenteurope.net, 15 Nov 2011

http://www.investmenteurope.net/


Future Trends in KPO in Financial Services

Continuing consolidation in the KPO space as niche providers are subsumed within

larger, better funded companies

Broadening of capabilities by KPO firms as they seek to off-set income loss within

the core client base of investment banks

Blurring of the boundaries between BPO and KPO service providers as BPO looks to

develop more complex, higher margin services to complete with traditional KPO

providers

Focus on ensuring KPO providers are able to meet the increasingly stringent

standards imposed by regulators on all banks when using third parties to deliver

services

KPO increasingly used to supplement existing capacity and capability, rather than to

migrate the activity in its entirety to a third party provider as with BPO and ITO


5. How: Sourcing Maturity &

Service Management


FS Sourcing Strategies

Clients are increasingly discussing how the advantages of industrialisation will help with increasing regulatory constraints

and compressed margins

Both ITO and BPO are increasing in the Transformational Outsourcing and Commercialisation stages of the maturity model. To

support “speed to market” companies are turning to multi-sourcing and an enterprise-wide Business Services Strategy

but caution is essential in managing these arrangements as they require:

- Capability/functions and strong relationships with the Sourcing function

- Consistent alignment with business drivers and the sourcing portfolio

- Increased commercial competencies than were required for core service management

- Empowering sourcing teams to optimise execution and attune commercial agreements to the best competitive advantage

Our last report highlighted

different models of outsourcing

and offshoring across the

spectrum of service providers

depending on the maturity of the

services and their internal

capabilities

Increasingly the models are

maturing to meet the changing

needs of business to rapidly go

to market with new products and

service

Customer-centric strategies are

now aligning with sourcing

models to ensure business are

more competitive and to support

gains in market share

Looking across the spectrum of Financial Services reveals different banks demonstrate different operating models for

the delivery of their support functions


Senior Executive’s rate sourcing success Why goals are not fully met

• Inadequate management capability to oversee large, potentially

complex multi-sourcing arrangements

• Lack of integration between the business strategy and tendency

to select service providers on price

• Transition activities over-run and affect the service delivered or

impact on achieving the strategic goals. 43% of projects fail to

deliver on time and 33% exceed the budget

• Performance monitoring along with supply and demand

management does not track or address the most appropriate

key performance metrics for the organisation

• Transparency and control of sourcing decisions are not

prioritised

Increase the likelihood of achieving strategic goals

• Ensure the stages of the sourcing strategy (vision, operating model, delivery options, selection, negotiation, transition, transformation) aligns to

the strategic goals

• Refresh the sourcing strategy to ensure the business strategy remains aligned and improve the competitive position

• A number of sourcing scenarios may be required to obtain the best service value

Improving the Chances of Achieving Strategic Goals

Sources: Gartner 2012, Elix-IRR analysis

Only a third of organisations achieve 80% of their goals for their sourcing strategies. This provides centralised

service management functions an opportunity to drive out further efficiencies

48%

24% 28%

• Satisfaction is not

solely attributed to

cost reductions

• Service quality and

relationship

management are key

aspects

• The success ratio of

projects continues to

fall short of strategic

goals

Somewhat

successful

Successful Outstanding

success

Through developing a robust Service Management Framework it is possible to significantly

improve the success rate of achieving a particular sourcing strategy


The Importance of Service Management V

alu

e

Sourcing Maturity

Sourcing 1.0

Sourcing 2.0

Sourcing 2.5

Sourcing 3.0

Cost

Service

Management

Commercialisation

Industry

Utilities /

Joint Ventures

More strategic focus on value creation

The trend towards service management frameworks and skill professionalisation is at the heart of business forecasting for new

products, services and market strategies. This allows companies to negotiate better sourcing deals, prepare strategic suppliers in

advance for rapid ‘go to market’ delivery and also to achieve enterprise-wide economies by leveraging the supply chain across

the back office

Service

Integration

Tactical Strategic

For companies to move beyond achieving pure cost efficiencies from their sourcing operating models, it is essential

they establish a robust service management framework to manage client/supplier relationships and the delivery of

quality service

Historic reason to outsource

Sourcing 1.5

Sourcing

Maturity Step

Change


Evolving framework for Service Management

The growing recognition of the value of Service Management in assisting organisations to achieve their objectives is

reflected in the range of activities which Service Management is required to touch

xxx

Service Planning

• Control and compliance

• Produces and maintains management

reporting including KPI / SLA

performance reports

• Risk Management

• Operations Control

• Conducts satisfaction surveys

Management and Support

• Strategic planning & direction

• Enterprise & Solution architecture

• Principles & Mission statement

• SLA structure & principles

• Owns governance structure, org

design, roles & responsibilities

• Owns ‘Service Catalogue’

• Governs requests for new services

Supplier Relationship Management

• Owns contractual relationships

• Engages suppliers when new services are needed

• Manages suppliers in a consistent manner

• Controls “supply” part of “demand & supply” equation

End-to-end Service Management

• Agrees Service Levels with Clients and Run the Bank Service Delivery

• Brokers the “demand” from clients

• Uses relevant Management Information to review and refine services

• Focal point of end-to-end service provision to Clients

• Manages “demand & supply” relationship between Clients

(demand) and Service Delivery (supply)

Service Development

• Strategy translation and integration

• Approval processes of new business

opportunities

• Communication

Service Delivery

• Manages service delivery on the

ground

• Gateways and ‘hand-over’

processes to Business As Usual

team

Management Framework – this is ‘the best of the best’ from what Elix-IRR sees in the market

• Overall interface between the support functions and the rest of the organisation including ‘Clients’ in the Corporate Centre and Business Divisions

and Suppliers outside of FS Institutions. It describes definitions, components and capabilities of the overall Framework

5

6

1

2 3

4

6. Supplier Relationship Management

1. S

erv

ice P

lannin

g

2. Service

Development 3. Service Delivery

5. End-to-end Service Management 4. M

anagem

ent a

nd

Support

FS Institutions incorporated into

this assessment include:


Strategic relationship with Clients

empower Service Managers

Greater responsibility and accountability

facilitates linking rewards to performance

Motivated Service Managers continually

seek ways to improve service

Enhanced motivation for Service Managers

further reinforces the Service Management

mindset

Faster decision making process

Successful organisations have 6 key Building Blocks of the Service Management Framework, where the existence of

all 6 increases the chance of achieving the sourcing vision, goals and strategy.

Building Blocks Description Benefits

Service Manager:

Single Point of Contact

A Service Management layer is created, within

which Service Managers act as a single point of

contact for their client

Their main responsibilities include:

‒ Establish Strategic partnership with their

Client(s)

‒ Ensure high levels of service and assist in

offering tailored solutions

‒ Challenge Client demands and requirements

‒ Review performance metrics to ensure

agreed service standards are met

‒ Address issues of Client dissatisfaction

Contractual Mechanics

Contractual mechanics are the contractual

tools/ documents which enable the organisation

to formalise agreed Service standard levels and

to allow for a robust performance measurement

reporting process

Examples of contractual mechanics include:

‒ Master Service Agreement (MSA) – a high

level agreement between Client and service

provider

‒ Service Schedule – sub-agreements within

an MSA containing more specific service

requirements

‒ Service Level Agreements (SLAs) – detailed

service measures, e.g. time, quality,

customer satisfaction, cost, volume, etc

‒ Service Catalogue – Master document

which records a comprehensive list of all

services being offered to the Client

Ability to monitor compliance to SLAs

and measure performance

Faster identification and resolution of

areas not meeting agreed service

levels

Embedded culture of regular service

levels and contract review to ensure

relevancy

Consistency of service delivery can

assist the business to focus on

attaining its objectives

Benefits of a Service Management Framework

1

2



Central Service

Management Office

A distinct Central Service Management Office

(CSMO) function, inclusive of a Service

Management Office Lead, is responsible for the

overall governance of the Service Management

Framework within an organisation.

Responsibilities of the Central SMO include:

‒ Supporting service management forums

‒ Oversight on alignment of the Service

Management Framework

‒ Providing guidance and direction

‒ Provide depository for maintaining

overarching contractual mechanics

documentation

Responsibilities of the Central SMO Lead

include:

‒ Delivering the rollout of the service

management Framework

‒ Providing guidance and direction to Service

Managers

Central coordination and alignment of

the Service Management Framework

Ensures consistency in approach

Greater efficiency by leveraging

economies of scale

Governance

A well-defined Governance structure is required

with clear reporting lines

Centrally coordinated regular service forums

encourage open discussion of service and cost

metrics as well as strategic implications

Open clear communication leading to a

more proactive relationship

Regular forum highlights issues and risks

in a timely fashion

Visibility on potential conflict and issues for

escalation and prioritisation

Benefits of a Service Management Framework (cont.)

3

4



Central Software Tools

A centrally-run integrated reporting &

performance software tool can help to monitor

and track service performance

Fully automated dashboard provides greater

visibility and consolidation of service reporting

Document vault acts as central depository house

and provides document management system

Automatic alert and email notification when

service level agreements are not met

Real time and up-to-date comprehensive

management information

Ease of use and drill down functionality

Facilitates comparison of service level

RAG status between locations or

business areas

Benefits of a Service Management Framework (cont.)

6

This Service Management assessment included the

following FS institutions:

Performance Reporting

Regular and robust performance reporting

processes

Service metrics are reported and highlighted in

dashboards to management

A Central dashboard will roll up the RAG status

and key performance metrics from each area to

Exco or other senior management tiers as

appropriate

Consistency in reporting methodology

across the organisation

Instil mindset and routine of regularly

measuring and monitoring service levels

5


Obtaining Buy-in

Challenge Response (from Elix-IRR survey)

Service Transition • Payment milestones are an effective way to communicate the need to deliver on transition;

business dependencies and enablers associated with transition are important context

• Key staged, measures of success are essential rather than a final date of transition

Retained Organisation

& Governance

• Retain middle or senior executive oversight of the project to assist the strategic project focus

• Avoid the temptation to make the retained structure a clerical function to oversee contractual

performance. Increasingly complex contractual arrangements will require senior management

involvement in order to intervene prior to performance failure.

Capacity

• Create a rolling 12-month forward look of business and customer change to assist in planning

and understanding business and technology embargoes and critical business events (AGMs,

etc)

• Ensuring the skills and capabilities are available to support an agile and responsible service

Metrics, Measures

& Reporting

• Agree transparency on key measures and metrics to ensure the relationship is successful.

Buying scalability, agility and supporting rapid Go To Market launches needs to be continually

tested and proven and enshrined as contractual obligations in the form of performance

standards documented as service level agreements and key performance indicators

• Sharing ‘horizon plans’ for change with third parties helps them prepare for change

Non-performance

• Ensuring that informal and formal routes are known and agreed for non-performance including

remedies such as step-in rights and service credits

• Clerical/administrative support functions need to be empowered by the business areas or the

business areas support remediation

Transformation

& Innovation

• Third parties focus on Transformation and Innovation to enhance the commercial

attractiveness of their engagement. Ensure that appropriate attention is given to the core

services when periods of Transformation and Innovation are in place with specific metrics.

• Provide a contractual framework for sharing any benefits which arise from these activities

• Engage the business areas in the design phase and collaborate on the Run the Bank model

• Regular communication to senior stakeholders is necessary for on-going sponsorship

• Engagement and involvement in governance to support prioritisation discussions

• Communicate financial and non-financial business benefits and customer-centric benefits

Embedding the change – Typical Challenges

Typical challenges exist when embedding the Framework, which need to be resolved for maximum impact.


Service Management Framework – Real Examples

Bank Approach Rationale Implications

1

Global Expense Management function manages demand and supply relationship by providing a cost reduction focussed interface between business and procurement incl. a cost analytics capability. Some functions have effectively centralised service management, e.g. Infrastructure

Vendor management is still largely devolved into the relevant functions leading to regional and business unit fragmentation and not well co-ordinated except for a small set of major global suppliers who receive particular focus (e.g. IBM, SAP)

2 Have pushed to centralise as much of the management framework as possible and consolidate operations between different banking divisions although centralisation has not been able to align service and supplier management sufficiently

Economies of scale through reducing the cost involved in the management framework. Risks the loss of compliance in regional departments as the framework is withdrawn from these areas.

3

Centralised the overall management of spend and supplier performance by category to improve negotiation with suppliers and improve the value of management information on spend.

Greater consistency in the management of vendors and improved purchasing leverage based on better management information. Domestic Retail Country X and Corporate Investment Banking are still like different banks with inconsistent consolidation plans.

4 A centrally controlled management framework to ensure shared but common strategy and initiatives across the whole group, combined with an ability to align strategy with service and vendor management more easily.

Centralising support services should maximise economies of scale and reduces costs but risks failures in customer service as specialised regional service capabilities are lost.

5

Close alignment between Group Shared Services function (Service and Supplier Management) and centralised strategic functions address unclear interfaces between business and support functions across the Group, but consistent framework not yet in place.

Implementation of a Group wide Service Management Framework without a consistent Vendor Management Framework risks shortfall on Service delivery objectives promised to Business.

6 Moving away from a ‘find/ get/ keep’ arrangement for sourcing to a unified strategic sourcing and procurement function and a stronger management framework for engaging and managing suppliers under a single executive

With the old set up there were separate owners for strategic sourcing, procurement and management so communication of sourcing strategy between the departments was difficult

7

Centralised management of supplier performance by category. Standardised approach to supplier selection, negotiation and management. Close collaboration with the business areas for supply and demand trends. Professionalised and defined the competencies and skills by role

Consolidated view of supplier performance and consistent approach to service management via robust framework. Business areas retain final decision on supplier and budgets, potentially compromising Group level economies of scale.

8

Centralised the management of supplier selection, negotiation and performance across the Group. Actively seeks to consolidate existing supplier arrangements by analysis of Group spend by category. Dedicated business relationship managers assigned for service management reporting and supply and demand forecasting.

Able to achieve economies of scale inter-company via the extension, consolidation or management of new contracts. This realises significant savings for the Group as part of wider transformation objectives.

9

Strategic unit oversees the direction, Group-wide architectural decisions on sourcing strategies and engagement with business areas for supply and demand insight. Separate function executes the servicing supplier management framework and governance on performance metrics.

Alignment of the strategic and operational functions would aid business planning and oversight of supplier management metrics to objectives and obtain a comprehensive view of risk on delivery of services to the business.

FS Institutions incorporated into

this assessment include:

Elix-IRR see many banks beginning to create a co-ordinated and centralised service management framework.


Market Analysis: Lessons Learned

• Many banks are undertaking a similar journey towards building a powerful and effective

Service Management Framework that can leverage best practice across their legal

entities as they look to reduce their cost base and to improve quality of service

• Many banks use a similar approach to create a common Framework across functions,

but with various degrees of success in fully implementing these models

• Potential reasons for such difficulties are due to components of the Service

Management Framework not being appropriately addressed or unclear interfaces

between the layers

• Organisations commonly face the challenge of balancing strategies of industrialisation

and rationalisation across their organisations with the requirement for focussed product

and/ or Client specialisation

• A strong Service Management Framework is key if a bank is to effectively deliver its

sourcing strategy and operating model


6. Where: Global Trends from 2011, Africa

Update & the Growth in Near

Shore during 2012


• North America had fewer mega-deals coming to the market in 2011, yet there was expansion of existing outsourcing deals

• EMEA continued to grow in BPO and ITO and the BNP Paribas joint venture with IBM matured further to cover data centres

• IBM lost prime position in North America and Asia Pacific regions although their niche market acquisition strategy continued

• Deutsche Bank and Barclays have focused on Manila for offshoring their Accounting hubs

• As the cost base rises for Indian service providers, they are looking to South Africa for comparable alternatives. The South

Africa government have deployed incentive schemes to make the destination a viable alternative. Gartner is predicting that

South Africa will generate some 40,000 outsourcing related roles by 2014

Global Trends

North America:

Significant

number of mega-

deal renewals,

extensions and

expansions

Eastern Europe & Ireland:

Contact centres, procurement

and F&A for Europe and Middle

Eastern markets

South America (Brazil & Chile):

Application development and

maintenance for North America

Philippines:

Manila has come a

significant Accounting hub

for banks

China:

Application development

and maintenance, data

processing for global

businesses India:

Delivery models

diversify to include

nearshore capabilities

Egypt and Morocco:

Regional unrest

highlighted in location

selections

South Africa, Mauritius and Ghana:

Further developments in BPO domains

and acquisition of niche vendors by

global service providers

Established centres

Emerging centres

There is increasing political pressure to ensure sourcing strategies consider near-shoring to

bolster local economies and address unemployment statistics, especially in the UK and USA


South African corporates are acutely aware of the benefits available as the region continues to emerge as a key

sourcing destination for both local and global vendors. Acquisition of South African processing and niche

technology providers have increased in the last year and provide vendors with an ideal gateway to develop into the

rest of Africa.

Africa Update

At least two of the region’s ‘big 4’

banks are actively reviewing their

sourcing strategies

New banking businesses and

franchises are opening across the

continent with proven, rapid start-

up models

Commercial Banks

Significant acquisitions by global

vendors are expanding their niche

services in BPO and KPO

offerings

Vendors such as AirTel utilise

global relationships with IBM and

Tech Mahindra to build capability

in new destinations such as South

Africa

Vendors

The government offers a wide range

of incentive schemes to encourage

the growth of new enterprises and

the creation of sustainable

employment

ABSA and other global companies

have been investing in skills in the

region

Skills

The South African Department of

Trade & Industry have created an

incentive programme for any

company bringing sustainable

employment to the region, making

cost of operations for vendors

comparable with Indian destinations

Incentives

South Africa


Africa is a growing centre for outsourcing

• Africa is and will remain one of the

world’s fastest-growing regions

• According to The Economist, six of

the world’s ten fastest-growing

economies from 2000-2010 were

in sub-Saharan Africa

• Over the next 20 years, Standard

Chartered forecasts that Africa’s

economy will grow at an average

annual rate of 7%, which is slightly

faster than China’s expected

growth rate

• Countries in Africa are positioning

themselves on the global

outsourcing map and are

increasingly becoming competitive

destinations for both BPO and ITO

services

• Several multinationals have been

investing in Africa to service the

local and regional markets as well

as leveraging it as a global

delivery hub

• Northern Africa has already seen

many outsourcing successes with

Morocco, Tunisia and Algeria

serving French-language support

requirements

• Ghana, Kenya and Mauritius are

emerging as attractive locations

for regional delivery – indeed

Accenture has a well-established

call centre and IT delivery centre

business in Mauritius due to

attractive tax and labour legislation

• Governments and the private

sector have made important

progress in improving broadband

connectivity and reducing prices.

The fibre optic SEACOM subsea

cable went live in 2009, and since

then we have seen a dramatic

reduction in connectivity costs

• Technology parks have been

developed (and are planned) to

promote the growth of the

Outsourcing industry in Africa

• Investments from MNC’s as well

as continued demand for local

and regional service delivery

from them will be very important

to any country which wants to

succeed as an outsourcing

destination

• Government support is essential

to enable Africa to succeed as

an outsourcing location. The

Ghanaian and Kenyan

governments are promoting the

outsourcing industry through tax

breaks and infrastructure

development

• Governments must become

users of outsourcing services,

increasing credibility and creating

demand essential for continued

growth in the industry

• On-going investments by global

outsourcers in the region to

develop the infrastructure,

connectivity and skills base

Context Opportunity Next steps

In Northern and Sub-Saharan Africa the market continues to grow. Accompanied by supportive government policy-

making we see the macro-economic environment continuing to be favourable to growth in outsourcing activity.


Examples of Acquisitions and Investment in Africa

Acquisition

Tech Mahindra completed their

acquisition of Satyam Computer

Services Limited in March 2012

Services

BPO, ITO, service desks, software

centres and products

Rationale

The merger resulted in the creation of

a new offshore services provider for

Tech Mahindra with approximately

US$2.4bn in revenues, a 75,000+

strong work force and 350+ active

clients (including Fortune Global 500

companies), across 54 countries

The move allows a diversification in

the delivery model for Tech Mahindra

Acquisition

WNS announced the acquisition of

Fusion Outsourcing Services in June

2012

Services

Customer care, contact centre BPO

services and business continuity

Rationale

Based on Fusion’s existing book of

business, the acquisition is expected

to contribute incremental revenue of

$9 million - $10 million for WNS in

fiscal 2013. WNS expects the

transaction to be neutral to adjusted

earnings per share in fiscal 2013, and

accretive in fiscal 2014

Acquisition

HCL Axon announced a strategic

partnership with UCS Group and a take

over of the UCS Group’s Enterprise

Solutions SAP practice

Services

UCS’ SAP practice offers Tier 1 retail and

wholesale SAP project implementations

Rationale

This partnership will allow UCS Group to

grow its annuity services business

internationally besides expanding HCL

Axon’s market presence in South Africa

The acquisition will also boost HCL

AXON's existing enterprise-software

capabilities and deepen the company's

market presence, especially in the retail

sector, in South Africa

Global vendors continue with the acquisition strategies of niche companies to extend their specialist services.

Indian vendors such as Wipro have implemented an Africa Strategy to diversify their delivery models, extend

their capabilities and take advantage of government incentive schemes to manage their cost base

Source: Press releases


Examples of Acquisitions and Investment in Africa

Source: Press releases

Services

Created new facilities, offices, training,

staffing and recruitment, sales and

marketing capabilities

Rationale

IBM continues to expand its

operations across Africa as part of an

increased presence in key growth

markets

Recent opening of offices in Mauritius,

Tanzania, Senegal and Angola

Established business hubs in South

Africa, Kenya, Nigeria and Egypt

IBM's increased presence is part of a

broad program of investment the

company is making across Africa

IBM is now present in more than 20

African countries

Acquisition

IBM announced the signing of 5

strategic agreements in the Kenyan

Financial Services sector in December

2011

Services

IBM will provide technology services

to five Kenyan banks to support their

rapid growth and to help them launch

new services such as mobile and

internet banking

Rationale

According to IBM, Africa's financial

services sector is currently worth over

$100 billion and will continue to grow

at double digit percentages through

2020, outpacing Africa's gross

domestic product growth

IBM have been particularly active in the African acquisition market.


Growing Importance of Near Shore

• On-going economic pressures

mean offshoring and outsourcing

remain key levers for most major

corporates in trying to reduce their

cost base

• Local political pressure intensifying

against sending jobs offshore

• Many of the typical offshore

destinations continuing to

experience double-digit rates of

inflation

• Banks have embraced near

shoring sourcing strategies as an

alternative to traditional off shore

destinations such as India

• Legislation and incentives to

locate jobs onshore

• Cultural alignment and language

skills

• Time zone and proximity to clients

• Increasing levels of data protection

making it more onerous to be able

to move data to different legal

jurisdictions

• Improved levels of staff and

knowledge retention

• Wage inflation, high attrition and

productivity differentials

• Citibank has developed near

shore operations and IT centres

in Florida for its US business and

in Northern Ireland for its

European/UK business

• Deutsche Bank has built

customer service operations for

its Capital Markets clients in

Birmingham in the UK and

Jacksonville, Florida in the

United States

• UK retail banks are developing

near shore customer contact

centres

Context Drivers for near shore Examples

The rise of Near Shore is set against a policy background in the major economies which is looking to redress perceived

employment imbalances and ‘bring jobs home’. The global regulatory environment also requires data protection across

borders which is more easily achieved closer to home.


Key Factors to Consider When Selecting an

Offshore or Nearshore Location

Anti-Outsourcing Rhetoric

• Political rhetoric and tone in US/Western Europe is increasingly levelled

against firms looking to outsource/offshore operations

Legislation

• Rhetoric is beginning to be matched in some locations by legislative action to

penalise firms that move jobs offshore

Language Skills/Cultural Factors

• While this is less of a challenge for English language skills, Western

European countries have found language skills scarcer and often of lower

quality

Staff Retention

• Failure to retain staff can be very expensive. The BPO attrition rate is 55% in

India and 30% in China, compared to 20% in the UK. This can cost between

25-40% of the average annual salary of the lost resource

Location & Time Zone

• Working in a common time zone can yield significant value for businesses

So

cia

l F

ac

tors

Labour Costs

• Wage inflation remains low in Western Europe and America at around 2-3%

compared to 11-13% in India

Real Estate Costs

• Rapidly increasing in tier 1 offshore locations. Recession and property bust in

US and Europe means tier 2 locations onshore are increasingly attractive.

Productivity Loss

• Our experience with our clients shows that offshoring operations can cost a

company between 20% to 60% in the first 1-3 years depending on the quality of

resources at the offshore location

Hidden Costs

• Transition costs such as training, recruiting and on-going management costs

can contribute to around 10-15% of the cost of an outsourcing deal

Ec

on

om

ic F

ac

tors

P

oliti

ca

l F

ac

tors

Examples Key Factors

• The US have devised punitive measures to dissuade

companies from offshoring. The ‘Call Center Worker and

Consumer Protection Act’, if passed, will make

companies who offshore call centres ineligible for any

indirect federal loans or loan guarantees for five years.

The legislation would also require overseas call centre

employees to reveal their location to U.S. consumers and

give them the right to be transferred to a call-centre in the

US.

• Recent studies show that office space prices have

reduced considerably in regional UK cities such as

Birmingham, Manchester, Newcastle, Belfast and

Cardiff. Currently, the average serviced office rents

(per person) is at £125 per person per month in

Birmingham and £82 in Manchester, down from 2011

highs of £159 and £96 per person per month (around

20 per cent) respectively.

• Such trends are also true for US cities like

Jacksonville, Raleigh, Detroit and Atlanta where office

space is both plentiful and cheap compared to Tier 1

cities in low cost emerging markets

• When Citibank relocated some IT development and

support from London to Belfast in Northern Ireland, they

found at critical moments in projects or during severe

incidents it was very simple for management from London

to go on-site and be more hands-on during those periods

• Deutsche Bank benefitted from relocating its capital

markets client services operations from London to

Birmingham – with ability to retain several key

management staff which significantly reduced the risk of

knowledge loss and reduced time to transfer


7. Who: Major Outsourcing Deals


Top 15 Global FS Deals by value in 2011

#3

#6

#14

#13

#10 #11

#2

#4

#5

#9

#12

#7

#8

Source: IDC, Press Releases

Large mega outsourcing deals in Asia Pacific, specifically

in Australia, were not prevalent in the last 12 months,

compared to the year before that, signalling the effect of

the economic downturn finally reaching the region. None of

the Top 15 deals we made in this region in 2011

#9

#15

BNP Paribas and IBM extended their joint

venture for $4.07bn

Of the top global 15 deals, 1 was from Africa

by Old Mutual for a $315m ITO contract to T-

Systems

In the top 15 deals, EMEA featured two BPO

deals (RBS and Scottish Widows) and 4 ITO

deals

Colour Key:

Areas of High Outsourcing Deal

Activity (both ITO and BPO)

Capital One

$1.7Bn

La Caixa

$1.36Bn

Blue Cross & Blue

Shield of Rhode

Island

$1.2Bn

CIBC

$850m

RBS

$665m

PIMCO

$600m

Deutsche Bank

$502m

Allianz

$489m

Blue Shield of

California

$400m

Bank of

Montreal

$397m

National Bank

of Canada

$342m

ING U.S. (USFS)

$330m

Old Mutual

South Africa

$316m

The Hartford

$310m

Scottish Widows

$310m

In North America, with the exception of Capital One and

ING, the trend continued for most deals to be undertaken by

Canadian banks and mid-tier US banks

The PIMCO deal (#7) with State Street represents one of the

largest investment management operations outsourcing

deals in the industry

#1 BNP Paribas

$4.07bn

There have been major shifts in deal activity from 2010:

• Significant number of renewals and mega-deal extensions in North America

• Evidence the economic downturn impacted Asia Pacific region after strong outsourcing trends of 2010


Regional Analysis of Global Top Ten FS Deals in 2011

North America continues to demonstrate its importance in driving global outsourcing deal values .

• This year, the Top 3 EMEA deals only make up 66% of

total value of Top 3 North American deals, in

comparison to last year when they were more than

double the value of the Top 3 North American deals.

The value for Top 10 EMEA deals has reduced

significantly by 46% from $8.5 billion in 2011 to $4.6

billion.

• The value of the Top 10 North American deals has

grown by 33% from $4.8 billion in 2011 to $6.4 billion

• In North America, 3 of the Top 10 deals were by the

Blue Cross Blue Shield Association, a federation made

up of health insurance organisations

• In North America, 3 of the Top 10 deals were carried

out by Canadian banks

• TSYS was awarded the largest deal in North America

at $1.7 billion by Capital One, and the second largest

deal in EMEA by RBS

• There are no deals this year over $500 million in value

in Asia Pacific as result of the lack of mega deals

taking place in Australia. This trend continues from the

previous year.

Source: IDC

Aug 2011 – July 2012

1.3

4.6

6.4

0.8

2.5

3.8

7

6

5

4

3

2

1

$0

Total Value of Top 3 Deals

Total Value of Top 10 Deals

To

tal

Dea

l V

alu

e (

$ b

illi

on

)

Geographic Region

Value of Top Ten Deals by Region

North America

EMEA

Asia Pacific


7. Who: Regional Analysis for 2011


Rank Company Service

Provider

Total

Contract

Value

Domain Description

#1

$1.7Bn BPO

• The company originally signed a 5-year contract with

Capital One in 2005, with processing beginning in 2006

and 2007 after its then 49 million card portfolio was

converted to the TSYS system

• TSYS will now continue to process Capital One's

consumer and small business credit cards in North

America until Sept. 30, 2017

#2

$1.2Bn BPO

Under the terms of the agreement, Catamaran (formerly

SXC Health Solutions Corp.) will provide a full suite of

PBM services, including claims adjudication, pharmacy

network management, clinical programs and mail

SXC's services will begin January 1, 2013, and will support

approximately 450,000 BCBSRI members with an annual

drug spend of approximately US$400 million per year

#3

$850m ITO

Information regarding the scope of the extended contract is

very limited - under CIBC’s previous contract with them,

HP supported the bank's enterprise infrastructure,

including Internet banking, branch tellers, point-of-sale,

wire payments, fraud detection systems and CIBC's

automated banking machines – this is believed to continue

HP was also responsible for data center and network

infrastructure management, host (mainframe and HP Non-

Stop systems) and midrange transaction processing,

application services, operating systems, storage and

desktop messaging

Top Ten FS Outsourcing Deals in North America




Provider

Total

Contract

Value

Domain Description

#4

$600m BPO

State Street Corporation will provide an array of investment

manager operations outsourcing services for $1.3 trillion in

assets

This represents a renewal of one of the first and largest

investment manager operations outsourcing relationships of its

kind in the industry

Over the last decade, State Street has provided services

including custody, accounting, valuation services, trade

processing, collateral management, pricing, derivatives

processing and IT development

#5

$400m ITO

HP and BSC have a relationship spanning more than 43 years

HP will continue to provide technology infrastructure &

applications, applications development & management

services and connect existing centres of excellence with

software professionals across Blue Shield projects

#6

$397m BPO

Aon Hewitt will continue to provide a comprehensive suite of

HR and benefits administration services including payroll,

workforce administration, health and welfare administration,

recruitment services, and compensation administration among

many others

As part of the new agreement, Aon Hewitt will add a variety of

new services as well, further expanding the solution suite for

the Bank of Montreal

Aon Hewitt will implement its newest technology and solutions

#7

$342m ITO

For 11 years, CGI has provided the National Bank of Canada

with application development and support services

National Bank will continue to benefit from the expertise of CGI

and its professionals in maintaining and developing its banking

information systems





Provider

Total

Contract

Value

Domain Description

#8

$330m BPO

Under the terms of the new agreement, Cognizant will hire

more than 1,000 ING U.S. employees in Minot, North Dakota

and Des Moines, Iowa to create a world-class, U.S.-based

centre of excellence for insurance and finance business

process services

ING have said that leveraging Cognizant's expertise will help

them to operate more efficiently, while delivering the high levels

of support their customers and distribution partners have come

to expect

#9

$310m BPO

Accenture will provide The Hartford with management and

technology consulting as well as finance and accounting (F&A)

business process outsourcing (BPO) services. According to the

agreements, Accenture will help The Hartford to:

Simplify and standardise processes and tools across the

finance department;

Identify appropriate investments in technologies to

increase speed to market;

Improve process consistency and reduce cost;

Streamline the finance organisation to empower leaders

and remove redundant oversight;

Increase the speed of decision-making

#10

$250m ITO

The agreement includes ownership, management and support

of a variety of technology systems and functions, including

mainframes, servers, desktop PCs, telephone systems,

networks and technology security

This agreement is expected to provide BCBSNC with business

flexibility and significant operational cost savings, as well as

offer professional development opportunities for BCBSNC

employees in affected business areas




7. Who: EMEA Analysis for 2011



Provider

Total

Contract

Value

Domain Description

#1

$4.07bn ITO

IBM extended is Joint Venture with BNP Paribas at the end

of 2011

BNP Paribas S.A. provides a range of banking and

financial services worldwide and is headquartered in Paris

The BNP Paribas Partners for Innovation (BP2I) joint

venture agreement was established in 2003. It was further

extended in 2004 with data processing operations.

BNP Paribas exercises significant influence over BP21,

which is owned on a 50/50 basis with IBM

BP21 is staffed essentially with BNP Paribas employees

and its offices and data centres are owned by the Group.

#2

$1.36bn ITO

Spanish savings bank la Caixa and IBM established a 10-

year strategic services relationship

As part of the agreement, IBM will help “Serveis

Informatics la Caixa” manage the infrastructure technology

budget of la Caixa of more than € 2 billion over 10 years

The IBM-provided scope is about 50% of this budget (€1Bn

over 10 years) the remainder is directed to additional

service providers

The new strategic alliance is expected to save la Caixa

€400m over the term of the agreement

IBM has been the privileged technology partner of la Caixa

for 50 years

Top Ten FS Outsourcing Deals in EMEA




Provider

Total

Contract

Value

Domain Description

#3

$665m BPO

TSYS has been awarded a long-term payment extension

by RBS Group, the estimated value of which is £420m

over 13 years

TS2, TSYS’ outsourced payments processing solution, has

been used by RBS since 2001

This extension means TSYS will continue to provide

payment processing and related services for RBS' UK and

Irish consumer credit and commercial businesses for 12.5

years and its US consumer credit and commercial

businesses for 13 years

#4

$502m ITO

TCS (Tata Consultancy Services) will deliver a global

application service desk, ITIL (IT Infrastructure Library)

services, besides other software solutions, to the bank at

locations across 7 countries - the United States, United

Kingdom, Germany, Hungary, Philippines, Singapore and

India

TCS will partner with Deutsche Bank to transform to an

ITIL-aligned model, aimed at significantly improving

service delivery through this framework of best practices

The team will leverage the concept of LEAN to eliminate

non-value added activities and provide cost efficiencies to

the bank






Provider

Total

Contract

Value

Domain Description

#5

$316m ITO

Old Mutual and T-Systems in South Africa have agreed an

IT infrastructure management deal valued at R2.58 billion

extending the existing relationship between the two

partners to 2019

Referred to as Equinox, the deal puts a strong focus on

innovation. It will help set up processes to reduce Old

Mutual’s operating costs over the 7-year period and

provide the organisation with a platform for innovation that

supports its Long-Term Savings (LTS) strategy

The partnership will accelerate Old Mutual’s ability to

deliver on its commitment to improving customer service,

and increasing IT operational efficiency

#6

$310m BPO

State Street will serve as the preferred single provider of

middle office, custody, fund accounting, depositary,

securities lending and investment administration services

for Scottish Widows and SWIP

The consolidated portfolios include investment accounting

for more than £200 billion of assets and the services

currently supported by other providers will migrate to State

Street during the next 18 months. The deal will help Lloyds

Banking Group positively address the many changes

taking place in the industry, such as Solvency II

#7

$275m ITO

HCL Technologies has been awarded a large outsourcing

contract by Union Bank of Switzerland (UBS). IDC

estimates the deal to be US$275 million over 5 years

HCL Technologies will deploy about 1,000 professionals to

handle this project who will be located across the globe

including India. The company is setting up an offshore

delivery center (ODC) in Bangalore for UBS, operational

from April 1, 2012




Provider

Total

Contract

Value

Domain Description

#8

$250m ITO

HCL Technologies Ltd will provide Applications Support

transformation services to Deutsche Bank AG Markets arm

The service factory delivery model implemented by HCL is

expected to significantly enhance productivity, driven by

transparent Service Level Agreements (SLAs) and performance

metrics, and comes as Deutsche Bank endeavours to move away

from a traditional applications support model to a set of unique

process driven services governed by global standards like

Information Technology Infrastructure Library (ITIL) and LEAN

The transformational program, which will result in significant

vendor consolidation, involves the management of key banking

applications that are the backbone to Deutsche Bank's critical

businesses.

#9

$240m BPO

Serco Group Plc has been awarded a 10-year contract by Aegon N.V

to provide customer contact and services. The deal is worth £150

million over 10 years

The agreement is expected to see Serco deliver a wide range of life

and pensions services for AEGON. These include managing all

aspects of the customer journey from initial underwriting through to

claims management for the AEGON Individual Protection (AIP) suite,

which comprises a full portfolio of life assurance, critical illness,

disability and income protection products

#10

$200m ITO

IBM will assume responsibility for the development and support of

Ukrsotsbank's information systems and applications, as well as

the management of the bank's IT infrastructure

By tapping into IBM's vast cumulative knowledge, Ukrsotsbank

plans to improve customer service, increase performance

efficiency and lower operational risk across its country-wide

network of nearly 400 branches, as well as help the bank achieve

significant operational savings




7. Who: Asia Pacific Analysis for 2011


Top Ten FS Outsourcing Deals in Asia Pacific


Provider

Total

Contract

Value

Domain Description

#1

$308m ITO

Reliance Communications has been awarded a 15 year outsourcing

contract by HDFC Bank for building and managing a data centre

The project is the largest-ever outsourced in this sector

Reliance will be establishing the facility in different stages. During

the first phase of the data centre, it will get ready in one year and

the entire project is scheduled to be completed in two years time

#2

$236m ITO

Currently, CSC provides Australian insurance firm AMP with fully

outsourced managed infrastructure services for mainframe,

network, desktop, service desk, cloud email service and

information/system security

CSC’s services will enable AMP to maximise efficiencies from the

integration of all infrastructure services across the new AMP/AXA

entity. CSC will continue to deliver advanced and consistent

services across all AMP business units, and work has already

begun on the technology integration

#3

$223m BPO

WNS is to provide end-to-end insurance outsourcing. The deal is

worth A$220 million over a period of 5 to 7 years

Suncorp will set up a A$300-400 million onshore facility in Australia

in addition to offshoring 2,000 jobs to India through the end-to-end

insurance outsourcing with WNS and F&A outsourcing with

Genpact.

#4

$120m ITO

ANZ will consolidate 40 outsourcing deals and transfer 360 staff to

Capgemini under a new managed services agreement for IT testing

and environment management

ANZ needed Capgemini to “support change for approximately 800

applications and more than 280 projects at a pace that we cannot

achieve alone”

As part of ANZ’s 2017 technology roadmap, they have said that

they need to continue to access increasingly scarce IT skills






Provider

Total

Contract

Value

Domain Description

#5

$84m ITO

Under the new agreement, which expands on an agreement first

signed in 2000, IBM will deploy new technologies to improve

customer service and sustainability, and upgrade existing systems

IBM will provide a range of advanced technologies which,

together with the existing environment, will create additional

synergies, flexibility and choice for users

The deal provides the upgrade path for Westpac's workplace

environment, ensuring the latest technology is deployed and there

is a migration path to the latest operating systems

#6

$81m BPO

The other part of the previously listed Suncorp BPO outsourcing

deal this year offers an $81m contract for Genpact to outsource

finance and accounting services to India

TPI served as adviser during the bidding process. Accenture,

ExlService, and Infosys Ltd. also bid on the deals

#7

$80m ITO

The bank's aim is to ensure it understands more about the reason

a customer is calling and then be able to have the call answered

by the most suitably skilled customer service representatives

Gen-i (Telecom Corporation of New Zealand) said that the high

volume customer service solutions require IT systems that are

both exceptionally reliable and able to cope with surges in

demand. The platform handles over 100 million calls per annum,

with high levels of self service, and it intelligently routes calls to

over 1,500 agent representatives




Provider

Total

Contract

Value

Domain Description

#8

$74m ITO

BT is helping CLSA to flex its communication and IT requirements

by implementing an innovative, global utility based pricing model

for BT's networked IT services and the deployment of BT Unified

Trading for trading communications

The project includes a strong professional services component

aimed at managed security & firewall services, application

optimisation, device management and a 24/7 maintenance and

support team

#9

$28m ITO

Dah Sing Bank has appointed Atos Information Technology HK

Limited as its new data centre services provider

It won this deal over a major global competitor, thought to be IBM

Dah Sing Bank said that this new service partnership will enhance

its ability to provide quality services to its customers, beginning

close to the end of 2012

#10

$27m ITO

IBM Global Services has been awarded a contract by

Manappuram General Finance & Leasing Limited to transform its

IT systems in support of its growth plan

They will build and manage the entire IT infrastructure for

Manappuram Finance and deliver application transformation

benefits through implementation of leading business solutions in

Finance, Human Resource Management, Business Intelligence

Collaboration tools and Document Management



Regional Summary of Key Trends in the Global

Outsourcing Market

North America

EMEA

Key Trends:

• BPO deals continue to dominate (6 out of top 10 deals )

• 7 out of 10 deals on or nearshore

Analysis:

• Capital One accounted for the most significant deal of the Year renewing their contract with T-SYS for $1.7bn to see

TSYS continue to supply their North American credit cards until 2017.

• The Canadian banking sector has shown strong demand for HP (ITO), AON-Hewitt (BPO) and CGI (ITO) from CIBC,

Bank of Montreal and National Bank of Canada respectively

• A final observation was the strength of demand from healthcare providers mobilising in light of new legislation in the US

Key Trends:

• ITO showing strongest demand (7 out of top 10 deals)

• Likewise banking, where 9 of the 10 deal were for banks. Just one insurance provider was represented (Aegon)

Analysis:

• IBM were the big winner. The top two deals went the way of IBM with combined TCV of $5.43bn

• IBM also appeared two further times in the top ten as large systems integrators performed well (IBM, TATA, HCL)

• Serco’s appearance on the list is notable as the predominantly public sector focused UK group continue to expand into

the private sector following their acquisition of the Listening Company, the London based customer services outsourcer.

Asia - Pacific

Key Trends:

• ITO showing strongest demand (8 out of top 10 deals)

• Australia bringing through demand, despite a reduction in so-called ‘mega-deals’

Analysis:

• Systems Integrators continuing to perform strongly (IBM, CSC, Capgemini, BT, ATOS)

• The fact that the large systems firms are performing well reflects a tendency to continue to prefer suppliers based in the

developed world

• Marking a departure from our previous report we have not observed as much A-PAC to A-PAC activity.

2012 © Elix-IRR Partners LLP

79

Elix-IRR have transformation capability in all areas of financial services support functions. Our experienced staff also

understand the decision making processes and methodologies which sit underneath these functions. We enable

operational excellence and creation of innovative new revenue streams.

COMMENTARY

Elix-IRR have found that

each support function has

a unique set of challenges

which renewed sourcing

arrangements need to

address.

Elix-IRR are experts in the

following key areas of

sourcing considerations :

target operating models,

effective organisational

design, access to

sourcing expertise ,

quality assessments of

best locations, accurate

vendor selection and

shared services design.

For more information on

how we might be able to

support your business

meet the challenges of the

future please contact us

Elix-IRR’s financial services transformation capabilities

in supporting our clients


Contact Us

For further information on the research, please contact any of the following people at Elix-IRR:

• Stephen Newton

Managing Partner

Tel: +44 (0) 207 220 5420

M: +44 (0) 7885 886 290

Email: [email protected]

• Graham Busby

Partner

Tel: +44 (0) 207 220 5421

M: +44 (0) 7968 228 372


Elix-IRR is a Strategic Sourcing Advisory firm that specialises in consulting on all forms of outsourcing, shared services and

operating models. Elix-IRR delivers on large change programmes, focusing on creating demonstrable value to the business.

With deep experience in the buy-side, sell-side, legal and advisory aspects of sourcing initiatives we provide high-impact

services to FTSE 100/ Fortune 500 and middle-market clients across the complex strategic sourcing landscape and guide our

clients in making the right supplier choices. Elix-IRR’s priority is practical delivery, bridging the gap between the theoretical

strategy houses and the transactional focus of traditional sourcing companies.

• Barry Lewis

Partner

Tel: +44 (0) 207 220 5448

M: +44 (0) 7500 121 355


• Anthony Potter

Principal

Tel: +44 (0) 207 220 5424

M: +44 (0) 7748 300 931


mailto:[email protected]













Annex A

Glossary of key abbreviations:

Elix-IRR is a Strategic Sourcing Advisory firm that specialises in consulting on all forms of outsourcing, shared services and

operating models. Elix-IRR delivers on large change programmes, focusing on creating demonstrable value to the business.

With deep experience in the buy-side, sell-side, legal and advisory aspects of sourcing initiatives we provide high-impact

services to FTSE 100/ Fortune 500 and middle-market clients across the complex strategic sourcing landscape and guide our

clients in making the right supplier choices. Elix-IRR’s priority is practical delivery, bridging the gap between the theoretical

strategy houses and the transactional focus of traditional sourcing companies.

ACV Average Contract Value ITO IT Outsourcing

AIFM Alternative Investment Fund Managers KPO Knowledge Process Outsourcing

AIFMD Alternative Investment Fund Managers Directive KYC Know Your Customer

AML Anti-Money Laundering MIFID Markets In Financial Institutes Directive

BAU Business As Usual MNC Multi-National Corporations

BPO Business Process Outsourcing ODC Offshore Delivery Centres

CAGR Compound Annual Growth Rate OTC Over The Counter

CIO Chief Information Officer PRIP Pattern Recognition and Image Processing

EMEA Europe, the Middle East & Africa Q# e.g. Quarter 1, Quarter 2, etc.

EMIR European Market Infrastructure Regulation RIMO Remote Infrastructure Management Outsourcing

FAO Finance & Accounting Outsourcing RoE Return on Equity

FATCA Foreign Account Tax Compliance Act RRP Recovery and Resolution Plan

FS Financial Services SIFIs Systematically Important Financial Institutions

G-SIFIs Global Systematically Important Financial Institutions SMF Service Management Framework

HRO Human Resources Outsourcing TCO Total Cost of Ownership

IMF Investment Fund Manager TCV Total Contract Value

IS Information Systems YoY Year on Year

IT Information Technology

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