3Q09 EquaTerra Advisor and Service Provider Pulse Survey Results
Over 75 percent of the service providers polled reported continued growth in their deal pipeline, up 10 percent from last quarter and an impressive 34 percent rise from the same time last year, the highest levels of pipeline growth cited since 3Q 2005.
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Introduction
EquaTerra is pleased to release the findings from its 3Q09 EquaTerra advisor and business and information technology (IT) service provider Pulse surveys. Through these surveys, EquaTerra has developed a highly informative gauge that provides quarterly insights into trends and projections in the outsourcing and third-party business and IT service markets, gleaned from its own field advisors and leading global service providers. EquaTerra’s advisors are the leading experts on business and IT services, assisting buying organizations actively exploring or undertaking shared services, outsourcing, offshore and other service delivery alternatives.
Since their inception in 2004, the EquaTerra advisor and service provider Pulse surveys have yielded insightful analysis of current and ongoing market trends. They capture changes in demand, scope, capacity and related key market indicators. They highlight the changes, and the direction of change, in the business and IT service industry as a whole. The surveys focus on where the market is going and how that direction is changing – or not – compared to prior quarters and years.
EquaTerra also incorporates key quantitative market data and leading indicators from sources outside the Pulse surveys. These sources include experiences from direct client advisory engagements and other EquaTerra market research, as well as service provider performance and satisfaction studies.
This edition of the advisor and service provider Pulse surveys reflects business and IT service market activity during 3Q09 (July through September 2009) and projections for the balance of 2009 and into 2010.
Topics explored include:
- Demand and buying patterns, including the impact of market conditions on the demand for outsourcing and related third-party business and IT services
- Deeper dive analysis of buying patterns and trends in procurement outsourcing and IT outsourcing (ITO)
- The impact of current market conditions on buyer sourcing investment strategies and common buyer activities undertaken in response to market conditions
- Outsourcing deal scope, sales cycles, pricing, contract value and profitability
- Service provider pursuit and delivery capacity
Pulse surveys focus on using outsourcing and other third-party services to support the following functional areas: customer care/call center, finance & accounting, human resources, information technology, knowledge process outsourcing, procurement, and vertical industry business services.
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The following leading global business and IT service providers were polled for this quarter’s sell-side survey:
- Accenture
- ACS
- Caliber Point
- Capgemini
- Ceridian
- Cognizant
- Convergys
- CSC
- Genpact
- HCL Technologies
- Hewlett-Packard
- IBM
- Mercer
- Northgate Arinso
- Outsource Partners Intl
- Steria
- TCS
- Wipro
- WNS
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Conclusions
Business process outsourcing ( BPO) and ITO market demand growth remained steady in 3Q09 according to EquaTerra advisors and third-party business and IT service providers polled. Providers were more bullish on growth than advisors, but both groups cited growing market strength. Most of the pent-up buyer demand accrued at the end of 2008 and start of 2009 has made it into the market, but uncertain market conditions and turmoil within individual buyer accounts continue to slow some sourcing efforts.
Buyer sourcing strategies still primarily are focused on cost cutting and avoidance of future investments. If anything, they are becoming more defensive as opposed to shifting usage to third-party services as a means to prepare for an economic upturn. While defensiveness is understandable in current market conditions, buyers must start to shift sourcing strategies in a direction that supports a more growth oriented business environment.
The market for more discretionary third-party services, such as consulting, systems integration and some application development work, remains weaker than for outsourcing, though there are signs of improvement in demand for application development services. Public sector and military/aerospace markets remain a strong exception where demand for all types of third-party business, mission support and IT services remains strong.
There are a variety of activities buyers are more aggressively undertaking in light of current economic conditions, including opening deals back up to negotiate better pricing and service levels, as well as doing more benchmarking and baselining of new deals. Overall, though, the pursuit of these and related activities varies across accounts and situations and is far from universal in uptake.
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Buyers are assessing newer, or newly packaged, delivery models like software as a service (SaaS) and remote infrastructure management (RIM) on their potential to complement, extend, or in some cases supplant traditional outsourcing efforts. SaaS will have greater impact on the market, more so as a substitute for buying software than on outsourcing. RIM, while having interesting attributes, will prove primarily an extension to existing IT infrastructure outsourcing models.
Service provider capacity overall remains tight for both deal pursuit and delivery, but conditions did not change significantly in the quarter. Service provider selectiveness is helping to improve capacity. Budget and skill constraints and the need to chase and deliver more smaller deals, exacerbates capacity constraints, as do fits and starts in buyer sourcing efforts.
Growth in pricing pressure on service providers continued to ease compared to earlier in the year. Pricing pressure levels overall remain high as buyers seek lower cost deals occasionally at the expense of quality. |
Distribution of the EquaTerra Pulse survey reports, controlled by EquaTerra, is intended for internal use and select delivery to EquaTerra clients, prospects and other marketplace representatives. Questions or comments regarding these surveys should be directed to Stan Lepeak, Managing Director of EquaTerra and EquaSiis Global Research, +1 203 458 0677.
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