Second Quarter 2012, Global TPI Index

Hosted by:

The TPI Index

Joseph Foresi, Janney Montgomery Scott

Second Quarter 2012

July 12, 2012

Global Sourcing Market Data and Insights

© 2012 Information

Services Group, Inc. All Rights Reserved

isg-one.com

*Contracts with TCV > $25M

2

Partner & Chief Marketing Officer, ISG

Partner & President North Europe, ISG

Duncan Aitchison

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

Welcome to the 39th Quarterly Outsourcing Index Call

John Keppel

© 2012 Information


isg-one.com


3

“ At A Glance

“

BROADER MARKET TCV WAS UP Y/Y AND Q/Q

MEGA DEAL STRENGTH HELPED OFFSET WEAKER 2Q ACTIVITY

BPO HAD SOLID GAINS Y/Y AND Q/Q

ASIA-PACIFIC RETURNS AN IMPRESSIVE QUARTER AND HALF YEAR PERFORMANCE, AS EMEA COOLS

YEAR TO DATE, STRONG MEGA DEAL AND ASIA-PACIFIC RESULTS WERE NOT ENOUGH TO OFFSET BROADER MARKET DECLINE

Score Card

2Q12 TCV ($B)

2Q Y/Y Change

2Q Q/Q Change

1H12 TCV ($B)

1H Y/Y Change

Global Market $ 21.4 7% 7% $ 41.4 -8%

Mega Deals $ 6.3 180% 320% $ 7.8 23%

New Scope $ 15.5 9% 34% $ 27.0 -22%

Restructurings $ 5.9 1% -31% $ 14.4 39%

ITO $ 13.1 6% -5% $ 26.8 -6%

BPO $ 8.3 7% 32% $ 14.6 -13%

EMEA $ 8.4 -21% -11% $ 17.8 -24%

Asia-Pacific $ 4.7 181% 162% $ 6.5 44%

Americas $ 8.3 6% -6% $ 17.1 flat

© 2012 Information


isg-one.com


4

$21.4 $20.0 $20.1 $22.1 $22.0 $26.5

$22.7

2Q121Q4Q3Q2Q111Q4Q3Q2Q101Q4Q3Q2Q091Q4Q3Q2Q08

TCV (B) Avg of 4 Prior 2Qs

2Q12 TCV was up 7% Q/Q and Y/Y. Year to date, the TCV was down 8%.

Broader Market Contract Award Trends

Quarterly TCV ($B)*

$41.4 $45.1 $51.1 $42.5 $49.0 $40.7

$57.2 $43.8 $52.9 $42.9 $45.4

201220112010200920082007

1H TCV (B) 2H TCV (B)

Half Year TCV ($B)* Half Year Counts by TCV Bands

96 111 124 115 116 113 99 130 111

20121110092008

TCV $100M+

1H 2H

277

404 286 291

231

366

308 327

250

20121110092008

TCV $25-99M 1H 2H

© 2012 Information


isg-one.com


5

Mega Deal TCV rebounded in 2Q12, driving up Quarterly and Year-to-date Results. 11 Mega Relationships were awarded in 2Q, the best result since 2009.

Broader Market Mega-deals & Mega-relationships Trends

Quarterly Mega-deal TCV ($B)*

Quarterly Mega-relationship ACV ($B)*

$2.1 $0.9

$1.8 $1.5 $0.9 $0.6

$2.2 $1.1

$1.9 $1.8 $1.8 $1.0 $0.7

11

7

11

5 4 4

8 8

12

5

2Q12 1Q12 4Q11 3Q11 2Q11 1Q11 4Q10 3Q10 2Q10 1Q10 4Q09 3Q09 2Q09

ACV (B) Counts

$6.3 $1.5

$8.8 $7.2 $2.3 $4.1

$8.8 $4.5 $2.6

$8.3 $7.1 $6.2

$1.0

5

1

5

1 1

3

5

3

2

5

3

4

1

2Q12 1Q12 4Q11 3Q11 2Q11 1Q11 4Q10 3Q10 2Q10 1Q10 4Q09 3Q09 2Q09

TCV (B) Counts60% + of 2Q Mega Deal activity came from Brazil and India

50% of Mega Relationships in the last five quarters were Restructurings

© 2012 Information


isg-one.com


6

New Scope was up 9% Y/Y and 34% Q/Q. Restructurings were flat Y/Y and down 31% Q/Q. Year to date, New Scope TCV was down 22% as Restructurings climbed 39%.

Broader Market New Scope & Restructuring Trends

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

Half Year New Scope TCV ($B)*

$15.5 $11.5

$14.2 $18.1 $16.8

$5.9 $8.5

$5.8 $3.9

$5.2

2Q121Q4Q3Q2Q111Q4Q3Q2Q101Q4Q3Q2Q09

New Scope Restructured

$27.0 $34.8 $35.4 $33.5 $39.3 $34.4

$34.6 $27.6 $41.4 $31.3 $36.9 $35.5

201220112010200920082007

1H TCV (B) 2H TCV (B) Avg of 5 Prior 1Hs

$14.4 $10.4 $15.7 $9.0 $9.7 $6.3

$22.7 $16.3

$11.5 $11.6 $8.6 $10.2

201220112010200920082007

1H TCV (B) 2H TCV (B) Avg of 5 Prior 1Hs

Half Year Restructuring TCV ($B)*

© 2012 Information


isg-one.com


7

ITO TCV was up 6% Y/Y but down 5% Q/Q. Year to date, TCV was down 6% due to light contracting activity.

ITO Contract Award Trends

Quarterly ITO TCV ($B)*

Half Year TCV ($B)*

$13.1 $13.7 $12.3 $15.8 $16.4 $17.9

$15.6



$26.8 $28.4 $38.9 $29.4 $32.9 $30.0

$40.3 $34.2

$38.6 $26.3 $29.1

201220112010200920082007


Half Year Counts by TCV Bands

169 233

170 186 136

215 192 210

155

20121110092008

TCV $25-99M 1H 2H

65 75 91 85 78

113 99 130 111

20121110092008

TCV $100M+

1H 2H

© 2012 Information


isg-one.com


8

53%

25% 22%

63%

22% 15%

Americas MNCsEMEA and AsiaIndia-heritage

Since 2010 leading ITO service providers have been remarkably consistent, battling for share amongst themselves.

Top Service Providers Remain Consistent in ITO Market

Cognizant HCL

Infosys Mahindra Satyam

TCS Wipro

Note: Service providers in alphabetical order within groups; no rankings implied. Placements based on TCV commercial contract awards sourced from ISG contracts database.

ITO TCV* Market Share Comparison by Provider Type

Atos BT

Capgemini Fujitsu

T-Systems

Accenture AT&T CGI CSC Dell HP

IBM

2007–2009 2010–1H12

↓10%

↑3% ↑7%

© 2012 Information


isg-one.com


9

BPO TCV was up 7% Y/Y and 32% Q/Q. Year to Date, TCV was down 13%, but still performed above the average of recent first halves.

BPO Trends in Contract Awards > $25M in TCV

Quarterly BPO TCV ($B)*

$8.3

$6.3

$7.8

$6.3 $5.6

$8.6 $7.0



Includes $2.5B of Mega Deal TCV

$14.6 $16.7 $12.2 $13.1 $16.1

$10.7

$17.0

$9.6 $14.3

$16.6

$16.3

201220112010200920082007



108

171

116 105 95

215

192 210

155

20121110092008

TCV $25-99M

1H 2H

31 36 33 30 38 33 30 43 43

20121110092008

TCV $100M+

1H 2H

© 2012 Information


isg-one.com


10

Active Contract Counts

Annualized Revenues ($B)

The Broader Market (TCV > $25M) accounts for most of BPO revenue while the growth is taking place in the $10M to $25M TCV segment.

An Expanded Look: BPO Active Contracts with TCV > $10M

36%

64% 70%

91%

95% $20.8

$28.8 $1.1

$2.8

$15

$20

$25

$30

$35

5 Years Ago Today

1,008

1,731 436

976

100

600

1,100

1,600

2,100

2,600

3,100

5 Years Ago Today

TCV Band Current

Revenue Share Revenue Growth

>$10-$25M 9% 148%

> $25M 91% 38%

TCV Band Current

Active Contracts

Active Contracts Growth

>$10-$25M 36% 124%

> $25M 64% 72%

© 2012 Information


isg-one.com


11

65% 63% 61% 31%

11%

14% 2% 18% 27%

47% 52%

21% 35% 21% 42% 42% 48%

FSO HRO Contacts Center Procurement Industry Specific F&ABONY Mellon Accenture Aditya Birla Minacs Accenture Accenture Accenture

Capita ADP Convergys Capgemini Alliance Data Capgemini CGI AonHewitt EXLService EXLService Atos EXLService CSC Capgemini Genpact Genpact Dell Genpact

EXLService Capita IBM Global eProcure EXLService IBM First Data Ceridian Sitel IBM HCL Infosys

FIS Fidelity TCS Infosys IBM TCS Fiserv Genpact Teletech Procurian TCS Wipro

State Street HP Services Vertex TCS WNS WNS TCS IBM Xerox Xchanging Xerox Xerox

Xchanging Logica Xerox NorthgateArinso

Note: Service providers in alphabetical order within functions; no rankings implied. Placements based on active contract counts of commercial contract awards sourced from ISG contracts database.

Top Service Providers in the BPO Market: TCV > $10M

Global MNC India-heritage Function-specific

373 346 306

268 191 128

F&A FSO Contact Center HRO Industry Specific Procurement

↑2.3%

↑17.9%

↑1.1%

↓0.8%

↑2.3% ↑13.1%

Active BPO Contracts by Function with the 12 Month Growth Rate

Function Specific Market Share by Provider Types

© 2012 Information


isg-one.com


12

EMEA TCV was down 21% Y/Y and 11% Q/Q. Year to date, TCV was down by 24%.

EMEA Contract Award Trends

Quarterly EMEA TCV ($B)*

$17.8 $23.5 $22.0 $17.7 $29.9

$19.6

$34.7 $23.3 $27.3

$18.6

$20.5

20121110090807



$8.4 $9.4 $10.6 $9.0 $8.4

$16.2 $11.0



108

171

105 125

90

158

148 157

102

20121110092008

TCV $25-99M 1H 2H

45 54 50 45 62

59 52 61 51

20121110092008

TCV $100M+ 1H 2H

© 2012 Information


isg-one.com


13

Americas TCV was up 6% Y/Y but down 6% Q/Q. Mega-deals accounted for a substantial share of 2Q12 TCV. Year to date, TCV was flat.

Americas Contract Award Trends

Quarterly Americas TCV ($B)*

Half Year TCV ($B)*

$17.1 $17.1 $26.3

$18.4 $15.6 $15.3

$17.7

$13.4 $19.0

$16.2 $19.2

201220112010200920082007



$8.3 $8.8 $7.8

$11.6

$8.9 $8.5

$9.2


TCV (B) Avg of 4 Prior 2Qs Includes $3.8B of Mega Deal activity, with $2.2 out of Brazil in Financial Services

126

180 141 138

116

172

124 129 106

20121110092008

TCV $25-99M 1H 2H

35 44 66 51 43

59 52 61 51

20121110092008

TCV $100M+

1H 2H

© 2012 Information


isg-one.com


14

Asia-Pacific TCV was up significantly Q/Q and Y/Y with most TCV awards in Financial Services and Telecom. Year to date, TCV was up 44%.

Asia-Pacific Contract Award Trends

Quarterly Asia-Pacific TCV ($B)*

Half Year TCV ($B)*

$6.5 $4.5

$2.8

$6.4 $3.5

$5.8

$4.9 $7.1

$6.6

$8.0 $5.8

201220112010200920082007



$4.7

$1.8 $1.7 $1.4

$4.7

$1.8

$2.4



Includes a $1.2B Mega Deal in India

43 53

40 28 25

36 36

41 42

20121110092008

TCV $25-99M 1H 2H

16 13 8 19 11 9 11

18 13

20121110092008

TCV $100M+

1H 2H

Special Topic for Second Quarter 2012

© 2012 Information


isg-one.com


16

6.35 6.48 6.14 6.10 6.07 5.95 5.88 5.72 5.48 5.31 5.10 4.98 5.05 4.85

6.4 6.0

5.5

5.1

1999 00 01 02 03 04 05 06 07 08 09 10 2011 1H12

Avg Duration Duration Plateau

Declines in duration may appear small, but even a slight decline can have large impact on TCV levels.

Duration Trend Impact on the Market

Average Contract Durations Over Time

What if all 1H12 contracts* had 1999 average durations of 6.4?

$41 B

$57 B

1H12 Actual TCV

Hypothetical 1H12 TCV with 1999-2000 Durations

38%

© 2012 Information


isg-one.com


17

Durations decreased across a range of contract types.

Does the 1H12 duration dip signal the start of a step down?

32% 46%

22%

34% 51%

15%

Durations< 5 Years

Durations5 - 6.9 Years

Durations7+ Years

2009 1H12 2009 1H12 2009 1H12

Distribution of Contracts* Moves Towards Lower Durations

Average Durations Fall for All Contract Sizes*

5.5

5.3 5.3

4.8

2009 2010 2011 1H12

5.0

4.7 4.8

4.5

2009 2010 2011 1H12

BPO Duration Trends* Restructuring Duration Trends*

4.9

6.6

4.8

6.1

4.9

6.2

4.6

6.0

TCV < $200M TCV > $200M

2009 1H12 2011 2010 2009 1H12 2011 2010

10%

12%

78%

22%

85%

15%

Durations < 7 Years Durations 7+ Years

2009 1H12 2009 1H12

© 2012 Information


isg-one.com


18

Factors Influencing Downward Trend in Contract Durations

Stepped Up Market Competition Amidst increased provider competition, companies – particularly New Sourcing Adopters – push for shorter contract commitments, leveraging the providers’ desire to seal the deal.

Outsourcing Savvy Clients and Providers Solution improvements enable more efficient and effective delivery of innovations, making the best solutions at the best prices available via more frequent contract negotiations.

Disposability of Cloud Solutions Service Providers note that contracts with Cloud in scope are shorter in duration than Managed Services deals.

5.1 4.4

2009 1H12

↓14%

Average Duration for New Adopters

© 2012 Information


isg-one.com


19

Global Broader Market TCV up 7% Y/Y - strengthened by Mega Deals

Asia-Pacific experienced significant Y/Y and Q/Q growth

New scope TCV was up Y/Y - strengthened on activity outside North America and Western Europe

BPO was up both Y/Y and Q/Q, while ITO slipped sequentially

Year to date, TCV was down 8% on weak EMEA results

Anticipate a soft 3Q against a tough Y/Y compare

4Q TCV may pick up because of larger deals in the pipeline

Unprecedented levels of TCV in 2H12 are required for the market to meet the record-high 2011 TCV result

2Q12 TPI Index Summary and Outlook

summary market

outlook market

© 2012 Information


isg-one.com


20

Learn More Please contact us with your questions and comments.

--- Media Contacts ---

► John Keppel ► Duncan Aitchison

www.considerthesourceblog.com

Partner & President Research & Managed Services and Chief Marketing Officer +44 (0)7879 432 212 [email protected]

Partner & President North Europe, ISG +44 (0)1628 21702 [email protected]

► Andrew Park Director, Global Communications & Branding, ISG +1 919 259 9252 [email protected]

► Rhena Wallace Cohn & Wolfe for ISG +1 212 798 9832 [email protected]

www.isg-one.com

Business

Second Quarter 2012, Global TPI Index