by: Sarah Joson
Monday, July 20, 2015 | Outsourcing News |
Market intelligence firm Information Services Group recently released its ISG Outsourcing Index where it was revealed that the outsourcing activity and annual contract value for during the second quarter had recovered from the weak first quarter. The report also indicated that smaller contracts are gaining traction, ACV in the Americas gains pace and has doubled in digits, EMEA and Asia-Pacific had surpassed the $2 billion mark for the 6th straight quarter and has pulled through the lack luster first quarter, but the growth in ACV is slower compared to last year, and the future is filled with uncertainty as the market continues to adopt Digital As-a-Service.
However, the market report indicated that although outsourcing activity improved globally, the value of the deals had declined.
The ISG Outsourcing Index™ analyzes and measures commercial outsourcing contracts with annual contract values (ACV) of $5 million or more and found that 451 deals were signed during the second quarter, on top of the 745 agreements in the first six months noted this year.
Even with the sharp increase in outsourcing activity, the $6.2 billion ACV seen circulating in the second quarter is seven percent less than the figures posted during the second quarter of last year, but jumped 24 percent from the first quarter of this year. The total ACV posted in the first half of this year reached $11.2 billion, 14 percent down from the previous year. One of the factors identified as the reason for the drop is this year’s first quarter - the slowest in the last 10 years.
Several reasons are linked with the obvious increase in activity which are buyers are looking for more convenient deals - cheaper and more flexible now that technology is disrupting much of the environment in the outsourcing space.
According to ISG President and Partner John Keppel, the outsourcing market is continuously adopting global options, which then further accelerate the activity. As a matter of fact, three of the last six months have posted the highest outsourcing activity. Moreover, he anticipates that the trend towards smaller deals will continue adding that from the economic downturn in 2008; only the volume of contracts grew, whereas the ACV maintained momentum.
Keppel added that ACVs grew from a slow first quarter and surpassed the $6 billion without backing from mega deals. Only two deals in the second quarter had an ACV of over $100 million, which is very unlikely. Clearly, in today’s time, the size of the deal is no longer the driver of the market - it is now the size of the demand.