Earlier this year, Everest Group conducted its annual study of high total contract value ITO deals to gain insight into how a variety of parameters correlates with deal activity. The study, which is part of our ITO Request for Information 2011 report, analyzed 467 ITO deals across 16 service providers (a combination of MNCs, Tier-1 offshore and Tier-2 offshore) against the following factors:
- Buyer revenue size
- Buyer geography
- Buyer industry
- Provider type
Within each of these parameters, we focused our assessment on scope, duration, size and pricing model of deals in application, development & maintenance (ADM), infrastructure outsourcing (IO), and those with a combination of ADM and IO.
Important findings from the study include:
- Insights on how buyers in different size groups determined the scope and pricing model of the deals they signed. For example:
- Large buyers (revenue > US$10 billion) showed a preference for outcome-based pricing models
- Large buyers took up a higher share of offshore providers’ RIMO offering compared to buyers in other size groups
- Parameters that define the maturity of engagements service providers have with their buyers. For example:
- Deal sizes, especially in the RIMO space, were back to pre-recession levels for both MNCs and offshore providers
- The declining trend in deal duration, across deal types and provider types, was arrested in 2010
Following are a couple of illustrative examples from the report. The one on the left displays a comparison of ADM deal size and duration between different types of service providers, and the one on the right depicts a trend analysis of RIMO deals that offshore providers have signed with buyers of different sizes.
Is the slowdown over for ITO?
The slowdown in the ITO industry lagged that of buyer industries such as financial services and manufacturing. While they displayed clear signs of negative economic impact in 2007-2008, service providers in the IT industry appeared stable because of contributions from multi-year engagements of the past. It was only later in 2009, because of the resulting squeeze in the IT budgets, that the actual effect on IT service providers’ numbers became visible. Indeed, when we published our RFI on ITO deals last year, the impact of the recession was starkly clear on almost all the parameters we evaluated.
So has the ITO industry recovered from the slowdown? To get a handle on this, we closely evaluated parameters such as deal size, duration, and scope. Having seen bigger and better engagements (larger deal sizes, longer duration and broader scope), it does appear that ITO is coming out of the slump. However, before these results can be termed reliable indicators of recovery, we will have to observe these parameters as trends over 2011.
For more information on Everest Group’s ITO Request for Information 2011 study, click here.