Sourcing Market Overview

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John Keppel, Partner & President, ISG, North Europe 22nd October 2013

ISG 2013 EMEA SIC Market Update

© 2013 Information Services Group, Inc. All Rights Reserved

What does the rearview tell us? Market Snapshot

© 2013 Information Services Group, Inc. All Rights Reserved 3

A turbulent period some winners and some losers…

1 and 2 Quadrant Data excludes all government and telco to telco transactions

Global Outsourcing Spend ($B) Post Recession: EMEA is Up 1 2

Indian Service Provider Market Share Has Doubled

Global Outsourcing Spend 3 4

$40 $41 $43 $41 $41

$38 $42 $47 $50 $51 $10 $11 $11 $11 $11 $88 $93 $100 $102 $104

2008 2009 2010 2011 2012

Americas EMEA Asia Pacific

46% 39%

43% 50%

11% 11%

2008 2012

Americas EMEA Asia Pacific

7%

2008 2012

18%

4 Yrs Ago Today

$ $88 B $104 B

$ ↑18%


What does the world look like now? Q3 2013 View


Broader Market Contract Award Trends

3Q Broader Market ACV of just under $6B was up 1% Y/Y and up 65% Q/Q and resulted in the best third quarter ever.

Year-to-date Broader Market ($B)*

$8.3 $11.8 $9.8 $12.0 $9.6 $9.6 $7.6 $8.5 $8.2 $8.4

$5.8 $5.7

$5.6 $4.4

$4.1 $3.9 $2.9 $2.6 $3.5 $3.7

201312111009080706052004

1H ACV 3Q ACV

Year-to-date Contracting Counts

485 601 604 505 472

364 299 295 262 297

353 255 273 228 208

191 149 129 115 96

201312111009080706052004

1H Counts 3Q Counts


Broader Market New Scope & Restructuring Trends

New scope ACV of $3.2B was off 19% Y/Y against a tough 3Q12 compare, but up 21% Q/Q. Restructuring ACV of $2.6B was the highest quarter to date.

New Scope Year-to-date ACV ($B)*

Restructuring Year-to-date ACV ($B)*

New Scope Year-to-date Counts

Restructuring Year-to-date Counts

$5.1 $8.0 $7.1 $8.7 $7.4

$7.4 $6.1 $5.0 $6.3 $7.0

$3.2 $3.9 $3.1 $2.6 $3.1 $2.8

$2.3 $2.0 $2.5 $2.4

201312111009080706052004

1H ACV 3Q ACV

$3.2 $3.8 $2.6 $3.4 $2.2 $2.2 $1.5 $3.5 $1.9 $1.4

$2.6 $1.8 $2.5 $1.8 $1.0 $1.0 $0.7 $0.6

$1.0 $1.3

201312111009080706052004

1H ACV 3Q ACV

352 454 453 392 365

291 245 232 211 249

238 198 205 171 172

154 128 109 91 75

201312111009080706052004

1H Counts 3Q Counts

133 147 151 113 107 73 54 63 51 48

115 57 68 57 36 37

21 20 24 21

201312111009080706052004

1H Counts 3Q Counts


Broader Market Quarterly Counts by Bands

10 5 8 7 9 12 6 12 6

20 16 13 23 20 23 23 18 21

323

187

256 242 226 241

296 270

246

3Q132Q1Q4Q3Q122Q1Q4Q3Q11

Broader Market Contract Trends by Deal Size

Ten Mega-relationships were awarded in 3Q13, yet the market is being driven increasingly by smaller contract awards.

Boarder Market Quarterly ACV(B)* by Bands

$1.4 $0.7

$1.4 $1.0 $1.7 $2.2

$0.8

$2.3 $1.7

$1.1 $0.9 $0.7 $1.4 $1.2 $1.3 $1.4 $1.1 $1.3

$3.3

$1.9 $2.8 $2.9 $2.8 $2.5

$3.6 $3.1 $2.7

3Q132Q1Q4Q3Q122Q1Q4Q3Q11

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


ITO Contract Award Trends

3Q ITO ACV of almost $4.4B was up 15% Y/Y and 100% Q/Q. ITO ACV performance was the best third quarter ever.

ITO Year-to-date ACV ($B)*

$5.3 $7.3 $6.3

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

$4.4 $3.8 $3.9

$3.2 $3.0 $2.6 $1.9 $1.6 $2.4 $2.8

201312111009080706052004

1H ACV 3Q ACV

ITO Year-to-date Counts

ITO YTD Industry ACV ($B)*

298 374 377

316 320 230 194 173 165 184

247 164 166 131 136

119 95 72 70 62

201312111009080706052004

1H Counts 3Q Counts $2.04

$2.58 $0.69

$1.31 $1.38

$0.67 $0.64

$0.36

Manufacturing Financial Services Telecom & Media

Energy Travel, Transport, Leisure

Healthcare & Pharma Business Services

Retail

YTD 3Q12 YTD 3Q13


BPO Contract Award Trends

3Q BPO ACV of just under $1.4B was down 29% Y/Y but up 5% Q/Q. YTD performance slowed as BPO dropped 31% from a year ago.

BPO Year-to-date ACV ($B)*

BPO YTD Counts

BPO YTD Industry ACV ($B)*

$3.1 $4.5

$3.5 $2.9 $2.8 $3.1 $2.0 $2.2 $2.2

$3.6 $1.4

$1.9 $1.7

$1.2 $1.1 $1.3 $1.0 $1.0 $1.1

$0.9

201312111009080706052004

1H ACV 3Q ACV

187 227 227

189 152 134 105 122 97 113

106 91 107 97

72 72 54 57

45 34

201312111009080706052004

1H Counts 3Q Counts

$1.18 $0.68

$1.08 $0.45

$0.37 $0.17

$0.33 $0.17

Financial Services Manufacturing

Telecom & Media Energy

Travel, Transport, Leisure Business Services

Healthcare & Pharma Retail

YTD 3Q12 YTD 3Q13


Top Service Providers Across the Globe

85% of the Top 20 ITO Provider list is unchanged from previous years. The Top 20 BPO group has more turnover, yet 40% of Top BPO providers do repeat year-to-year.

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

BPO 2013 YTD

ITO 2013 YTD

► Accenture ► AT&T ► Atos ► BT ► Capgemini ► CGI ► CSC ► Dell ► HCL ► HP ► IBM

► Infosys ► Mahindra

Satyam ► Nihon Unisys ► Polaris Software

Labs ► Singtel Optus ► TCS ► T-Systems ► Wipro ► Xerox

► Accenture ► Aditya Birla

Minacs ► Allscripts ► Aon Hewitt ► Atos ► Capgemini ► Capita Group ► CGI ► Communisis ► CSG

► Fidelity ► HCL ► Infosys ► StarTek ► TCS ► Virtusa ► Wipro ► WNS ► Xchanging ► Xerox


EMEA Contract Award Trends

EMEA 3Q ACV of $3.5B was up 16% Y/Y and 88% Q/Q. The strongest 3Q ACV ever was driven by nine Mega-relationships and very high contracting activity.

EMEA Year-to-date ACV ($B)*

YTD Counts

Segment Details Like-Quarter ACV ($B)*

$4.3 $5.1 $5.0 $5.6 $4.1

$5.9

$3.3 $2.9 $4.1 $2.9

$3.5 $3.1 $3.2 $2.0 $1.6

$2.0

$1.5 $1.3 $1.3

$2.1

201312111009080706052004

1H ACV 3Q ACV

245 252 272 204 201

171 125 113 115 128

176 111 124

102 94 94

63 66 45 44

201312111009080706052004

1H Counts 3Q Counts

$1.8 $1.7

$2.9

$0.6 $0

$2

$4

New Scope Restructuring ITO BPO

Prior 5 Like-Qtr Range Avg of 5 Prior Like-Qtrs3Q12 3Q13


EMEA Contract Award Trends Detail

DACH, France and Southern Europe had strong quarters, up Y/Y and Q/Q. YTD, Transportation was up 88%, while weakness persisted in FS and Manufacturing.

EMEA Industries YTD ACV ($B)*

EMEA Sub-regions 5 Prior Like-Quarter ACV ($B)*

$0.84

$0.38

$1.02

$0.21 $0.21 $0.31

$0.55

$0.04 $0.0

$0.2

$0.4

$0.6

$0.8

$1.0

$1.2

$1.4

$1.6

U.K. &Ireland

Nordics DACH Africa &Middle

East

France Benelux SouthernEurope

E. Europe& Russia

Prior 5 Like-Qtr Range Avg of 5 Prior Like-Qtrs 3Q12 3Q13

$2.3

$1.6

$1.2

$1.2

$0.6

$0.5

$0.2

$0.2

Financial Services

Manufacturing

Travel, Transport,Leisure

Energy

Telecom & Media

Business Services

Healthcare & Pharma

Retail

YTD 3Q12 YTD 3Q13


What Happens Next? The Next Generation of Sourcing


This time last year we introduced the 4th Generation concept

Hang on a minute it is only 2013! What happened to 10 year cycles of change?

1990 2000 2010 ?

Monolithic

Bipartisan Pluralistic

But we didn’t see huge evidence in 2012 deal data to really frighten us?

Dynamic


Things sure got real in Q3 2013

Are we seeing the Generation 4 impact revealed in the numbers? BEST 3Q PERFORMANCE EVER FOR BOTH ACV AND NUMBER

OF CONTRACTS AWARDED

STRONGEST 3Q ITO PERFORMANCE EVER

EMEA HAS STRONGEST 3Q PERFORMANCE EVER

NEW SCOPE COUNTS UP 20% OVER PREVIOUS HIGH WATER MARK BUT VALUES HOLDING

Broader Market Quarterly Counts by Bands

Boarder Market Quarterly ACV(B)* by Bands

$1.4 $0.7 $1.4 $1.0 $1.7 $2.2 $0.8

$2.3 $1.7

$1.1 $0.9 $0.7 $1.4 $1.2 $1.3 $1.4 $1.1 $1.3

$3.3 $1.9

$2.8 $2.9 $2.8 $2.5 $3.6 $3.1 $2.7

3Q132Q1Q4Q3Q122Q1Q4Q3Q11

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

10 5 8 7 9 12 6 12 6

20 16 13 23 20 23 23 18 21

323

187 256 242 226 241

296 270 246

3Q132Q1Q4Q3Q122Q1Q4Q3Q11


The Crowded space becomes the Clouded Space!

We were just getting used to Multisourcing!

G-2000 Companies Who Source by Sourcing Strategy

64.1%

47.5%

32.6%

18.4%

27.5%

41.9%

17.5%

25.0%

25.6%

2010

2005

2000

True Multi-SourceEnvironment

Multi-Source where oneService Provider wins80% of spendSingle Source

+


Strategic & Selective Sourcing Multi-Sourcing Confederation

ISG’s Prediction: The Future of Sourcing

Confederation brings new players, more automation, provides room for XaaS solutions and requires Service Integration.

Internal Shared Services/Captives

Function

Function

Function

Function

Function

All Towers

OR

Infrastructure

ADM

BPO Function(s)

Tower

Tower

Tower

Tower

Service Integration

Market 5 - 10 Years Ago Last 3 Years Next 3 to 5 Years

Function

Importance of Labor Arbitrage

Importance of Software, Platforms,

Labor Automation, & Scalability

EMC Akamai

VMWare Hitachi iPSoft Oracle

SFDC Google Amazon

IBM Workday

etc.

Functional Out-Tasking


Disruptive Technologies Driving Change…..

….and shaping the CIO Agenda and CxO’s management & business influence.

Social Media Collaboration

Computing & Storage

Cloud

Mobility BYOD

Analytics & Big Data

Continued cost pressure and the increasing importance of e-commerce are significant influences that ISG observes on current client sourcing activity.

The wave of necessary ERP upgrades will change the market and facilitate opportunities for outsourcing service providers.

Recent buying patterns demonstrate cost objectives are still primary, but the focus is shifting fast in 2013 toward more business oriented sourcing objectives with innovation and new capabilities at the core.


Key Long-Term Shifts in Buyer Behaviour (linked)

We shared ISG’s perspective on 1 & 2 in 2012, the interest in vertical BPO is a symptom, these three represent a perfect storm for providers unwilling or unable to change.

Shift in Enterprise Decision Maker’s Solution Requirements

Shift in Pricing Requirement to Consumption or Outcome

1 2

IT Buyers Business Need Pricing Bands Utility Pricing

Shift in BPO Enterprise Purpose Spurring Activity

3

Traditional Back-office Industry Specific

$


These changes have implications for us all…

As our clients needs shift to take advantage of their new realities our services must also adapt to maintain our position and relevance. For us the need was perhaps more urgent we began our change 3 years ago.

► Is a market navigator for clients ► Is an advisor on change enablement ► Is a market research provider ► Is a managed services provider in post contract

support ► Has emerging technology analysts ► Has a Cloud business unit ► Initiates solution led procurements ► Is redefining the sourcing of the future (5G) ► Is partnering with key industry participants


What are the others experiencing? Competition


CAGR Disparity 2005 - 2012

Western-heritage

A Tale of Two Groups

It was good while it lasted but the world is changing fast on everyone…

Market Share Shifts 2009 - 2012 India-heritage Providers

Western-heritage Providers

India-heritage

32% 16%

7% 0.4%

2005 2009 2012

7% 9%

13% 12%

ACV Awards

ACV Awards


Key Long-Term Shifts in Buyer Behaviour (linked)

Continue Winning in the Mature UK and US Restructuring Markets

Capitalize on BPO Growth via Investment in Vertical Solutions

1 2

Make New Inroads into the Global Public Sector Markets

3 Increase European Market Share via Enhanced Offshore Value Prop

4

India-heritage Restructuring ACV Market Share India-heritage BPO ACV Market Share

India-heritage European ACV Market Share

4% 20%

2005 2009 2012

$ Investment

16% 36%

2005 2009 2012

$ Investment

$

2005-08 2009-12

13% 7%

$ $ $


Staying Ahead: What got you here will not get you there.

Larger providers grapple with higher overhead costs and change resistance. India-heritage providers need new growth engines and face new economic realities. Smaller players may make some gains, expect more consolidation.

Capturing the Expected Growth in the Mid-Market ► India-heritage Providers have proven offshoring credentials. ► Western providers have started to create dedicated mid-market organizations

Lower Cost of Switching Puts Everybody on Notice ► Equal threat to all providers, no matter their heritage. ► Incumbency advantage disappearing as transitions become less painful.

ITO Challenge ► Get familiar with the new buyers of emerging technologies, who sit outside the

CIO’s organization.

BPO Challenge ► Pay for outcomes, rather than for bodies/volumes is becoming the norm. ► Industry or process oriented solutions built on scalable and flexible (cloud)

infrastructure are generating interest. $


Q&A

www.isg-one.com

Information Services Group is a leading technology insights, market intelligence and advisory services company, serving more than 450 clients around the world to help them achieve operational excellence. ISG supports private and public sector organizations to transform and optimize their operational environments through research, benchmarking, consulting and managed services, with a focus on information technology, business process transformation, program management services and enterprise resource planning. Clients look to ISG for unique insights and innovative solutions for leveraging technology, the deepest data source in the industry, and more than five decades of experience of global leadership in information and advisory services. Based in Stamford, Conn., the company has more than 800 employees and operates in 21 countries.

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