EquaTerra Whitepaper 4Q09 Pulse Report Jan2010 3141

Get to what matters.
EquaTerra Advisor and Service Provider Pulse

Survey Results – 4Q09
Introduction • Challenges to outsourcing deal consummation in the

current market environment
EquaTerra is pleased to release the findings from its 4Q09
EquaTerra advisor and business and information technology • Buyer preferences for global sourcing models and
(IT) service provider Pulse surveys. Through these surveys, locations; buyer global sourcing sophistication and
EquaTerra has developed a highly informative gauge that maturity levels
provides quarterly insights into trends and projections in the • Outsourcing deal scope, sales cycles, pricing, contract
outsourcing and third-party business and IT service markets, value and profitability
gleaned from its own field advisors and leading global service
providers. EquaTerra’s advisors are the leading experts on • Service provider pursuit and delivery capacity
business and IT services, assisting buying organizations The Pulse surveys focus on using outsourcing and other third-
actively exploring or undertaking shared services, outsourcing, party services to support the following functional areas:
offshore and other service delivery alternatives.
• Customer care/call center
Since their inception in 2004, the EquaTerra advisor and • Finance and accounting (F&A)
service provider Pulse surveys have yielded insightful analysis • Human resources (HR)
of current and ongoing market trends. They capture changes • IT
in demand, scope, capacity and related key market indicators. • Knowledge process outsourcing
They highlight the changes, and the direction of change, in • Procurement
the business and IT service industry as a whole. The surveys • Vertical industry business services
focus on where the market is going and how that direction is
The following leading global business and IT service providers
changing – or not – compared to prior quarters and years.
were polled for this quarter’s sell-side survey:
EquaTerra also incorporates key quantitative market data and
• Accenture • Hewett
leading indicators from sources outside the Pulse surveys.
• ACS • HCL Technologies
These sources include experiences from direct client advisory
• ADP • IBM
engagements and other EquaTerra market research, as well as
• Atos Origin • ICG Commerce
service provider performance and satisfaction studies.
• Caliber Point • Logica
This edition of the advisor and service provider Pulse surveys • Capgemini • Mercer
reflects business and IT service market activity during 4Q09 • Ceridian • Outsource Partners
(October through December 2009), as well as market demand • Cognizant International
and top trend projections for 2010. Topics explored include • Convergys • TCS
the following. • CSC • Wipro
• Demand and buying patterns, including the impact of • Genpact • WNS
the economy on demand for outsourcing and related
third-party business and IT services
• Top 2010 business and IT service market trends
Copyright © EquaTerra 2010. All rights are reserved. EquaTerra Advisor and Service Provider Pulse Survey Results - 4Q09 - Page 1
www.equaterra.com
EquaTerra offers the following conclusions from the 4Q09 Pulse survey:
• Business Process Outsourcing (BPO) and IT outsourcing • The globalization of business and IT services will continue
(ITO) market demand growth gained strength in 4Q09 unabated in 2010. Buyers will continue to diversify the
according to EquaTerra advisors and third-party business locations from which they source services, as well as
and IT service providers polled. Providers were more take a broader range of services offshore. The growth of
bullish on growth than advisors but both groups cited global sourcing, however, will continue to outpace most
growing market strength. Ongoing pressure to reduce buyers’ ability to source and manage these increasingly
costs continues to drive demand as buyers continue to complex efforts, leading to underachievement of
focus on doing more with less. An improving economy, potential benefits and an occasional failed effort.
as well as lack of investments in key operational areas
• Buyers continue to face many challenges to deal
over the past two years, are also favorably driving
consummation. The key to overcoming these challenges
demand as buyers seek innovative means to support
is to recognize and address them early in sourcing
growth and investments.
efforts and also, where appropriate, modify sourcing
• The market for more discretionary third-party services, efforts to ease the impact of the challenges. The top
such as consulting, systems integration and some challenges cited include the following:
application development work, remains weaker than for
–– Retained organization, relationship management and
outsourcing, though there are signs of improvement in
outsourcing governance challenges
demand for application development services. Public
sector demand for all types of third-party business, –– Inadequate executive and management support
mission support and IT services remains strong. –– Change management concerns
• The top trends indentified for 2010 in the business and IT –– The economy or the impact of the economy on
service market include the following: operations
–– Software as a service (SaaS), especially in the HR • Service provider capacity is improving somewhat for
functional area deal pursuit but remains tight for transition and delivery.
Service provider selectiveness is helping to improve
–– Cloud computing and the growth of non-traditional
capacity, but budget and skill constraints and the need
software applications (like SaaS and open source)
to chase and deliver more smaller deals exacerbate
–– Shared service centers as a complement to capacity constraints, as do fits and starts in buyers’
outsourcing or in lieu of outsourcing industries like sourcing efforts.
the public sector
• Growth in pricing pressure on service providers has
–– Continued service provider market consolidation
reversed direction from the past few quarters and has
with mixed results for buyers given the challenges of
started to grow again as buyers seek lower cost deals
smoothly completing these efforts
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 Global Research, stan.lepeak@equaterra.com, +1 203 458 0677.
www.equaterra.com
Table of Contents
I. Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
II. EquaTerra Advisor Highlights. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
III. BPO/ITO Service Provider Highlights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
IV. Current Market Demand Conditions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Market Demand and Market Trends Update. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Figure 1 - Advisors: Market Demand. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Figure 2 - Advisors: Demand by Service Delivery Model. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Figure 3 - Advisors: Change in Demand by Service Delivery Model . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Figure 4 - Service Providers: New Deal Pipeline Projections . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Figure 5 - Service Providers: Demand Next Quarter. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Figure 6 - Weighted Aggregate Market Demand: Advisors & Service Providers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Economy’s Impact on Outsourcing Demand . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Figure 7 - Economic Environment’s Impact on Outsourcing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Challenges to Outsourcing Deal Consummation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Figure 8 - Challenges to Deal Consummation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Figure 9 - Advisors: Challenges to Deal Consummation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Demand Trends by Functional Area . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Figure 10 - Advisors: Demand by Functional Area. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Figure 11 - Service Providers: Demand by Functional Area. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Advisors: Functional and Process Area Demand. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Service Providers: Functional and Process Area Demand. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Demand Trends by Industry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Figure 12 - Advisors: Demand by Industry. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Figure 13 - Service Providers: Demand by Industry. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
V. Special Section: 2010 Predictions, Global Sourcing Trending. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Most Impactful 2010 Business and IT Service Market Trends. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Figure 14 - Hot 2010 Market Trends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Global Sourcing Trends. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Figure 15 - Buyer Global Sourcing Preference/Demand . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Figure 16 - Advisors & SPs: Buyer Global Sourcing Preference/Demand. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Figure 17 - Buyer Global Sourcing Maturity/Sophistication. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Table 1 - Top Near and Offshore Destinations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
VI. Current Market Deal Characteristics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Sales Cycle. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Figure 18 - Service Providers: Sales Cycle . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Pricing Competitiveness. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Figure 19 - Service Providers: Pricing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Deal Scope . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Figure 20 - Service Providers: Scope. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Service Providers: Contract Profitability and Ability to Increase Scope. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Figure 21 - Service Providers: Contract Profitability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Figure 22 - Service Providers: Ability on Increase Scope. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Service Provider Capacity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Figure 23 - Advisors: Service Provider Capacity, Overall. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Figure 24 - Advisors: Service Provider Capacity, Pursuit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Figure 25 - Advisors: Service Provider Capacity, Delivery . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Figure 26 - Service Provider Capacity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Service Providers: Current Deal Portfolio Status. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Figure 27 - Service Provider Re-competes and Renegotiations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Figure 28 - Service Provider Cancellations and Non-renewals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Figure 29 - Service Provider Problem Contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
VII. Update on Outsourcing Governance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Predictions for 2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
VIII. Current Market Deal Flow Update. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Service Provider Performance and Satisfaction Market Studies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Deal Snapshot. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
IX. Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
X. Appendix - Key Questions by Advisors’ Primary Geography and Outsourcing Focus Area . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Please note: this PDF also includes embedded bookmarks to help better navigate through the
document. For a list of bookmarks, please click on the “Bookmarks” tab to the left of this PDF.
www.equaterra.com
EquaTerra Advisor Highlights

Up; 54 percent of advisors cite increased demand, up six percent quarter over
Overall BPO/ITO Market Demand
quarter (Q/Q) and 16 percent year over year (Y/Y)
65 percent say the economy is driving more outsourcing (up 10 percent Q/Q, up 22
Economy’s Impact on Outsourcing percent Y/Y), while just 25 percent indicate economic conditions are slowing deal
flow
1. Retained org./governance challenges

Top Challenges to Deal Consummation 2. Inadequate management support
3. Change management concerns
1. Global sourcing/globalization
Most Impactful 2010 Business and IT
2. Software as a service (SaaS)
Service Market Trends
3. Cloud computing
1. India
Top Near and Offshore Sourcing
2. Central/Eastern Europe
Destinations
3. Philippines
Steady; 45 percent cite no changes; 28 percent cite adequate, 27 percent

Service Provider Capacity – Pursuit
constrained
Tightening; 40 percent cite no changes; 18 percent cite adequate, 42 percent

Service Provider Capacity – Delivery
constrained, up 15 percent Q/Q
1. ITO
Leading Market Segments 2. Finance and Accounting Outsourcing (FAO)
3. Customer Care
1. Payroll
Leading HR Outsourcing (HRO) Segments 2. HR Information Technology (HRIT)
3. Benefits
1. Accounts Payable (AP)

Leading FAO Segments 2. Accounts Receivable (AR)/Credit and Collections (C&C)
3. General Accounting
1. Infrastructure/Operations
Leading ITO Segments 2. Application Development and Maintenance (ADM)
3. Desktop Services
1. Procurement Operations
Leading Procurement Segments 2. AP
3. Strategic Sourcing
1. Banking/Financial Services
Leading Industries 2. Pharmaceutical
3. Energy/Utilities
Demand for third-party business and IT services strengthened 4Q09 according to EquaTerra advisors polled. This reflects an
ongoing market focus on cost cutting as well as improvements in the economy that are driving more investments, albeit in a
very cost- conscious manner. The economy remains the dominant factor impacting demand and deal flow, mostly driving more
outsourcing. Predicted 2010 outsourcing demand levels are strong as buyers continue to focus on doing more with less. The
ongoing globalization of services, SaaS, and cloud computing top the list of the most impactful buyer trends for 2010.
www.equaterra.com
BPO/ITO Service Provider Highlights

Improving; 76 percent of service providers cite growth, up one percent Q/Q and 44
New Deal Pipeline Growth
percent Y/Y
Demand Next Quarter Steady; 63 percent expect increases, down five percent Q/Q but up 10 percent Y/Y
56 percent say the economic climate is driving more outsourcing, up four percent
Economy’s Impact on Outsourcing
Y/Y; 40 percent indicate buyers are slowing/rethinking outsourcing
1. Economic conditions
Top Challenges to Deal Consummation 2. Inadequate management support
3. External business events (e.g., mergers and acquisitions [M&A])
1. Global sourcing/globalization
Most Impactful 2010 Business and IT
2. Share service centers
Service Market Trends
3. SaaS
1. India
Top Near and Offshore Sourcing
2. China
Destinations
3. Philippines
Steady; 24 percent cite lengthening, down two percent Q/Q and down eight percent
Sales Cycle
Y/Y; 60 percent see no change
Strengthening; 48 percent cite more aggressive, up 16 percent Q/Q and four percent
Pricing Competitiveness
Y/Y
Deal Scope Improving; 36 percent cite increases, up 20 percent Q/Q; 52 percent cite no change
Weakening; 25 percent cite improvement, down 25 percent Q/Q but up eight

Contract Profitability
percent Y/Y
Ability to Increase Current Contract Scope Improving; 84 percent expect increases, up 23 percent Q/Q and Y/Y
Improving; 60 percent cite adequate levels, up 18 percent Q/Q and 27 percent Y/Y;
Service Provider Capacity
just eight percent cite tightening
1. ITO
1. ADM, Infrastructure/Operations
Leading Market Segments 2. FAO Leading ITO Segments
2. Desktop Services
3. HRO
1. Procurement Operations
1. Payroll Leading Procurement
Leading HRO Segments 2. Strategic Sourcing
2. Benefits, HRIT Segments
3. Spend Analytics
1. AR/C&C 1. Banking/Financial Services

Leading FAO Segments 2. AP Leading Industries 2. Manufacturing
3. General Accounting 3. Consumer Packaged Goods (CPG)
Business and IT service providers polled 4Q09 remained bullish on current and near-term demand for outsourcing. Deal scope
continues to grow though more aggressive pricing pressure is re-emerging. Providers continue to focus on selling deals that can
deliver strong cost savings and clear benefits in the short-term. Demand for global service delivery continues to grow though
buyers struggle to manage complex global service portfolios. Along with global sourcing, shared service centers and SaaS are
identified as the most impactful buyer trends for 2010.
www.equaterra.com
Current Market Demand Conditions

Market Demand and Market Trends Update
Change in demand growth for business process outsourcing (BPO) and IT
outsourcing (ITO), as well as other business processes and IT services, grew slightly in
the final quarter of 2009 according to EquaTerra advisors polled (see Figure 1).
• Fifty-four percent of advisors indicated that overall third-party business and IT

service demand levels were up in the quarter, up six percent from 3Q09 and 16
percent from 4Q08 levels. This level is just above the average 53 percent “up”
rating over the life of the survey.
• Just four percent of advisors indicated demand levels had declined in the
quarter, down one percent from last quarter.
• Demand levels were similar across geographies and functional areas, with
advisors that support ITO deals somewhat less positive on overall demand
growth. Please see the appendix for a complete breakdown of response levels
by geography and type of service work supported.

Advisors: Market Demand1
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
4Q04
1Q05
2Q05
3Q05
4Q05
1Q06
2Q06
3Q06
4Q06
1Q07
2Q07
3Q07
4Q07
1Q08
2Q08
3Q08
4Q08
1Q09
2Q09
3Q09
4Q09
Down Flat Up Aggregate
Figure 1
EquaTerra advisors were polled on demand levels across the different categories of
business and IT services. These categories are BPO, ITO, other types of third-party IT
services (e.g., consulting, systems integration and project-based work) and internal
process improvement efforts (i.e., deploying expanded shared service of offshore
captive operations). Figure 2 shows the areas of greatest demand. Figure 3 illustrates
the relative change in demand for these service delivery models compared to the
prior quarter.
1 The aggregate market demand and pipeline levels illustrated in Figures 1-3 are based on a
calculation of the “down,” “flat” and “up” responses to each question, and depict a combined or
aggregate total of each quarter’s response levels.
www.equaterra.com
• ITO was cited by 62 percent of advisors as the strongest area of demand across
the four service delivery categories (see Figure 2), down three percent from last
quarter, followed by BPO at 19 percent, up one percent from last quarter.
• Sixty-five percent of advisors indicated that demand for ITO grew quarter over
quarter (see Figure 3). Seventy-five percent of advisors indicated that demand
for internal transformation efforts like shared services grew in the quarter.
• Thirty-five percent of advisors cited an increase in demand for non-

outsourcing, third-party IT services, an increase of eight percent from last
quarter. This continues a trend from last quarter and indicates that demand for
these more discretionary services is reviving after several weak quarters.
B S i l
M de Demand by Service Delivery Model
Advisors:
ITO 62%
BPO 19%
Internal Imp. 17%
Other 8%
Other IT Svcs 2%
Figure 2

Mod Change in Demand by Service Delivery Model
Advisors:
36% 35%
65%
75%
Up
Flat
55% 61% Down
35% 21%
9% 4% 5%
BPO ITO Other IT Svcs Internal Imp.
Figure 3
The ongoing strong demand for internal transformation efforts highlights that
organizations today more often are addressing problems themselves in addition
to bringing in external resources. This is tied to the rebound in demand for
non-outsourcing third-party services that often are employed to support these
www.equaterra.com
internal change offers. This approach is more common in organizations less

prone to outsourcing, such as those in the public sector, and will increase due to
a combination of great need for change and less viability of using outsourcing as
a change and improvement tool. Buyers also undertake internal process work to
prepare processes for outsourcing prior to transitioning them to providers (e.g.,
improve/transform and then outsource).
The acute need to reduce costs and overhaul operating models will continue to
drive more outsourcing deal flow into the market. Attempts to implement more
protectionist trade policies, along with anti-outsourcing and anti-globalization
rhetoric, will continue in western markets. This will have limited impact on overall
outsourcing levels, but some measures will complicate some buyers’ sourcing
agendas.
Service providers polled continued to become more bullish regarding new deal
pipeline growth projections (see Figure 4), continuing a trend that started early in
the second quarter of 2009.
• Seventy-six percent of service providers polled cited pipeline growth in the

quarter, up one percent quarter over quarter and 44 percent year over year.
These are the second highest levels recorded in the service provider Pulse
surveys and are 19 percent above the survey average.
• No service providers cited a decline in pipeline growth.

P ojecProviders:
Service ons New Deal Pipeline Projections
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
1Q05
2Q05
3Q05
4Q05
1Q06
2Q06
3Q06
4Q06
1Q07
2Q07
3Q07
4Q07
1Q08
2Q08
3Q08
4Q08
1Q09
2Q09
3Q09
4Q09
Down Q/Q About the same Up Q/Q Aggregate
Figure 4
All service providers polled were positive relative to pipeline growth with the
exception of some (but not all) service providers that focus purely on HRO.
Service providers remained optimistic about future outsourcing demand growth

(see Figure 5).
• Sixty-three percent of service providers polled expect an increase in demand

next quarter, down five percent from last quarter but up 10 percent from
4Q08.
www.equaterra.com
• Fewer than five percent of service providers expected demand levels to decline
next quarter.
Please note this question is a measure of change in demand growth quarter over
quarter, not absolute demand levels.
Fi 5 P id
Service Providers: Demand Next Quarter
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
1Q05
2Q05
3Q05
4Q05
1Q06
2Q06
3Q06
4Q06
1Q07
2Q07
3Q07
4Q07
1Q08
2Q08
3Q08
4Q08
1Q09
2Q09
3Q09
4Q09
Decrease Flat Increase Aggregate
Figure 5
The final chart in this section (see Figure 6) highlights general demand trending over
the life of the Pulse surveys. The weighted average is based on response levels from
both advisors and service providers for each quarter. Any aggregate totals above
the line indicate overall market growth, while totals below the line indicate market
contraction. The gap between service providers and advisors has been consistent
the past few quarters.
Fi r W
ServiceAggregate
Weighted rovideMarket
s Demand: Advisors & Service Providers
a et o th
t t
1Q05
2Q05
3Q05
4Q05
1Q06
2Q06
3Q06
4Q06
1Q07
2Q07
3Q07
4Q07
1Q08
2Q08
3Q08
4Q08
1Q09
2Q09
3Q09
4Q09
Advisors Service Providers

Figure 6
www.equaterra.com
Economy’s Impact on Outsourcing Demand

The global economic recession bottomed out in late 2Q09 in the United States.
Economic conditions vary significantly across geographies, industries and individual
organizations. There is much debate about whether a “double dip” recession will
occur in 2010. Regardless, economic conditions continue to heavily impact buyer
usage and preferences for third-party services and the manner in which they
consume these services.
EquaTerra has polled advisors and service providers over the past two years on how
current economic conditions are impacting outsourcing demand levels
(see Figure 7).
• The combined response levels for advisors and service providers show that 60
percent felt market conditions are driving more outsourcing. This level was up
one percent from last quarter and represents the highest level recorded in the
surveys. Advisors were somewhat more of the opinion than service providers
(65 percent compared to 56 percent) that economic condition are driving
more outsourcing.
• Thirty-three percent overall indicated economic conditions are causing

buyers to slow or rethink outsourcing decisions, down three percent from last
quarter. Buyers more often are deferring, not canceling, outsourcing initiatives.
The deferrals typically are caused by other events occurring in the buyer
organizations that have impacted the sourcing process, rather than by buyers
changing their minds about outsourcing.
• There were no major variations in responses from advisors based on geography

or functional area of outsourcing supported.
i
Environment
Economic s Impact on Outsourc
Environment ng
s Impact on Outsourcing
4% 5% 3% 5% 7%
18% 20%
32%
39% 36% 33%
24% 54% 51%
38%
22%
58% 58% 59% 60%

47% 42% 42% 45%
1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09

Driving more outsourcing Slowing/rethinking outsourcing plans Little/no impact
Figure 7
www.equaterra.com
Advisors offered the following additional comments on how the current economy is
impacting outsourcing and third-party service usage.
–– “BPO projects are discreet and smaller in scale. Buyers have reduced
investment dollars. They expect an ROI within near-term (e.g. 12-15
months).”
–– “More clients are looking for small niche type outsourcing plays where the
benefits can be realized in weeks or months. They will take a small gain now
over a larger gain that takes ‘too long’ to realize.”
–– “Even if companies don’t want to outsource, they are willing to go thru a

rational process to justify why or why not.”
Service providers added these comments on how the economy is impacting market
demand.
–– “Deals that were in the pipe before meltdown are coming back. The
pipeline is the healthiest in two years.”
–– “Now that companies have adjusted plans and the economy appears to
have stabilized, they are revisiting outsourcing.”
–– “As employers spend more time controlling expenses associated with

their benefit programs and maximizing their staff, they continue to face
changing benefits legislation, complex merger and acquisition activity
and growing fiduciary scrutiny and accountability. At the same time,
To learn more: communicating across all touch-points with the various segments of their
employee population poses another challenge. While companies need
• Outsourcing Buyers: Ready or NOT
more support across these areas, employers are less likely to find it in-house
for the Economic Upturn?
as internal resources continue to be stretched.”
Challenges to Outsourcing Deal Consummation

A variety of often confluent factors can combine to complicate, slow and, in
some cases, stop outsourcing deals. In the majority of cases buyers will ultimately
complete the transaction, though possibly under modified terms and conditions. In
some cases, however, buyers may abandon efforts in lieu of pursuing other change
initiatives or because they cannot develop a viable business case in current market
conditions. The key point with challenges to outsourcing deal consummation is for
buyers to recognize them in advance, and then work to address and overcome them
if possible after determining they are legitimate impediments to going forward with
an outsourcing transaction.
EquaTerra polled both advisors and service providers to identify the current major
challenges to successful outsourcing deal consummation (see Figure 8). EquaTerra
last polled on this topic in the 4Q08 Pulse survey and before that in 3Q07 (see Figure
9 for advisors’ results from prior quarters).
www.equaterra.com
Challenges to Deal Consummation

Retained org./gov. challenges
Inadequate mgmt. support
Change mgmt. concerns
Inadequate business case
Costs to do the deal
Internal political pressure Service
External business event Providers
Economic conditions 4Q09
Service provider quality
Negative market pressures Advisors
Loss of faith in outsourcing 4Q09
Compliance/regulations
Other
0% 20% 40% 60%

Figure 8
Co summa
Advisors: ionto Deal Consummation
Challenges
Retained org./gov. challenges
Inadequate mgmt. support
Change mgmt. concerns Advisors
Inadequate business case 4Q09
Costs to do the deal Advisors
Internal political pressure 4Q08
External business event Advisors
Economic conditions 3Q07
Service provider quality
Negative market pressures
Loss of faith in outsourcing
Compliance/regulations
0% 20% 40% 60% 80%

Figure 9
• Retained organization, relationship management and outsourcing

governance challenges were the top challenge identified in outsourcing deal
consummation, cited by 49 percent of EquaTerra advisors, up 11 percent from
4Q08. Retained organization and outsourcing governance challenges are
becoming more complex as buyers expand their outsourcing efforts both in
terms of scope as well as geographic reach. Advisors operating out of EMEA
were the most likely to cite retained organization and outsourcing governance
challenges.
• Forty-six percent of advisors identified inadequate executive and management

support, followed closely by change management concerns at 45 percent.
This has been a more acute challenge over the past 18 months given overall
challenges buyer organizations are facing as a result of difficult economic
times. Advisors primarily supporting global deals ranked change management
concerns the highest with those in the Americas the most likely to identify lack
of management support as a challenge.
www.equaterra.com
• The most frequently cited challenge by service providers, identified by 50

percent of respondents, was the economy or the impact of the economy on
operations. This was also the top challenge cited by service providers in 4Q08.
Advisors were more likely to identify economic challenges as manifesting
themselves in other ways, for example, in complications arising from building
a sound business case for outsourcing or from transition and change
management efforts.
• Service provides were more likely than advisors to cite (38 percent compared
to 14 percent) an external business event (e.g., new management, M&A) as a
challenge to deal consummation and less likely (four percent compared to 28
percent) to identify internal political pressure.
Advisors and service providers elaborated on these and other specific challenges
that are impacting buyers’ abilities to close deals. They include perennial challenges,
such as buyer inability to articulate requirements sufficiently or develop a degree
of comfort at being able to support transition efforts. The 2Q09 Pulse survey
did a deeper dive into issues and challenges related to outsourcing transitions.
Both service providers and EquaTerra advisors noted that the growth of alternative
sourcing models, specifically SaaS and “cloud” computing, is causing some buyers
to rethink traditional outsourcing efforts in light of the different options and
opportunities these models create.
To learn more: There are different approaches buyers can use to address challenges to deal
consummation. The most important is to identify upfront where they exist and
• Top Five Ways to Optimize
prioritize working through them. In some cases this involves employing more
Operations and Outsourcing During
resources in a more structured approach to address a challenge, such as outsourcing
Mergers, Acquisitions, Divestitures
governance concerns or lack of management support. In other situations it may
or Downsizing
involve modifying the scope of the outsourcing effort, for example, by scaling
• Five Steps to Transition Honeymoon back on the aggressiveness or timing of an effort to make change management
Heaven challenges more manageable. Regardless, a rigorous and proactive approach is the
key to overcoming these challenges.
www.equaterra.com
Demand Trends by Functional Area

EquaTerra advisors cited demand trends by functional area (e.g., F&A, HR and IT)
as continuing in the same direction in 4Q09 as the past few quarters (see Figure
10). ITO was the strongest functional demand area, followed by FAO. HRO demand
levels continued to remain weak as customer care outsourcing slipped past HRO
to take the number-three spot in the poll. HRO was identified as the top area of
demand by just 11 percent of advisors, behind both customer care and procurement
outsourcing. Interest in SaaS options is greatest in the HR functional area, creating an
appealing alternative or complement for buyers to traditional HRO
F gure 10 Ad is r : D m nd b Func io
Advisors: Demand by Functional Area
ITO
FAO
CC/CRM 4Q09
4Q08
4Q07
Procurement
HRO
0% 20% 40% 60% 80% 100%

Figure 10
ITO was also the top area of demand cited by service providers in 4Q09 (see Figure
11) followed by FAO and HRO. It is important to note that demand levels registered in
the Pulse surveys are impacted by the particular outsourcing service providers polled
in any one quarter
Fi u e 11
Area Providers: Demand by Functional Area
Service
ITO
FAO
HRO 4Q09
4Q08
4Q07
CC/CRM
Procurement
0% 10% 20% 30% 40% 50%

Figure 11
www.equaterra.com
EquaTerra continues to see growth in demand for outsourcing beyond the back
To learn more: office and in non-traditional functional and process areas like facilities management,
• Assessing the Opportunities for legal process outsourcing and document service outsourcing. Demand in these areas
Document Services Outsourcing in has been impacted by current market conditions, which in some cases have lessened
the Healthcare Industry the need for these services, but in others have made outsourcing more appealing
as buyers seek to reduce costs and overhaul service delivery models. New areas of
• Bigger, Broader and Better Linked: outsourcing focus also are often industry specific, for example, remote metering
Considerations for Integrated and “smart grid” initiatives in the utilities industry; clinical trials, analytics and R&D
Sourcing of Facilities Management in life sciences; and document service outsourcing in paper-intensive industries like
and Real Estate healthcare and the public sector. The growing importance of document services was
highlighted recently with the announced acquisition of BPO/ITO service provider ACS
by Xerox, which has a large document service outsourcing practice.
The charts on the following two pages illustrate outsourcing demand by process area
for the four major functional areas – IT, HR, F&A and procurement – covered in the
Pulse surveys. There are no major changes in demand levels across these functions
and processes compared to recent quarters. Last quarter EquaTerra introduced a
new classification scheme for procurement, or source to pay, outsourcing. It provides
a more granular analysis of procurement outsourcing usage and is complemented by
a new question assessing the spend categories most frequently outsourced in these
efforts.
www.equaterra.com
Advisors: Service Providers:

Functional
i
and Process Area Demand
R D
Functional
S i P i
and Process
OD
Area Demand
Advisors: HRO Demand Service Providers: HRO Demand
Payroll Benefits
HRIT Payroll
Benefits HRIT
Recruiting/Talent Mgmt. 4Q09 Recruiting/Talent Mgmt. 4Q09
Learning/Training 4Q08 Workforce Eff. 4Q08
Compensation 4Q07 Learning/Training 4Q07
Workforce Eff. Compensation
0% 20% 40% 60% 80% 100% 0% 10% 20% 30% 40% 50% 60% 70% 80%
Advisors: FAO Demand Service Providers: FAO Demand

Accounts Payable AR/C&C
AR/C&C Accounts Payable
General Accounting 4Q09 General Accoutning 4Q09

4Q08 4Q08
Travel & Entertainment 4Q07 Finance, Control, Risk Mgmt. 4Q07
Finance, Control, Risk Mgmt. Travel & Entertainment
0% 20% 40% 60% 80% 100% 0% 20% 40% 60% 80% 100%
Advisors: ITO Demand Service Providers: ITO Demand

Infrastructure/Ops. ADM
ADM Infrastructure/Ops.
Desktop Services 4Q09 Packaged Apps. Svcs. 4Q09

4Q08 4Q08
Networks/Telco 4Q07 Desktop Services 4Q07
Packaged Apps. Svcs. Networks/Telco
0% 20% 40% 60% 80% 100% 0% 20% 40% 60% 80% 100%
Advisors:
Adv sor Procurement
Pr cureme Outsourcing
t O tso rci Service
Se vic Providers:
Provide Procurement Outsourcing
Pro urement O sourc
Demand by Process Dema dby
Demand byProcess
Proces
Procurement operations Procurement operations
Accounts payable Strategic sourcing
Strategic sourcing Spend analytics
Spend analytics Accounts payable
Tactical/spot buying 4Q09 End-to-end category mgmt. 4Q09
Procurement help desk 3Q09 Logistics/freight mgmt. 3Q09
End-to-end category mgmt. Inventory mgmt.
Supplier performance mgmt. Savings tracking
0% 10% 20% 30% 40% 50% 60% 0% 10% 20% 30% 40% 50% 60% 70%
Advisors:
Adv sor Procurement
Pr cureme Outsourcing
t O tso rci Service
Se vic Providers:
Provide Procurement Outsourcing
Pro urement O sourc
Spend Cat
Demand gory Category
by Spend Demandby
Demand bySpend
SpendCategory
Ca ego
IT IT
Consulting/legal/professional Employee/HR services
Facilities mgmt /real estate Finance and insurance
Temp/contingent labor Travel
Employee/HR services Facilities mgmt./real estate
Office supplies & fixtures 4Q09 4Q09
MRO Temp/contingent labor
Travel 3Q09 Consulting/legal/professional 3Q09
Finance and insurance Office supplies & fixtures
Marketing/market research/ads Direct goods & services
Direct goods & services Utilities
0% 10% 20% 30% 40% 50% 60% 70% 80% 0% 10% 20% 30% 40% 50% 60% 70%
www.equaterra.com
Demand Trends by Industry

The two charts below illustrate industry demand as cited by EquaTerra advisors and
service providers. Industry rankings generally have been consistent over the past few
quarters
Figur
Advisors: Demand by Industry
Banking, Fin. Svcs., Insurance
Pharma/Biotech
Energy/Utilities, Oil & Gas 4Q09

4Q08
4Q07
Govt. (Fed., State, Local), Edu.
CPG, Food/Bev, Retail,

Wholesale
0% 10% 20% 30% 40% 50% 60% 70%

Figure 12
( op Five)
Service Providers: Demand by Industry
Banking, Fin. Svcs., Insurance
Manufacturing
CPG, Food/Bev, Retail, 4Q09

Wholesale 4Q08
4Q07
Govt. (Fed., State, Local), Edu.
Energy/Utilities, Oil & Gas

To learn more:
0% 20% 40% 60% 80%
• The Talent for Change: Improving
Figure 13
the Recruitment and Hiring Process
in the Federal Government Outsourcing demand continues to grow in the banking and financial services
industries. This is not surprising given the challenges buyers in these sectors are
• Charting a Future Course for
facing and their need to reduce costs, but shows buyers still pushing sourcing
Outsourcing in the Pharmaceutical
efforts forward despite other operational challenges. This group is a prime example
Industry
of an industry being forced to do more with less and leveraging outsourcing as a
• Business Process Outsourcing means to do so. Public sector demand remains strong, though it is comprised of
Bodes Well for Utilities Seeking to a proportionally higher percentage of non-outsourcing third-party services. Public
Reduce Service Costs and Improve sector organizations are showing increased interest in moving from legacy customer
Productivity
www.equaterra.com
software application environments to commercial ERP (enterprise resource planning)

systems as a means to reduce operating costs, and improve and standardize service
delivery models. Finally, energy and utility buyers are very focused on reducing
operational costs through internal shared service operations and outsourcing.
Special Section: 2010 Predictions, Global Sourcing

Trending
Most Impactful 2010 Business and IT Service Market
Trends
Every year EquaTerra polls advisors and service providers participating in the Pulse
survey to identify the most important, innovative, and interesting trends they expect
to see in the business and IT service market over the coming year. These predictions
are more interesting in 2010 than last year as the economy improves and buyers seek
to make more investments, both to compensate for lack of investing over the past
two years, as well as to take advantage of new products and services in the market.
EquaTerra polled both service providers and its advisors on what they believe will
become the most impactful trends in the business and IT service market in 2010 (see
Figure 14). They were asked to rank how legitimately “hot” (defined as truly having a
business impact on buyer organizations) the following market trends will be in 2010,
with a rank of one representing cold or little market impact and five representing hot
or having a major market impact.
F r 3 "H t" 201
Hot 2010 Market Trends
Global sourcing/globalization
SaaS
"Cloud" computing
Shared service centers
Remote Infrastructure Management (RIM)
Software tools to support outsourcing gov. efforts
SPs
Advisors
Protectionism/less outsourcing
Offshore captives
Social media to support sourcing/outsourcing
1.00 3.00 5.00

1=Cold/little market impact and 5=Hot/major market impact
Figure 14
www.equaterra.com
There was general consensus among advisors and service providers as to the top
project trends for 2010.
• Global sourcing and globalization were ranked as the top project trend for
2010, being scored at 4.04 on the one-to-five scale by service providers and
3.65 by advisors. This highlights the ongoing push toward the globalization
of business and IT services despite the best efforts of some to impede this
evolution. Advisors operating out of EMEA were somewhat more positive on
global sourcing trends than those in the Americas.
• Both advisors and service providers were equally bullish on software as a

service, scoring it at 3.65 and 3.64 respectively. Growing buyer interest in SaaS
is evident across all functional areas, but is especially pronounced in human
resources.
• Cloud computing also was ranked above the median by both advisors and
service providers as was shared service centers and remote infrastructure
management (RIM). As an alternative to global sourcing, protectionism and less
outsourcing was not given huge credence as a major 2010 trend. In addition,
the use of offshore captives continues to become less favorabley viewed, or
seen more as a selective tool, in lieu of offshore outsourcing. Advisors primarily
supporting global deals were more positive on the demand for offshore
captives. The use of social media to support the sourcing and management of
outsourcing efforts is an interesting concept, but is not viewed as mainstream
yet for 2010.
EquaTerra advisors offered the following elaboration on expected major business and
IT service market trends for 2010.
• SaaS
–– “SaaS is gaining traction, particularly as an avenue to better leverage (or

minimize/optimize) investments in underlying systems. This reflects a
growing attitude that ERP investments from earlier in the decade haven’t
really paid out, and now large buyers are looking at having to do it all again,
and not sure they want to repeat the investment experience.”
–– “The emergence of Cloud in more clearly stated terms, i.e. SaaS, PaaS
(Platform as a Service), IaaS (Infrastructure as a Service).”
• Cloud computing
–– “Everyone is talking about cloud computing, but few have the commercial
models in place to make it work effectively. I would expect to see it
undergo a forced maturation quickly.”
–– “Cloud computing is everywhere in customers’ minds but nowhere in terms
of people understanding how they can truly benefit. Also, the commercial
transition path from traditional data centers to cloud through outsourcing
remains unclear.”
www.equaterra.com
–– “An emerging trend is Google Apps replacing Microsoft Office. It will have a
huge impact on desktop management deals.”
–– “Traditional enterprise infrastructure solutions will be benchmarked against
global cloud structures, showing considerable cost benefits to be gained.
This will cause a considerable flood of new/existing third party suppliers,
requiring management attention and placing a heavy demand on the
demand/governance structure within corporations. We will see a 3 way split
in clouds, whereby:
* Global clouds: represent secure global solutions for any/all customers

(e.g. e-mail, software distribution via internet)
* Regional clouds: largely application driven environments offering
volume efficiencies within a region/provider that is applicable to small
and medium enterprises.
* Local clouds: internal development of ‘cloud’ type systems within
enterprises to ‘fend’ off the threat of outsourcing.”
• Human resources/HRO
–– “Most major service providers are talking about emerging trends in

social behaviors for reaching out to employees. Learning, recruitment,
and payroll are all areas that will be impacted and benefit from the
emerging technologies. Applying for a job from your smart-phone, training
environments through ‘Second Life environments’, and keying in time
and attendance data from a mobile phone are all leading cutting-edge
concepts (and in some cases current capability) that are expected to grow
in 2010.”
–– “SaaS at least in HR is a reality. Workday reports its hundredth customer, and
not all are mini-market customers by any means. One customer now up and
running has a truly global footprint. SAP and Oracle are scrambling to catch
up.”
• Service provider trending
–– “Staffing will become constrained again and a high number of people will
shift between vendors. Maturing of local midsize vendor market which will
take a significant part of market share of big vendors. Continued reshifting
of vendors (mergers, takeovers, etc.).”
–– “More M&As – but will they work?”
www.equaterra.com
Service providers offered these additional comments.
–– “Growing realization from clients that they are not able to run shared
services - on or offshore - as well as do the commercial providers. New
technologies and delivery models still not really impacting BPO (with the
exception of social media) to increase collaboration within delivery and
between client and provider, and @home technology, which could impact
on/near shore delivery economics.”
–– “With the current recession appearing to ease, the question now facing
most businesses is how best to position themselves for the growth to
come. For those in the outsourcing industry, the answer will naturally lead
to new challenges and new opportunities. Third- party service providers
will be expected to innovate new services and business models that can
flexibly adapt to whatever the ’new normal’ turns out to be. Operations
will continue to become more global, more connected and more fluid.
Customer-side organizations will demand greater value at lower costs, while
the top providers will seek to powerfully leverage what they’re good at
today into tomorrow’s solutions. Outsourcing also will be called on to step
up to its role as a leader of corporate social responsibility on a truly global
scale.”
–– “Providers will increase focus on their core strengths and be selective about
what they take on. I also expect to see more partnering between general
BPO and single process providers.”
Looking back to EquaTerra 2009 market predictions, they proved (fortunately) quite
insightful. The following are select excerpts from those predictions, which appeared
in the 4Q08 Pulse survey results report.
Top Outsourcing Focus Areas
• Everything is in scope, including strategic business activities

• More multi-sourcing/multi-provider outsourcing on new efforts
Outsourcing Benefits Sought
• Accelerated and rapid business case achievement

• Emphasis on cost savings and cost avoidance
Sourcing Process: Deal Terms & Conditions

To learn more:
• Shorter term contracts and smaller deals
• What’s Hot and What’s Not in 2010
• More aggressive pricing, but with more emphasis on reduced service volumes
• Myths, Legends, the Truth and rather than overly aggressive per unit rates; more thorough vetting of pricing
Remote Infrastructure Management levels and models
• Podcast: What’s driving interest in Global Sourcing

SaaS? • Increased use of “offshore” resources to maximize cost savings
• More buyer attention to risk assessment and management, both geopolitical
and supplier financial
www.equaterra.com
Business and IT Service Provider Market
• Supplier consolidation and select supplier attrition

• Focus on increasing market share in existing accounts and taking market share
from sub-tier one providers
Global Sourcing Trends

Buyer Global Sourcing Preferences and Demand Levels
Service providers and EquaTerra advisors polled were asked to rank buyer global
sourcing preferences and demand levels for different sourcing models on a one-
to-five scale, where one represents significant decrease in preference or demand,
three represents no change and five represents significant increase in preference or
demand (see Figure 15 for average scores and Figure 16 for the break-out of results
by sourcing model). EquaTerra last asked these questions in the 2Q09 Pulse survey.
The results illustrate that offshore outsourcing remains the preferred delivery model
and interest in offshore captives continues to wane.
• Service providers polled scored offshore outsourcing at a 3.92 on the one-to-

five scale, a 12 percent increase from levels recorded 2Q09. Advisors scored
this model at 3.38, up slightly from 2Q09 levels. This represents 57 percent
of advisors and service providers, indicating some or significant increase in
preference or demand for this model (Figure 15).
• Both service providers and advisors scored increases in demand levels for near
shore outsourcing above the mid-point score at 3.64 and 3.33 respectively. A
combined 53 percent of survey respondents cited some or significant increase
in demand for this sourcing model.
• Both service providers and advisors scored near shore and offshore captives
below the 3.0 mid-point score, reflecting the relative decline in interest for this
sourcing model. Captives can still play a valuable role in buyers’ global sourcing
strategies and delivery models, but it has become clear that establishing and
managing a competitive captive operation is more challenging than many
buyers anticipated.
www.equaterra.com
Preferen
Buyer es D mand
Global Sourcing Preference/Demand
Offshore outsourcing Up 12% from 2Q09
Service
Nearshore outsourcing Providers
4Q09
Onshore outsourcing Advisors

4Q09
Nearshore/offshore captives Down 11% from 2Q09
1.00 2.00 3.00 4.00 5.00

1=Significant decrease in preference/demand,
3=No change, 5=Significant increase in preference/demand)
Figure 15

So rcing Mode
Advisors & SPs: Buyer Pre erSourcing
Global nce/DPreference/Demand
mand
100%
3% 3% 5%
23% 20%
80% 32%
50%
60% 34%
45%
37%
40%
41% 30%
20% 22% 20%
6% 6% 9% 3% 12%
0% 1%
Onshore Nearshore Offshore Nearshore/offshore
outsourcing outsourcing outsourcing captives
Significant decrease Some decrease No change

Some increase Significant increase
Figure 16
Buyer Global Sourcing Maturity and Sophistication

Buyers undertaking a global sourcing effort naturally exert much focus on selecting
which service provider to employ and from what locations to source services. This
assessment process must include a clear and realistic assessment of a buyer’s own
maturity and sophistication relative to sourcing and managing global sourcing
efforts. A common root cause of problematic or “failed” offshore outsourcing
efforts is a disconnect between what a buyer is trying to accomplish and the skills,
experience and resources they possess to support their efforts. These skills involve
selecting providers and locations, accounting for and managing risk, and governing a
growing number of sourcing efforts spread across multiple providers and locations.
www.equaterra.com
EquaTerra asked a new question to both service providers and EquaTerra advisors in
the 4Q09 Pulse survey to assess buyer maturity and sophistication relative to global
sourcing skills. Respondents were asked to rank their perception of buyer skills on a
one-to-five scale, where one represents very immature or unsophisticated and five
represents very mature or sophisticated (see Figure 17). Results show that in general
there is much room for improvement across all of these elements of global sourcing.
• EquaTerra advisors overall did not score buyers above the mid-point on any
of the five skill-sets assessed. The highest score given was 2.60 for service
provider selection and assessing service providers’ global delivery capabilities.
Service providers were somewhat more favorable in their perception of buyers’
skills, scoring this one at 3.33.
• The skill ranked highest by service providers was service delivery geographic
location assessment (e.g., where to source from, onshore/offshore, which
countries), scored at 3.38. Advisors scored this skill at 2.57.
• There was consensus on typical buyer challenges in managing and governing

multiple engagements and service providers across multiple functions,
geographies, etc., scored below 3.0 by service providers and 2.0 by advisors.
As buyers’ appetite to source more services globally grows so too must their
efforts to improve their capabilities to source and manage these efforts. Similar to
challenges to outsourcing deal consummation discussed above, the first step is to
recognize the challenge and apply adequate and skilled resources against it. This is
a multi-disciplinary effort that extends best practices related to sourcing, selection,
transition, outsourcing governance, and multi-provider management to account for
additional challenges and nuances introduced from increased globalization of service
efforts.
Fi u
Matur
Buyer ty Sourcing
Global Sophistication
Maturity/Sophistication
Service provider selection/assessing SP

global delivery capabilities
Assessing/accounting for data,

data privacy & IP risk
Service delivery geographic

location assessment
SPs
Assessing/accounting for geopolitical & Advisors
Service provider risk
Managing/governing multiple engagements

& SPs across multiple functions, geos, etc.
1.00 2.00 3.00 4.00 5.00

1=Very immature/unsophisticated and 5=Very mature/sophisticated
Figure 17
www.equaterra.com
Top Near and Offshore Sourcing Destinations

To learn more: EquaTerra polled its advisors and service providers on the top near and offshore
• Trip Report: China Grows as Delivery destinations from which to source services (see table 1). The last time this question
Center for ITO and BPO Services was asked was in the 2Q09 Pulse survey.
• Podcast Series: Observations on the Top Near and Offshore Destinations

China and India Service Markets Service Service
Advisors Advisors
Providers Providers
• Limiting Risk in Global Sourcing 4Q09 2Q09
4Q09 2Q09
Efforts
Canada 6% 9% 8% 11%
• OutTake: Are We Seeing the Death Central America/Caribbean 21% 15% 29% 33%
of the Captive? Central/Eastern Europe 53% 56% 21% 50%
Russia 0% 3% 4% 0%
China 31% 15% 63% 33%
India 74% 60% 83% 61%
Philippines 38% 34% 42% 39%
South Africa 5% 3% 4% 0%
South America 21% 26% 38% 56%
Vietnam 6% 0% 8% 6%
Other Asia Pacific 4% 6% 8% 0%
Other Africa 0% 3% 0% 6%
Other Middle East 3% 1% 0% 0%
Other 5% 5% 4% 0%
Table 1
India remained the leading preferred location identified by 74 percent of advisors

(down from over 80 percent in 2007 polls) and 83 percent of service providers.
Central and Eastern Europe remained strong at 50 percent overall and 76 percent
for advisors in Europe. Leading up-and-coming markets are South America, Central
America and the Caribbean along with the Philippines and China. These findings
highlight the clear movement in that market away from point-to-point outsourcing
from the west to India and toward a true global model for service delivery. Some of
the variations from 2Q09 to 4Q09, specifically totals for Central and Eastern Europe,
are based on the mix of service providers that responded to each survey and their
geographic coverage.
www.equaterra.com
Current Market Deal Characteristics

Sales Cycle
For the purposes of the Pulse surveys, the sales cycle is defined as the time period
from RFP release to contract signing. Many factors contribute to the length of the
sales cycle, including:
• What is being outsourced

• Level of buyer sophistication and experience
• Complexity, size and regional/global reach of the potential outsourcing deal
• Degree of multi-sourcing present in the deal portfolio
• Preferred service provider sales pursuit capacity and selectivity
• Whether a sourcing advisor is being used
• Disruption to the sourcing process by turmoil in the buyer organization,
economic uncertainty, or changing macro-business – all heightened issues in
the current market
The Pulse surveys do not measure the absolute length of sales cycles. EquaTerra
estimates, however, the sales cycle for larger deals (those with more than $50 million
in total contract value, or TCV) that are competitively bid typically is six to 12 months
– barring deal flow disruption – from the time the buyer goes to the market until the
deal is closed. The time frame typically has been compressed 15-25% over the past
year given market conditions, though that trend has started to reverse.
Current market trends are contributing to both shortening and lengthening sales
cycles. Smaller deals pursued by more experienced buyers can lead to shorter sales
cycles. On the other hand, the complexities associated with multi-sourcing can
complicate the sourcing process and extend the sales cycle, as can considering more
intricate pricing arrangements. EquaTerra sees most buyers today more intensely
scrutinizing pricing models and levels. Global deals also are more complex to source.
The major factor impacting sales cycles over the past year, however, has been
sourcing cycle disruption caused by economic events. While deal flow is improving in
the market, EquaTerra expects to see economic conditions and uncertainty continue
to complicate the sourcing process into the first half of 2010.
Figure 18 illustrates sales cycle trends according to service providers polled in this
quarter’s study. Sales cycle trending remained relatively constant quarter over
quarter.
• Twenty-four percent of service providers indicated sales cycles were

lengthening. This level is above the survey average of 15 percent but two
points lower than last quarter.
• Sixteen percent of service providers indicated sales cycles were shortening,

down five percent from last quarter.
www.equaterra.com

Service Providers: Sales Cycle
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
1Q05
2Q05
3Q05
4Q05
1Q06
2Q06
3Q06
4Q06
1Q07
2Q07
3Q07
4Q07
1Q08
2Q08
3Q08
4Q08
1Q09
2Q09
3Q09
4Q09
Lengthening Same Shortening
Figure 18
Pricing Competitiveness
Increased pricing competitiveness implies the buyer has the upper hand and is
getting a better priced outsourcing deal. As pricing is one element of determining
profitability, the alternative of less competitive pricing is generally favorable to the
service provider. The consensus from the middle of 2008 through earlier this year
among service providers, especially India-based firms, has been that buyers are
getting more aggressive with their pricing demands. This trend began to reverse
itself last quarter. At the peak in 1Q09, 75 percent of service providers indicated
pricing pressure was increasing. This level receded earlier in the year but reversed
itself the past quarter (see Figure 19).
• Forty-eight percent of service providers polled indicated that pricing pressure

increased in the quarter. This is back above the survey average of 42 percent
and up 16 percent quarter over quarter. Indian service providers continued to
cite increased pricing aggressiveness more frequently than multinationals.
• The balance of service providers polled indicated pricing pressure remained

unchanged.
www.equaterra.com

Competitiveness
Service Providers: Pricing
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
1Q05
2Q05
3Q05
4Q05
1Q06
2Q06
3Q06
4Q06
1Q07
2Q07
3Q07
4Q07
1Q08
2Q08
3Q08
4Q08
1Q09
2Q09
3Q09
4Q09
More aggressive Same Less aggressive
Figure 19
While there is a stronger desire among buyers today to get more aggressive
with pricing, a number of factors ultimately can temper final pricing levels. More
experienced buyers generally are aware that the lowest price may not lead to the
best deal. There is concern now in the market among buyers about entering into
deals today that will fail because of bad pricing. Buyers also can reduce overall spend
– the ultimate goal – by lowering consumption levels, but still pay an equitable unit
price for services that helps ensure they get the provider’s top resources.
Service providers influence pricing competitiveness by the extent of their own

aggressiveness in pursuing deals. More service providers in the market today are
increasingly selective about the clients and deals they pursue. Service providers are
more closely assessing the risk profiles of clients they are pursuing and adjusting their
pricing accordingly. Buyers in financially difficult situations or industries are treated
with higher risk premiums and contract terms that can increase deal pricing. Buyers
To learn more: in good standing or seen as highly strategic will receive attractive pricing even with
• Executive Dilemma: How do you similar high-risk profiles and even though the provider is not offering blanket market
know if Your Cost Structure is reductions. Providers continue to look for ways to reduce operating costs and
Optimum? overhead to meet their current contract commitments, pushing price competitive
policies regardless of the economic downturn. The net result is more aggressive
• Podcast: Is Outsourcing Deal Pricing pricing in the market, but not routinely egregious pricing terms, at least for top tier
Going Down With the Market? service providers or less desirable buyers.
Deal Scope
Deal scope is defined as the number of processes, users, geographies, etc. included
in an outsourcing arrangement. Contract value usually is directly correlated to scope,
though the mix of remote/low-cost delivery resources involved also affects contract
value. From the outsourcing buyer’s perspective, understanding trends in scope and
contract value helps not only to determine how aggressively other organizations are
pursuing outsourcing, but also how to define and construct a viable and potentially
www.equaterra.com
optimal-sized deal. The growth of the multi-sourcing/multi-provider outsourcer has

both driven and resulted from smaller deal scope. On average, scope levels have
been flat to declining for the past two years, though the trend was reversed in the
most recent quarter (see Figure 20).
• Thirty-six percent of service providers polled indicated that scope was

increasing, up 20 percent from last quarter and nearly in line with the survey
average of 37 percent.
• Twelve percent of service providers indicated that scope level had decreased,
down nine percent and just below the survey average of 14 percent.

Service Providers: Scope
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
1Q05
2Q05
3Q05
4Q05
1Q06
2Q06
3Q06
4Q06
1Q07
2Q07
3Q07
4Q07
1Q08
2Q08
3Q08
4Q08
1Q09
2Q09
3Q09
4Q09
Decreased Same Increased
Figure 20
It is unclear if the change in scope in 4Q09 is an aberration or reversal of the

trending seen over the past two years. It is extremely unlikely the market will see a
return to the level of mega-deals witnessed earlier in the decade. There are some
practical benefits, though, both from the sourcing as well as outsourcing governance
perspective of bundling outsourcing efforts into larger deals. Buyers will continue to
closely scrutinize all deal components and pare back anything deemed peripheral or
discretionary.
Service Providers: Contract Profitability and Ability to

Increase Scope
A variety of factors impact service provider profitability, including deal scope,
transition costs and time frames, and buyer pricing sophistication. Exchange
rates affect service provider profitability, particularly firms with extensive global
operations. Wage inflation in offshore markets was an issue for the past several years,
but has largely dissipated, at least for the time being. Service providers with a higher
mix of remote/low-cost resources had been putting pressure on the profitability of
competitive peers with fewer lower-cost resources for the past several years. This
pressure has eased over the past two- to three- years as more providers globalize,
exchange rate trends shift and market growth slows.
www.equaterra.com
The biggest factor impacting contract profitability today is buyer pressure on

pricing and aggressive competitiveness between providers. Over the past year all
providers have faced pressure on existing contract profitability. This has resulted
from buyer pricing pressure, more competition for business, buyer pull-back on more
profitable discretionary services, and an increased focus on cost cutting over process
improvement work. After improvements to existing deal profitability earlier in the
year, levels fell back in the most recent quarter (see Figure 21).
The Pulse survey addresses profitability on existing contracts, not new deals in the
pipeline.
• Twenty-five percent of service providers polled indicated contract profitability

was improving, one-half the levels recorded the past two quarters. There was
no major trending on contract profitability based on class of service provider.
• Five percent of service providers cited declining profitability and the balance
indicated there was no change in profitability levels
i i l
Service Providers: Contract Profitability
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
1Q05
2Q05
3Q05
4Q05
1Q06
2Q06
3Q06
4Q06
1Q07
2Q07
3Q07
4Q07
1Q08
2Q08
3Q08
4Q08
1Q09
2Q09
3Q09
4Q09
Declining profitability Same amount Improving profitability
Figure 21
Figure 22 illustrates service provider expectations about their ability to increase

scope in current accounts. All providers today are very focused on growing business
in existing accounts because pursuit costs are lower than competing for new
business and this protects their base as buyers rationalize suppliers and cut back on
spend levels.
• Eighty-four percent of service providers expected to increase scope in current

accounts. This is a 23 percent increase from levels recorded last quarter and
the third highest level recorded in the life of the survey.
• Just four percent indicated scope would decline in existing accounts.
www.equaterra.com
The positive opinion on ability to increase scope in existing accounts is further

indication of buyer demand for outsourcing continuing to grow in 2010. It is also
indicative of ongoing buyer supplier consolidation and rationalization efforts that
are tending to benefit larger and more established multinational and Indian service
providers represented in the Pulse survey sample.
Fi 21 i d Abil
Service Providers: Ability on Increase Scope
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
1Q05
2Q05
3Q05
4Q05
1Q06
2Q06
3Q06
4Q06
1Q07
2Q07
3Q07
4Q07
1Q08
2Q08
3Q08
4Q08
1Q09
2Q09
3Q09
4Q09
Decline Remain constant Increase
Figure 22

Service provider capacity is an important factor that influences other trends, such
as pricing competitiveness, sales cycles and profitability. EquaTerra defines service
provider capacity as the availability of adequate and skilled resources for sales
pursuit, engagement and transition/delivery. The challenge service providers face is
the scarce supply of quality experience, which takes time and multiple outsourcing
deals to develop.
Capacity also is tightly linked to service provider aggressiveness in deal pursuit. When
service providers are being more selective and entering into fewer deals, as is often
the case in today’s BPO market, they need less capacity for pursuit and delivery.
Capacity is intentionally constrained to keep costs down and to match capacity to
demand goals. As both buyers and service providers focus more on smaller deals
with fewer processes in-scope, capacity pressure is lessened within individual deals
but exacerbated as more deals are in flight. Disruptions in deal flow over the past
year have contributed to service providers pursuing capacity constraints. More
service providers also have pared back budgets for deal pursuit as part of protecting
their own profit margins.
Figures 23 through 25 illustrate combined capacity levels for pursuit and delivery,
and then separately break out the two.
www.equaterra.com

Advisors: Service Provider Capacity, Overall
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
4Q05
1Q06
2Q06
3Q06
4Q06
1Q07
2Q07
3Q07
4Q07
1Q08
2Q08
3Q08
4Q08
1Q09
2Q09
3Q09
4Q09
Constrained/tightening Unchanged Adequate/increasing
Figure 23

Advisors: Service Provider Capacity, Pursuit
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
2Q07
3Q07
4Q07
1Q08
2Q08
3Q08
4Q08
1Q09
2Q09
3Q09
4Q09
Figure 24

Advisors: Service Provider Capacity, Delivery
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
2Q07
3Q07
4Q07
1Q08
2Q08
3Q08
4Q08
1Q09
2Q09
3Q09
4Q09
Figure 25
www.equaterra.com
• Overall capacity levels remained largely unchanged in the quarter after seeing
gradual improvements over the past year. Thirty-four percent of advisors cited
constrained or tightening service provider capacity, up eight percent from last
quarter (see Figure 23). Twenty-three percent of advisors overall cited improved
capacity, up four percent compared to last quarter.
• Capacity for sales pursuit and deal structuring (see Figure 24) continued to
improve in the quarter. Twenty-eight percent of advisors cited adequate
capacity levels, up six percent from last quarter. Twenty-seven percent of
advisors cited constrained capacity, up slightly from last quarter and in line with
4Q08 levels. Advisors that primarily support ITO deals were much more likely to
cite constrained capacity than those that primarily support BPO efforts.
• Capacity levels for deal transition and delivery remained more problematic (see
Figure 25). Constrained or tightening citation levels came in at 42 percent, up
15 percent from last quarter and 11 percent over 4Q08 levels. Just 18 percent
of advisors indicated transition capacity was adequate or improving, up slightly
for the quarter. Advisors operating out of EMEA, as well as those primarily
supporting ITO, were more likely to cite constrained capacity.
EquaTerra advisors offered the following comments on the reasons for positive and
negative changes in service provider capacity
• Pursuit capacity
–– “Consolidation and acquisitions translate to fewer plays but increased sales

and pursuit capacity overall.”
–– “Capacity is either constrained or the providers are trying to cut back on the
costs of pursuit. Teams seem to be thinner and doing less prep.”
• Delivery capacity
–– “Recent merger activity is rendering the service providers bigger and more
able to deal with demand fluctuation. Also rationalization of clients and
assignments is freeing up resources to focus on core expertise. We should
expect to see more service provider standardization of approach and more
rationalization of product offering, as well as some potentially new products
in 2010.”
–– “Indian companies do not appear constrained, US based companies appear
more bottom-line driven.”
–– “Service providers still perform poorly in transition. Either too many
inexperienced staffed to a transition team, or the methodologies are
not well established in organizations. It is at times appalling to see how
providers address transition.”
–– “Service providers really struggle to execute on transition in general. Many
times the sales/pursuit team puts the deal in place and disappears. The
transition team doesn’t know what is really in the deal ends up effectively
renegotiating many components with the client. Also, pursuit teams may
www.equaterra.com
put deals in place that are financially engineered to be loss leaders in the
early stages and then make up the margin on the back end. Unfortunately
the transition and governance people for the provider are driven to make
a profit on the account day one and are compensated as such. When that
doesn’t happen because of financial engineering, the relationship goes
south very quickly.”
–– “Fewer larger deals and maturing experienced transition teams in the
larger service providers. However, smaller but growing service providers are
struggling in these areas as they grow their businesses.”
–– “India has a surplus of talent.”
–– “Limited ‘A teams’ in certain suppliers.”
Outsourcing service providers typically are more optimistic about their own capacity
(see Figure 26).
• Sixty percent of service providers indicated capacity was adequate or

increasing, up 18 percent from last quarter and up 15 percent year over year.
India-based service providers were somewhat more likely to indicate capacity
was improving.
• Just eight percent of providers indicated that capacity was constrained or

tightening, down significantly from levels recorded in earlier quarters.
Providers concurred that more client and deal selectivity is helping to improve sales
pursuit capacity levels. The ongoing expansion of global delivery footprints similarly
is helping improve transition and delivery capacity as is continual improvement to
remote delivery capabilities
i 25 i
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
4Q05
1Q06
2Q06
3Q06
4Q06
1Q07
2Q07
3Q07
4Q07
1Q08
2Q08
3Q08
4Q08
1Q09
2Q09
3Q09
4Q09
Figure 26
www.equaterra.com
Service Providers: Current Deal Portfolio Status

In the final section of the Pulse survey, EquaTerra asked service providers to profile
the state of their current deal portfolio from several dimensions:
• Recompetes/renegotiations
• Cancellations/non-renewals
• Problem contracts
These results are provided for informational purposes only and to highlight ongoing
market directional trending. They do not represent actual deal totals in any of
the categories profiled. The number of service providers citing increased levels of
recompetes and renegotiations fell for the fourth straight quarter to 20 percent.
Cancellation and problem account levels remained largely unchanged.
Fi 2 i P d R /R
Service Provider Re-competes and Renegotiations
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
1Q05
2Q05
3Q05
4Q05
1Q06
2Q06
3Q06
4Q06
1Q07
2Q07
3Q07
4Q07
1Q08
2Q08
3Q08
4Q08
1Q09
2Q09
3Q09
4Q09
More recompetes Same amount Less recompetes
Figure 27
l
Service Provider Cancellations and Non-renewals
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
1Q05
2Q05
3Q05
4Q05
1Q06
2Q06
3Q06
4Q06
1Q07
2Q07
3Q07
4Q07
1Q08
2Q08
3Q08
4Q08
1Q09
2Q09
3Q09
4Q09
More Same Less
Figure 28
www.equaterra.com

otal Provider Problem Contracts
Service
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
1Q05
2Q05
3Q05
4Q05
1Q06
2Q06
3Q06
4Q06
1Q07
2Q07
3Q07
4Q07
1Q08
2Q08
3Q08
4Q08
1Q09
2Q09
3Q09
4Q09
Up Same Down
Figure 29
Update on Outsourcing Governance

Predictions for 2010
EquaTerra polled its advisors on what they anticipate as the most important trends
in 2010 relative to buyers’ outsourcing governance and management efforts. The
following is summary of these trends.
• State of the market
–– “Governance evolves for each client at its own pace. The market in general
is much more sophisticated with respect to outsourcing governance,
however many clients just struggle with the basics. Clients must understand
and believe in those basics (i.e. the foundation) before the higher level
activities can begin. We tend to overlook the basics of good governance
these days and focus too much on what’s the next great thing.”
–– “It depends as buyers’ governance capabilities are all over the map in
terms of maturity. Many are mired in day to day issue resolution, and with
constrained discretionary budgets, investing to get beyond that doesn’t
seem likely.”
–– “More need for governance and less willingness to invest.”
–– “Buyer’s awareness (typically the CPO) is increasing regarding the risk of

having multiple outsourcing deals that are not managed centrally. They
aren’t necessarily building outsourcing centers of excellence yet, but they
are starting to think about it.”
–– “More management attention, better and more varied performance
management instruments.”
–– “Continuing to be cheap, i.e., to minimize spend, in response to the
economic pressures.”
www.equaterra.com
–– “Ongoing and much needed awareness of the complexity of the

governance topic and greater use of tools to drive value out indirectly (e.g.,
working capital management efficiency).”
• Process improvement techniques
–– “Move to rationalization, virtualization, standardization and automation.”
–– “More emphasis on governance of multiple service providers.”
–– “Shift in focus on what vendors will do versus client obligations. New co-
sourcing models and other hybrid models will come to market in 2010,
mostly client driven.”
–– “Focus on more clarity on financials, payback, ROI, near-term and immediate
returns.”
–– “More consolidation and reduction of suppliers both to decrease internal
management costs for multi-sourcing and to leverage larger contract
economies of scale.”
–– “Development of governance towards a diversified outsourcing strategy
whereby SaaS solutions are governed at the demand level rather than being
placed at the supply level within the sourcing partner’s organization.”
–– “Increasing focus on centers of expertise to manage risk globally in a
consistent fashion and to reduce cost of third party advisors.”
–– “More investment in talent.”
• Tools
–– “Greater need for outsourcing governance software applications, though

the ‘how’ remains a conflict with the limitation on investment dollars.”
–– “Greater use of software tools with workflow, e-mail, alert capacity, and
better metrics.”
Current Market Deal Flow Update

Service Provider Performance and Satisfaction Market
Studies
On an ongoing basis, EquaTerra conducts a comprehensive market study of Service
Provider Performance and Satisfaction in both the ITO and BPO spaces. The
ITO studies cover all major European markets and are being introduced into the
U.S. market in 2010. The FAO program currently being launched is global in nature.
This market study program surveys and interviews buyers actively engaged in
outsourcing efforts with a named set of leading market-specific providers. The
research unveils direct insights into buyer opinions on service provider performance
levels, also assessing and interpreting general outsourcing demand and activity
trends in the markets covered.
www.equaterra.com
Market coverage and due dates for the next editions of these studies are as follows:
• U.K. (released 4Q09)

• Netherlands (next release 2Q10)
• BeLux (next release 2Q10)
• Nordics (next release 2Q10)
• Germany (first release 1Q10)
• Pan-European ITO (released yearly)
• Global FAO (first release 1Q10)
• US/global ITO (planned 2010)
Click here for additional details on this research offering or click here get copies of
executive summary reports for all of the completed research efforts. EquaTerra also
conducts ITO service provider Pulse surveys in the Netherlands and U.K. markets in
parallel with the global advisor and service provider Pulse surveys. It also conducts
period vertical industry Pulse surveys. Click here for additional details on all Pulse
research programs.
Deal Snapshot
EquaTerra estimates approximately 100 outsourcing deals (in ITO and the functional
BPO areas covered in the Pulse surveys) with greater than $50 million in TCV were
announced in 4Q09. Average TCV for these deals was approximately $230 million.
This compares to approximately 90 deals with an average TCV of $190 million in
3Q09. Excluding the large IBM/Essex County deal detailed below, the average TCV
was approximately $195M. When estimating the number of new deals and average
TCV, it is important to recognize that some deals, especially renewals, are not
publicly announced or the deal details are not provided. The ultimate TCV of a deal
also is likely to change over the life of the contract. There were approximately 200
total BPO and ITO deals with TCV levels greater than $25 million in the quarter, up
from 175 in 3Q09. The following is a select list of some of the top deals announced
in 4Q09.
Select Top Deals

• IBM win potentially worth £5.4B over eight years with the Essex County Council
(UK). In the multi-phase project IBM will provide a range of “transformation”
services around the design, management and delivery of front-end customer
services, back-office and IT systems. The initial phases of the project will focus
on IT modernization and streamlining of procurement.
• CSC win potentially worth $2.9B if adopted globally over 10+ years with Zurich
Financial Services. CSC will provide data center centralization and server
virtualization services.
www.equaterra.com
• Capgemini win estimated at £350M over seven years with the Environment
Agency of England and Wales. Capgemini will provide full IT infrastructure
and application management outsourcing services with the exception of
applications development. Labeled a “green IT” contract, the deal is tied to
buyer goals of reducing IT carbon emissions by “around 50 percent” within the
“next few years.”
• Cognizant win estimated at $450M over five years from UBS. The deal is tied
to Cognizant’s $75M acquisition of UBS’ s Indian captive shared service center
operation. Cognizant will provider IT infrastructure and various business and
knowledge process outsourcing services.
• HP/EDS win estimated at $500M over 10 years with Royal Ahold (Dutch
grocery store chain). HP/EDS will provide management services for mainframe
and midrange servers, local area networks and voice systems, along with select
application development services.
• TCS win estimated at £150M over 15 years with Cardiff Council (UK). TCS will
support and provide enhancements to a range of internal IT and outbound
council services.
• T-Systems win estimated at $400M over five years with Royal Philips
Electronics. T-Systems will provide data center and SAP support/infrastructure
services. T-Systems will leverage its “Dynamic”/cloud computing offering and
capabilities to deliver these services.
• HCL Technologies win estimated at $225M over five years with News Corp.
HCL will provide a range data center and network services.
• IBM win estimated at $225M over seven years with Navistar. IBM will provide
data center, database, storage and disaster recovery services.
• IBM win estimated at $200M over three years with Datacom Solutions
(Indian mobile telecommunication firm). IBM will provide IT infrastructure and
telecommunication support services.
Conclusion
EquaTerra offers the following conclusions from the 4Q09 Pulse survey:
• BPO and ITO market demand growth gained strength in 4Q09 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. Ongoing pressure to reduce costs continues to drive
demand as buyers continue to focus on doing more with less. An improving
economy, as well as lack of investments in key operational areas over the past
two years, are also favorably driving demand as buyers seek innovative means
to support growth and investments.
www.equaterra.com
• 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 demand for all types of third-
party business, mission support and IT services remains strong.
• The top trends identified for 2010 in the business and IT service market include
the following.
–– SaaS, especially in the HR functional area
–– Cloud computing and the growth of non-traditional software applications

(like SaaS and open source)
–– Shared service centers as a complement to outsourcing or in lieu of
outsourcing industries like the public sector
–– Continued service provider market consolidation with mixed results for

buyers given the challenges of smoothly completing these efforts
• The globalization of business and IT services will continue unabated in 2010.

Buyers will continue to diversify the locations from which they source services,
as well as take a broader range of services offshore. The growth of global
sourcing, however, will continue to outpace most buyers’ ability to source and
manage these increasingly complex efforts, leading to underachievement of
potential benefits and an occasional failed effort.
• Buyers continue to face many challenges to deal consummation. The key to

overcoming these challenges is to recognize and proactively address them
early in sourcing efforts and also, where appropriate, modify sourcing efforts
to ease the impact of the challenges. The top challenges cited include the
following.
–– Retained organization, relationship management and outsourcing

governance challenges
–– Inadequate executive and management support
–– Change management concerns
–– The economy or the impact of the economy on operations
• Service provider capacity is improving somewhat for deal pursuit but remains
tight for transition and delivery. Service provider selectiveness is helping to
improve capacity, but budget and skill constraints and the need to chase and
deliver more smaller deals exacerbate capacity constraints, as do fits and starts
in buyers’ sourcing efforts.
• Growth in pricing pressure on service providers has reversed direction from

the past few quarters and has started to grow again as buyers seek lower cost
deals occasionally at the expense of quality.
www.equaterra.com
Appendix - Key Questions by Advisors’ Primary Geography and Outsourcing

Focus Area
BPO &
Question Response Total Global Americas EMEA ITO BPO
ITO
Up 54% 51% 55% 53% 43% 50% 60%
Demand - Overall Flat 42% 46% 39% 44% 53% 44% 38%
Down 4% 3% 7% 4% 4% 7% 3%
BPO 19% 23% 30% 10% 0% 42% 29%
Demand - ITO 62% 73% 41% 71% 81% 33% 58%

By Service Model Other IT services 2% 4% 2% 5%
Internal improvement 17% 5% 26% 17% 14% 25% 13%
Demand - By Service Model - Change
Up 36% 37% 32% 38% 20% 36% 50%
BPO Flat 55% 63% 53% 52% 75% 48% 46%
Down 9% 16% 10% 5% 16% 5%
Up 65% 67% 56% 70% 61% 50% 70%
ITO Flat 35% 33% 44% 30% 39% 50% 30%
Down 0%
Up 35% 29% 47% 32% 30% 30% 39%
Other IT Services Flat 61% 59% 53% 68% 70% 60% 56%
Down 4% 12% 10% 6%
Up 75% 70% 84% 71% 62% 82% 80%
Internal
Flat 21% 30% 5% 25% 27% 18% 20%
Improvement
Down 5% 11% 4% 12%
Capacity is constrained/tightening 27% 43% 31% 33% 42% 14% 14%
Service Provider
Capacity is unchanged 45% 48% 39% 39% 32% 55% 64%
Capacity - Pursuit
Capacity is adequate/increasing 28% 10% 31% 28% 27% 32% 23%
Capacity is constrained/tightening 42% 43% 29% 49% 63% 32% 10%
Service Provider
Capacity is unchanged 40% 48% 46% 33% 25% 41% 70%
Capacity - Delivery
Capacity is adequate/increasing 18% 10% 25% 18% 13% 27% 20%
Driving more outsourcing 65% 59% 66% 68% 65% 56% 70%
Economy Slowing/rethinking outsourcing plans 25% 32% 28% 20% 23% 36% 22%
Little/no impact 10% 9% 7% 13% 12% 8% 9%
www.equaterra.com
BPO &
ITO
Change management concerns 45% 64% 41% 40% 33% 46% 61%
Compliance/regulations 5% 9% 5% 6% 4% 0%
Costs to do the deal 31% 32% 44% 21% 34% 31% 30%
External business event 14% 23% 13% 12% 11% 19% 17%
Inadequate business case 35% 23% 44% 35% 28% 39% 44%
Inadequate exec/mgmt support 46% 46% 66% 33% 40% 54% 48%
Challenges - Deal
Internal 'political' pressure 28% 41% 28% 21% 28% 27% 26%
Consummation
Loss of faith in outsourcing 9% 9% 16% 5% 9% 19% 4%
Negative market pressures 11% 9% 9% 14% 15% 12% 9%
Quality/fit of SP candidates 11% 9% 6% 16% 19% 8%
Retained org./gov. challenges 49% 41% 31% 67% 64% 42% 22%
Economic Conditions 12% 18% 9% 12% 11% 8% 26%
Other 3% 5% 5% 4% 4%
Global sourcing/globalization 3.65 3.95 3.29 3.76 3.46 3.70 3.85
RIM 3.24 2.90 3.00 3.64 3.33 3.07 3.26
SaaS 3.64 3.82 3.50 3.65 3.30 4.35 3.63
"Cloud" computing 3.40 3.41 3.26 3.50 3.49 3.58 3.28
Protectionism/less outsourcing 2.40 2.65 2.37 2.29 2.36 2.43 2.45
Top 2010
Market Trends Offshore captives 2.35 2.89 2.00 2.33 2.12 2.36 2.68
Share service centers 3.31 3.43 3.12 3.37 3.10 3.70 3.44
Social media's use to support sourcing/
2.29 2.50 2.13 2.28 2.11 2.50 2.41
outsourcing
Use of software tools/solutions to
2.77 3.00 2.73 2.68 2.63 2.81 2.89
support outsourcing gov. efforts
Onshore outsourcing 3.01 2.85 3.00 3.10 2.90 3.17 3.23
Global Sourcing Nearshore outsourcing 3.33 3.30 3.19 3.45 3.20 3.39 3.38
Model Preference Offshore outsourcing 3.38 3.55 3.00 3.55 3.49 2.92 3.50
Nearshore/offshore captives 2.84 3.15 2.52 2.91 2.59 2.78 3.15
Service provider selection/assessing
Service providers global delivery 2.60 2.60 2.54 2.64 2.69 2.74 2.38
capabilities
Service provider geographic location
Buyer Global 2.45 2.65 2.38 2.39 2.56 2.57 2.19
assessment
Sourcing Matuirty
Assessing/accounting for geopolitical/
2.20 2.25 2.04 2.27 2.39 2.00 2.10
service provider risk
Assessing/accounting for data, data
2.57 2.90 2.67 2.31 2.64 2.78 2.25
privacy, IP risk
www.equaterra.com
BPO &
ITO
Canada 6% 5% 17% 8% 9%
Central America/Caribbean 21% 20% 44% 8% 16% 22% 32%
Central/Eastern Europe 53% 45% 22% 76% 47% 52% 53%
Russia 0% 0%
China 31% 45% 13% 35% 24% 30% 42%
India 74% 60% 44% 73% 63% 57% 63%
Top Global Locations Philippines 38% 55% 30% 32% 24% 61% 32%
South Africa 5% 0% 11% 11%
South America 21% 30% 30% 11% 24% 9% 26%
Vietnam 6% 13% 5% 8% 9%
Other Asia Pacific 4% 5% 4% 3% 5% 5%
Other Africa 0%
Other Middle East 3% 3% 3% 5%
About EquaTerra Contact Us

EquaTerra sourcing advisors help clients achieve If you would like to know more about EquaTerra, please contact us.
sustainable value in their IT and business processes.
Europe/Asia Pacific Americas
Our advisors average more than 20 years of
+44 (0) 845 838 7500 +1 713 470 9812
industry experience and have supported over 2000
infoeuapac@equaterra.com infoamericas@equaterra.com
transformation and outsourcing projects across more
than 60 countries. Supporting clients throughout
For details of all our locations visit www.equaterra.com/locations
the Americas, Europe, and Asia Pacific, we have deep
functional knowledge in Finance and Accounting, For more information on EquaTerra research efforts,
HR, IT, Procurement and other critical business please contact Stan Lepeak at + 1 203 458 0677 or
processes. EquaTerra helps clients achieve significant stan.lepeak@equaterra.com
cost savings and process improvement with internal
transformation, shared services and outsourcing
solutions.
www.equaterra.com
Copyright © EquaTerra 2010. All rights reserved. The prior written permission of EquaTerra is required to reproduce all or any
part of this document, in any form whether physical or electronic, for any purpose. 3141_012010.

EquaTerra Whitepaper 4Q09 Pulse Report Jan2010 3141

Uploaded by

Document Information

Original Description:

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

EquaTerra Whitepaper 4Q09 Pulse Report Jan2010 3141

Uploaded by

Copyright:

Available Formats

Get to what matters.

EquaTerra Advisor and Service Provider Pulse

Introduction • Challenges to outsourcing deal consummation in the

• Top 2010 business and IT service market trends

Get to what matters.

Get to what matters.

Get to what matters.

EquaTerra Advisor Highlights

1. Retained org./governance challenges

Steady; 45 percent cite no changes; 28 percent cite adequate, 27 percent

Tightening; 40 percent cite no changes; 18 percent cite adequate, 42 percent

1. Accounts Payable (AP)

Get to what matters.

BPO/ITO Service Provider Highlights

Weakening; 25 percent cite improvement, down 25 percent Q/Q but up eight

1. AR/C&C 1. Banking/Financial Services

Get to what matters.

Current Market Demand Conditions

• Fifty-four percent of advisors indicated that overall third-party business and IT

Get to what matters.

• Thirty-five percent of advisors cited an increase in demand for non-

Internal Imp. 17%

BPO ITO Other IT Svcs Internal Imp.

Get to what matters.

internal change offers. This approach is more common in organizations less

• Seventy-six percent of service providers polled cited pipeline growth in the

• No service providers cited a decline in pipeline growth.

Down Q/Q About the same Up Q/Q Aggregate

Service providers remained optimistic about future outsourcing demand growth

• Sixty-three percent of service providers polled expect an increase in demand

Get to what matters.

Advisors Service Providers

Get to what matters.

Economy’s Impact on Outsourcing Demand

• Thirty-three percent overall indicated economic conditions are causing

• There were no major variations in responses from advisors based on geography

58% 58% 59% 60%

1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09

Get to what matters.

–– “Even if companies don’t want to outsource, they are willing to go thru a

–– “As employers spend more time controlling expenses associated with

Challenges to Outsourcing Deal Consummation

Get to what matters.

Challenges to Deal Consummation

0% 20% 40% 60%

0% 20% 40% 60% 80%

• Retained organization, relationship management and outsourcing

• Forty-six percent of advisors identified inadequate executive and management

Get to what matters.

• The most frequently cited challenge by service providers, identified by 50

Get to what matters.

Demand Trends by Functional Area

0% 20% 40% 60% 80% 100%

0% 10% 20% 30% 40% 50%

Get to what matters.

Get to what matters.

Advisors: Service Providers:

Workforce Eff. Compensation

Advisors: FAO Demand Service Providers: FAO Demand

AR/C&C Accounts Payable

General Accounting 4Q09 General Accoutning 4Q09

Advisors: ITO Demand Service Providers: ITO Demand

Desktop Services 4Q09 Packaged Apps. Svcs. 4Q09