As we at Everest Group study the service industry, we find that a number of service providers have been successful in growing their relationships with some large clients into very substantial annual expenditures often exceeding $100 million a year. These accounts have become the backbone of the leading service providers’ business and have accounted for much of the growth of the leading firms such as Cognizant’s and TCS. As we have studied this phenomenon, we have come to recognize that these mega accounts are important engines of the industry and are vital to the leading firm’s growth and profits. However, the industry is facing increasing headwinds inside many of these big accounts.
These headwinds emanate from different sources. In the financial services market, the headwinds come from regulators. Under Dodd-Frank, regulators are driving a more aggressive regulatory climate. One of the consequences of this is increased scrutiny of the financial services supply chain, specifically around the risks emanating from work done by third-party service providers and, in particular, where there is heavy service provider concentration.
As banks and financial services firms react to these regulatory concerns, they are reexamining the role of third-party providers and paying particularly close attention to the relationships in which they have large concentrations of work with one service provider. As this pressure works through the system, we see these firms starting to take action to lessen this perceived risk by bringing work back in house, acting to stop further growth with existing providers and, in some cases, looking to introduce new competitors to reduce concentration.
