2Q15 ISG Outsourcing Index

© 2015 Information Services

Group, Inc. All Rights Reserved

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*Contracts with ACV ≥ $5M from the ISG Contracts Knowledgebase®

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Hosted by: Joe Foresi,

Janney Capital Markets

16 July 2015

The ISG Outsourcing Index™

Second Quarter and First Half 2015

Global Market Data and Insights



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Covering the state of the outsourcing industry for global, commercial contracts.*

Welcome to the 51th Quarterly ISG Outsourcing Index™ Review

Esteban Herrera Partner

John Keppel Partner & President

Stanton Jones Director & Emerging Technology Analyst




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At a Glance NUMBER OF AWARDS SET RECORDS DURING THE QUARTER

ACROSS A VARIETY OF BROADER MARKET AREAS

AN ABSENCE OF LARGE AWARDS HOLDS BACK 1H ACV ACROSS THE BROADER MARKET

AMERICAS ACV UP BOTH Y/Y AND Q/Q WITH STRENGTH FROM U.S. MARKET AND SMALLER-INDUSTRY VERTICALS

EMEA ACV DOWN Y/Y BUT UP Q/Q WITH STEPPED-UP ACTIVITY IN THE U.K., FINANCIAL SERVICES AND ENERGY VERTICALS

ASIA PACIFIC ACV DOWN Y/Y BUT UP Q/Q ON THE STRENGTH OF APPLICATION OUTSOURCING AND INDIAN MARKETS

Scorecard 2Q15 2Q Y/Y 2Q Q/Q ACV ($B)* Change Change

Global Market $ 6.2 -7% 24% New Scope $ 3.8 -11% 18% Restructurings $ 2.4 -1% 33% Mega-relationships $ 0.4 -75% -65% ITO $ 4.8 -8% 43% BPO $ 1.4 -6% -15% Americas $ 2.8 11% 29% EMEA $ 2.8 -12% 23% Asia Pacific $ 0.6 -39% 8%

1H15 1H Y/Y ACV (B)* Change

$ 11.2 -14% $ 7.0 -16% $ 4.2 -11% $ 1.6 -55% $ 8.1 -19% $ 3.1 4% $ 4.9 9% $ 5.2 -21% $ 1.1 -42%



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2Q15 Broader Market ACV is up 24% Q/Q and down 7% Y/Y. The number of 2Q awards set a record high. 1H15 ACV is down 14% from 1H14 in a smaller-deal market.

Broader Market Quarterly ACV ($B)* and Counts

Half-Year Broader Market Counts

Broader Market Contract Award Trends

Half-Year Broader Market ACV ($B)*

$11.2 $13.0

$10.0

$13.6 $10.8

$13.3 $10.9 $11.4

$9.1 $9.4

$12.3

$11.1

$11.6 $13.9 $10.5 $12.1 $10.1

$9.6 $8.1

$25.3

$21.0

$25.2 $24.7 $23.8 $23.0 $21.5 $18.7 $17.6

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1H ACV 2H ACV

754 702 541

677 657 579 542

438 375 372

676 687 570 648

530 547 484

363 369

1,378 1,228 1,247 1,305

1,109 1,089 922

738 741

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1H Counts 2H Counts

$6.2 $5.0

$6.7 $5.6

$6.7 $6.3 $4.8

$6.3 $4.0

451

303 388

288 363 339 311

376

231

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ACV Counts



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$2.6 $2.3

$3.3

$1.6

$0.5

$1.5

$2.5

$3.5

$4.5

New Scope Restructuring ITO BPO

Range of Prior 4 Halves Avg of Prior 4 Halves1H14 1H15

2Q15 Americas ACV is up 29% Q/Q and 11% Y/Y with a record-high award count. 1H15 New Scope increases over 1H14 by 2% in ACV and 32% in contract counts.

Americas Half-Year ACV ($B)*

Americas Contract Award Trends

Americas Quarterly ACV ($B)* and Counts

Americas Half-Year Segment ACV ($B)* Americas Half-Year Counts

$2.8 $2.1

$2.6 $2.5 $2.5 $2.0

$1.6 $1.9 $1.1

236

144 159 126

171

124 121 150

78

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ACV Counts

$4.9 $4.5 $3.8 $5.2

$4.0 $6.0

$4.4 $3.4 $3.6

$4.9

$5.1

$3.5 $4.0 $4.5 $3.2 $4.6

$3.4 $3.8 $3.6

$9.6 $7.3

$9.2 $8.4 $9.2 $9.0 $6.9 $7.5

$8.6

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1H ACV 2H ACV

380 295 211 290 267 270 231 190 162 179

285 271

226 261 196 214 195

150 149

380

580 482 516 528

466 445 385

312 328

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1H Counts 2H Counts



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$0.34

$0.16

$0.02 $0.11

$0.00$0.10$0.20$0.30$0.40$0.50$0.60

Canada Brazil Mexico Other LatAm

Range of Prior 4 Halves Avg of Prior 4 Halves 1H14 1H15

$0.83 $0.72

$0.54 $0.70

$0.40 $0.41 $0.42 $0.43 $0.40

$- $0.2 $0.4 $0.6 $0.8 $1.0 $1.2 $1.4

FinancialServices

Manufacturing Telecom& Media

Healthcare& Pharma

Energy BusinessServices

ConsumerProducts & Goods

TravelTransport

Leisure

Retail


2Q15 ACV increases due to strength in the U.S. Traditionally smaller verticals such as Transportation, Retailing and Healthcare help support market growth.

Americas Sub-regions Half-Year ACV ($B)*

Americas Industry Half-Year ACV ($B)*

Americas Contract Award Trends Detail

$4.2

$- $0.5 $1.0 $1.5 $2.0 $2.5 $3.0 $3.5 $4.0 $4.5

1U.S.



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Co. Revenues < $2 B Co. Revenues $2 -10 B

ISG Sourcing Market Standouts in the Americas Cognizant moves into the Big 10 category. BPOs and service providers with substantial offshore profiles lead in the Building tier. The Breakthrough 10 experiences a 40% turnover.

1New to group as of the current quarter Placements based on ACV of commercial contract awards in the past 12 months sourced from ISG Contracts Knowledgebase®. Service providers in alphabetical order; no rankings implied. Revenues sourced from Hoovers and individual company financial fillings

The Building 10 Sourcing Standouts

The Breakthrough 10 Sourcing Standouts

The Big 10 Sourcing Standouts

Co. Revenues > $10B

SOURCING STANDOUTS GROUPED BY COMPANY SIZE

Accenture Atos BT

Capgemini Cognizant1

Dell HP1

IBM TCS

Xerox

Aon Hewitt CGI

CompuCom Convergys1

Genpact HCL

Infosys Tech Mahindra1

Teleperformance Wipro

APAC Customer Services Firstsource Solutions

ICF International IGATE Luxoft

Minacs1 Mindtree1

Syntel UST Global1

Virtusa1



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Asia Pacific 2Q15 ACV is up 8% Q/Q but down 39% Y/Y. Almost 70% of the IT ACV awarded in the second quarter is in Applications.

Asia Pacific Half-Year ACV ($B)*

Asia Pacific Contract Award Trends

Asia Pacific Quarterly ACV ($B)* and Counts

Asia Pacific Half-Year Segment ACV ($B)* Asia Pacific Half-Year Counts

$0.92

$0.22

$0.88

$0.26 $0.0

$0.5

$1.0

$1.5

$2.0



$0.59 $0.55 $0.73

$0.46

$0.98 $1.00

$0.54 $0.50 $0.54

46

35

47

32 39

46

28

43 34

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ACV Counts

$1.1

$2.0

$1.1

$1.9

$1.1 $0.8

$1.6

$0.8 $1.2

$1.1

$1.2

$1.0

$1.7

$1.2 $1.6

$1.5 $1.7 $1.3

$0.6

$3.2

$2.1

$3.5

$2.3 $2.4

$3.1 $2.6 $2.6

$1.7

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1H ACV 2H ACV

81 85 68

87 85 71 67

49 47 50

79 71

81 69 79 80

70 48 45

164 139

168 154 150 147

119 95 95

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1H Counts 2H Counts



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$0.23

$0.45

$0.19 $0.11 $0.15

$0.02 $0.0

$0.1

$0.2

$0.3

$0.4

$0.5

$0.6

ANZ India and South Asia Japan Greater China Southeast Asia South Korea


$0.25 $0.22 $0.29

$0.16 $0.08 $0.06

$0.01 $0.02 $0.06 $-

$0.1 $0.2 $0.3 $0.4 $0.5 $0.6 $0.7

FinancialServices

Manufacturing Telecom& Media

TravelTransport

Leisure

Energy ConsumerProducts & Goods

Healthcare& Pharma

BusinessServices

Retail


India steps up its contracting pace. However, ANZ remains sluggish, holding back overall regional results. Financial Services, Manufacturing and Telecom results lag.

Asia Pacific Sub-regions Half-Year ACV ($B)*

Asia Pacific Industry Half-Year ACV ($B)*

Asia Pacific Contract Award Trends Detail



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ISG Sourcing Market Standouts in Asia Pacific Several Japanese providers, along with Cognizant, join the large multinationals in Big 10 Sourcing Standouts list. Australian and India-based providers contribute greatly to middle tier, while smaller segment sees 30% turnover from last quarter.


Co. Revenues > $10B





Accenture BT

Cognizant1

CSC1 Fujitsu Hitachi

HP IBM

Ricoh

TCS

Genpact1 HCL

Infosys NEC

Optus1 Tech Mahindra

Transfield Services Unisys

United Group Services Wipro

Aegis ChinaSoft

Hollysys Automation Minacs1

NGA Human Resources SITA

TeleTech1 UST Global1

Vertex WNS



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$3.5

$1.7

$4.0

$1.2

$-

$1.0

$2.0

$3.0

$4.0

$5.0

$6.0



EMEA ACV in 2Q15 is up 23% Q/Q yet down 12% Y/Y. 1H Restructuring and New Scope awards fall in nearly equal magnitudes, dropping more than 20%.

EMEA Half-Year ACV ($B)*

EMEA Contract Award Trends

EMEA Quarterly ACV ($B)* and Counts

EMEA Half-Year Segment ACV ($B)* EMEA Half-Year Counts

$2.8 $2.3

$3.4 $2.7

$3.2 $3.3 $2.6

$3.9

$2.3

169

124

182

130 153

169 162 183

119

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ACV Counts

293 322 262 300 305 238 244 199 166 143

312 345 263 318 255 253

219 165 175

634 607 563 623

493 497 418

331 318

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1H Counts 2H Counts

$5.2 $6.5

$5.0 $6.5 $5.7 $6.4

$4.9

$7.1

$4.2 $3.5

$6.1 $6.5

$6.0 $8.3

$5.7 $6.1

$5.0

$4.5 $3.9

$12.6 $11.5 $12.5

$13.9 $12.1

$10.9 $12.1

$8.6 $7.3

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1H ACV 2H ACV



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$1.62

$0.65 $0.90 $0.81

$0.57 $0.14 $0.15 $0.13 $0.17 $-

$0.5 $1.0 $1.5 $2.0 $2.5 $3.0

FinancialServices

Manufacturing Energy TravelTransport

Leisure

Telecom& Media

BusinessServices

ConsumerProducts & Goods

Healthcare& Pharma

Retail


$2.20

$1.07

$0.37 $0.46 $0.26 $0.33 $0.26 $0.20

$0.00

$0.50

$1.00

$1.50

$2.00

$2.50

$3.00

U.K. & Ireland DACH Nordics Benelux France SouthernEurope

Africa & MiddleEast

E. Europe &Russia


U.K. market sees increased activity, and 1H results turn positive. Financial Services and Energy verticals show 1H growth but lag behind historical half-year results.

EMEA Sub-regions Half-Year ACV ($B)*

EMEA Industry Half-Year ACV ($B)*

EMEA Contract Award Trends Detail



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ISG Sourcing Market Standouts in EMEA Large multinationals and providers with strong local “home market” profiles head up each of the company size segments. Each tier sees 20% turnover from last quarter.


Co. Revenues > $10B





Accenture Atos BT

Capgemini Cognizant1

Fujitsu HP

IBM TCS

Vodafone1

Capita Carillion1

CGI Computacenter1

HCL Infosys MITIE Serco Tieto Wipro

HH Global IGATE

InnerWorkings Kuehne & Nagel

Luxoft MAYKOR Mindtree Transcom1

WNS1

Xchanging



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Special Topic for Second Quarter 2015

CLOUD-BASED TRANSFORMATION – AS-A-SERVICE CREATES OPPORTUNITIES & CHALLENGES




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Provider Currency

Standard Support

Tiers

Supplier Weighted MSA

Cloud Adoption Defined

All-Inclusive Unit Price Elastic

Operational Expense

Capital Expense

Limited Commitment

Long-term Commitment

Asset/FTE Based RUs

Consumption Based RUs

Line Item

Pricing IT Absorbs

Costs Buyer

Currency

Custom Support

Tiers

Provisioned for Maximum

Demand

Buyer Weighted

MSA Labor Based

Consumer Charge-backs

AS-A-SERVICE CHARACTERISTICS

Traditional Service Characteristics

Automated

ADOPTION APPROACH CHANGED DRAMATICALLY about 18 months ago

EVOLVE CURRENT DELIVERY MODEL to create a more cloud-like experience RE-ENGINEER FINANCIALS MODELS so traditional services take on a cloud look and feel COST REDUCTION is primary motivator

FOCUS IS ON TRANSFORMATION using public cloud CLIENTS EMBRACE THE STRATEGIC BENEFITS OF SHARING infrastructure and software AGILITY is primary motivator

ISG-Advised DEALS WITH A CLOUD COMPONENT DOUBLED since 2012



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Emerging Solutions for Transformational Renewals

Design, Source and Provision a Complete Solution Centralizes Business Management and Analytics Multi-sourced Provider Management Unified Self-service Storefront

Public Cloud IaaS

Private Cloud IaaS

Managed Services

Existing Data

Center Cloud Brokerage

Platform

Public Cloud SaaS

Expected in Renewal TCV

over next 3 Years

Traditional Providers Tower-centric solutions Dedicated data centers Traditional service

characteristics

Next Generation Providers Application-centric solutions Shared data centers As-a-service characteristics

Sales & Marketing

R&D

Operations Finance

HR

Cloud Service Broker

Internal IT or Managed Services Provider

is as

Technology Supply

Enterprise LOBs

buyers mix and match providers



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2Q15 Broader Market sets a record for number of contract awards as the busiest quarter ever.

Structural industry change towards smaller deal values as first-half ACV matches pre-Recession levels, but with double the number of awards.

The Americas logs strong, consistent quarter and half; smaller-sized verticals compensate for weak Financial Services sector.

EMEA and AP post sequential ACV gains but lag Y/Y against tough compares.

Expect near double digit Y/Y growth in 3Q in 2015 as European markets and smaller G-2000 companies step up contracting pace.

Long term, transformative work in industry will take priority over focus on cost savings; new spend will be on revenue generation initiatives.

Providers that adapt rapidly to cloud platforms and digitization will flourish; those focused on driving competitors from yesterday’s business will not.

2Q15 ISG Outsourcing Index™ - Global Summary and Outlook

summary market

outlook market



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Please contact us with your questions and comments. Learn More

Paul Reynolds Chief Research Officer

+1 508 625 2194 [email protected]

ISG insights serving providers and market analysts

www.isg-one.com John Keppel

Partner and President +44 (0)7879 432 212

[email protected]

Will Thoretz Americas Media Contact


Denise Colgan EMEA and AP Media Contact

+44 1737 371523 [email protected]



http://www.isg-one.com/

http://www.isg-one.com/connect/



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Second Quarter and First Half 2015 APPENDIX: SCORE CARD FOR TCV



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The ISG Outsourcing Index has moved to ACV as the primary measure of the Broader Market. We will continue to provide a high-level TCV view of the market via a Scorecard analysis.

Second Quarter and First Half 2015 TCV Scorecard

*Contracts with TCV ≥ $25M from the ISG Contracts Knowledgebase®

Scorecard 2Q15 2Q Y/Y 2Q Q/Q 1H15 Y/Y

TCV ($B)* Change Change TCV ($B)* Change

Global Market $ 19.6 -28% -9% $ 41.2 -24%

New Scope $ 13.7 -24% -13% $ 29.5 -17%

Restructurings $ 5.9 -36% 2% $ 11.7 -38%

Mega-deals $ 0.0 -100% -100% $ 4.8 -53%

ITO $ 14.2 -32% -11% $ 30.2 -25%

BPO $ 5.4 -16% -2% $ 11.0 -21%

Americas $ 7.2 -21% 4% $ 14.2 -19%

EMEA $ 10.0 -27% -16% $ 22.0 -21%

Asia Pacific $ 2.4 -45% -9% $ 5.0 -44%



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Information Services Group is a leading technology insights, market intelligence and advisory services company, serving more than 500 clients around the world to help them achieve operational excellence. ISG supports private and public sector organizations to transform and optimize their operational environments through research, benchmarking, consulting and managed services, with a focus on information technology, business process transformation, program management services and enterprise resource planning. Clients look to ISG for unique insights and innovative solutions for leveraging technology, the deepest data source in the industry, and more than five decades of experience of global leadership in information and advisory services. Based in Stamford, Conn., the company has more than 900 employees and operates in 21 countries.

knowledge powering results®

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2Q15 ISG Outsourcing Index

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