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ACV grew 11 percent in 2011 with all-time high in contract extensions and expansions; US$7.3 billion in contracts up for renewal over next three years; service providers increase scale and capability investments
DALLAS, May 1, 2012 ─ The multi-process Finance and Accounting Outsourcing (FAO) market is projected to rebound by 10-15 percent and top US$4 to $4.5 billion in annual contract value (ACV) in 2012, according to the Finance & Accounting Outsourcing Annual Report 2012 published by Everest Group, an advisory and research firm on global services. In 2011, ACV grew 11 percent compared to 18 percent growth in 2010, and total contract values (TCV) of new engagements also dropped last year compared to 2010, according to the study. The FAO market reached US$3.8 billion in ACV in 2011, representing about US$32 billion in total FAO spending.
“Although the market witnessed slower than expected growth levels last year, we nevertheless saw strong growth with nearly 200 contracts for new, extended and renewed contracts,” said Saurabh Gupta, vice president, Everest Group. “Along with fewer new contracts signed and some terminations, we also saw a drop in size of multi-process contracts largely due to cautious buyers opting for risk-averse phased approaches. Looking forward, we expect to see buyers continue to focus on cost plus value proposition solutions that are comprehensive, industry-specific, and end-to-end process driven.”
According to the report, F&A sourcing represents a US$150-200 billion opportunity split equally across third-party service providers and captives/shared services. Current penetration of the third-party sourcing market represents only 5-10 percent of the overall potential, implying a significant value creation opportunity.
Last year saw the market reach an all-time high in contract extensions that, along with contract expansions, represented 70 percent of ACV growth in 2011. The study predicts organic growth to continue as contracts valued US$7.3 billion or more are up for extension within the next three years.
Other report findings include:
Accenture, IBM and Genpact together account for 50 percent of the FAO market in terms of ACV. In 2011, Accenture, Capgemini and Infosys BPO signed the highest number of new contracts. Accenture, TCS, and IBM accounted for about 50 percent of total contract value signed in 2011, including new contracts, renewals and extensions.
“Competition in the FAO market is gaining intensity,” said Gupta. “The market share of the top three providers has reduced from 65 percent to 50 percent over the last five years. Over the past two years, providers have continued to build up scale and invest significantly across various F&A capability dimensions, most notably around technology. However, service providers’ ability to understand the client context continues to be a significant credibility gap.”
Other service providers’ performances analyzed in the report include Cognizant, Datamatics, EXL, HP, HCL, Intelenet, IQ BackOffice, iGate-Patni, Aditya Birla Minacs, Serco, Steria, Sutherland Global Services, Tech Mahindra, WNS, Wipro, Xchanging and Xerox.
Everest Group’s analysis includes multi-process FAO contracts with a minimum of two F&A processes, over US$1 million in ACV and a minimum contract term of three years. The report includes more than 680 multi-process FAO contracts within this scope signed as of 2011.
For more information or to purchase the report, Finance & Accounting Outsourcing Annual Report 2012: The FAO Market – Signaling Towards Maturity, or other FAO research services, please visit research.everestgrp.com, email firstname.lastname@example.org or call +1-214-451-3110.