Segment Analysis
IT Outsourcing
The five factors that affect the IT Outsourcing deals
Dave Brown, KPMG
Partnership and innovation: Look for your service provider to step up as a true partner on innovation. That could mean making investments to solve problems or providing industry insights to help you excel against the competition. Cloud computing: Cloud solutions are not onesize-fits-all, so make sure your contract has the right solution for your company’s needs. Flexibility: As your business continually adapts to the marketplace, your ITO agreements should be adaptable as well – in terms of the commercial offering, contract terms, staffing and delivery location. Price: It will always be important, but keep in mind that next-generation contracts usually don’t offer as much opportunity for price reductions as the first time around. Remember that a myopic focus on price can threaten the quality of operations. Cross-functional service delivery: Consider how IT services can drive new value by improving back-office functions throughout the enterprise.
Source: blog.equaterra.com
study suggests the sluggish 1.2 percent growth in the European ICT market will be reflected in all the tech categories except IT outsourcing and hardware maintenance and IT consulting and integration services, which will grow by 3.3 percent and 2.8 percent, respectively. Recent data from TPI Index shows outsourcing market improved in second quarter-2012 with Total Contract Value (TCV) up by 7 percent yearover-year data. Despite decline in major outsourcing/IT spending activity, one can exhibit a marginal growth in outsourcing especially for Asia Pacific region where the market if largely driven by megadeals. The study reveals, 173 contract awards during the second quarter represented a drop of 22 percent year-over-year and 14 percent sequentially. However, the outsourcing market saw renewed
58 | September 2012
activity in mega-deals (TCV of $1B or contracts with ACV of $100M or more). “The outsourcing market showed improvement during the second quarter on both a year-overyear and sequential basis,” John Keppel, Partner & President, Research and Managed Services, ISG. He further added, however, the quarter’s growth was not enough to prevent a first-half decline in both value and activity from last year’s record performance. By function area, IT outsourcing contracts accounted for $13.1B in second-quarter-2012 TCV, a rise of 6 percent year-over-year but a decline of 5 percent sequentially. By region and geographic distributions, Asia Pacific turned out to be the fastest growth location during the second quarter of 2012, driven by activity the Telecom & Media and Banking, Financial Services & Insurance (BFSI) verticals and Greater China and Australia New Zealand sub-regions. Speaking of other regions, America’s TCV of $8.3B rose 6 percent over the same quarter a year ago but dropped 6 percent from the first quarter. Europe and Middle East & Africa (EMEA) registered $8.4B in TCV, a drop of 21 percent year-over-year and 11 percent sequentially. ISG-TPI anticipates a soft third quarter for IT outsourcing business whereas analysts believe the coming fourth quarter will likely pick up the IT outsourcing activity on the account of larger deals waiting in the queue. In an another research conducted by Everest Research, The IT outsourcing markets will witness a significant number of contracts coming to end of term, totaling more than US$85B TCV during the next 18 months. The study reasons, because buyers signed progressively larger deals until the economic slowdown struck, more than $US55B of contracts will expire in the next 12 months, and this declines actually shows a dip in size compared to preceding year. “Infrastructure outsourcing, data center and network tower deals make up a significant portion of the ITO contracts expiring in the near term,” quoted Ross Tisnovsky, senior vice president, Everest Group.
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