Global outsourcing contract value remains flat amid surge in volume


Latest outsourcing index from the Information Services Group showed a rise in global outsourcing contract volume in the third quarter, while the value remained flat.

The ISG Outsourcing Index measures commercial outsourcing contracts with annual contract value (ACV) of $5 million or more.

The latest ISG report showed 344 contracts were signed in the third quarter, up nearly 20 percent from the prior year. However, down from the record 448 contracts signed in the second quarter of 2015.

Meanwhile, the value in the third quarter came in at $5.6 billion, level with the prior year, but down 9 percent versus the second quarter.

“The market trend is continuing toward smaller deals, as enterprises increasingly buy specialized services from smaller, niche providers, and avoid getting locked into big, long-term contracts to maintain the flexibility they need to take advantage of fast-changing technologies, lower pricing and evolving operating models,” said John Keppel, president and partner of ISG.

In the quarter, there were five mega-relationships. Those are contracts valued at more than $100 million annually.  The year-to-date total contracts were 14, the lowest such figure through three quarters in the last decade.

On the other hand, contract counts and ACV for deals valued at less than $40 million both reached record highs in the first nine months. All told, the number of awards year to date is at an all-time high of 1,094, up 8 percent from the same period last year, even though ACV was down 11 percent, to $16.8 billion.

The value of new-scope contracts, totaling $3.8 billion, was up 8 percent from the prior year, while restructured contracts slid 13 percent for the quarter, to $1.8 billion.

By domain, the third quarter saw the rise of business process outsourcing (BPO), with ACV up 53 percent to $2.0 billion, fueled in large part by a sharp increase in contact center outsourcing and industry-specific BPO.

Meanwhile, the value of information technology outsourcing (ITO) contracts dropped 15 percent for the quarter, as large infrastructure deals gave way to smaller cloud and other As-a-Service contracts.

By region, the Americas continued its steady, strong performance, logging its seventh consecutive quarter of ACV above the $2 billion mark. Although ACV, at $2.4 billion, was essentially flat with the prior year (down 1 percent), the number of deals surged 31 percent to 165, reflecting a continuing trend toward smaller contracts spread across a broad base of buyers.

“Looking forward, we expect an active finish to this year and a strong start to the next, with many awards in the Americas and EMEA,” said Keppel. “But even a robust fourth quarter will not be enough to close the current year-to-date ACV gap.”

ISG expects the industry to fall short of 2014 levels by some 7 percent to 10 percent. Deal values will remain small as businesses focus on areas such as security, digital and cloud.”

“Long term, even though the market is continuing to shift in ways that are difficult to predict, we still rely on the Americas and Europe and our traditional sectors to drive market growth,” Keppel said.

Arya MM

[email protected]

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