Welcome to the ISG Live Blog on the 4Q12 TPI Index Call, where updates will be posted as they unfold in the presentation. Slides have been posted below.
John invites listeners to join the ISG blog discussion at blog.isg-one.com and turns to call back to Moshe Katri, who will introduce the Q&A session.
John relates some trends that could slow and others, stimulate, the market in 2013. We believe an overall market growth rate of 3-4% in 2013 to be a reasonable prospect . . . so our outlook on the impending sourcing market is modest yet generally positive.
In summary, the fourth quarter underperformed the third, yet 2012 performance nearly met the overall 2011 figures. Fewer contracts were awarded for the year but mega relationships — by both number and value — propped up the results. ACV performance for BPO and the Asia Pacific markets also helped boost Broader Market results year to year.
ISG believes examples where the technologies are combined creatively will allow for more transformative solutions. This type of initiative will not emerge from a traditional outsourcing RFP. Rather, as these trends converge, clients will seek to use more collaborative approaches. As a result, service providers will need to rethink their approach to the market and their relationships with clients.
Using BT “Global Trace”, TNT saw an increase of 16% in customer satisfaction and improved the operational efficiency of its supply chain by 17%.
The unstructured and structured data can be aggregated, analyzed and interrogated against set business rules and turned into actionable business intelligence.
BT “Global Trace” service provides TNT with end-to-end visibility to enable it to make business decisions in near real time. The service can collect supply-chain data, data from external sources and data from social media (i.e., customer satisfaction/opinions).
John gives an example of the synergies in talking about TNT’s relationship with British Telecom.
Each of the technologies alone will probably not impact outsourcing values significantly in 2013, but the synergy among these trends is a major opportunity, both for clients and service providers. Simply put, with mobility and social media generating mountains of new information every day, clients can turn to the Cloud to store it, Big Data to organize it, and Analytics to help them make sense of it.
Four disruptive technology trends are also likely to impact enterprises in 2013: social media, mobility, cloud computing and Big Data/Analytics.
Finally, the BPO market is expected to gain ground in 2013.
The emerging markets, such as those in China, India, Mexico and Brazil, are likely to continue their rapid development in 2013, with clients awarding contracts to both domestic and global service providers.
John calls out three areas that have significant potential growth for the sourcing industry in 2013: the United States, the emerging markets and the BPO space. For the U.S., the ISG Momentum Report recently concluded that U.S. companies ranked 201-500 on the Forbes Global 2000 list are the fastest-growing group of first-time adopters of outsourcing anywhere in the world. ISG expects penetration rates among these companies to rise in 2013, giving a boost to the mature U.S. market. Their size makes them strong candidates for large-scale initiatives.
John turns to the Special topic on trends impacting outsourcing in 2013 and beyond.
ISG plans to continue presenting these service-provider listings.
He then calls attention to firms that placed in a single region, including several China-heritage firms that ISG recently featured in an Index Call.
John points out those who placed in two regions — among them, Jones Lang LaSalle, which qualified by virtue of strong functional expertise in Facilities Management.
He says that among those firms winning in all three regions, two new firms entered the list and one dropped out. He also notes that just over a decade ago, all the India-heritage firms put together only accounted for 1% of market share by both number and ACV of contracts. Together, they grew in one decade by a CAGR exceeding 30%. And in 2012, they ranked among some of the top global firms, as well as the multi-regional and single-region leaders.
John introduces the top 15 providers by ACV for the three regions.
David returns the call to John.
Service providers are less optimistic about Asia Pacific than other regions, but ISG knows of many opportunities in this region.
Among industry sectors, Manufacturing ACV grew by nearly twice the prior 5-year average. Telecom and Media ACV rose well above average, based on several large awards. Financial Services’ ACV slipped a bit. And values for all the other sectors hovered around their typical historical ranges.
Within Asia Pac, emerging-country markets appear to be filling in gaps left because awards have subsided in traditional strongholds. For example, India and China set ACV records, thanks to larger contract awards and increased deal counts. The ASEAN countries tripled their ACV from 2011 off a small base. On the other hand, the Australia and New Zealand market reversed its recent growth trends both by contract numbers and ACV for the year.
For 2012, the region marked its best ACV performance in history — its $3B in ACV for the year climbed more than 50% from 2011. Modest growth in contract counts and a considerable number of mega relationships helped. BPO also supported much of this region’s growth.
Asia Pacific recorded noteworthy annual growth in 2012, with record contract numbers and ACV, despite 4Q12 ACV of $500M, which was flat Y/Y and down 34% Q/Q.
Service providers, less optimistic about EMEA than the Americas, nonetheless said their EMEA-based pipelines were larger than at this time one year ago.
Among Industry sectors in EMEA, Manufacturing ACV slipped slightly, Financial Services exceeded its 5-year average mark by almost $1B, and most of the other verticals in EMEA tallied ACV close to their averages.
The smaller sub-regional markets of Scandinavia and Benelux sustained or improved their ACV records around the five-year-average mark. However, ACV in France, Southern Europe and Africa & the Middle East lost ground from 2011 and fell below the five-year average.
For the second largest market, the DACH sub-region, ACV declined 23%, largely because the comparison is with a period that included the massive Siemen’s mega relationship.
EMEA’s largest market, the United Kingdom, witnessed a 20% increase in ACV for 2012, thanks mainly to a few large Facilities Management contracts in the financial services sector.
New Scope performance in EMEA has been fairly consistent during the last few years, but Restructuring ACV in the region ended up lower than its 2011 levels because of diminished ITO ACV.
Additionally, while EMEA’s ITO ACV took a downward turn in 2012, BPO ACV has climbed steadily and rather remarkably since 2010.
Set in a longer-term context, EMEA contract numbers have nearly doubled since 2007 because of more restructurings, more multi-sourcing and more new contracts coming online from first adopters.
In EMEA, ACV of $2.6B dropped almost 30% Y/Y, partially due to EMEA’s ACV in Q411 being one of the largest in recent years. ACV dipped 6% on the quarter. 2012 ACV of about $10B in EMEA was also down for the year. Mega relationships actually fared rather well in EMEA, while contract counts came in 15% below those in 2011.
Esteban turns the call over to David Howie, who will speak about outsourcing results in EMEA and Asia Pacific.
The Americas’ future looks positive. New adoption of outsourcing in this region is starting to spread among North American companies below the Forbes 200. South America will likely be a fertile environment for first-time adopters as well. Finally, Service Providers have told us that their Americas-based pipelines were up from 2011.
Among the industry sectors in the Americas, all but one either improved on or came very close to their prior 5-year-average levels. Telecom and Media ACV dropped off, while Manufacturing improved the most.
The Latin American market heated up, mainly because of some larger contract awards.
The predominant U.S. market appears to be stabilizing around the $7 Billion mark, nearly meeting last year’s level as well as the five-year average.
Although new scope comprises most of the ACV, restructurings have climbed 40% from 2011, mainly because there is growing second- and third-generation activity in the more mature U.S. Market. For the year, Americas New Scope ACV sloped downward.
In the Americas, BPO accounts for about one-third of market ACV, and ITO for the remaining two-thirds. Regions other than the Americas have shown a greater propensity to add BPO contracts this year.
Americas ACV is down nearly 30% from this quarter last year and about 9% sequentially. For the year, BPO ACV dropped only 3% from 2011 and fell within a normal range for recent years. There were more mega relationships but fewer contract awards.
John turns the call over to Esteban Herrera, who will focus on the Americas.
ISG remains cautiously optimistic about BPO in 2013, having witnessed slowed 2H12 BPO activity yet noting a healthy pipeline of impending BPO deals.
John introduces a list of the top 15 BPO providers, which includes a varied group of functional-based Providers, India-Heritage suppliers and several America-based firms. Despite their diversity, those who repeat from year to year often share a consistent strategy . . . one of choosing their sweet spot in BPO and sticking with it. Others might be on the list by virtue of a single large contract awarded in the period.
By processes, larger awards in 2012 more often involved Industry-specific BPO and Facilities Management services. Additionally, several large first-generation HRO deals have come up for renewal. F&A and Procurement continued to consistently account for substantial contracting activity but relatively modest ACV.
Half of the 34 mega relationships of 2012 encompassed BPO, continuing a growth trend from 2011.
For BPO, fourth-quarter ACV of $1.9B was broadly flat Y/Y and up some 5% Q/Q. Annual BPO ACV of $8B increased 15% and made for the best BPO year ever. This occurred despite an 18% drop in the number of contracts awarded.
Of the top 15 ITO providers by ACV for the year, 13 appeared on both the 2011 and 2012 lists. Virtually the same service provider group fought for an increase in its share of a smaller ITO pie in 2012.
There were fewer large contracts where ADM was bundled with infrastructure, which we had seen in 2011. However, other ITO towers recorded steady performance in 2012.
ITO performance in both the Americas and Asia Pacific grew in 2012, but diminishing growth in EMEA pulled down global performance.
But ITO remains healthy long-term and is moving forward rather than backtracking in the larger scheme of things. 2012 was the second-best year for ITO volume ever. And even the values accrued were quite reasonable. The $13.3B of ACV for 2012 exceeds the levels set prior to 2009.
For ITO, ACV of $3B in 4Q12 decreased quite significantly Y/Y and more moderately Q/Q. The year’s ITO ACV and contract counts each decreased about 11%, mainly due to diminishing new scope awards.
The balance between restructurings and new scope awards among mega relationships was about equal in 2012, a proportion during the past few years that appears to be setting the new norm.
Most have again been signed in the traditional markets of the U.S. and Western Europe, but more are coming from emerging, non-Western markets.
Mega relationships – contracts of $100M or more in annual value -– increased by one-third in number in 2012. This was the greatest number we’ve seen since 2006.
Contract counts of a little more than 1,000 for the year were down 13%, while still above the five-year average figure.
Several reasons might explain the quarter’s record: distractions from the U.S. elections and Super Storm Sandy, a difficult comparison from the previous quarter and a mere lull in activity after that strong third quarter.
ACV details show fourth-quarter declines of 27% Y/Y and 11% Q/Q, marking the lowest quarterly record for ACV performance since 2008. The fourth quarter contributed the lowest percentage of the year’s ACV.
•EMEA continued to struggle, following on from the weak first half, while Asia Pacific surged, based on a record second quarter as well as some breakthrough results in a few of the emerging country markets. Americas ACV basically held steady while contract numbers dropped moderately.
•Mixed signals usher in 2013. Delayed contract signings make the flow of awards uncertain, but service providers report initially healthy pipelines. The longer-term view into 2013 has not yet solidified.
The Fourth Quarter brought some of the following findings:
•4Q12 ACV of nearly $5B weakened sequentially.
•For the Full Year, ACV of more than $21B came close to the previous year’s level. There were fewer contracts awarded in 2012, but a greater number of mega relationships helped lift overall ACV.
•ITO tapered off while BPO continued its much-noted expansion, thanks to some larger contract signings. It marked the best year ever for BPO values.
You can find slides for this call at http://www.slideshare.net/ISG_Inc/4-q12-tpi-index-presentation-01-162013-final
The Special Topic will cover trends impacting outsourcing in 2013 and beyond.
This, ISG’s forty-first Index Call, will offer 4Q12 and 2012 results, using ACV as the primary measure.
ISG Partner John Keppel is thanking host Moshe Katri of Cowen & Company and then introducing other ISG speakers, Dr. David Howie, Partner in ISG EMEA, and Esteban Herrera, Partner for ISG Americas.