Dear outsourcing professional:

Transcription

1 Dear outsourcing professional: 2009 was a year of extremes in the outsourcing industry the number of contracts signed nearly set an annual record, but the total value awarded was at the lowest level since The market roared in the fourth quarter after a very quiet start to the year. Themes of recession and recovery played out in both the outsourcing industry and the economy at large in 2009, and will continue to do so in Regardless of the direction the economy takes this year, TPI has found opportunities and successful strategies for service providers. Much more than the overall economy shaped the outsourcing market, as we document in the TPI Momentum SM 2009 Annual Report, the latest installment of our Market Trends & Insight Report series. We ve identified changes in client outsourcing drivers, differences in how specific service lines are contracted, plus important developments in different geographies, vertical industries and client company types that may be masked by overall figures and trends. Whether these changes and trends will continue, plus the strength of the recovery, are the leading questions that will shape outsourcing activity in This report addresses these and other complex questions. It presents the data to document what happened in 2009, puts the year in historical perspective, presents TPI s collective insight on market activity, and offers our recommendations for succeeding in current conditions. While total spending on outsourcing contracts was down in 2009, some sectors were vibrant. There were patterns in some markets, with clear implications for service provider strategy. This report provides the data and insight needed to see beyond the numbers so service providers can recognize opportunity in any economic climate. Even as the outsourcing market softened, TPI continued to advise on many strategy engagements and outsourcing transactions and worked with client firms and service providers all over the world. This first-person insight, combined with our exclusive databases, provides unparalleled perspective on the direction of outsourcing. We share this direction with you in this report, which is written to guide future business decisions rather than simply document past contract awards. Please contact us to discuss this report and how specific findings may impact your business in more detail. We can help you achieve your organizational goals through objective advice, industry knowledge and trend analysis expertise. Sincerely, Paul Reynolds Chief Research Officer TPI Momentum [email protected] John Keppel Partner & Managing Director TPI Research [email protected] -1-

2 Descriptions and Highlights of Each Report Section 2009 Market Overview Contract volume was strong in 2009 the 585 outsourcing contract awards of at least $25 million was the second-highest total ever recorded for a single year but the total contract value awarded fell $11.5 billion from the previous year as average annual contract value (ACV) continued to fall. The 2009 Market Overview section of the report highlights these and other high-level developments, identifies market segments that are bucking overall trends, presents the outlook for mega deal (>$1 billion) activity, and analyzes whether the contracting momentum experienced in the second half of 2009 is sustainable. TPI Outlook for 2010 Using insight into service provider pipelines, data on renegotiation activity and expiring contracts, TPI advisor observations on how technologies and client preferences are shaping outsourcing preferences, we provide our predictions for the year and identify the top trends, drivers and variables that will determine outsourcing activity Contract Awards Get a dashboard view of outsourcing contract levels and values by service line, region and client company size, plus breakouts of service provider market share in each major geographic market. This section clearly and concisely documents 2009 outsourcing contract activity and highlights the most surprising and important developments. Trends in the G2000 Marketplace There are many inconsistencies in activity among client company activity. This section discusses and documents how Europe became the top-spending region on outsourcing, identifies different market drivers and inhibitors around the world and presents regional forecasts. ITO Pricing Trends New for 2010, the ITO Pricing Trends section presents exclusive information on average price changes for five ITO service towers. We identify areas where service providers can maintain margins and where pricing is most competitive. -2-

3 Descriptions and Highlights, Continued Contract Renegotiation A Look Ahead to 2010 Compared to historical levels and averages, 2010 will be a big year for contract renegotiation, both for current and expiring contracts. This section points readers to where the expiring contracts are (by client company, current service provider, region, service line and vertical industry), highlights why incumbents lose contracts, and describes what motivates clients to renegotiate. It provides strategic guidance for winning a share of the approximately $15 billion worth of contracts that are expected to expire or be renegotiated in The Evolution of Sourcing Behavior in G2000 Companies The percentage of companies in the Forbes Global 2000 with an active outsourcing contract has doubled in the last decade. Is outsourcing nearing the saturation point, or will growth continue? This section helps you answer by providing data on penetration levels for different company-size segments within the G2000, showing what services companies are most likely to contract for in their first outsourcing engagement, and discussing how outsourcing activity evolves as client firms gain experience. Captive Center Acquisition Clients will continue to divest captive centers, but the buyer market is changing as service providers are becoming more selective in their acquisition targets. This section analyzes recent successes in how service providers approach client captives and gives our outlook for the acquisition market. Marketplace Acquisitions TPI expects at least one new driver to shape industry merger & acquisition activity in 2010 and thinks a recent trend may have run its course. This section puts perspective on the headline deals of 2009 and identifies what to watch for going forward. -3-

4 Table of Contents Executive Summary Summary... 7 An Evolving Market... 8 Where is the Market Momentum?... 8 Calling the Turn?... 9 Expectation for Conclusion TPI Outlook for Contract Awards Awards by Contract Type Regional Trends Top 100 Contracts Service Provider Share of Broader Market Awards Trends in the G2000 Marketplace Regional Perspectives TPI Insight into Service Provider Pursuit Effectiveness Where Contract Winners Outperform Losers Importance of Effective Proposals Winning the Contract ITO Pricing Trends Contract Renegotiation: A Look Ahead to Contract Expiration Market Impact Impact by Service Line Industry and Service Provider Impact The Evolution of Sourcing Behavior in G2000 Companies Observations on Multiple Contract Awards Captive Center Acquisition Captive Center Evolution New Captive Center Establishment & Divestiture What to watch for in Marketplace Acquisitions Appendix A: Research Descriptions Appendix B: About TPI Momentum

5 Table of Figures Figure 1: TCV by Year (US$ billions)... 9 Figure 2: Number of Contracts Awarded by Year... 9 Figure 3: Average ACV of Contracts by Year... 9 Figure 4: Average Contract Duration by Year... 9 Figure 5: Global TCV and Volume by Quarter (US$ billions) Figure 6: Americas TCV and Volume by Quarter (US$ billions) Figure 7: EMEA TCV and Volume by Quarter (US$ billions) Figure 8: Asia-Pacific TCV and Volume by Quarter (US$ billions) Figure 9: Financial Services TCV and Volume by Quarter (US$ billions) Figure 10: Manufacturing TCV and Volume by Quarter (US$ billions) Figure 11: Telecom & Media TCV and Volume by Quarter (US$ billions) Figure 12: Percentage of 2009 TCV Signed in 2H Figure 13: Market Indicator Comparison Figure 14: Annual Contract Volume and Award Value, TCV >$25M Figure 15: Contract Volume and Award Value by Contract Scope, TCV >$25M Figure 16: Regional Comparison of the TCV of ITO Contract Awards, TCV >$25M Figure 17: Regional Comparison of the TCV of BPO Contract Awards, TCV >$25M Figure 18: ITO Contract Volume and Award Value by Process Area, TCV >$25M Figure 19: BP Contract Volume and Award Value ($USB) by Process Area, TCV >$25M Figure 20: Regional Comparison of Contract Volume, TCV >$25M Figure 21: Average TCV by Region, Figure 22: Contract Volume and Award Value by Region, TCV >$25M Figure 23: Contract Trends in the Americas , TCV >$25M Figure 24: 2009 Top 15 Service Providers in the Americas by TCV, TCV Awards >$25M Figure 25: Contract Trends in EMEA, Figure 26: 2009 Top 15 Service Providers in EMEA by TCV, TCV Awards >$25M Figure 27: Contract Trends in Asia Pacific, Figure 28: 2009 Top 15 Service Providers in Asia Pacific by TCV, TCV Awards >$25M Figure 29: Top 100 Contract Awards by Region and Scope Figure 30: 2009 Service Providers Winning Multiple Top 100 Contracts, TCV Awards >$25M Figure 31: Service Provider Share of TCV Awards >$25M Figure 32: Market Size (ACV) by Region, Among G2000 Companies Figure 33: Global Market Size (ACV), Among G2000 Companies Figure 34: Growth Rate of the Global Outsourcing Market by Year, Figure 35: Outsourcing Growth Rates Among G2000 Companies by Region

6 Table of Figures, Continued Figure 36: Top Qualification Criteria Clients Use When Considering Service Providers, Figure 37: Qualification Criteria by Category Figure 38: Change in Client Qualification Criteria, 2008 to Figure 39: Difference in Strengths Between Winning and Losing Service Providers, Figure 40: Outcome of Pursuit Based on Effectiveness of Proposal at Addressing Objectives Figure 41: Difference in Walk Through Performance, Winning vs. Losing Service Providers Figure 42: Performance Elements of the Walk Through Process Figure 43: Difference in Final Proposal Submissions, Winning vs. Losing Service Providers Figure 44: Performance Elements of Final Proposal Submissions Figure 45: 2009 to 2010 Year-Over-Year Price Performance Observations Figure 46: ACV of Expiring Contracts by Year Figure 47: Regional Distribution of 2010 Expiring Contracts Figure 48: Estimated Percentage of Contracts Renegotiated by Year Figure 49: Reasons for Termination, 2009 Contracts Figure 50: Predicted 2010 ACV From Expiring Contracts ($USB) Figure 51: 2010 Expiring Contracts by Service Line Figure 52: Expiring ACV by Industry and Region (US$M) Figure 53: Difference in Expiring ACV by Industry Segment, 2010 Compared to 2009 (US$M) Figure 54: Projected ACV Expiring by Service Provider Type Figure 55: Projected ACV Expiring by Service Provider Figure 56: Largest Expiring Contracts in Figure 57: Percent of G2000 with an Active Outsourcing Contract, Figure 58: Percent of G2000 with an Active Outsourcing Contract by Forbes Rank, Figure 59: Market Segments With the Greatest Increase in Penetration, 2006 to Figure 60: Nature of Companies First Contract Signing by Period, Figure 61: Nature of Companies First Contract Signing by Year, Figure 62: Type of ITO Contracts Signed by First-Time Outsourcers, Figure 63: Number of Contracts Signed by Forbes G2000 Rank Figure 64: Average Number of Months Between Contract Signings by Number of Contracts Signed Figure 65: Select 2009 Captive Monetizations Figure 66: Capita Acquires AXA Sun Life Figure 67: Cognizant Acquires UBS

7 Research Resources Contracts Database TPI maintains an extensive database of ITO and BPO contract activity. Every contract in the database has a TCV of $25 million or more. TPI captures a tremendous amount of detail on these transactions, and the database serves as an excellent research tool. The Contracts Database is the source of the quarterly TPI Index and the TPI Momentum Contract KnowledgeBase information product. TPI Index The TPI Index is based on the TPI Contracts Database mentioned above and provides a detailed analysis of the current state of the global outsourcing market. It is the authoritative source for marketplace intelligence related to outsourcing, including transaction structures and terms, industry adoption, geographic prevalence and service provider metrics. Every quarter, TPI executive leaders host the TPI Index Webinar in the Americas, EMEA and Asia Pacific regions to discuss the recent trends, such as which regions and industries are on the sourcing upswing and how total contract values are fluctuating in the mega-deal and broader markets. Pervasiveness Research The Pervasiveness Research focuses on the Forbes Global 2000 companies (G2000), and is based on their 2009 rankings. This research marries G2000 contract activity as identified within TPI Contracts Database with specific G2000 companies. In short, the Pervasiveness Research allows TPI Momentum to examine the detailed sourcing activity of G2000 companies on a company-by-company basis since This includes their annual spending levels, the service lines for which they have active contracts, the service providers that currently serve them, etc. Aggregating this data by industry provides TPI Momentum with market-level insights such as penetration levels, adoption levels by service line, average ACV per company, service provider market share and many other relevant statistics. The result is an extensive and very powerful database that allows for deep segmentation of outsourcing activity by vertical spanning back to This report segments the Pervasiveness Research using the 27 Forbes vertical industry classifications and reveals trends in market spending, service provider market share, and market opportunities. Pursuit Effectiveness Research Each year, TPI advises clients on their ITO, BPO and KPO strategies and transactions. During the course of the transactions, TPI interacts with many service provider pursuit teams. TPI directors and partners provide an objective account of how effectively each service provider performed during the pursuit process. The research conducted by the TPI Research team includes questions about which service providers were considered, reasons for elimination from the pursuit process and pursuit effectiveness during various phases of the TPI methodology (early collaboration sessions, proposal submission, walk throughs, due diligence, negotiation, etc.). -7-

8 About TPI Momentum TPI Momentum provides information and insights to outsourcing and offshoring service providers. TPI Momentum offers a suite of services and information products to address all aspects of a service provider s go-to-market approach. Our offerings help service providers to secure objective, qualitative, global sourcing market information and insights that they can use to deliver better services to their clients, enhance their competitive edge and position themselves for long-term success. Information Products TPI Momentum Market Trends & Insights Reports. These quarterly reports help TPI Momentum members and subscribers maximize their market development efforts through access to objective, reliable and detailed sourcing data and insight from a market overview perspective through to the transaction level. TPI Momentum Contract KnowledgeBase. This product helps TPI Momentum subscribers analyze detailed information about sourcing contracts. The insight supports subscribers in enhancing their market intelligence by increasing their knowledge of contracts coming available during the next year, and it helps them focus their business development teams to pursue tactical opportunities. Research Services TPI Momentum offers a variety of research services to service providers. These services can be based on a deeper look into the information presented in TPI Momentum information products or they can be based on specific requests. If our standard offerings do not fit your needs, we can customize targeted reports, research programs, and advisory services for you. Some examples include: AskMomentum. This inquiry service combines the insights of around 400 of the world s most experienced sourcing practitioners with a wealth of TPI market data including proprietary databases on contract awards, mergers and acquisitions, new captive center development and expansion activity, and geographic expansion by service providers to address your burning questions. AskMomentum clients may ask any question, and our team will provide you with a timely and thoughtful answer. AskMomentum has three core components: 1) on the fly inquiry (quick-fire question) ask the question we will poll our advisors and respond; 2) detailed inquiry (data mining) ask a question and TPI will mine all of our databases to find an answer, and, 3) direct access to TPI Industry and Service Line experts. Strategic Research. If the answers that your executives need require deeper insight than our research team can answer with current TPI Momentum products, we can support your targeted strategic initiatives with custom research. TPI Momentum combines the knowledge and experience of our advisor community with full-service research capabilities to address your business challenges. Pursuit Effectiveness Index. Winning business is the key to success for every service provider, but no service provider is able to win 100 percent of the business it pursues. To better understand trends in how effectively your company pursues business, TPI Momentum captures and will compare your results with the market at large or a peer group to identify areas of strength and potential improvement. To learn about these or other TPI Momentum services, please contact: Paul Reynolds Director & Chief Research Officer TPI Momentum [email protected] John Keppel Partner & Managing Director TPI EMEA [email protected] Sid Pai Partner & Managing Director TPI India [email protected] Melany Williams Partner & Managing Director TPI Americas [email protected]