Trends in outsourcing and services
Stuart Ravens Ed Thomas
Global contract volume and TCV up in 2013
Despite an underwhelming fourth quarter, 2013 surpassed the
previous year in terms of both global contract volume and total contract value (TCV).
The total number of contracts tracked by Ovum during the course of the year was the highest since 2010.
Annual TCV was up 12% on the previous year.
The increase in contract volume was largely due to the increase in
private sector activity.
The number of contracts awarded by European enterprises was up 41%
in 2013, and the annual total was the highest since 2009.
UK TCV was up 51% on the previous year
In the UK, TCV was up 51% on the previous year, hitting its highest
level since 2008. The number of contracts tracked was also up 31%.
Over half of UK TCV in 2013 was derived from the public sector.
Large central government contracts were awarded by the Cabinet Office, the Department of Energy and Climate Change, and National Savings and Investments.
In the private sector, there was notable activity in the insurance
industry.
In the utilities market, the likes of Centrica, DCC, Npower, SSE, and
Move away from large contracts picks up pace
In recent years, the IT services industry has slowly begun to move
away from large outsourcing contracts, valued at upwards of $100m.
In the second half of 2013, this shift gathered significant momentum
among enterprises.
In the first six months of 2013, approximately three-quarters of all private sector contracts were valued at less than $50m.
In 3Q13, this figure increased to just under 81% while, in 4Q13, 86% of all contracts awarded by businesses were worth under $50m.
Many companies, particularly in mature markets such as the US, are
BPO activity hit eight-year high in 2013
In 2013, the number of BPO contracts announced was the highest
since 2005.
In the UK, the number of contracts with a BPO component was the
highest ever recorded in a single year by Ovum.
Some 30% of the UK BPO contracts announced in 2013 were
awarded by public sector agencies.
For both central and local government agencies, cost reduction is the main driver behind the decision to outsource back-office processes.
The most active private sector verticals were manufacturing and
IT solution area – utilities are turning to service
providers for more industry-specific work
While ITO still dominates, we are seeing an
uptick in both BPO and SI work
No mega-deals have been signed in the last two
years
50 100 150 200 250 300 A n n u a l C o n tr a c t V a lu e ( U S$ m ) 50 100 150 200 250 300 A n n u a l C o n tr a c t V a lu e ( U S$ m ) EOn/HP EOn/T-Systems Hydro One/Capgemini Centrica/HPHowever, contracts are lengthening and values
are increasing
0 10 20 30 40 0 20 40 60 80 100 120 140 0 10 20 30 40 0 20 40 60 80 100 120 140Average contract length: 43.3m Average annual value: $5.5m Average total value: $21.1m
Average contract length: 45.6m Average annual value: $6.3m Average total value: $26.4m
UK utilities contracts in 2013
Application services:
Centrica/Capgemini – management and support of SAP services
BPO:
Npower/Capita and TCS - call centre and back-office services.
British Gas/Itron – customer services.
Scottish Power/Itron – support electricity prepayment customers.
Data services:
Data Communications Company/CGI – support delivery of data services for smart meters.
Infrastructure services:
United Utilities/Fujitsu - infrastructure design, build, and management. SSE/Alcatel-Lucent – network services.
CX dominates utility IT projects worldwide in 2014
“I would rank business model innovation as the single most
important challenge to utilities today. We need to get away
from the old model, where utilities sell just megawatt hours, to
one where they also sell a much more differentiated set of
products — for example, energy services, e-mobility and
generation capacities, as well as megawatt hours.”
Dr Susanne Nies, Eurelectric
“The old utility business model is dead“
RWE net loss €2.76bn for 2013 (first loss since 1949)
€5bn write-down, mainly on fossil fuel plants
Cost savings across the value chain are critical
Apart from closing or mothballing gas fired power stations, RWE
Npower in UK pursuing dramatic BPO
Onshore provider to run all frontline customer services – customer
experience from specialist providers, with financial incentives based on customer satisfaction
All back office retail functions outsourced to India
1,500 redundancies
Past
Future
European smart meter and smart grid services
contracts in 2012 and 2013
EOn Sweden/Capgemini and Ericsson – smart meter deployment; AMI data analytics
GrDF/Capgemini and Atos – System architecture design and implementation
Endesa/Accenture – smart meter data integration
British Gas/Itron – support electricity prepayment customers
Scottish Power/Itron – prepayment managed service
Data Communications Company/CGI – support delivery of data services for smart
meters
Elektrilevi/Ericsson – AMI managed service
Unprecedented pressures are transforming the industry, the way
utilities do business, the way they interact with their customers
Technology-led innovation is at the forefront of managing this
disruption
In many cases the industry lacks the requisite skills to manage this
transition
We expect the industry to further outsource CX and elements of
smart meter/smart grid services
As data analytics matures, utilities will be faced with a global shortage
of data scientists. Analytics services will become an important growth area in the coming years.
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