2Q13 ISG Outsourcing Index

Hosted by:

Ashwin Shirvaikar, Citi

11 July 2013

The Global ISG Outsourcing Index

Second Quarter and First Half 2013

Market Data and Insights

© 2013 Information Services

Group, Inc. All Rights Reserved

isg-one.com

*Contracts with ACV ≥ $5M from the ISG Contracts Knowledgebase®

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Covering the state of the outsourcing industry for global, commercial contracts.*

Welcome to the 43rd Quarterly Outsourcing Index Review

Esteban Herrera Partner

John Keppel Partner & President

Dr. David Howie Partner



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At a Glance

2Q13 2Q Y/Y 2Q Q/Q 1H13 1H Y/Y

Scorecard ACV ($B)* Change Change ACV ($B)* Change

Global Market $ 3.6 -40% -27% $ 8.5 -27%

New Scope $ 2.6 -42% 0% $ 5.2 -34%

Restructurings $ 1.0 -34% -57% $ 3.3 -13%

Mega-relationships $ 0.7 -70% -52% $ 2.0 -32%

ITO $ 2.3 -34% -26% $ 5.3 -27%

BPO $ 1.3 -48% -28% $ 3.2 -27%

Americas $ 1.2 -40% -42% $ 3.3 -29%

EMEA $ 2.0 -23% -16% $ 4.3 -15%

Asia Pacific $ 0.4 -71% -13% $ 0.9 -53%



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ACV of $3.6B this quarter was down 40% Y/Y and 27% Q/Q. Half-year performance of $8.5B in awards was down 24% from a year ago and 27% sequentially.

Quarterly Broader Market*

Half-Year Broader Market Counts

Broader Market Contract Award Trends

$3.6

$4.9 $6.0

$4.4 $5.6

208

279 267 249 243

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ACV ($B) Counts

487 570 602 504 472 364 298 295 261 297

526

243

1,096

540 502

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1H Counts 2H Counts Avg of 5 Prior 1Hs

Half-Year Broader Market ACV ($B)*

$8.5 $11.5 $9.7 $11.9 $9.6 $9.6 $7.6 $8.5 $8.2 $8.4

$11.2

$7.4

$22.7

$15.8

$10.5

201312111009080706052004

1H ACV 2H ACV Avg of 5 Prior 1Hs



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5 8 8 9 12 6 12 6 4 4

17 13 23 20 23 23 18 21 13 23

186

258 244 222 232

274 269 245

232

326

2Q131Q4Q3Q2Q121Q4Q3Q2Q111Q11

Mega-relationships, deals with ACV awards $100M +, were down 70% Y/Y and 52% Q/Q, while the smallest band band had the largest drop in number of contracts and ACV awarded from 1Q13.

Broader Market ACV(B)* by Bands

Broader Market Contract Trends for the Largest Deals

Boarder Market Counts by Bands

$5-39M $40-99M $100M + $5-39M $40-99M $100M +

$0.7 $1.4 $1.2

$1.7 $2.2

$0.8

$2.3 $1.7

$0.9 $0.6

$1.0 $0.7 $1.4 $1.2 $1.3 $1.4 $1.1 $1.3

$0.7 $1.3

$1.9 $2.9 $2.9 $2.8 $2.5

$3.4 $3.1 $2.7 $2.8 $3.5

2Q131Q4Q3Q2Q121Q4Q3Q2Q111Q11



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New Scope was down 42% Y/Y and flat Q/Q. Restructurings were down 34% Y/Y and 57% Q/Q.

Quarterly New Scope vs. Restructuring ACV ($B)*

Half-Year Restructuring ACV ($B)*

Broader Market New Scope & Restructuring Trends

$2.6 $2.6

$4.5

$3.1

$4.7

$1.0

$2.3 $1.5 $1.3

$0.9

2Q131Q4Q3Q2Q121Q4Q3Q2Q111Q4Q3Q2Q10

New Scope Restructuring

$3.3 $3.8 $2.6 $3.4 $2.2 $2.2 $1.5 $3.5

$1.9 $1.4

$2.6

$2.7

$2.8

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Half-Year New Scope ACV ($B)*

$5.2 $7.7 $7.1 $8.6 $7.4 $7.4 $6.1 $5.0 $6.3 $7.0

$7.4 $4.9

$3.6 $2.4 $2.5

$1.6 $1.5

$2.5 $2.1 $7.6

201312111009080706052004




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ITO 2Q ACV of $2.3B was down 34% Y/Y and 26% Q/Q. The number of ITO contracts awarded dropped 24% Y/Y and 27% Q/Q.

ITO Quarterly ACV ($B)*

ITO Half-Year Industry ACV ($B)*

ITO Contract Award Trends

ITO Half-Year ACV ($B)*

$5.3 $7.2 $6.2

$9.2 $6.8 $6.5 $5.7 $6.3 $6.0 $4.8

$7.5

$5.3

$14.7

$10.1

$7.2

201312111009080706052004

1H ACV 2H ACV Avg of Prior 1Hs

$1.15

$1.21

$0.30

$0.90

$0.84

$0.29

$0.46

$0.17

$- $0.5 $1.0 $1.5 $2.0

Manufacturing

Financial Services

Telecom & Media

Energy

Travel, Transport, Leisure

Business Services

Healthcare & Pharma

Retail

Avg of Prior 5 1Hs 1H13

$2.3 $3.0 $3.4 $2.7 $4.4

126

172 165 152 159

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ACV Counts



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Emerging cloud solutions are changing service provider and client behavior, and therefore contracting scale, especially in IT services outsourcing.

Cloud Solutions’ Impact on ITO Contracting

23% 20%

9%

1%

1

3 ISG Provider Survey:

Provider Pipeline Opportunities

with Cloud Component

11% 9% 7%

1%

Percentage of ISG-Advised

Contracts with Cloud Component

Percentage of All ITO Broader

Market Contract Awards* with a Cloud Component 2

2009 2012

2013

85%

2009 2012

CRM

IT Service Mgt ADM



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The top service providers in the ITO sector based on 1H13 ACV awarded

Top ITO Service Providers Across the Globe

Note: Service providers in alphabetical order; no rankings implied. Placements based on ACV from commercial contract awards sourced from ISG Contracts Knowledgebase ®.

Accenture*

Atos

Capgemini*

CGI*

Dell

HCL*

IBM*

Infosys*

Nihon Unisys

Polaris Software

TCS

T-Systems*

Virtusa

Wipro

Xerox*

Accenture*

AT&T

BT

Capgemini*

CGI*

Evry

Gen-I

HCL*

HP

IBM*

Infosys*

NTT Data

Tieto

T-Systems*

Xerox*

New Scope ITO Awards in 1H13

Restructuring ITO Awards in 1H13

* Present in both New and Restructuring lists



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BPO 2Q ACV of $1.3B was down 48% Y/Y and 28% Q/Q. First-half ACV of $3.3B was off 27% Y/Y, but nearly reached the average of the five prior half years.

BPO Quarterly ACV ($B)*

BPO Half-Year Industry ACV ($B)*

BPO Contract Award Trends

BPO Half-Year ACV ($B)*

$1.3 $1.8 $2.5

$1.6 $1.2

82

107 102 97 84

2Q131Q4Q3Q2Q121Q4Q3Q2Q111Q4Q3Q2Q10

ACV Counts

$0.44

$0.72

$0.98

$0.17

$0.14

$0.29

$0.31

$0.10

$- $0.20 $0.40 $0.60 $0.80 $1.00

Manufacturing

Financial Services

Telecom & Media

Healthcare & Pharma

Business Services

Energy

Travel, Transport, Leisure

Retail

Avg of Prior 5 1Hs 1H13

$3.2 $4.3

$3.5 $2.8 $2.8 $3.1

$2.0 $2.2 $2.2 $3.6

$3.7

$3.6

$2.2 $3.1 $2.8

$2.9 $2.1 $3.1

$2.2

$8.0

$5.8

$3.3

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1H ACV 2H ACV (B) Avg of Prior 1Hs



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Active Contract Counts

Annualized Revenue ($B)

The Broader Market, ACV > $5M, accounts for just over 90% of outstanding BPO value, leaving contracts with ACV of $2–5M with about a 10% share. However, over the last five years, BPO growth has been strong across both contract bands.

An Expanded Look: BPO Active Contracts with ACV > $2M

Share of Annualized Revenue

ACV Band 5 yrs. ago Today Period

Growth

>$2 to $5M 6% 8% 72%

> $5M 94% 92% 33%

$24.1

$32.0 $1.6

$2.7

5 Years Ago Today

ACV > $5M ACV > $2M to $5M

1,086 1,876

537

1,045

5 Years Ago Today

ACV > $5M ACV > $2M to $5MShare of

Contract Numbers

ACV Band 5 yrs. ago Today Period

Growth

>$2 to $5M 33% 36% 95%

> $5M 67% 64% 73%



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454 440

1,041

184 534

HRO Contact Center Industry Specific Procurement F&A

Note: Service providers in alphabetical order; no rankings implied. Placements based on ACV from commercial contract awards sourced from ISG Contracts Knowledgebase ®.

Accenture Aditya Birla Minacs Accenture Accenture Accenture

ADP Convergys Alliance Data Systems Capgemini Capgemini

Aon Hewitt ExlService Capita ExlService ExlService

Capita Genpact CSC Genpact Genpact

Ceridian IBM Dell IBM IBM

CGI SITEL First Data Infosys Infosys

Fidelity TCS FIS Procurian TCS

Futurestep TeleTech Fiserv TCS Wipro

Genpact Vertex HCL Wipro WNS

IBM Xerox TCS Xchanging Xerox

NorthgateArinso Xerox

TCS

Top Service Providers in the BPO Market: ACV > $2M

↑9.9%

↓ 2.1% ↑ 2.2% ↓ 0.2% ↓ 3.7%

12-Month Growth Rate of Active BPO Contracts

Percentage of Market Share by Provider Types

64% 58% 49% 27%

4% 18% 21% 35%

55%

32% 23% 30% 38% 45%

HRO Contact Center Industry-specific Procurement F&A

India-heritage Western-heritage Function-specific



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Americas 2Q ACV of $1.2B was down 40% Y/Y and 42% Q/Q. Half-year ACV of $3.3B was down 16% from a year ago and 19% sequentially.

Americas Quarterly ACV ($B)*

Half-Year New vs. Restructured ACV ($B)*

Americas Contract Award Trends

$1.2 $2.1 $2.0 $1.7

$2.8

70

116 104

116

82

107

2Q131Q4Q3Q2Q121Q4Q3Q2Q111Q4Q3Q2Q10

ACV Counts

$2.4 $2.3 $2.0

$1.3

$-

$1

$2

$3

$4

$5

New Scope Restructuring

Range of 5 Prior 1Hs Avg of 5 Prior 1Hs 1H12 1H13

Half-Year ACV ($B)*

$3.3 $4.7 $3.8

$5.8 $4.3

$3.0 $3.1 $4.6 $3.7 $4.4

$3.8 $2.7

$8.5 $7.1

$4.3

201312111009080706052004

1H ACV 2H ACV Avg of Prior 1Hs



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$0.32

$0.24

$0.07

$0.01

$0.13

$0.07

$0.16

$0.11

$-

$0.05

$0.10

$0.15

$0.20

$0.25

$0.30

$0.35

$0.40

$0.45

$0.50

Canada Brazil OtherLatAm

Mexico

5 Prior Period Range 5 Prior Period Avg 1H12 1H13

$4.04

$2.86

$0

$1

$2

$3

$4

$5

$6

US

The U.S. contributed most to the Americas ACV drop. Half-year U.S. ACV of $2.9B was down 29% Y/Y. ACV for industry segment leader Manufacturing was off considerably.

Americas Contract Award Trends Detail

Americas Sub-region Half-Year ACV ($B)* Americas Half-Year Industry ACV ($B)*

$0.5

$0.9

$0.8

$0.3

$0.2

$0.1

$0.2

$0.2

$- $0.5 $1.0 $1.5

Manufacturing

Financial Services

Telecom & Media

Healthcare &Pharma

Business Services

Retail

Energy

Travel, Transport,Leisure

Avg of 5 Prior 1Hs 1H13



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EMEA ACV of almost $2B was down 23% Y/Y and 16% Q/Q. Half-year ACV of $4.2B was down 15% from a year ago and 29% sequentially.

EMEA Quarterly ACV ($B)*


EMEA Contract Award Trends

$1.9 $2.3 $2.5 $2.3 $2.4

109 133

115 105 105

2Q131Q4Q3Q2Q121Q4Q3Q2Q111Q4Q3Q2Q10

ACV Counts

$3.6

$1.4

$2.4 $1.9

$-

$1

$2

$3

$4

$5

New Scope ACV Restructuring ACV


Half-Year ACV ($B)*

$4.2 $5.0 $5.0 $5.5 $4.1

$5.9 $3.3 $2.9 $4.1 $2.9

$6.0

$4.1

$11.0

$7.0

$5.1

201312111009080706052004

1H ACV 2H ACV Avg of Prior 5 1Hs



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DACH ACV fell 24% from the 1H12 and 58% sequentially. Manufacturing and Financial Services industries were down 38% from last year’s first-half results.

EMEA Contract Award Trends Detail

$2.13

$0.81 $0.83

$0.42 $0.30

$0.21 $0.22 $0.09

$1.58

$0.61

$1.03

$0.44

$0.16 $0.18 $0.12 $0.12

$-

$0.50

$1.00

$1.50

$2.00

$2.50

UK &Ireland

DACH Nordics Benelux France SouthernEurope

Africa &Middle

East

E. Europe& Russia

5 Prior 1H Range 5 Prior 1H Avg 1H12 1H13

EMEA Half-Year Sub-region ACV ($B)*

$0.9

$0.9

$0.8

$0.4

$0.7

$0.2

$0.1

$0.2

$- $0.5 $1.0 $1.5

Manufacturing

Financial Services

Energy

Telecom & Media


Business Services

Retail

Healthcare &Pharma


EMEA Half-Year Industry ACV ($B)*



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AP ACV of $410M in 1Q13 was down 71% Y/Y, but only 13% Q/Q. First-half ACV of $880 M was off 53% for 1H12 and 34% from 2H12, on a very tough 2012 compare.

Asia Pacific Quarterly ACV ($B)*


Asia Pacific Contract Award Trends

$0.41 $0.47

$1.39

$0.35 $0.34

29 30

48

28 31

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ACV Counts

$1.77

$0.08

$0.76

$0.12 $0.0

$0.5

$1.0

$1.5

$2.0

New Scope ACV Restructuring ACV


Half-Year ACV ($B)*

$0.88

$1.85 $1.00 $0.67

$1.28 $0.67

$1.16 $0.97 $0.43

$1.08

$1.3

$0.7

$3.19

$1.76

$1.10

201312111009080706052004

1H ACV 2H ACV Avg of Prior 5 1Hs



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Lower large-deal activity impacted regional leaders ANZ and India, which returned ACV results down by 50% and 64% respectively from the last half of 2012.

Asia Pacific Contract Award Trends Detail

Asia Pacific Half-Year Sub-region ACV ($B)* Asia Pacific Half-Year Industry ACV ($B)*

$0.37

$0.93

$0.16 $0.18

$0.21

$0.01

$0.19 $0.17

$0.34

$0.11

$0.06 $0.02

$0.00

$0.10

$0.20

$0.30

$0.40

$0.50

$0.60

$0.70

$0.80

$0.90

$1.00

ANZ India andSouth Asia

Japan ASEAN GreaterChina

South Korea

Prior 5 1H Range Prior 5 1H Avg 1H12 1H13

$0.09

$0.10

$0.12

$0.20

$0.04

$0.18

$0.01

$0.14

$- $0.3 $0.5

Telecom & Media

Financial Services

Manufacturing


Business Services

Energy

Retail

Healthcare &Pharma


Special Topic for Second Quarter 2013

Dr. David Howie Partner



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Impact of Expected Consolidation

Why all this talk of Mergers and Acquisitions? We are hearing increased chatter around potential M&A activity as Service Providers look for new ways to grow.

We’ve Seen It Before

If history holds, 30 – 40% of the current Top-20 providers may exit the market.

50%

Five of the Top-10 Chinese domestic providers we identified just two years ago are no longer active in the market in their prior form.



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Why Acquire ?

Respond to potential U.S. visa reform Look to kick-start BPO growth, particularly for specific capability plays Manage risk through reducing the dependency on flagship clients,

particularly in Financial Services and Healthcare

Examining the Characteristic of Potential M&A Candidates ISG has a unique perspective, informed by our data and market activity, on what might make a service provider a potential target for M&A activity.

Who are the Acquisition Candidates ?

2 Years Prior to Acquisition

Year of Acquisition

We have spotted historical evidence of a correlation between negative New Scope bookings growth, and the likelihood of a firm being taken off the market.

New Logo Bookings of Acquired Providers



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Broader market ACV declines on a shortage of the largest deals

All regions experience 1H weakness in both New Scope and Large Deal ACV, yet Restructurings remain steady

Manufacturing falls across all regions, but several industry segments out-perform their prior-five-year average

ITO awards and ACV continue to struggle, while the number of BPO awards are up for the half

ISG expects an uptick in 2H13 results, led by EMEA, based on pipeline and provider insight information

1H13 BPO ACV weakness does not indicate a turn from BPO’s recent impressive gains, as activity levels remain strong

More volatile AP market makes calling a downward trend there ill-advised, especially given the stellar 2012 results, yet the downward trend bears watching

2Q13 & 1H13 ISG Outsourcing Index Summary and Outlook

summary market

outlook market



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Please contact us with your questions and comments.

Learn More

--- Media Contacts ---

► John Keppel President +44 (0)7879 432 212 [email protected]

► Alex Kozlov Director, ISG +1 617 558 3377 [email protected]

blog.isg-one.com

► Jim Baptiste Matter Communications for ISG +1 978 518 4527 [email protected]

Second Quarter and First Half 2013



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The ISG Outsourcing Index has moved to ACV as the primary measure of the Broader Market. In transition, we will continue to provide a high-level TCV view of the market via a Scorecard analysis.

2Q13 and 1H13 TCV Scorecard

*Contracts with TCV ≥ $25M from the ISG Contracts Knowledgebase®

2Q13 2Q Y/Y 2Q Q/Q 1H13 1H Y/Y

Scorecard TCV ($B)* Change Change TCV ($B)* Change

Global Market $ 18.6 -29% -12% $ 39.7 -22%

New Scope $ 13.9 -30% 30% $ 24.6 -29%

Restructurings $ 4.8 -28% -54% $ 15.1 -4%

Mega-deals $ 2.9 -54% -42% $ 7.9 0%

ITO $ 11.0 -30% -12% $ 23.4 -28%

BPO $ 7.6 -28% -11% $ 16.3 -9%

Americas $ 6.0 -40% -34% $ 15.2 -28%

EMEA $ 10.4 -10% 5% $ 20.2 -11%

Asia Pacific $ 2.2 -53% 6% $ 4.3 -37%

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