The Index assesses developments in the ITO market by providing two complementary analyses: one focused on ITO bookings (i.e. contracts signed) and the other on IT services spending. The Index therefore provides a dual view on market conditions in ITO by providing a short-term view of how spending is to evolve in the next quarter (the spending analysis) and in the mid-term, in the next 12 to 18 months (the bookings analysis).
This week’s webcast focused on Q2 2015 announced ITO contract activity and estimated spending during Q1 2015 for IT services, ITO and professional services. It also forecast full year 2015 spending growth in IT services and ITO.
ITO bookings were down 60% year-on-year (y/y) in Q2 2015. Dominique Raviart commented “the sharp decline in ITO bookings growth in Q2 2015 worldwide comes after a strong growth in both Q1 2015 and Q4 2014”. NelsonHall highlights that in the IT outsourcing industry, mega-contracts (those with TCV over $1bn) fluctuate from quarter to quarter. In Q2 2015, there was no mega-deal announced.
“One should not read too much into quarterly variations. Mega deals can easily slip from one quarter to the other”, said Raviart. “And this quarter, there simply was a conjunction of no mega-deals and a relatively low number of mid-sized deals”.
According to NelsonHall research, the number of mega-deals in a given quarter varies between none and up to five. Raviart said “we cannot predict when next mega-deals will be finalized. This is in the hands of buy-side clients. Yet, our historical data and pattern analysis show that, historically quiet quarters are often followed by strong quarters”.
Meanwhile, spending growth on IT services and on IT outsourcing continues to be uninspiring. In fact, in Q1 2015, growth of in outsourcing spending was in negative territory.
Raviart said “we are seeing the impact of a low level of ITO bookings in the past three to quarters impacting spending. Clearly, there is market saturation in North America and there is limited adoption of ITO in high-growth countries. Also, there is also the impact of Indian offshoring deflating significantly prices and spending”.
Based on those findings, NelsonHall has somewhat lowered its growth forecast for IT services in 2015 from +3% to +2% (at constant currency). Dominique Raviart mentioned “the world economy is probably facing better growth prospects since 2008. Yet we are not seeing the impact of such improved macro conditions on IT services or on IT outsourcing spending. Also digital transformation is not driving overall spending up. We think there are several explanations to it. The most important factor is however Indian offshoring, which is driving down prices” The downwards trend is not over with automation adoption starting to spread across buy-side clients”.
A recording of the webcast is available to subscribers here.
NelsonHall is the leading global BPO and IT outsourcing research & analysis firm with analysts across the U.S., U.K. and Continental Europe.
Founded in 1998, The Company takes a global approach to analysis of vendors and outsourcing markets and is widely respected for the quality and depth of its research.
NelsonHall also offers a suite of "Speed-to-Source" tools, (NEAT), that assist buy-side executives in saving time and money, while enhancing the quality of their sourcing decisions, in business process outsourcing and IT outsourcing evaluations.