1st Quarter 2012, Global TPI Index

Hosted by:

The TPI Index

Darrin Peller, Barclays Capital

First Quarter 2012

April 12, 2012

Global Sourcing Market Data and Insights

© 2012 Information

Services Group, Inc. All Rights Reserved

ISG-one.com

*Contracts with TCV > $25M

Partner & President Research & Managed Services and Chief Marketing Officer, ISG

Partner & President North Europe, ISG

Duncan Aitchison

Covering the state of the outsourcing industry for global, commercial contracts with total contract value greater than $25 million.

Welcome to the 38th Quarterly Outsourcing Index Call

John Keppel

2

Paul Reynolds Chief Research Officer, ISG Momentum

© 2012 Information


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“ 3

At A Glance

“

GLOBAL BROADER MARKET AWARDS AND TCV DROPPED ON THE HEELS OF RECORD 2011 RESULTS

RESTRUCTURINGS NOTABLY ↑ Y/Y, WHILE NEW SCOPE TCV CONTINUES TO DECLINE

EMEA TCV DECLINES ON DEARTH OF LARGE DEALS

AMERICAS TCV ↑ Q/Q STRONG RESULTS INCLUDE THE LONE 1Q11 MEGA DEAL

Score Card

1Q12 TCV ($B)

Q/Q Change

1Q Y/Y Change

1Q12 Counts

Q/Q Change

1Q Y/Y Change

Global Market $ 18.7 -35% -22% 184 -18% -31%

Mega Deals $ 1.5 -83% -93% 1 -80% -67%

New Scope $ 10.7 -45% -46% 137 -23% -35%

Restructurings $ 8.0 -13% 82% 47 2% -18%

ITO $ 12.6 -37% -20% 120 -22% -29%

BPO $ 6.1 -30% -27% 64 -11% -34%

EMEA $ 8.6 -53% -32% 79 -23% -37%

Asia Pacific $ 1.8 -33% -36% 18 flat -55%

Americas $ 8.3 8% -3% 87 -16% -14%

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$21.7 $28.1 $31.6

2 Prior Qtrs Avg

$29.9

2Q101Q104Q09

$18.7 $28.7 $27.1

$19.6 $24.0 $24.8 $18.4 $21.7

$28.1

1Q12 4Q 3Q 2Q 1Q11 4Q 3Q 2Q 1Q10

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1Q12 TCV declined a substantial 35% Q/Q and 22% Y/Y, not unexpected after a strong third and fourth quarter 2011.

Broader Market Contract Award Trends

Quarterly TCV ($B)* Comparison

$17.2

$29.0 $28.1

2 Prior Qtrs Avg

$28.5

2Q061Q064Q05

↓40% ↓27%

The TCV Hangover Effect - Previous Quarterly Precedence

↓35%

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Only one was signed in 1Q, an ITO mega deal in the Americas valued at $1.5B. 1Q12 Mega Relationship counts were the 3rd highest in three years.

Broader Market Mega Deals & Relationships Trends

$0.9

$1.8

$0.5

$1.6

$0.9

7

11

3

7 6

1Q12 4Q11 3Q11 2Q11 1Q11 4Q10 3Q10 2Q10 1Q10 4Q09 3Q09 2Q09 1Q09

ACV (B) Counts75% of 1Q Mega Relationships are Restructurings

$1.5

$8.8

$4.1 $7.1

$2.0

1

5

3 4

2

1Q12 4Q11 3Q11 2Q11 1Q11 4Q10 3Q10 2Q10 1Q10 4Q09 3Q09 2Q09 1Q09

TCV (B) Counts

Mega Deal TCV ($B)* Comparison

Mega Relationship ACV ($B)* Comparison

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$58

$65

$74

$66

$71

2Q11-1Q12

2Q10-1Q11

2Q09-1Q10

2Q08-1Q09

2Q07-1Q08

New Scope TCV

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While down 13% Q/Q, 1Q12 Restructuring TCV almost doubled Y/Y. New Scope was off by nearly 50% Q/Q and Y/Y.

Broader Market New Scope & Restructuring Trends

New Scope vs. Restructuring TTM TCV ($B)* Comparison

66% of Large Deals ($100M - $999M TCV) have been Restructurings in the past 3 quarters

$10.7

$19.5 $19.6 $17.2 $16.4

$8.0 $9.2

$4.4

$11.0

$3.8

1Q12 4Q 3Q 2Q 1Q11 4Q 3Q 2Q 1Q10 4Q 3Q 2Q 1Q09

New Scope Restructured

New Scope vs. Restructuring Quarterly TCV ($B)* Comparison

$36

$24

$27

$22

$14

Restructuring TCV

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ITO experienced Q/Q decreases of 22% in counts and 37% in TCV. ITO mirrors the Broader Market pattern of a ‘hangover’ quarter following two robust quarters.

ITO Contract Award Trends

Top ITO Providers by TTM TCV

Note: Service providers in alphabetical order; no rankings implied. Placements based on 2011 TCV commercial contract awards sourced from ISG contracts database.

$12.6

$20.0

$15.6

$22.2

$13.0

1Q124Q3Q2Q 1Q114Q3Q2Q 1Q104Q3Q2Q 1Q09


New Scope vs. Restructuring TTM TCV ($B)*

$37.8

$47.0

$55.1

$39.9

$45.3

2Q11-1Q12

2Q10-1Q11

2Q09-1Q10

2Q08-1Q09

2Q07-1Q08

New Scope TCV

$26.2

$17.8

$20.8

$16.4

$10.1

Restructuring TCV

New Scope

Accenture BT

Capgemini Cognizant

CSC Dell

Fujitsu HCL HP

IBM Infosys

TCS Telstra

T-Systems Xerox

Restructuring

Atos BT CGI CSC Dell HCL HP

IBM Infosys Xerox

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$6.1

$8.7 $8.3

$5.9 $7.2

1Q12 4Q 3Q 2Q 1Q11 4Q 3Q 2Q 1Q10 4Q 3Q 2Q 1Q09

8

BPO experienced Q/Q decreases of 10% in counts and 30% in TCV. The Q/Q comparison is tough against the strong 2011, the result of Mega Deal activity.

BPO Contract Award Trends


Top BPO Providers by TTM TCV

Accenture Capgemini

Capita Carillion

Cognizant Genpact

HCL IBM

Infosys Logica

RR Donnelly Sabre TCS

Xchanging Xerox

New Scope vs. Restructuring TTM TCV ($B)*

$20.3

$17.9

$18.9

$26.5

$25.5

2Q11-1Q12

2Q10-1Q11

2Q09-1Q10

2Q08-1Q09

2Q07-1Q08

New Scope TCV

$9.8

$6.2

$6.6

$5.7

$3.9

Restructuring TCV

Note: Service providers in alphabetical order; no rankings implied. Placements based on 2011 TCV commercial contract awards sourced from ISG contracts database.

© 2012 Information


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$8.6

$18.3

$12.7 $12.2 $9.2

1Q124Q3Q2Q1Q114Q3Q2Q1Q104Q3Q2Q1Q09

9

1Q12 TCV was down 53% Q/Q and 32% Y/Y. The ‘hangover’ effect and, potentially, Eurozone financial concerns impacted results.

EMEA Contract Award Trends


$31.7

$32.6

$38.5

$31.3

$39.2

2Q11-1Q12

2Q10-1Q11

2Q09-1Q10

2Q08-1Q09

2Q07-1Q08

New Scope TCV

$21.3

$11.9

$8.8

$12.1

$4.7

Restructuring TCV

Quarterly TCV ($B)* Comparison New Scope vs. Restructuring TTM TCV ($B)* Comparison

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$1.8

$2.7 $2.8

$1.4 $1.6

1Q124Q3Q2Q1Q114Q3Q2Q1Q104Q3Q2Q1Q09

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AP contracting counts were flat Q/Q. However, TCV was down by one-third both Q/Q and Y/Y, ending up well below the recent first-quarter average.

Asia Pacific Contract Award Trends



$5.6

$8.8

$9.0

$9.8

$7.6

2Q11-1Q12

2Q10-1Q11

2Q09-1Q10

2Q08-1Q09

2Q07-1Q08

New Scope TCV

$2.7

$2.5

$3.2

$1.3

$1.6

Restructuring TCV

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$8.3 $7.7 $8.5

$14.6

$9.4

1Q124Q3Q2Q1Q114Q3Q2Q1Q104Q3Q2Q1Q09

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Americas TCV rose 8% Q/Q, making it one of the three highest quarters since the beginning of 2010. Americas posted the only 1Q12 Mega Deal.

Americas Contract Award Trends



$12.1

$9.6

$15.4

$8.6

$7.7

Restructuring TCV

$20.7

$23.5

$26.5

$25.2

$24.0

2Q11-1Q12

2Q10-1Q11

2Q09-1Q10

2Q08-1Q09

2Q07-1Q08

New Scope TCV

Special Topic for First Quarter 2012

Paul Reynolds Chief Research Officer,

ISG Momentum

12

© 2012 Information


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310

570 690

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Contract expirations are occurring at a faster rate as the result of dramatically increased transaction counts and declining average contract durations.

Anticipating Increased Restructuring Volume

5

6 933

377

2011 2002

Average Duration

Contract Awards

Record Levels of Expiring Contracts

Trends Impacting Restructuring Volumes

2012e 2007

↑ 20% Y/Y

2011

↑ 250%

↓ 1 Yr.

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Contract renegotiations can be driven by either the client or the service provider, but the leverage is, more often than not, with the Client.

Motivations Behind Preemptive Renegotiation Efforts

Client Motivations Provider Motivations

Increase Scope or Service Levels Reduce Price for Existing Scope

Add Emerging Services

Chance for Sole Sourced Renewal Retain Full Scope Introduce New Services

Restructuring creates the opportunity for Best-of-Breed providers to win new clients looking for targeted solutions

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37%

32%

18%

13%

Americas-heritage Niche Providers India-heritage Major European

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Applying the 80/80 rule: 80% of the time a deal is renegotiated with the incumbent provider, and they typically retain about 80% of the scope.

Who will win these restructurings?

2012 Restructuring

by Provider Share of ACV

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Global Broader Market ↓1Q12 loses momentum after two quarters of impressive growth

Restructuring TCV ↑ Q/Q, not enough to make up for New Scope declines

Short fall in previously robust EMEA TCV had the greatest impact on the market

ITO and BPO ↓ Q/Q in contract number and TCV

New Scope ITO ↓, but New Scope BPO ↑ in the last Trailing Twelve Months

Look for a soft first half 2012 and a reviving second half

Restructuring 2H12 activity may lead an upswing in the overall market

1Q12 TPI Index Summary and Outlook

summary market

outlook market

© 2012 Information


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Learn More

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Please contact us with your questions and comments.

--- Media Contacts ---

► John Keppel ► Duncan Aitchison

www.considerthesourceblog.com

Partner & President Research & Managed Services and Chief Marketing Officer +44 (0)7879 432 212 [email protected]

Partner & President North Europe, ISG +44 (0)1628 21702 [email protected]

► Paul Reynolds Chief Research Officer, ISG Momentum +1 508 625 2194 [email protected]

► Andrew Park Director, Global Communications & Branding, ISG +1 919 259 9252 [email protected]

► Rhena Wallace Cohn & Wolfe for ISG +1 212 798 9832 [email protected]

www.isg-one.com

1st Quarter 2012, Global TPI Index

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