By John Keppel, Partner & President, Information Services
Earlier today, we held our 3Q11 Global TPI Index conference call, during which we discussed noteworthy trends in the sourcing market during the second quarter and the first half of the year.
In 3Q11, a single $7.2 billion contract lifted the market TCV considerably. The mega-deal, awarded by Siemens to Atos as a part of its acquisition of Siemens Information Services, spurred total contract value (TCV) to $25 billion, a gain of 41 percent year-over-year and 31 percent sequentially. This TCV marks an all-time high for a third quarter.
All three regions saw TCV increases for the quarter. IT Outsourcing TCV rose by some 50 percent year-over-year and Business Process Outsourcing TCV has already exceeded its full-year 2010 performance.
Furthermore, remove the single mega-deal, and the third quarter still saw a healthy $18 billion in contract awards, in line with the previous periods. In short, the third quarter looks very similar to other third quarters and offers more of a business-as-usual tale than a stunning growth story.
A replay of today’s call is available for one week on the TPI Index page of TPI.net, where you can also view the presentation slides. I hope you’ll have a chance to listen and sound off with your own perspectives in the comments section below!
By John Keppel, Partner & President, Information Services
Earlier today, we held our 2Q11 Global TPI Index conference call, during which we discussed noteworthy trends in the sourcing market during the second quarter and the first half of the year.
Compared with the previous second quarter, the second quarter of 2011 offered some welcome lift in several metrics: Europe, the Middle East & Africa (EMEA) total contract value (TCV) was up by 13%, Asia Pacific TCV rose 55%, and Restructuring TCV grew by 30% year-over-year. However, a poor showing in the Americas’ TCV and fewer large contracts drove down the global market by 18%. Despite weakness in the big picture for the quarter and at the half, we anticipate stepped-up second-half activity that will find the market finishing the year at or near typical levels.
It is worth remembering that second quarters are typically weak in comparison with first quarters; that said, our analysis reveals that:
TCV, at about $16.4 billion in the second quarter, represents about 20% quarter-over-quarter, year-over-year and year-to-date decreases for each comparison. A downturn in large contracts above $500 million, as well as declining values in the Americas and in IT outsourcing (ITO), largely account for these drops.
Restructurings TCV, while up Q/Q and Y/Y, dropped a substantial 44% when compared to the significant restructuring recorded in the first half of 2010. Despite this YTD decrease, Restructuring TCV now falls within more normal historical ranges. New scope TCV in the second quarter declined by Q/Q, Y/Y and YTD measures alike.
For the regions, the Americas TCV fell 27% Q/Q and about 50% both Y/Y and YTD. EMEA TCV, nearly twice that of the Americas for the second quarter, grew 13% Y/Y and 10% YTD. In Asia Pacific, a small quarterly drop tempered otherwise ample Y/Y and YTD gains of more than 50%.
By scope, ITO, at $11.5 billion for the quarter, still made up more than two-thirds of the global market, but dropped about 18% in value both Q/Q and Y/Y, and by 27% YTD. The market is not awarding the large infrastructure contracts of earlier periods. Business process outsourcing (BPO) TCV dipped for the quarter, but thanks to a strong first-quarter showing, half-year comparisons held firm.
Despite these lackluster results, we believe the second half looks more promising. We note activity building in all three regions, supported by the $7 billion Atos/Siemens restructuring mega-deal already boosting third-quarter values in EMEA.
A replay of today’s call will be posted within 24 hours on TPI.net, where you can also view the presentation slides. I hope you’ll have a chance to listen and sound off with your own perspectives in the comments section below!
(UPDATE: The audio replay is now available at TPI.net).
By John Keppel, Partner & President - Information Services and Chief Marketing Officer, TPI
This morning we presented the 1Q11 Global TPI Index, which found that restructuring activity returned to historical norms following last year’s record spike, but the value of new scope awarded remained steady.
Total contract value (TCV) in the global outsourcing market was $17.5 billion during the first quarter of 2011. TCV dropped 28 percent from the first quarter of 2010 and 25 percent over the fourth quarter of 2010. However, restructurings, defined as contracts that are renewed, renegotiated or restructured, accounted for nearly all of the decline. New scope TCV of $14.9 billion was unchanged year-over-year and declined just 7 percent sequentially.
Among the highlights was business process outsourcing (BPO), which recorded its second-best quarterly performance in the last two years. By contrast, IT outsourcing (ITO) contract values dropped significantly, driven by the decline in restructurings. However, as with the broader market, new scope of nearly $10 billion in the segment was well within range of first quarters historically.
Among the regions of the world, Europe, the Middle East and Africa and Asia Pacific turned in steady performances. Meanwhile, the Americas suffered its third straight quarterly decline, with TCV falling 56 percent year-over-year but up 17 percent sequentially.
To listen to a replay of the 1Q11 Global TPI Index presentation and view presentation slides, please visit http://www.tpi.net/knowledgecenter/tpiindex/. We will share specific insights on market activity in Europe, the Middle East and Africa (EMEA) with the release of the 1Q11 EMEA TPI Index on Thursday, April 21st.
by John Keppel, Partner and President-Information Services & Chief Marketing Officer, TPI
Today’s TPI Index, which examines fourth quarter and full year sourcing market performance, indicates that market activity did not meet the level of 2009 despite growth in the fourth quarter. Total contract value (TCV) for the market was about $22 billion, down 30 percent compared to 2009.
The Index also found clients steadily shifted toward smaller contract awards and multisourcing over the last decade – increasing from 30 to 53 percent during that period. We believe this took place as they grew disillusioned with the effectiveness of traditional single-source arrangements and realized that they could customize their sourcing solutions to leverage the skills of the best in each market.
While ITO continued to drive overall market activity, its TCV of $19 billion was down 19 percent year-over-year. Application Development & Management (ADM) contracts with Infrastructure included nearly doubled in value. Financial Services returned to its pre-recession TCV of $25 billion, with Banking, the largest subsector, turning in its best performance ever.
Restructuring activity – defined as contracts that were renewed, renegotiated or restructured –accounted for one-third of the overall market in 2010, while new-scope contracts declined 25 percent for the year.
We will share specific insights on market activity in Europe, the Middle East and Africa (EMEA) with the release of the 4Q10 EMEA TPI Index on January 24th. The full TPI Index presentation can be found below.
By: John Keppel, Partner & Managing Director, TPI Research, Analytics and Intelligence
The new TPI Index, released this morning, show that contract restructurings have continued into the third quarter as the overall market gradually improves. Total contract value (TCV) for the market was about $14 billion, down more than 20 percent from both the previous quarter and the same period last year. Restructuring activity, which include renegotiations, renewals and extensions of outsourcing contracts, represented 48 percent of the global market for the quarter and have been a key factor influencing results across the industry year to date. This interest in restructuring can be attributed to three factors:
Longer term contracts from the early 2000s and newer, short term contracts are coming up for renewal simultaneously
Economic conditions have caused many companies to be tentative about entering into new outsourcing agreements
Restructuring offers quicker returns and lower risk, which has been increasingly attractive to buyers
IT outsourcing and business process outsourcing also saw contract awards decline. However restructuring contract awards have indicated a maturing of the BPO segment and have increased the value of contracts with both Application Development & Management (ADM) and Infrastructure in scope. Regionally and across industry sectors, the market activity told a similar story. Despite the sluggish economy, we anticipate a significant improvement in the fourth quarter performance.
We will share specific insights on market activity in Europe, the Middle East and Africa (EMEA) with the release of the 3Q10 EMEA TPI Index on October 26th. The full TPI Index presentation can be found below.
By Mark Mayo, Partner & President, TPI Global Operations, TPI
This morning we released the TPI Index, outlining global outsourcing activity for the second quarter and first half of 2010. After the purge of pent-up contracts in the fourth quarter of 2009 that spilled into the first quarter of 2010, the rebuilding of the industry that was expected did not materialize in the second quarter. In fact, total contract value (TCV) for the second quarter dropped to about $18B – a decrease of about 13 percent when compared to the previous quarter (1Q10) and the same quarter last year (2Q09). TCV for the first half of 2010 was flat when compared to the same period last year.
While cost cutting became the most important reason to outsource during the economic downturn, TPI found that innovations such as cloud computing are beginning to change how companies approach their sourcing strategies. Now I will share a brief outline of how outsourcing activity fared regionally, by industry, and by service area:
Regionally, the Americas experienced the best first-half performance since 2006, with TCV up 30 percent – due to activity in the United States. EMEA performance lagged, on the other hand, with reduced activity in the UK countered somewhat by gains in the Nordic region.
TCV for the three industries that have traditionally led outsourcing activity – Financial Services, Manufacturing, and Telecom & Media – declined in the first half of this year, compared to both the first and second halves of 2009.
IT outsourcing (ITO) TCV dropped nearly 30 percent compared to the previous quarter, but was up five percent in this half of 2010, thanks largely to the large contract restructurings in the first quarter of 2010. Business process outsourcing (BPO) saw modest gains in the first half, with a significant portion of BPO activity occurring among contracts valued at less than $25M.
The overall industry picture for the remainder of the year is cautious and we anticipate that the third quarter Index will be modest – in keeping with historical third quarter activity. While fourth quarters are typically stronger, as we experienced in the fourth quarter of 2009, we believe that it is unlikely for the fourth quarter of 2010 to repeat the previous year’s surge.
Check back with us for the 2Q10 EMEA TPI Index on July 26th and the 2Q10 Asia Pacific TPI Index on July 28th. The full TPI Index presentation can be found below.
By Mark Mayo, Partner & President, Global Resources Management, TPI
This quarter showed record performance, but not enough to lift the YTD results to 2008 levels. Very importantly, several large and unique contracts in telecommunications were responsible for a significant portion of the quarter’s performance. Highlights for the quarter include:
A few very large Telco-to-Telco contracts — instances where one telecommunications carrier outsources its network operations requirements to another telecommunications service provider —accounted for more than 30 percent of the Broader Market’s total contract value (TCV).
Resurgence in mega deals, or contracts valued at US$1 billion or more, occurred both with and without Telco-to-Telco deals.
Significant IT outsourcing TCV growth, driven primarily by Telco-to-Telco deals, took place, with Broader Market BPO (contracts >$25M in TCV) continuing to lag. BPO outsourcing adoptions continues at the smaller contract level (<$25M in TCV).
The number and TCV of contracts signed in Asia Pacific increased substantially, with and without the impact of Telco-to-Telco.. Year-to-date, the region’s TCV has already exceeded the value of its contract awards for all of 2008.
Based on the tradition of strong fourth quarters, and a more robust industry pipeline, we expect positive movement in the marketplace during the next 6 to 9 months.
Check out the full Q3 TPI Index presentation below:
Today's blog comes from Peter Allen, Partner and Managing Director, TPI
When our January TPI Index summarized 2008, I wrote that “the stable and nimble ships will ride out the storm and move further up the value chain as a result.” Well, with Q1 in the books, we can report that the storm looks a lot like what we saw around the recession of 2001, and prior to the EMEA-driven surge of 15 months ago. See our TPI Index report at: http://www.tpi.net/pdf/index/1Q09_TPI_Index_Presentation.pdf
With 141 contracts awarded in Q1, valued at about $19B in Total Contract Value (TCV), and nearly $4B in Annualized Contract Value (ACV) the quarter was down 21% Q/Q and 22% Y/Y. The ACV awarded in the quarter decreased 18% Q/Q and 27% Y/Y. In fact, among first quarters the TCV was the lowest since 1Q01 and the ACV awarded was the lowest since 1Q03. This weaker award profile has been apparent since 3Q08.
That’s not a surprise to the followers of the booking reports of the major service providers. There were 48 different service providers winning at least one contract award in Q1.
So where will the market go from here? Looking forward, we expect this quarter’s pace to continue into next quarter. Although outsourcing service providers tell us that their pipelines are robust, recent experience suggests that it is taking longer to convert the pipeline into contract awards. There’s conservatism evident in the decision-making and the scale of the outsourcing deals being brought to market.
I still think that 2009 will be a defining year for outsourcing. We’ve weathered the Satyam disruption, and the underlying flow of smaller outsourcing contracts appears to be healthy. What’s missing is the volume of big, transformational deals that excites the industry. Discounting the impact of mega relationships, we observe a noteworthy sequential increase in ACV for the most recent three-quarter periods. Without mega relationships, the past three quarters represent an all-time high in ACV for any three-quarter period, at $8.5B.
When we looked closely at industry activity, we found that some sectors were adopting outsourcing at a more robust pace than they have in the past, especially during the recent economic downturn. We found four industries that met the criteria on a global basis: Media, Retail, Utilities and Telecom. Together, the four represent about one-third of recently awarded contracts. Each sector accelerated the number of outsourcing contracts it awarded by at least 20% over historical levels during the past 12 months. We discovered that each of the four industry segments presented a unique set of circumstances. More details are available here: http://www.tpi.net/resources/service_providers/TPIMomentum.html
Today's blog comes from Peter Allen, Partner and Managing Director, TPI.
As we close the books on 2008, it’s clear that the outsourcing industry is experiencing a perfect storm of obstacles for the supertanker-sized deals, but the zodiacs are continuing to ride the waves.
Our TPI Index showed strength among the number of contracts, the total contract value, and the annualized contract value for 2008, all exceeding previous years’ values. Strong growth during the first half of the year more than offset the slowdown experienced by the industry during late 2008 as a result of the economic environment. Though we’re entering the New Year on the heels of a strong 2008, there is hesitation among corporate decision makers who must make long-term commitments for the higher-valued contacts amidst the current economic environment, indicating a headwinds for the industry in the coming months.
But, if we look at the underlying metrics, there’s a steady tempo of contracts at the lower end of the TCV spectrum. Outsourcing is still being utilized by many companies to deal with the headwinds of uncertain and declining economic conditions. We think that this ‘tactical’ application of outsourcing services is indicative of the concern over near-term economic health, essentially a move to reduce costs and preserve capital. Conversely, when we see a resumption of some of the higher-valued contract awards it may be the first indication of a broader economic recovery.
I still think that 2009 will be a defining year for outsourcing. We may see some consolidation among service providers and some repositioning of industry-specific and standardized offerings. Ultimately, the Satyam-related anxiety facing the industry will pass Satyam: It was like riding a tiger, not knowing how to get off without being eaten - Horses for Sources, but the focus on operational resilience will move upwards in the corporate agenda.
Divestiture of captives, which we have seen in the financial services sector, is not over, but there is a limit to the service provider community’s appetite. Taking on more capacity in times of uncertain demand is risky.
All in all, the stable and nimble ships will ride out the storm and move further up the value chain as a result.
Today's blog comes from Peter Allen,
Partner and Managing Director, TPI
With this week’s release
of the Global TPI Index for third quarter 2008, I’ve been presented with a
number of hard-hitting questions by the media, service providers and the global
equity research community. Instead of addressing these one-on-one, I wanted to
share my answers with all readers. If you have added questions, feel free to
post them here.
It’s clear from the
questions that the current economic meltdown is driving concern for the future
of the outsourcing industry. The objective of my answers is to bridge the gaps
between market expectations that precipitate from the current economic crisis,
as well as future trends in the outsourcing industry. Several forces are at
play, ranging from budget cutting, debt limitations, pressure on profit
margins, dramatic restructuring of corporations comprising the financial
services industry, and government involvement. There’s a lot of speculation and
even more questions, which is understandable given the current volatility and
uncertainty in the global economy.
Let me know if you
agree or see things differently. I’m interested in hearing your point of view.
Q: Are
you seeing budgets getting cut in 2008 compared to previous years?
A:
Budgets for “back office” functions in virtually all companies in all
industries are being scrutinized and, in many cases, reduced. We hear of some
rather extreme challenges being laid on CIOs, CHROs, and business executives. There’s a focus on entering the new calendar
year with an adjusted run rate for operational expenses – run rates that better
align with the demand profile for goods and services for those companies. This
is prudent management in the face of uncertain economic circumstances. In
recessionary markets, when consumption decreases, it is natural to reduce
capacity for servicing that demand. The percentage of impact varies by industry
and function. If a company isn’t hiring new employees to service growth, then
the HR department isn’t going to get investment in new capacity. It’s as simple
as that. What this means to the outsourcing industry is two things.Firstly, existing contracts will be called
upon to dial-back aspects of service to reduce the total costs to the Client.As I said on the TPI Index call, a
well-designed outsourcing contract has many levers available to achieve
variability in costs.The second effect
is a delay in starting new projects, even those that have positive implied
returns.
Q: As
times get tougher going into 2009, shouldn't we see the growth rate towards
outsourcing accelerate?
A:
Yes, and growth will come in two forms. Existing outsourcing arrangements may
see scope expansion as clients conclude that the favorable economics of those
relationships allow for near-term benefits by doing more work via cost-effective
service providers. This is not the inverse of my prior point about Clients making
selective use of available cost-control levers.Rather, this growth will come through added scope to those providers who
have weathered the recessionary storm with their Clients.Secondly, we’ll likely see an upturn through
divested operations and associated services agreements. I think this will be a
significant characteristic of the early-2009 marketplace. Those are the
near-term upsides via outsourcing. Broader, transformational-oriented
outsourcing may take a while to return to flight.
