State of the Global Services Market: 2013 Predictions

2013 Predictions: State of the Global Services Market

January 23, 2013

Live Tweeting #Predictions2013

Proprietary & Confidential. © 2013, Everest Global, Inc. 2

Areas of coverage

Introductions and “2012: Year-in-Review”

IT Services

Business Process Outsourcing (BPO)

Global Sourcing

Pricing

Summary and Q&A


Introductions

Katrina Menzigian (moderator) Vice President [email protected]

H. Karthik Vice President – Global Sourcing [email protected]

Jimit Arora Vice President – IT Services [email protected]

Rahul Gehani Practice Director – Pricing Assurance [email protected]

Rajesh Ranjan Vice President – BPO [email protected]

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Market Vista Global services tracking across functions, sourcing models, locations, and service providers – industry tracking reports also available

Custom research capabilities Benchmarking | Pricing, delivery model, skill portfolio Peer analysis | Scope, sourcing models, locations Locations | Cost, skills, sustainability, portfolio Tracking services | Service providers, locations, risk Other | Market intelligence, service provider capabilities, technologies

Healthcare

Information technology

Finance & accounting

Procurement

Banking, financial services, insurance

Global sourcing

Cloud Vista

Human resources Recruitment process

Transaction Intelligence PricePoint

Everest Group: 2013 research offerings

Service Provider Intelligence



2012: Year-in-Review

1 Everest Group webinar document: 2012 Market Predictions (presented in Dec 2011)

What we predicted at the beginning of 20121 How has the market fared to date?

While BPO margins did go up somewhat, IT Services margins slipped modestly Emerging geos continue to increase – LATAM, Africa, Mid East, CEE Rates across BPO vary, but all remain robust - especially true in the case of BFSI BPO M&A in this space is about building out cloud breadth and depth – enhanced value propositions to increase cloud appeal

Comments

Pricing pressures will squeeze providers’ margins, especially offshore, forcing investment in newer customer-centric solutions and innovative engagement models Global sourcing leaders will seek new locations; Emerging geographies will continue attracting attention BPO markets will continue to grow at double-digit rates Service providers will make strategic investments in driving value from cloud services – moving beyond technical limitations and focusing on client adoption requirements

1

2

3

4

Same as prediction Similar but with some variations Different than prediction


Areas of coverage


IT Services


Global Sourcing

Pricing

Summary and Q&A


IT Services | Key 2013 Predictions

“Enterprise IT” vs. “Business IT”: Enterprise IT will strike back

“Verticalization” in infrastructure services – an emerging reality

“SMAC” (especially MAC) will fuel IT services growth

Application services will witness greater appetite for “top-to-bottom” delivery

Market consolidation will blur the lines across service provider categories


Cloud adoption will accelerate as buyers continue to realize value from these delivery models

Trend in cloud related global service deals 2011-2012; Percentage of deals with cloud delivery in scope

4%

8%

12%

H1 2011 H2 2011 H1 2012

1047 900 704

Majority of adopters are meeting their cloud objectives signaling a confidence shift going forward Source: Everest Group Cloud Vista (2012); Everest Group – Cloud Connect Survey (2012)

18% 23% 19% 16%

25%

38%

25% 27%

21%

21%

27% 24%

31%

14% 24% 27%

1% 2% 2% 1%

Strongly agree

Agree

Somewhat agree

Neither agree or disagree

Somewhat disagree Disagree

Strongly disagree 2% 1% 1% 2% 2% 1% 2%

2%

Met objectives for cost savings

Met objectives for flexible infra

Met objectives for quicker time to market

Met objectives for higher satisfaction of business

64%

82%

71% 67%

N = 88

Enterprise Cloud adoption – objective fulfillment Buyer responses XX% Overall agreement %


SaaS modules have been adopted most widely; IaaS adoption is expected to grow fastest in 2013

57%

38%

31%

30%

17%

28%

28%

25%

26%

36%

27%

27%

10%

27%

26%

23%

36%

22%

5%

10%

18%

11%

20%

23%

Software as a Service (SaaS)

Platform as a Service (PaaS)

Public cloud (IaaS)

Private cloud (IaaS)

Hybrid cloud (IaaS)

Business Process as a Service (BPaaS)

Enterprise Cloud adoption trends by cloud layer – Buyer responses

Already adopted Adopt in distant future Adopt in near future No plans to adopt

N= 81

N= 73

N= 78

N= 80

N= 70

N= 64

IaaS adoption plans – Buyer responses

48%

34%

18%

Plan to implement cloud infrastructure

Already have cloud

infrastructure

No plans for cloud

infrastructure

100% = 89

More than cost reduction, flexible infrastructure and reducing time to market are the top two drivers for IaaS growth

Source: Everest Group – Cloud Connect Survey (2012)


M&A in 2013 will extend beyond conventional adjacencies as service providers respond to an evolving demand environment

Drivers for transformational

IT services

Regulatory compliance

(BFSI, Healthcare,

Europe)

An evolving demand profile… …causing interesting marriages in the IT services supply landscape

BPO pure-plays

Global MNCs WITCH

Tier-2/specialists

Regional majors Cloud providers

Product vendors Telcos

2013 will witness the emergence of a new “breed” of converged service providers

Source: Everest Group (2013)


Areas of coverage


IT Services


Global Sourcing

Pricing

Summary and Q&A


BPO | Key 2013 Predictions

The adoption of SMAC in BPO will increase but will trail the hype; analytics will be the most sought after services within this stack

Traditional delivery geography will increasingly be the new demand geography

The BPO world will be increasingly vertical

Beyond stand-alone technology capability, provider’s ability to blend it effectively into the BPO solution will lead to success

A balanced BPO model will be more successful – rise of the AND solution


Traditional delivery geography will increasingly become demand geography; profitable service delivery will be the key

Insurance BPO deal signing trend Number of contracts

74 24 100% =

Source: Everest Group (2013)

90%

73%

10%

27%

Up to 2010 2011

531 81 100% =

91%

71%

9%

29%

Up to 2010 2011-2012

Asia Pacific and Latin America

North America and Europe

FAO deal signing trend Number of contracts

North America and Europe

Asia Pacific and Latin America


A balanced model that harnesses the power of AND will be more successful

Sourcing

Scope

Solution

Pricing model

Delivery model

Internal shared services

Focused

Customized

Simplicity

Onshore

Third-party outsourcing

End-to-end

Standardized

Impact

Offshore/Nearshore


To what extent do you expect organizations to invest hard cash in capturing global services values beyond savings in 2013?

7%

65%

24%

4%

Priority area – expect significant new investments in 2013

Area of ongoing focus – will continue to make strategic investments as previously

planned

Business as usual – no new or additional investments anticipated

Area of least focus – strategic investments targeting other areas in 2013

Source: Live polling conducted during the “2013 Predictions: State of the Global Services Market” webinar on January 23, 2013


Areas of coverage


IT Services


Global Sourcing

Pricing

Summary and Q&A


Global Sourcing | Key 2013 Predictions

Increased focus on complementing onshore and offshore, not competing

Tier-2 locations to become “must-have” from “good to have”

New buyer segments will drive global sourcing

Growth in GICs coupled with sophistication in sourcing model leverage

Global talent management – an increasing priority


While a few “wildcards” will emerge, India and Philippines will continue to reign

South Africa

Bulgaria

Vietnam

Peru

Turkey

Colombia

Ireland

Significant untapped potential

Attractive costs and Spanish language skills

Preferred location for UK voice; large domestic market

Low-cost alternative for IT

Emerging R&D destination

High end financial services and IT skills Multilingual

support

NOT EXHAUSTIVE


Tier-2 locations to become “must-have” from “good to have”

37 40

Asia Pacific

Proportion of Tier-2/3 cities in new delivery center set-ups 2011-20121; Percentage

2011 2012

Stronger imperative for Tier-2/3 cities in 2013, will become a “must-have” for service providers

Share of Tier-2/3 locations in incremental demand will increase, especially in APAC and Latin America

37

50

Latin America

53

84

CEE

Predictions for 2013

1 Includes analysis from Q1-Q3 (January-September) 2012 Note: Tier-1 cities are mature cities for global services delivery, typically characterized by large talent pool and significant market activity. Examples include Bangalore

(India), Shanghai (China), Metro Manila (Philippines), Sao Paulo (Brazil), Mexico City (Mexico), and Krakow (Poland) Tier-2/3 cities are upcoming cities for global services delivery, typically characterized by relatively smaller talent pool and lesser market activity. Examples include

Jaipur (India), Dalian (China), Cebu (Philippines), Curitiba (Brazil), Guadalajara (Mexico), and Lodz (Poland)


Delivering value beyond cost savings will become a strong imperative and mandate for GICs

What should GICs deliver over the next three years?

GIC responses Percentage of total respondents

15

66

18

Parent responses Percentage of total respondents

Primarily focus on delivering current cost savings and

meeting/exceeding expectations on service levels

Strive towards delivering other forms of value1 in addition to

maintaining cost savings

Focus on delivering other forms of value, even if it means

reducing focus on driving cost advantage

1 Standardize processes or systems across the enterprise, create new services/products, etc.

4

60

37


Areas of coverage


IT Services


Global Sourcing

Pricing

Summary and Q&A


Pricing | 2013 Predictions

Adoption of fixed-price models will strengthen in IT deals

BPO pricing is expected to have a positive bias

IT pricing is expected to be stable

Prevalence of hybrid pricing structures will increase in BPO deals


Prices of ITO services are expected to remain stable or decline marginally at offshore as well as onshore locations

Source: Everest Group PricePoint

100 100 100 99

98 99

96

98

100

102

104

Q3 2011 Q4 2011 Q1 2012 Q2 2012 Q3 2012 Q4 2012E Q1 2013 Q2 2013

Trend in blended FTE price at offshore (India) Indexed

Trend in blended FTE price at onsite (U.S.) Indexed

H2’ 2011 2012 H1’ 2013

100 100 101 100 100 101

96

98

100

102

104

Q3 2011 Q4 2011 Q1 2012 Q2 2012 Q3 2012 Q4 2012E Q1 2013 Q2 2013 H2’ 2011 2012 H1’ 2013

IT-ADM EXAMPLES


BPO pricing is expected to increase at offshore as well as onshore locations

100 101

103 103 103 103

98

100

102

104

106

Q3 2011 Q4 2011 Q1 2012 Q2 2012 Q3 2012 Q4 2012E Q1 2013 Q2 2013 H2’ 2011 2012 H1’ 2013 Est.

100 101 101 101 101 101

96

98

100

102

104

Q3 2011 Q4 2011 Q1 2012 Q2 2012 Q3 2012 Q4 2012E Q1 2013 Q2 2013

VOICE-BPO EXAMPLES

H2’ 2011 2012 H1’ 2013 Est.

Trend in blended FTE price at offshore (India) Indexed

Trend in blended FTE price at onsite (U.S.) Indexed

Source: Everest Group PricePoint


ITO and BPO deals would be characterized by the adoption of more sophisticated pricing models

36% 36%

44%

32%

41% 44% 48% 46%

Provider A Provider B Provider C Provider D

Fixed price adoption trends in ITO deals

2008 2011 2013 Est.

Composition of hybrid pricing structures Frequency of inclusion

Distribution of pricing models in PO Number of contracts

Hybrid pricing

100% = 290

Only managed

service fees

Only gainsharing

Only FTE-based

Buyers and service providers are realizing multiple objectives by adopting hybrid structures which combine input-based, output-based and outcome-based pricing models

46%

36%

15% 3%

89%

71%

44%

Managed service fees

Gainsharing

FTE-based

Buyers are preferring fixed-price engagements to control the overall IT spend

Service providers are keen to adopt fixed-price to maintain profitability


Areas of coverage


IT Services


Global Sourcing

Pricing

Summary and Q&A


Macro-Themes for 2013: Summary

The march toward verticalization continues

M&A more about chess than checkers

The realities of SMAC are taking hold

Global sourcing continues pushing the variety & complexity of delivery models

Pricing remains in a dead-band, with limited movement on either side

Relevant across IT Services and BPO Driving services provider differentiation and

supporting buyer competitiveness

Expanded capabilities the target Consolidation will lead to newly formed

competitive landscapes

Buyer satisfaction validating the concept Adoption pace varies by market, IT layer,

buyer segment

Clients seeking varied options for integrating geos, models, processes, etc.

Cost and margin pressure will challenge providers, but buyer demand will be the key price driver


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Attendees will receive an email with instructions for downloading today’s presentation

For advice or research, please contact: – Katrina Menzigian, [email protected] – H. Karthik, [email protected] – Rajesh Ranjan, [email protected] – Rahul Gehani, [email protected] – Jimit Arora, [email protected]

Q&A

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State of the Global Services Market: 2013 Predictions

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Transcript of State of the Global Services Market: 2013 Predictions