EquaTerra Whitepaper 4Q09 Pulse Report Jan2010 3141

8/9/2019 EquaTerra Whitepaper 4Q09 Pulse Report Jan2010 3141

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Copyright EquaTerra 2010. All rights are reserved. EquaTerra Advisor and Service Provider Pulse Survey Results - 4Q09 - Page 1

EquaTerra Advisor and Service Provider PulseSurvey Results 4Q09

IntroductionEquaTerra is pleased to release the ndings from its 4Q09EquaTerra advisor and business and information technology(IT) service provider Pulse surveys. Through these surveys,EquaTerra has developed a highly informative gauge thatprovides quarterly insights into trends and projections in theoutsourcing and third-party business and IT service markets,gleaned from its own eld advisors and leading global serviceproviders. EquaTerras advisors are the leading experts onbusiness and IT services, assisting buying organizationsactively exploring or undertaking shared services, outsourcing,offshore and other service delivery alternatives.

Since their inception in 2004, the EquaTerra advisor andservice provider Pulse surveys have yielded insightful analysis

of current and ongoing market trends. They capture changesin demand, scope, capacity and related key market indicators.They highlight the changes, and the direction of change, inthe business and IT service industry as a whole. The surveysfocus on where the market is going and how that direction ischanging or not compared to prior quarters and years.

EquaTerra also incorporates key quantitative market data andleading indicators from sources outside the Pulse surveys.These sources include experiences from direct client advisoryengagements and other EquaTerra market research, as well asservice provider performance and satisfaction studies .

This edition of the advisor and service provider Pulse surveysre ects business and IT service market activity during 4Q09(October through December 2009), as well as market demandand top trend projections for 2010. Topics explored includethe following.

Demand and buying patterns, including the impact ofthe economy on demand for outsourcing and relatedthird-party business and IT services

Top 2010 business and IT service market trends

Challenges to outsourcing deal consummation in thecurrent market environment

Buyer preferences for global sourcing models andlocations; buyer global sourcing sophistication andmaturity levels

Outsourcing deal scope, sales cycles, pricing, contractvalue and pro tability

Service provider pursuit and delivery capacity

The Pulse surveys focus on using outsourcing and other third-party services to support the following functional areas:

Customer care/call centerFinance and accounting (F&A)Human resources (HR)ITKnowledge process outsourcingProcurementVertical industry business services

The following leading global business and IT service providerswere polled for this quarters sell-side survey:

AccentureACSADPAtos Origin

Caliber PointCapgeminiCeridianCognizantConvergysCSCGenpact

HewettHCL TechnologiesIBMICG Commerce

LogicaMercerOutsource PartnersInternationalTCSWiproWNS
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Business Process Outsourcing (BPO) and IT outsourcing(ITO) market demand growth gained strength in 4Q09according to EquaTerra advisors and third-party businessand IT service providers polled. Providers were morebullish on growth than advisors but both groups citedgrowing market strength. Ongoing pressure to reducecosts continues to drive demand as buyers continue tofocus on doing more with less. An improving economy,as well as lack of investments in key operational areasover the past two years, are also favorably drivingdemand as buyers seek innovative means to supportgrowth and investments.

The market for more discretionary third-party services,such as consulting, systems integration and someapplication development work, remains weaker than foroutsourcing, though there are signs of improvement indemand for application development services. Publicsector demand for all types of third-party business,mission support and IT services remains strong.

The top trends indenti ed for 2010 in the business and ITservice market include the following:

Software as a service (SaaS), especially in the HRfunctional area

Cloud computing and the growth of non-traditionalsoftware applications (like SaaS and open source)

Shared service centers as a complement tooutsourcing or in lieu of outsourcing industries likethe public sector

Continued service provider market consolidationwith mixed results for buyers given the challenges ofsmoothly completing these efforts

The globalization of business and IT services will continueunabated in 2010. Buyers will continue to diversify thelocations from which they source services, as well astake a broader range of services offshore. The growth ofglobal sourcing, however, will continue to outpace mostbuyers ability to source and manage these increasinglycomplex efforts, leading to underachievement ofpotential bene ts and an occasional failed effort.

Buyers continue to face many challenges to dealconsummation. The key to overcoming these challengesis to recognize and address them early in sourcing

efforts and also, where appropriate, modify sourcingefforts to ease the impact of the challenges. The topchallenges cited include the following:

Retained organization, relationship management andoutsourcing governance challenges

Inadequate executive and management support

Change management concerns

The economy or the impact of the economy onoperations

Service provider capacity is improving somewhat fordeal pursuit but remains tight for transition and delivery.Service provider selectiveness is helping to improvecapacity, but budget and skill constraints and the needto chase and deliver more smaller deals exacerbatecapacity constraints, as do ts and star ts in buyerssourcing efforts.

Growth in pricing pressure on service providers hasreversed direction from the past few quarters and hasstarted to grow again as buyers seek lower cost deals

occasionally at the expense of quality.

EquaTerra offers the following conclusions from the 4Q09 Pulse survey:

Distribution of the EquaTerra Pulse survey reports, controlled by EquaTerra, is intended for internal use and select delivery toEquaTerra clients, prospects and other marketplace representatives. Questions or comments regarding these surveys should bedirected to Stan Lepeak , Managing Director of EquaTerra Global Research, [email protected], +1 203 458 0677.
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Table of ContentsIntroductionI. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

EquaTerra Advisor HighlightsII. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4BPO/ITO Service Provider HighlightsIII. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5Current Market Demand ConditionsIV. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6Market Demand and Market Trends Update . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

Advisors: Market DemandFigure 1 - . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6Advisors: Demand by Service Delivery ModelFigure 2 - . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7Advisors: Change in Demand by Service Delivery ModelFigure 3 - . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7Service Providers: New Deal Pipeline ProjectionsFigure 4 - . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8Service Providers: Demand Next QuarterFigure 5 - . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9Weighted Aggregate Market Demand: Advisors & Service ProvidersFigure 6 - . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

Economys Impact on Outsourcing Demand . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10Economic Environments Impact on OutsourcingFigure 7 - . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10

Challenges to Outsourcing Deal Consummation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11Challenges to Deal ConsummationFigure 8 - . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12Advisors: Challenges to Deal ConsummationFigure 9 - . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12

Demand Trends by Functional Area . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14Advisors: Demand by Functional AreaFigure 10 - . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .14Service Providers: Demand by Functional AreaFigure 11 - . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .14

Advisors: Functional and Process Area Demand . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16Service Providers: Functional and Process Area Demand . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16Demand Trends by Industry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17

Advisors: Demand by IndustryFigure 12 - . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17Service Providers: Demand by IndustryFigure 13 - . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17

Special Section: 2010 Predictions, Global Sourcing TrendingV. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18Most Impactful 2010 Business and IT Ser vice Market Trends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

Hot 2010 Market TrendsFigure 14 - . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .18Global Sourcing Trends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22

Buyer Global Sourcing Preference/DemandFigure 15 - . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23Advisors & SPs: Buyer Global Sourcing Preference/DemandFigure 16 - . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23Buyer Global Sourcing Maturity/SophisticationFigure 17 - . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24

Top Near and Offshore DestinationsTable 1 - . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25

Current Market Deal CharacteristicsVI. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .26Sales Cycle . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26

Service Providers: Sales CycleFigure 18 - . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27Pricing Competitiveness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27

Service Providers: PricingFigure 19 - . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28Deal Scope . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28

Service Providers: ScopeFigure 20 - . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29Ser vice Providers: Contract Pro tability and A bility to Increase S cope . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29

Service Providers: Contract Pro tabilityFigure 21 - . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30Service Providers: Ability on Increase ScopeFigure 22 - . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .31

Service Provider Capacity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31Advisors: Service Provider Capacity, OverallFigure 23 - . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32Advisors: Service Provider Capacity, PursuitFigure 24 - . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32Advisors: Service Provider Capacity, DeliveryFigure 25 - . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32Service Provider CapacityFigure 26 - . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34

Service Providers: Current Deal Portfolio Status . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35Service Provider Re-competes and RenegotiationsFigure 27 - . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35Service Provider Cancellations and Non-renewalsFigure 28 - . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35Service Provider Problem ContractsFigure 29 - . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36

Update on Outsourcing GovernanceVII. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .36Predictions for 2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36Current Market Deal Flow UpdateVIII. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .37Ser vice Provider Per formance and Satisfaction Market Studies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37Deal Snapshot . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38ConclusionIX. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .39Appendix - Key Questions by Advisors Primary Geography and Outsourcing Focus AreaX. . . . . . . . . . . . . . . . . . . . . . . . . . .41

Please note: this PDF also includes embedded bookmarks to help better navigate through thedocument. For a list of bookmarks, please click on the Bookmarks tab to the left of this PDF.


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EquaTerra Advisor Highlights

Overall BPO/ITO Market Demand Up; 54 percent of advisors cite increased demand, up six percent quarter overquarter (Q/Q) and 16 percent year over year (Y/Y)

Economys Impact on Outsourcing65 percent say the economy is driving more outsourcing (up 10 percent Q/Q, up 22percent Y/Y), while just 25 percent indicate economic conditions are slowing deal

ow

Top Challenges to Deal ConsummationRetained org./governance challenges1.Inadequate management support2.Change management concerns3.

Most Impactful 2010 Business and ITService Market Trends

Global sourcing/globalization1.Software as a service (SaaS)2.Cloud computing3.

Top Near and Offshore SourcingDestinations

India1.Central/Eastern Europe2.Philippines3.

Service Provider Capacity PursuitSteady; 45 percent cite no changes; 28 percent cite adequate, 27 percentconstrained

Service Provider Capacity DeliveryTightening; 40 percent cite no changes; 18 percent cite adequate, 42 percentconstrained, up 15 percent Q/Q

Leading Market SegmentsITO1.Finance and Accounting Outsourcing (FAO)2.Customer Care3.

Leading HR Outsourcing (HRO) SegmentsPayroll1.HR Information Technology (HRIT)2.Bene ts3.

Leading FAO SegmentsAccounts Payable (AP)1.Accounts Receivable (AR)/Credit and Collections (C&C)2.General Accounting3.

Leading ITO SegmentsInfrastructure/Operations1.Application Development and Maintenance (ADM)2.Desktop Services3.

Leading Procurement SegmentsProcurement Operations1.AP2.Strategic Sourcing3.

Leading IndustriesBanking/Financial Services1.Pharmaceutical2.Energy/Utilities3.

Demand for third-party business and IT services strengthened 4Q09 according to EquaTerra advisors polled. This re ects anongoing market focus on cost cutting as well as improvements in the economy that are driving more investments, albeit in avery cost- conscious manner. The economy remains the dominant factor impacting demand and deal ow, mostly driving moreoutsourcing. Predicted 2010 outsourcing demand levels are strong as buyers continue to focus on doing more with less. Theongoing globalization of services, SaaS, and cloud computing top the list of the most impactful buyer trends for 2010.


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BPO/ITO Service Provider Highlights

New Deal Pipeline Growth Improving; 76 percent of service providers cite grow th, up one percent Q/Q and 44percent Y/Y

Demand Next Quarter Steady; 63 percent expect increases, down ve percent Q/Q but up 10 percent Y/Y

Economys Impact on Outsourcing56 percent say the economic climate is driving more outsourcing, up four percentY/Y; 40 percent indicate buyers are slowing/rethinking outsourcing

Top Challenges to Deal ConsummationEconomic conditions1.Inadequate management support2.External business events (e.g., mergers and acquisitions [M&A])3.

Most Impactful 2010 Business and ITService Market Trends

Global sourcing/globalization1.Share service centers2.SaaS3.

Top Near and Offshore SourcingDestinations

India1.China2.Philippines3.

Sales CycleSteady; 24 percent cite lengthening, down two percent Q/Q and down eight percentY/Y; 60 percent see no change

Pricing CompetitivenessStrengthening; 48 percent cite more aggressive, up 16 percent Q/Q and four percentY/Y

Deal Scope Improving; 36 percent cite increases, up 20 percent Q/Q; 52 percent cite no change

Contract ProftabilityWeakening; 25 percent cite improvement, down 25 percent Q/Q but up eightpercent Y/Y

Ability to Increase Current Contract Scope Improving; 84 percent expect increases, up 23 percent Q/Q and Y/Y

Service Provider CapacityImproving; 60 percent cite adequate levels, up 18 percent Q/Q and 27 percent Y/Y;just eight percent cite tightening

Leading Market SegmentsITO1.FAO2.HRO3.

Leading ITO SegmentsADM, Infrastructure/Operations1.Desktop Services2.

Leading HRO SegmentsPayroll1.Bene ts, HRIT2.

Leading ProcurementSegments

Procurement Operations1.Strategic Sourcing2.Spend Analytics3.

Leading FAO SegmentsAR/C&C1.AP2.General Accounting3.

Leading IndustriesBanking/Financial Services1.Manufacturing2.Consumer Packaged Goods (CPG)3.

Business and IT service providers polled 4Q09 remained bullish on current and near-term demand for outsourcing. Deal scopecontinues to grow though more aggressive pricing pressure is re-emerging. Providers continue to focus on selling deals that candeliver strong cost savings and clear bene ts in the short-term. Demand for global service delivery continues to grow thoughbuyers struggle to manage complex global service portfolios. Along with global sourcing, shared service centers and SaaS areidenti ed as the most impactful buyer trends for 2010.


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Current Market Demand Conditions

Market Demand and Market Trends UpdateChange in demand growth for business process outsourcing (BPO) and IToutsourcing (ITO), as well as other business processes and IT services, grew slightly inthe nal quarter of 2009 according to EquaTerra advisors polled (see Figure 1).

Fifty-four percent of advisors indicated that overall third-party business and ITservice demand levels were up in the quarter, up six percent from 3Q09 and 16percent from 4Q08 levels. This level is just above the average 53 percent uprating over the life of the survey.

Just four percent of advisors indicated demand levels had declined in thequarter, down one percent from last quarter.

Demand levels were similar across geographies and functional areas, withadvisors that support ITO deals somewhat less positive on overall demandgrowth. Please see the appendix for a complete breakdown of response levelsby geography and type of service work supported.

Advisors: Market Demand 1

0%10%20%30%40%50%60%70%80%90%

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Down Flat Up Aggregate

Figure 1

EquaTerra advisors were polled on demand levels across the different categories ofbusiness and IT services. These categories are BPO, ITO, other types of third-party IT

services (e.g., consulting, systems integration and project-based work) and internalprocess improvement efforts (i.e., deploying expanded shared service of offshorecaptive operations). Figure 2 shows the areas of greatest demand. Figure 3 illustratesthe relative change in demand for these service delivery models compared to theprior quarter.

1 The aggregate market demand and pipeline levels illustrated in Figures 1-3 are based on a

calculation of the down, at and up responses to each question, and depict a combined or

aggregate total of each quarters response levels.


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ITO was cited by 62 percent of advisors as the s trongest area of demand acrossthe four service delivery categories (see Figure 2), down three percent from last

quarter, followed by BPO at 19 percent, up one percent from last quarter.

Sixty- ve percent of advisors indicated that demand for ITO grew quarter overquarter (see Figure 3). Seventy- ve percent of advisors indicated that demandfor internal transformation efforts like shared services grew in the quarter.

Thirty- ve percent of advisors cited an increase in demand for non-outsourcing, third-party IT services, an increase of eight percent from lastquarter. This continues a trend from last quar ter and indicates that demand forthese more discretionary services is reviving after several weak quarters.

Advisors: Demand by Service Delivery Model

2%

8%

17%

19%

62%

Other IT Svcs

Other

Internal Imp.

BPO

ITO

Figure 2

Advisors: Change in Demand by Service Delivery Model

9% 4% 5%

55%

35%

61%

21%

36%

65%

35%

75%

BPO ITO Other IT Svcs Internal Imp.

Up

Flat

Down

Figure 3

The ongoing strong demand for internal transformation efforts highlights thatorganizations today more often are addressing problems themselves in additionto bringing in external resources. This is tied to the rebound in demand fornon-outsourcing third-party services that often are employed to support these


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internal change offers. This approach is more common in organizations lessprone to outsourcing, such as those in the public sector, and will increase due to

a combination of great need for change and less viability of using outsourcing asa change and improvement tool. Buyers also undertake internal process work toprepare processes for outsourcing prior to transitioning them to providers (e.g.,improve/transform and then outsource).

The acute need to reduce costs and overhaul operating models will continue todrive more outsourcing deal ow into the market. Attempts to implement moreprotectionist trade policies, along with anti-outsourcing and anti-globalizationrhetoric, will continue in western markets. This will have limited impact on overalloutsourcing levels, but some measures will complicate some buyers sourcingagendas.

Service providers polled continued to become more bullish regarding new dealpipeline growth projections (see Figure 4), continuing a trend that started early inthe second quarter of 2009.

Seventy-six percent of service providers polled cited pipeline growth in thequarter, up one percent quarter over quar ter and 44 percent year over year.These are the second highest levels recorded in the service provider Pulsesurveys and are 19 percent above the survey average.

No service providers cited a decline in pipeline growth.

Service Providers: New Deal Pipeline Projections

0%10%20%30%40%50%60%70%80%90%

100%

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Down Q/Q About the same Up Q /Q Aggregate

Figure 4

All service providers polled were positive relative to pipeline growth with theexception of some (but not all) service providers that focus purely on HRO.

Service providers remained optimistic about future outsourcing demand growth (see Figure 5).

Sixty-three percent of service providers polled expect an increase in demandnext quarter, down ve percent from last quarter but up 10 percent from4Q08.


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Fewer than ve percent of service providers expected demand levels to declinenext quarter.

Please note this question is a measure of change in demand growth quarter overquarter, not absolute demand levels.

Service Providers: Demand Next Quarter

0%10%20%

30%40%50%60%70%80%90%

100%

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Decrease Flat Increase Aggregate

Figure 5

The nal chart in this section (see Figure 6) highlights general demand trending overthe life of the Pulse surveys. The weighted average is based on response levels fromboth advisors and service providers for each quarter. Any aggregate totals abovethe line indicate overall market growth, while totals below the line indicate market

contraction. The gap between service providers and advisors has been consistentthe past few quarters.

Weighted Aggregate Market Demand: Advisors & Service Providers

1 Q 0 5

2 Q 0 5

3 Q 0 5

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Advisors Service Providers

a e t o th

t t

Figure 6


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Economys Impact on Outsourcing Demand

The global economic recession bottomed out in late 2Q09 in the United States.Economic conditions vary signi cantly across geographies, industries and individualorganizations. There is much debate about whether a double dip recession willoccur in 2010. Regardless, economic conditions continue to heavily impact buyerusage and preferences for third-party services and the manner in which theyconsume these services.

EquaTerra has polled advisors and service providers over the past two years on howcurrent economic conditions are impacting outsourcing demand levels (see Figure 7).

The combined response levels for advisors and service providers show that 60percent felt market conditions are driving more outsourcing. This level was upone percent from last quarter and represents the highest level recorded in thesurveys. Advisors were somewhat more of the opinion than service providers(65 percent compared to 56 percent) that economic condition are drivingmore outsourcing.

Thirty-three percent overall indicated economic conditions are causingbuyers to slow or rethink outsourcing decisions, down three percent from lastquarter. Buyers more often are deferring, not canceling, outsourcing initiatives.The deferrals typically are caused by other events occurring in the buyerorganizations that have impacted the sourcing process, rather than by buyerschanging their minds about outsourcing.

There were no major variations in responses from advisors based on geographyor functional area of outsourcing supported.

Economic Environment s Impact on Outsourcing

47%58%

42% 42% 45%58% 59% 60%

22%

24%38%

54% 51%39% 36% 33%

32%18% 20%

4% 5% 3% 5% 7%

1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09

Driving more outsourcing Slowing/rethinking outsourcing plans Little/no impact

Figure 7


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Advisors offered the following additional comments on how the current economy isimpacting outsourcing and third-party service usage.

BPO projects are discreet and smaller in scale. Buyers have reduced investment dollars. They expect an ROI within near-term (e.g. 12-15 months).

More clients are looking for small niche type outsourcing plays where the bene ts can be realized in weeks or months. They will take a small gain now over a larger gain that takes too long to realize.

Even if companies dont want to outsource, they are willing to go thru a rational process to justify why or why not.

Service providers added these comments on how the economy is impacting marketdemand.

Deals that were in the pipe before meltdown are coming back. The pipeline is the healthiest in two years.

Now that companies have adjusted plans and the economy appears to have stabilized, they are revisiting outsourcing.

As employers spend more time controlling expenses associated withtheir bene t programs and maximizing their staff, they continue to face changing bene ts legislation, complex merger and acquisition activity

and growing duciary scrutiny and accountability. At the same time,communicating across all touch-points with the various segments of their employee population poses another challenge. While companies need more support across these areas, employers are less likely to nd it in-house as internal resources continue to be stretched.

Challenges to Outsourcing Deal Consummation

A variety of often con uent factors can combine to complicate, slow and, insome cases, stop outsourcing deals. In the majority of cases buyers will ultimatelycomplete the transaction, though possibly under modi ed terms and conditions. Insome cases, however, buyers may abandon efforts in lieu of pursuing other change

initiatives or because they cannot develop a viable business case in current marketconditions. The key point with challenges to outsourcing deal consummation is forbuyers to recognize them in advance, and then work to address and overcome themif possible after determining they are legitimate impediments to going forward withan outsourcing transaction.

EquaTerra polled both advisors and service providers to identify the current majorchallenges to successful outsourcing deal consummation (see Figure 8). EquaTerralast polled on this topic in the 4Q08 Pulse survey and before that in 3Q07 (see Figure9 for advisors results from prior quarters).

To learn more:Outsourcing Buyers: Ready or NOTfor the Economic Upturn ?
http://blog.equaterra.com/2009/10/outsourcing-buyers-ready-or-not-for-the-economic-upturn/http://blog.equaterra.com/2009/10/outsourcing-buyers-ready-or-not-for-the-economic-upturn/http://blog.equaterra.com/2009/10/outsourcing-buyers-ready-or-not-for-the-economic-upturn/http://blog.equaterra.com/2009/10/outsourcing-buyers-ready-or-not-for-the-economic-upturn/http://blog.equaterra.com/2009/10/outsourcing-buyers-ready-or-not-for-the-economic-upturn/


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Challenges to Deal Consummation

0% 20% 40% 60%

OtherCompliance/regulations

Loss of faith in outsourcingNegative market pressures

Service provider qualityEconomic conditions

External business eventInternal political pressure

Costs to do the dealInadequate business caseChange mgmt. concerns

Inadequate mgmt. support

Retained org./gov. challenges

ServiceProviders4Q09

Advisors4Q09

Figure 8

Advisors: Challenges to Deal Consummation

0% 20% 40% 60% 80%

Compliance/regulationsLoss of faith in outsourcingNegative market pressures

Service provider qualityEconomic conditions

External business eventInternal political pressure

Costs to do the dealInadequate business caseChange mgmt. concerns

Inadequate mgmt. supportRetained org./gov. challenges

Advisors4Q09

Advisors4Q08

Advisors3Q07

Figure 9

Retained organization, relationship management and outsourcinggovernance challenges were the top challenge identi ed in outsourcing dealconsummation, cited by 49 percent of EquaTerra advisors, up 11 percent from4Q08. Retained organization and outsourcing governance challenges arebecoming more complex as buyers expand their outsourcing efforts both interms of scope as well as geographic reach. Advisors operating out of EMEAwere the most likely to cite retained organization and outsourcing governancechallenges.

Forty-six percent of advisors identi ed inadequate executive and managementsupport, followed closely by change management concerns at 45 percent.This has been a more acute challenge over the past 18 months given overallchallenges buyer organizations are facing as a result of dif cult economictimes. Advisors primarily supporting global deals ranked change managementconcerns the highest with those in the Americas the most likely to identify lackof management support as a challenge.
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The most f requently cited challenge by service providers, identi ed by 50percent of respondents, was the economy or the impact of the economy on

operations. This was also the top challenge cited by service providers in 4Q08.Advisors were more likely to identify economic challenges as manifestingthemselves in other ways, for example, in complications arising from buildinga sound business case for outsourcing or from transition and changemanagement efforts.

Service provides were more likely than advisors to cite (38 percent comparedto 14 percent) an external business event (e.g., new management, M&A) as achallenge to deal consummation and less likely (four percent compared to 28percent) to identify internal political pressure.

Advisors and service providers elaborated on these and other speci c challenges

that are impacting buyers abilities to close deals. They include perennial challenges,such as buyer inability to articulate requirements suf ciently or develop a degreeof comfort at being able to support transition efforts. The 2Q09 Pulse survey did a deeper dive into issues and challenges related to outsourcing transitions.Both service providers and EquaTerra advisors noted that the growth of alternativesourcing models, speci cally SaaS and cloud computing, is causing some buyersto rethink traditional outsourcing efforts in light of the different options andopportunities these models create.

There are different approaches buyers can use to address challenges to dealconsummation. The most important is to identify upfront where they exist and

prioritize working through them. In some cases this involves employing moreresources in a more structured approach to address a challenge, such as outsourcinggovernance concerns or lack of management support. In other situations it mayinvolve modifying the scope of the outsourcing effort, for example, by scalingback on the aggressiveness or timing of an effort to make change managementchallenges more manageable. Regardless, a rigorous and proactive approach is thekey to overcoming these challenges.

To learn more:Top Five Ways to Optimize

Operations and Outsourcing DuringMergers, Acquisitions, Divestituresor Downsizing

Five Steps to Transition HoneymoonHeaven
http://blog.equaterra.com/2009/10/outsourcing-buyers-ready-or-not-for-the-economic-upturn/http://blog.equaterra.com/2009/10/outsourcing-buyers-ready-or-not-for-the-economic-upturn/http://blog.equaterra.com/2009/10/outsourcing-buyers-ready-or-not-for-the-economic-upturn/http://blog.equaterra.com/2009/10/outsourcing-buyers-ready-or-not-for-the-economic-upturn/http://blog.equaterra.com/2009/10/outsourcing-buyers-ready-or-not-for-the-economic-upturn/http://blog.equaterra.com/2009/10/outsourcing-buyers-ready-or-not-for-the-economic-upturn/http://blog.equaterra.com/2009/10/outsourcing-buyers-ready-or-not-for-the-economic-upturn/http://blog.equaterra.com/2009/10/outsourcing-buyers-ready-or-not-for-the-economic-upturn/http://blog.equaterra.com/2009/10/outsourcing-buyers-ready-or-not-for-the-economic-upturn/http://blog.equaterra.com/2009/10/outsourcing-buyers-ready-or-not-for-the-economic-upturn/http://blog.equaterra.com/2009/10/outsourcing-buyers-ready-or-not-for-the-economic-upturn/http://blog.equaterra.com/2009/10/outsourcing-buyers-ready-or-not-for-the-economic-upturn/http://blog.equaterra.com/2009/10/outsourcing-buyers-ready-or-not-for-the-economic-upturn/http://blog.equaterra.com/2009/10/outsourcing-buyers-ready-or-not-for-the-economic-upturn/http://blog.equaterra.com/2009/10/outsourcing-buyers-ready-or-not-for-the-economic-upturn/http://blog.equaterra.com/2009/10/outsourcing-buyers-ready-or-not-for-the-economic-upturn/http://blog.equaterra.com/2009/10/outsourcing-buyers-ready-or-not-for-the-economic-upturn/http://blog.equaterra.com/2009/10/outsourcing-buyers-ready-or-not-for-the-economic-upturn/http://blog.equaterra.com/2009/10/outsourcing-buyers-ready-or-not-for-the-economic-upturn/http://blog.equaterra.com/2009/10/outsourcing-buyers-ready-or-not-for-the-economic-upturn/http://equaterra.com/EquaTerra-2Q09-Advisor-and-Service-Provider-Pulse-Survey-Results-1287C514.htmlhttp://equaterra.com/The-Library/By-Your-Situation/Top-Five-Ways-to-Optimize-Operations-and-Outsourcing-During-Mergers-Acquisitions-Divestitures-or-Downsizing-1182C352.htmlhttp://equaterra.com/The-Library/By-Your-Situation/Top-Five-Ways-to-Optimize-Operations-and-Outsourcing-During-Mergers-Acquisitions-Divestitures-or-Downsizing-1182C352.htmlhttp://equaterra.com/The-Library/By-Your-Situation/Top-Five-Ways-to-Optimize-Operations-and-Outsourcing-During-Mergers-Acquisitions-Divestitures-or-Downsizing-1182C352.htmlhttp://equaterra.com/The-Library/By-Your-Situation/Top-Five-Ways-to-Optimize-Operations-and-Outsourcing-During-Mergers-Acquisitions-Divestitures-or-Downsizing-1182C352.htmlhttp://www.equaterra.com/A-Bad-Transition-is-Like-Going-on-Honeymoon-and-Fighting-all-the-Time-1410C514.htmlhttp://www.equaterra.com/A-Bad-Transition-is-Like-Going-on-Honeymoon-and-Fighting-all-the-Time-1410C514.htmlhttp://www.equaterra.com/A-Bad-Transition-is-Like-Going-on-Honeymoon-and-Fighting-all-the-Time-1410C514.htmlhttp://www.equaterra.com/A-Bad-Transition-is-Like-Going-on-Honeymoon-and-Fighting-all-the-Time-1410C514.htmlhttp://www.equaterra.com/A-Bad-Transition-is-Like-Going-on-Honeymoon-and-Fighting-all-the-Time-1410C514.htmlhttp://equaterra.com/The-Library/By-Your-Situation/Top-Five-Ways-to-Optimize-Operations-and-Outsourcing-During-Mergers-Acquisitions-Divestitures-or-Downsizing-1182C352.htmlhttp://equaterra.com/The-Library/By-Your-Situation/Top-Five-Ways-to-Optimize-Operations-and-Outsourcing-During-Mergers-Acquisitions-Divestitures-or-Downsizing-1182C352.htmlhttp://equaterra.com/The-Library/By-Your-Situation/Top-Five-Ways-to-Optimize-Operations-and-Outsourcing-During-Mergers-Acquisitions-Divestitures-or-Downsizing-1182C352.htmlhttp://equaterra.com/The-Library/By-Your-Situation/Top-Five-Ways-to-Optimize-Operations-and-Outsourcing-During-Mergers-Acquisitions-Divestitures-or-Downsizing-1182C352.htmlhttp://equaterra.com/EquaTerra-2Q09-Advisor-and-Service-Provider-Pulse-Survey-Results-1287C514.html


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EquaTerra continues to see growth in demand for outsourcing beyond the backof ce and in non-traditional functional and process areas like facilities management,

legal process outsourcing and document service outsourcing. Demand in these areashas been impacted by current market conditions, which in some cases have lessenedthe need for these services, but in others have made outsourcing more appealingas buyers seek to reduce costs and overhaul service delivery models. New areas ofoutsourcing focus also are of ten industry speci c, for example, remote meteringand smart grid initiatives in the utilities industry; clinical trials, analytics and R&Din life sciences; and document service outsourcing in paper-intensive industries likehealthcare and the public sector. The growing importance of document services washighlighted recently with the announced acquisition of BPO/ITO service provider ACSby Xerox, which has a large document service outsourcing practice.

The charts on the following two pages illustrate outsourcing demand by process areafor the four major functional areas IT, HR, F&A and procurement covered in thePulse surveys. There are no major changes in demand levels across these func tionsand processes compared to recent quarters. Last quarter EquaTerra introduced anew classi cation scheme for procurement, or source to pay, outsourcing. It providesa more granular analysis of procurement outsourcing usage and is complemented bya new question assessing the spend categories most frequently outsourced in theseefforts.

To learn more:

Assessing the Opportunities forDocument Services Outsourcing inthe Healthcare Industry

Bigger, Broader and Better Linked:Considerations for IntegratedSourcing of Facilities Managementand Real Estate
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Demand Trends by Industry

The two charts below illustrate industry demand as cited by EquaTerra advisors andservice providers. Industry rankings generally have been consistent over the past fewquarters

Advisors: Demand by Industry

0% 10% 20% 30% 40% 50% 60% 70%

CPG, Food/Bev, Retail,Wholesale

Govt. (Fed., State, Local), Edu.

Energy/Utilities, Oil & Gas

Pharma/Biotech

Banking, Fin. Svcs., Insurance

4Q094Q084Q07

Figure 12

Service Providers: Demand by Industry

0% 20% 40% 60% 80%

Energy/Utilities, Oil & Gas

Govt. (Fed., State, Local), Edu.

CPG, Food/Bev, Retail,Wholesale

Manufacturing

Banking, Fin. Svcs., Insurance

4Q094Q084Q07

Figure 13

Outsourcing demand continues to grow in the banking and nancial servicesindustries. This is not surprising given the challenges buyers in these sectors arefacing and their need to reduce costs, but shows buyers still pushing sourcingefforts forward despite other operational challenges. This group is a prime exampleof an industry being forced to do more with less and leveraging outsourcing as ameans to do so. Public sector demand remains strong, though it is comprised ofa proportionally higher percentage of non-outsourcing third-party services. Publicsector organizations are showing increased interest in moving from legacy customer

To learn more:The Talent for Change: Improvingthe Recruitment and Hiring Processin the Federal Governmen t

Charting a Future Course forOutsourcing in the PharmaceuticalIndustry

Business Process OutsourcingBodes Well for Utilities Seeking toReduce Service Costs and ImproveProductivity
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rra.com/Bigger-Broader-and-Better-Linked-Considerations-for-Integrated-Sourcing-of-Facilities-Management-and-Real-Estate-1107C513.htmlhttp://www.equaterra.com/Bigger-Broader-and-Better-Linked-Considerations-for-Integrated-Sourcing-of-Facilities-Management-and-Real-Estate-1107C513.htmlhttp://www.equaterra.com/Bigger-Broader-and-Better-Linked-Considerations-for-Integrated-Sourcing-of-Facilities-Management-and-Real-Estate-1107C513.htmlhttp://www.equaterra.com/Bigger-Broader-and-Better-Linked-Considerations-for-Integrated-Sourcing-of-Facilities-Management-and-Real-Estate-1107C513.htmlhttp://www.equaterra.com/Bigger-Broader-and-Better-Linked-Considerations-for-Integrated-Sourcing-of-Facilities-Management-and-Real-Estate-1107C513.htmlhttp://www.equaterra.com/Bigger-Broader-and-Better-Linked-Considerations-for-Integrated-Sourcing-of-Facilities-Management-and-Real-Estate-1107C513.htmlhttp://www.equaterra.com/Bigger-Broader-and-Better-Linked-Considerations-for-Integrated-Sourcing-of-Facilities-Management-and-Real-Estate-1107C513.htmlhttp://www.equaterra.com/Bigger-Broader-and-Better-Linked-Considerations-for-Integrated-Sourcing-of-Facilities-Management-and-Real-Estate-1107C513.htmlhttp://www.equaterra.com/Bigger-Broader-and-Better-Linked-Considerations-for-Integrated-Sourcing-of-Facilities-Management-and-Real-Estate-1107C513.htmlhttp://www.equaterra.com/Bigger-Broader-and-Better-Linked-Considerations-for-Integrated-Sourcing-of-Facilities-Management-and-Real-Estate-1107C513.htmlhttp://www.equaterra.com/Bigger-Broader-and-Better-Linked-Considerations-for-Integrated-Sourcing-of-Facilities-Management-and-Real-Estate-1107C513.htmlhttp://www.equaterra.com/Bigger-Broader-and-Better-Linked-Considerations-for-Integrated-Sourcing-of-Facilities-Management-and-Real-Estate-1107C513.htmlhttp://www.equaterra.com/Bigger-Broader-and-Better-Linked-Considerations-for-Integrated-Sourcing-of-Facilities-Management-and-Real-Estate-1107C513.htmlhttp://www.equaterra.com/Bigger-Broader-and-Better-Linked-Considerations-for-Integrated-Sourcing-of-Facilities-Management-and-Real-Estate-1107C513.htmlhttp://www.equaterra.com/The-Library/By-Industry/The-Talent-for-Change-Improving-the-Recruitment-and-Hiring-Process-in-the-Federal-Government-1401C869.htmlhttp://www.equaterra.com/The-Library/By-Industry/The-Talent-for-Change-Improving-the-Recruitment-and-Hiring-Process-in-the-Federal-Government-1401C869.htmlhttp://www.equaterra.com/The-Library/By-Industry/The-Talent-for-Change-Improving-the-Recruitment-and-Hiring-Process-in-the-Federal-Government-1401C869.htmlhttp://www.equaterra.com/The-Library/By-Industry/The-Talent-for-Change-Improving-the-Recruitment-and-Hiring-Process-in-the-Federal-Government-1401C869.htmlhttp://www.equaterra.com/The-Library/By-Topic/Current-Trends-and-News/Charting-a-Future-Course-for-Outsourcing-in-the-Pharmaceutical-Industry-1259C1160.htmlhttp://www.equaterra.com/The-Library/By-Topic/Current-Trends-and-News/Charting-a-Future-Course-for-Outsourcing-in-the-Pharmaceutical-Industry-1259C1160.htmlhttp://www.equaterra.com/The-Library/By-Topic/Current-Trends-and-News/Charting-a-Future-Course-for-Outsourcing-in-the-Pharmaceutical-Industry-1259C1160.htmlhttp://www.energypulse.net/centers/article/article_display.cfm?a_id=1619http://www.energypulse.net/centers/article/article_display.cfm?a_id=1619http://www.energypulse.net/centers/article/article_display.cfm?a_id=1619http://www.energypulse.net/centers/article/article_display.cfm?a_id=1619http://www.energypulse.net/centers/article/article_display.cfm?a_id=1619http://www.energypulse.net/centers/article/article_display.cfm?a_id=1619http://www.energypulse.net/centers/article/article_display.cfm?a_id=1619http://www.energypulse.net/centers/article/article_display.cfm?a_id=1619http://www.equaterra.com/The-Library/By-Topic/Current-Trends-and-News/Charting-a-Future-Course-for-Outsourcing-in-the-Pharmaceutical-Industry-1259C1160.htmlhttp://www.equaterra.com/The-Library/By-Topic/Current-Trends-and-News/Charting-a-Future-Course-for-Outsourcing-in-the-Pharmaceutical-Industry-1259C1160.htmlhttp://www.equaterra.com/The-Library/By-Topic/Current-Trends-and-News/Charting-a-Future-Course-for-Outsourcing-in-the-Pharmaceutical-Industry-1259C1160.htmlhttp://www.equaterra.com/The-Library/By-Industry/The-Talent-for-Change-Improving-the-Recruitment-and-Hiring-Process-in-the-Federal-Government-1401C869.htmlhttp://www.equaterra.com/The-Library/By-Industry/The-Talent-for-Change-Improving-the-Recruitment-and-Hiring-Process-in-the-Federal-Government-1401C869.htmlhttp://www.equaterra.com/The-Library/By-Industry/The-Talent-for-Change-Improving-the-Recruitment-and-Hiring-Process-in-the-Federal-Government-1401C869.html


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software application environments to commercial ERP (enterprise resource planning)systems as a means to reduce operating costs, and improve and standardize service

delivery models. Finally, energy and utility buyers are very focused on reducingoperational costs through internal shared service operations and outsourcing.

Special Section: 2010 Predictions, Global SourcingTrending

Most Impactful 2010 Business and IT Service MarketTrends

Every year EquaTerra polls advisors and service providers participating in the Pulsesurvey to identify the most important, innovative, and interesting trends they expectto see in the business and IT service market over the coming year. These predictions

are more interesting in 2010 than last year as the economy improves and buyers seekto make more investments, both to compensate for lack of investing over the pasttwo years, as well as to take advantage of new products and services in the market.

EquaTerra polled both service providers and its advisors on what they believe willbecome the most impactful trends in the business and IT service market in 2010 (seeFigure 14). They were asked to rank how legitimately hot (de ned as truly having abusiness impact on buyer organizations) the following market trends will be in 2010,with a rank of one representing cold or little market impact and ve representing hotor having a major market impact.

Hot 2010 Market Trends

1.00 3.00 5.00

Social media to support sourcing/outsourcing

Offshore captives

Protectionism/less outsourcing

Software tools to support outsourcing gov. efforts

Remote Infrastructure Management (RIM)

Shared service centers

"Cloud" computing

SaaS

Global sourcing/globalization

1=Cold/little market impact and 5=Hot/major market impact

SPsAdvisors

Figure 14
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There was general consensus among advisors and service providers as to the topproject trends for 2010.

Global sourcing and globalization were ranked as the top project trend for2010, being scored at 4.04 on the one-to- ve scale by service providers and3.65 by advisors. This highlights the ongoing push toward the globalizationof business and IT services despite the best efforts of some to impede thisevolution. Advisors operating out of EMEA were somewhat more positive onglobal sourcing trends than those in the Americas.

Both advisors and service providers were equally bullish on software as aservice, scoring it at 3.65 and 3.64 respectively. Growing buyer interest in SaaSis evident across all functional areas, but is especially pronounced in humanresources.

Cloud computing also was ranked above the median by both advisors andservice providers as was shared service centers and remote infrastructuremanagement (RIM). As an alternative to global sourcing, protectionism and lessoutsourcing was not given huge credence as a major 2010 trend. In addition,the use of offshore captives continues to become less favorabley viewed, orseen more as a selec tive tool, in lieu of offshore outsourcing. Advisors primarilysupporting global deals were more positive on the demand for offshorecaptives. The use of social media to support the sourcing and management ofoutsourcing efforts is an interesting concept, but is not viewed as mainstreamyet for 2010.

EquaTerra advisors offered the following elaboration on expected major business andIT service market trends for 2010.

SaaS

SaaS is gaining traction, particularly as an avenue to better leverage (or minimize/optimize) investments in underlying sys tems. This re ects a growing attitude that ERP investments from earlier in the decade havent really paid out, and now large buyers are looking at having to do it all again,and not sure they want to repeat the investment experience.

The emergence of Cloud in more clearly stated terms, i.e. SaaS, PaaS (Platform as a Service), IaaS (Infrastructure as a Service).

Cloud computing

Everyone is talking about cloud computing, but few have the commercial models in place to make it work effectively. I would expect to see it undergo a forced maturation quickly.

Cloud computing is everywhere in customers minds but nowhere in terms of people understanding how they can truly bene t. Also, the commercial transition path from traditional data centers to cloud through outsourcing remains unclear.
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An emerging trend is Google Apps replacing Microsoft Of ce. It will have a huge impact on desktop management deals.

Traditional enterprise infrastructure solutions will be benchmarked against global cloud structures, showing considerable cost bene ts to be gained.This will cause a considerable ood of new/existing third party suppliers,requiring management attention and placing a heavy demand on the demand/governance structure within corporations. We will see a 3 way split in clouds, whereby:

Global clouds: represent secure global solutions for any/all customers *(e.g. e-mail, sof tware distribution via internet)

Regional clouds: largely application driven environments offering *volume ef ciencies within a region/provider that is applicable to small

and medium enterprises.

Local clouds: internal development of cloud type systems within*enterprises to fend off the threat of outsourcing.

Human resources/HRO

Most major service providers are talking about emerging trends insocial behaviors for reaching out to employees. Learning, recruitment,and payroll are all areas that will be impacted and bene t from the emerging technologies. Applying for a job from your smart-phone, training environments through Second Life environments, and keying in time and attendance data from a mobile phone are all leading cutting-edge concepts (and in some cases current capability) that are expected to grow in 2010.

SaaS at least in HR is a reality. Workday reports its hundredth customer, and not all are mini-market customers by any means. One customer now up and running has a truly global footprint. SAP and Oracle are scrambling to catchup.

Service provider trending

Staf ng will become constrained again and a high number of people will shift between vendors. Maturing of local midsize vendor market which will take a signi cant part of market share of big vendors. Continued reshifting of vendors (mergers, takeovers, etc.).

More M&As but will they work?
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EquaTerra Whitepaper 4Q09 Pulse Report Jan2010 3141

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