ISG Momentum® Sourcing Digest May 2021
18 May 2021
by Paul Reynolds, John Boccuzzi
Cautious Spending Was One of the Few Consistent Market Characteristics Across Services Lines and Verticals
- The pandemic was a major influence in a very unusual year for outsourcing activity in 2020. Contract volumes and spending levels were down for most service lines, geographies and regions, which is easily understandable. However, the severity of the declines, their persistence and prospects for recovery were extremely inconsistent across market segments. For example, contract awards and spending bounced back strongly in some industries in the second half of 2020 but tapered off significantly in others.
- In most market segments, the year-over-year total contract value (TCV) and annual contract value (ACV) that clients committed declined much more than the volume of contracts awarded. Total 2020 contract award volume was 9% less in 2020 than in 2019, while the TCV awarded was 28% lower.
- ITO activity declined in every region. It was strongest in EMEA, which accounted for more than half of the global TCV. EMEA experienced a 7% decline in TCV on essentially flat contract volume in 2020. ITO TCV declined by 23% in the Americas and 21% in the Asia Pacific region.
- The difference in contract award and spending momentum was stark in the ADM market, where annual award volume fell by 11% for standalone contracts and ACV was down by 63%. Data center services had similar results, although less extreme.
- The MNS and workplace segments performed relatively well. The average value of workplace contracts awarded in 2020 was approximately 20% higher than in 2019. MNS annual contract value was up for the year because of gains in the bundled services segment.
- Very few clients bundled additional services with their BPO agreements in 2020. Overall BPO contract volume was 15% less than in 2019.
- Finance & accounting outsourcing was the bright spot of the BPO market, as there were more F&A contracts awarded in 2020 than in the previous three years combined. The HRO market softened and spending was also down in procurement, although its contract award levels were consistent with recent years.
- As noted, at the individual industry level there were no consistent patterns of quarter-to-quarter contract volume or spending levels. Banking had one of the strongest mid-year turnarounds, but 2020 ended with $5 million less TCV in that vertical than the year before. Manufacturing, oil & gas, and telecom also ended the year with positive momentum.
- Manufacturing was one of the few industry segments to achieve TCV growth in 2020, thanks to results from Europe. Retail was another relatively strong performer because of greatly increased activity in the Americas and EMEA.
- Many verticals produced very inconsistent quarter-to-quarter and year-over-year results, making it difficult to get a read on market direction
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