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Trends in outsourcing and services

Stuart Ravens Ed Thomas

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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.

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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

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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

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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

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IT solution area – utilities are turning to service

providers for more industry-specific work

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While ITO still dominates, we are seeing an

uptick in both BPO and SI work

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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/HP

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However, 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 80 100 120 140

Average 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

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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.

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CX dominates utility IT projects worldwide in 2014

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“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“

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 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

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Past

Future

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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

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 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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Disclaimer

All Rights Reserved.

No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior permission of the publisher, Ovum (an Informa business).

The facts of this report are believed to be correct at the time of publication but cannot be guaranteed. Please note that the findings, conclusions and

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