First Quarter 2014 Global ISG Outsourcing Index

Hosted by:

Joseph Foresi Janney Capital Markets

10 April 2014

The Global ISG Outsourcing Index

First Quarter 2014

Market Data and Insights

© 2014 Information Services

Group, Inc. All Rights Reserved

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

2

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

Welcome to the 46th Quarterly Outsourcing Index Review

Esteban Herrera Partner

John Keppel Partner & President

Dr. David Howie Partner



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At a Glance BROADER MARKET ACV UP Y/Y

WITH 10 MEGA-RELATIONSHIPS SUPPORTING MARKET GROWTH

ITO ACV UP, DRIVEN BY NEW SCOPE ACV

BPO ACV DECLINED Y/Y ON INCONSISTENT CONTRACT ACTIVITY

AMERICAS ACV IMPROVES MARKEDLY OVER THE PRIOR THREE QUARTERS

EMEA ACV UP MODERATELY Y/Y WITH CONTRACTING ACTIVITY REMAINING HIGH FOR NEW SCOPE AND ITO AWARDS

ASIA PACIFIC ACV UP SIGNIFICANTLY Y/Y AS SEVERAL MAJOR MARKETS, ANZ, INDIA AND SE ASIA, REBOUND FROM A DIFFICULT 2013

Scorecard 1Q14 1Q Y/Y 1Q Q/Q 1Q14 1Q Y/Y 1Q Q/Q

ACV ($B)* Change Change Counts Change Change

Global Market $ 5.7 14% 24% 321 11% 6%

New Scope $ 3.6 41% 23% 211 8% 3%

Restructurings $ 2.1 -15% 24% 110 20% 11%

Mega-Relationships $ 1.6 18% 229% 10 25% 233%

ITO $ 4.3 29% 16% 229 21% 1%

BPO $ 1.4 -16% 53% 92 -7% 19%

Americas $ 1.9 -16% 32% 113 -7% 0%

EMEA $ 2.9 29% 10% 165 21% 1%

Asia Pacific $ 0.9 89% 69% 43 43% 59%



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Broader Market ACV is up Y/Y with increases in both volume and size of awards supporting growth. The award count in the trailing 12 months is at an all-time high.

Broader Market ACV ($B)* and Counts

Broader Market Trailing 12 Months

Broader Market Contract Award Trends

$5.7 $4.6

$5.7

$3.6

$5.0 $5.2 $5.6 $6.2 $6.0

321 303 349

210

288 274 252 285

328

1Q144Q3Q2Q1Q134Q3Q2Q1Q12

ACV Counts

$19.7 $22.0 $23.3 $21.2 $22.6

1,183 1,099 1,173 1,094 1,009

2Q13 - 1Q142Q12 - 2Q132Q11 - 1Q122Q10 - 1Q112Q09 - 1Q10

ACV Counts



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10 3 9 6 8 7 9 12 7

22 18 20 16 14 22 19 23 24

289 282 320

188

266 245 224

250 297

178 164

187

113

147 135

105

148

172

1Q144Q3Q2Q1Q134Q3Q2Q1Q12

$1.6 $1.4 $1.0

$1.2 $0.7

$1.5

$1.8 $2.0 $2.4

$1.1 $0.9

$1.1

1Q144Q3Q2Q1Q134Q3Q2Q1Q12

The 10 awards this quarter in the largest ACV band are one of the best results in two years. Counts in lowest ACV band ($5M-$9M) are up 20% from a year ago.

Broader Market Contract Trends by Deal Size

Comparing Broader Market Contracting Awards ($B)* Grouping in ACV Contract Size Bands

ACV($B)* Contract Counts

$10-39M $40-99M $100M+ $5-9M



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New Scope ACV is up in 1Q14 on increasing contract activity. In the last 12 months, the number of Restructuring awards is up 24% over the prior 12-month period.

New Scope ACV ($B)* Trailing 12 Months

New Scope and Restructuring Contract Award Trends

New Scope ACV ($B)* Counts

Restructuring ACV ($B)* Trailing 12 Months Restructuring ACV ($B)* and Counts

$12.5 $14.3 $14.2 $15.3 $16.3

809 797 888 836 791

2Q13 -1Q14

2Q12 -2Q13

2Q11 -1Q12

2Q10 -1Q11

2Q09 -1Q10

ACV Counts

$7.2 $7.7 $9.1

$5.9 $6.3

374

302 285 258

218

2Q13 -1Q14

2Q12 -2Q13

2Q11 -1Q12

2Q10 -1Q11

2Q09 -1Q10

ACV Counts

$3.6 $3.0 $3.2

$2.7 $2.6

$3.5 $3.7 $4.5

$3.5

211 204 235

159

196 188 193 220

240

1Q144Q3Q2Q1Q134Q3Q2Q1Q12

ACV Counts

$2.1 $1.7

$2.5

$0.9

$2.4

$1.7 $1.8 $1.7

$2.5

110 99

114

51

92 86

59 65

88

1Q144Q3Q2Q1Q134Q3Q2Q1Q12

ACV Counts



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ITO ACV is up 29% Y/Y on substantial New Scope ACV. In the last 12 months, the number of contracts is up 15% over the prior 12-month period.

ITO Trailing 12 Months

ITO Contract Award Trends

ITO ACV ($B)* and Contract Counts

$4.3 $3.7 $4.3 $2.3

$3.4 $3.4 $3.7 $3.5 $4.1

229 226 245

127

189 194 162 173

209

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ACV Counts

ITO Domain Details ACV ($B)*

$1.30

$0.56

$0.70

$1.76

$0.0 $0.5 $1.0 $1.5 $2.0

ADM

Network Services

ADM + Infrastructure

Infrastructure

Avg of 8 Prior Qtrs 1Q14

ITO New vs. Restructuring ACV ($B)*

$14.6 $13.9 $16.3 $15.9 $16.7

827 718 744 701 668

2Q13 -1Q14

2Q12 -2Q13

2Q11 -1Q12

2Q10 -1Q11

2Q09 -1Q10

ACV Counts

$2.33

$1.37

$2.81

$1.50

$0.0

$0.5

$1.0

$1.5

$2.0

$2.5

$3.0

New Scope Restructuring

Range of Prior 8 Qtrs Avg of 8 Prior Qtrs 4Q13 1Q14



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BPO ACV and number of awards are up Q/Q, 53% and 19% respectively, yet the trailing 12 months compares show a significant decline over the prior like period.

BPO Trailing 12 Months

BPO Contract Award Trends

BPO ACV ($B)* and Contract Counts

BPO Domain Details ACV ($B)*

$0.27

$0.14

$0.17

$0.01

$0.02

$0.35

$0.26

$0.08

$0.08

$0.03

$0.0 $0.1 $0.2 $0.3 $0.4 $0.5

Multi-Process

Contact Centers

F&A

Procurement

HRO

Facilities Mgmt

Industry-Specific

R&D/KPO

Document Mgmt

Supply Chain Mgmt


BPO New vs. Restructuring ACV ($B)*

$0.62

$0.30

$0.84 $0.57

$0.0

$0.5

$1.0

$1.5

$2.0

$2.5



$1.4

$0.9

$1.4 $1.3 $1.7 $1.8 $1.9

$2.7

$1.9

92 77

104

83 99

80 90

112 119

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ACV Counts

$5.1

$8.1 $7.0

$5.4 $6.0

356 381 429

393 341

2Q13 -1Q14

2Q12 -2Q13

2Q11 -1Q12

2Q10 -1Q11

2Q09 -1Q10

ACV Counts



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Accenture Atos

Capgemini Cognizant

HCL IBM

Infosys TCS

Wipro Xerox

Minacs Aon Hewitt

Atento Capita

CB Richard Ellis Garda World

Genpact Interserve ISS Global Xchanging

BT Carillion

CSC Dell

EVRY HP

iGATE Orange

Tech Mahindra T-Systems

ITO Only

The leading providers in both ITO and BPO have remained fairly consistent in recent years.

Top 20 Commercial Providers by Scope - Trailing 12 Months

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

BPO Only

Leaders in both ITO and BPO



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Americas ACV, while down Y/Y, is at its highest point in four quarters. The trailing 12 months ACV is down 24%, yet the number of awards is down only slightly.

Americas Trailing 12 Months

Americas Contract Award Trends

$6.2 $8.2 $8.9

$7.9 $9.1

433 450

538

439 445

2Q13 -1Q14

2Q12 -2Q13

2Q11 -1Q12

2Q10 -1Q11

2Q09 -1Q10

ACV Counts

Americas Quarterly ACV ($B)* and Counts

$1.9 $1.4

$1.7 $1.1

$2.3 $1.9 $1.9 $2.1

$2.9

113 113 137

70

122 111 106 111

167

1Q144Q3Q2Q1Q134Q3Q2Q1Q12

ACV Counts

Americas ITO vs. BPO ACV ($B)*

$1.10

$0.34

$1.01 $0.90

$0.0

$0.5

$1.0

$1.5

$2.0

$2.5

ITO BPO


Americas New vs. Restructuring ACV ($B)*

$0.90 $0.54

$0.92 $0.99

$0.0

$0.5

$1.0

$1.5

$2.0





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$0.13

$0.04 $0.01 $0.02

$0.00

$0.05

$0.10

$0.15

$0.20

$0.25

$0.30

Canada Brazil OtherLatAm

Mexico


U.S. results rebounded in 1Q14 and were up over the eight-quarter average. Financial Services ACV is up substantially, driven by large contract awards.

Americas Contract Award Trends Detail

Americas Sub-regions ACV ($B)*

$0.45

$0.64

$0.12

$0.14

$0.09

$0.21

$0.08

$0.17

$- $0.2 $0.4 $0.6 $0.8

Manufacturing

Financial Services

Telecom & Media

Energy

Travel, Transport,Leisure

Business Services

Healthcare & Pharma

Retail


Americas Industries ACV ($B)*

$1.71

$-

$0.5

$1.0

$1.5

$2.0

$2.5

$3.0

U.S.



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EMEA ACV was up 29% Y/Y on continued high contracting activity, up 21% Y/Y. The positive quarterly results are driven by New Scope awards and ITO strength.

EMEA Trailing 12 Months

EMEA Contract Award Trends

EMEA Quarterly ACV ($B)* and Counts

EMEA ITO vs. BPO ACV ($B)* EMEA New vs. Restructuring ACV ($B)*

$1.56

$1.11

$2.23

$0.71

$0.0

$0.5

$1.0

$1.5

$2.0

$2.5

$3.0



$2.15

$0.51

$2.49

$0.46

$0.0

$0.5

$1.0

$1.5

$2.0

$2.5

$3.0

ITO BPO


$2.9 $2.7

$3.5

$2.0 $2.3 $2.8 $2.9 $2.7 $2.6

165 163 174

109

136 132 108

125 135

1Q144Q3Q2Q1Q134Q3Q2Q1Q12

ACV Counts

$11.1 $10.7 $12.4

$10.8 $11.1

611

501 522 521 438

2Q13 -1Q14

2Q12 -2Q13

2Q11 -1Q12

2Q10 -1Q11

2Q09 -1Q10

ACV Counts



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The U.K. and Nordics built on their consistent performances. French ACV is up significantly due to large contract awards.

$1.28

$0.33

$0.42

$0.15 $0.06

$0.63

$0.05 $0.04

$-

$0.2

$0.4

$0.6

$0.8

$1.0

$1.2

$1.4

$1.6

U.K. &Ireland

DACH Nordics Benelux SouthernEurope

France Africa &Middle

East

E. Europe& Russia


EMEA Contract Award Trends Detail

EMEA Sub-regions ACV ($B)* EMEA Industries ACV ($B)*

$0.41

$0.53

$0.56

$0.19

$0.79

$0.27

$0.08

$0.10

$- $0.2 $0.4 $0.6 $0.8 $1.0

Manufacturing

Financial Services

Telecom & Media

Energy


Business Services

Healthcare & Pharma

Retail




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Asia Pacific ACV was up significantly Y/Y on the highest contracting activity in two years. The ACV of the largest AP ITO awards were up significantly Y/Y and Q/Q.

Asia Pacific Trailing 12 Months

Asia Pacific Contract Award Trends

$2.4

$3.1

$1.9 $2.5 $2.5

139 148

113 134 126

2Q13 -1Q14

2Q12 -2Q13

2Q11 -1Q12

2Q10 -1Q11

2Q09 -1Q10

ACV Counts

Asia Pacific Quarterly ACV ($B)* and Counts

$0.9

$0.5 $0.5 $0.5 $0.5 $0.6 $0.8

$1.4

$0.5

43

27

38 31 30 31

38

49

26

1Q144Q3Q2Q1Q134Q3Q2Q1Q12

ACV Counts

Asia Pacific ITO vs. BPO ACV ($B)*

$0.45

$0.07

$0.81

$0.06 $0.0

$0.2

$0.4

$0.6

$0.8

$1.0

ITO BPO


Asia Pacific New vs. Restructuring ACV ($B)*

$0.50

$0.02

$0.50 $0.37

$0.0

$0.2

$0.4

$0.6

$0.8

$1.0

$1.2

$1.4





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$0.23

$0.31

$0.12

$0.05

$0.15

$0.01

$-

$0.1

$0.2

$0.3

$0.4

$0.5

$0.6

$0.7

$0.8

$0.9

$1.0

India andSouth Asia

ANZ GreaterChina

Japan South EastAsia

South Korea


Several of Asia Pacific’s major markets, ANZ, India and SE Asia, rebounded from 4Q13. 1Q14 ACV awards in Telecom and Manufacturing are up significantly.

Asia Pacific Contract Award Trends Detail

Asia Pacific Sub-regions ACV ($B)* Asia Pacific Industries ACV ($B)*

$0.28

$0.12

$0.27

$0.01

$0.17

$0.00

$0.01

$0.01

$- $0.1 $0.2 $0.3

Manufacturing

Financial Services

Telecom & Media

Energy


Business Services

Healthcare & Pharma

Retail




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Asia Pacific EMEA Americas

Half of the Top 20 Providers in each region lead across all three major markets.

Top 20 Commercial Providers by Region - Trailing 12 Months

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

Global

Multi-Region

Single Region

Accenture Accenture Accenture

Capgemini Capgemini Capgemini

Cognizant Cognizant Cognizant

CSC CSC CSC

HCL HCL HCL

HP HP HP

IBM IBM IBM

Infosys Infosys Infosys

TCS TCS TCS

Tech Mahindra Tech Mahindra Tech Mahindra

iGATE iGATE

Wipro Wipro

Allscripts Atos Amdocs

Atento BT ChinaSoft

CB Richard Ellis Capita Fujitsu

Dell Carillion Hollysys

Garda World EVRY Lufthansa Systems

ISS Global Orange Optus

Minacs Quindell Pactera

Xerox Tieto Redknee

T-Systems Telstra



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For the past 12-month total, Public Sector ACV represents 64% of global awards, outpacing the Commercial sector, with larger average contract size in comparison.

Public Sector Trailing 12 Months Counts

Global Public Sector Award Trends

1,183 1,099 1,173 1,094 1,009

1,066 956 874 849

704

2Q13 -1Q14

2Q12 -2Q13

2Q11 -1Q12

2Q10 -1Q11

2Q09 -1Q10

Commercial Sector Public Sector

Public Sector Trailing 12 Months ACV ($B)*

Public Sector ITO vs. BPO TTM ACV ($B)* Public Sector ACV Percentage of All Contracts

64% 55%

51% 56%

49%

2Q13 -1Q14

2Q12 -2Q13

2Q11 -1Q12

2Q10 -1Q11

2Q09 -1Q10

$19.7

$35.1

$27.1 $24.4

$27.4

$21.6

2Q13 -1Q14

2Q12 -2Q13

2Q11 -1Q12

2Q10 -1Q11

2Q09 -1Q10

Commercial Sector Public Sector

$28.1

$20.3 $17.6

$20.3 $16.5

$7.1 $6.8 $6.8 $7.1 $5.1

2Q13 -1Q14

2Q12 -2Q13

2Q11 -1Q12

2Q10 -1Q11

2Q09 -1Q10

Public Sector ITO ACV Public Sector BPO ACV



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The U.S. and U.K. Public Sectors have ACV market shares that far outpace other markets. U.S.-based providers are market leaders, regardless of geography.

Share of Public Sector ACV for Trailing 12 Months Top 10 Providers by Major Region

Global Public Sector Award Trends by Region

ITO vs. BPO ACV for Trailing 12 Months

61%

23%

8% 7%

US & Canada U.K. ContinentalEurope

Australia

U.S. & Canada CACI CGI CSC

General Dynamics Harris Corp.

HP Lockheed Martin

Mantech Northrop Grumman

SAIC

Australia Accenture

CSC Data 3 Fujitsu

HP IBM

Optus Serco Telstra Unisys

U.K. Atos BT

Capgemini Capita

CGI CSC

Fujitsu HP

IBM Serco

Europe Accenture

Atos BT

Capgemini Fujitsu

HP IBM

Indra T-Systems

Tieto

72% 39%

89% 67%

28% 61%

11% 33%

US & Canada UK ContinentalEurope

Australia

ITO BPO

Other = 2%

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

Special Topic for First Quarter 2014

Esteban Herrera Partner



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A Look at the Growth in the U.S. Healthcare Market The U.S., which has the largest Healthcare market globally, is experiencing dynamic change along with a shift in the mix between Commercial and Public Sector sourcing.

2002-04

Since 2011

57% U.S Market Share

that’s $6.7 billion in contracting

Global Public and Commercial Healthcare Market Activity

nearly Doubled from 10 years ago

U.S. Federal Healthcare Market

Activity Surges (U.S. $B)

$2.56

$1.55

$1.29

$1.33

$2.86

$3.10

Since 2011

2008-2010

U.S. Federal U.S. State and Local U.S. Commercial



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U.S. Healthcare Change – There’s big work to be done Seismic shifts in the U.S. Healthcare industry are creating compliance and efficiency challenges, triggering unprecedented Commercial and Public sector spending.

A complete transformation of the business model

► From B2B to B2C

► Population and wellness-management solutions (big data)

► Bundled payments require formation of ACOs

Affordable Care Act

Competition drives effectiveness and efficiency

► Project work shifts spend from staff augmentation to managed services

► M&A activity by both payers and providers to handle administrative burden

► Blurred lines between payer and provider may drive vertical integration S $ $ $

Provider Competition

Uncertainty

ICD10 Implementation uncertainty around new claims coding protocol

► Industry effectively caught “half-pregnant” without many choices

► Claims processing efficiency and effectiveness under threat

http://mascola.com/insights/wp-content/uploads/2013/10/Healthcare.jpg



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Broader Market ACV turned positive with larger deals driving growth

New Scope awards support positive results in the IT market, while the BPO market trends remain uneven

Europe continues to generate consistent ACV results, and contracting activity remains high

Large ITO awards helped support Asia Pacific ACV growth as contracting activity rebounded from a softer 2013

Americas had its best quarterly ACV result since 1Q13

The U.S. Healthcare market (both public and commercial sector) is undergoing significant change, with a heightened focus on cost control, making it an ideal market for stepped-up sourcing activity

We expect first-half 2014 ACV growth in excess of 15%

We expect full-year 2014 ACV growth to reach high single-digits over a weak 2013. The industry pipeline is showing good activity levels

Number of contracts should continue to grow at a larger magnitude than ACV as many second-generation contracts get renewed in multi-sourced environments

1Q14 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 Partner and President, ISG +44 (0)7879 432 212 [email protected]

► Will Thoretz Leader, Marketing & Communications, ISG +1 203 517 3119 [email protected]

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

www.isg-one.com

http://www.isg-one.com/

http://www.isg-one.com/connect/

First Quarter 2014



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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.

First Quarter TCV Scorecard

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

Scorecard 1Q14 1Q Y/Y 1Q Q/Q

TCV ($B)* Change Change

Global Market $ 24.9 25% 18%

New Scope $ 16.1 12% 50%

Restructurings $ 8.8 57% -16%

Mega-deals $ 3.2 17% -37%

ITO $ 17.7 26% 37%

BPO $ 7.3 22% -13%

Americas $ 8.3 51% -12%

EMEA $ 12.5 0% 29%

Asia Pacific $ 4.1 110% 102%

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