Contract Sizes: The Lifeline of the Business Contracts below $25 M continue to the most important, even as ITO and BPO contract sizes are
by Ed Nair
C
ontracts are the lifeline of the outsourcing business: the number of contracts signify the general pace of the business and the size of the contracts (in terms of total contract value and annual contract value) denote the overall momentum of the industry. It is very clear that contract sizes of less than $50 M (total contract value) are the mainstay of the industry. This is more so for companies in the mid-tier. The dynamics of the band of contract sizes less than $50M is far more interesting. Unfortunately, this re-
search does not offer much visibility into that band. Hence, we look at some published research from TPI Inc. , a sourcing research and advisory company that tracks contracts on a quarterly basis. From this, we can infer that contract sizes less than $25M are important for not only mid-tier companies but also for Tier 1 companies. There were nearly 600 contracts with total contract value of more than $25M in 2009. ITO contracts clearly lead the way with at least three out of four contracts being an ITO contract, though this is not the case in Fig.1 in the $1B plus cat-
FIG.1
AREA COMPANY SIZE CONTRACT SIZES Less than $50M $51M-$99M $100 M- $ 299 M
ITO
BPO
1M-10M
10M-100M
100M-1B
1B+
1M-10M
10M-100M
100M-1B
1B+
197 5
1203 26 0
6260 52 16
396 16 8
76 2 0
337 1 0
2404 44 4
534 52 10 Source: TPI Inc.
FIG.2
FIG.3
# of Quarter Contracts > $25 M TCV
Relative Percent of Total Contracts Awarded by TCV Band In 2009, almost 70% of all Broader Market contracts were valued at under $100M in TCV.
66% 68% 67% 69% 53%
24%
Less than $ 100 M n 2005
16% 15% 18% 16%
23% 23%
Greater than$200M
$100M-$199M n 2006
n 2007
18% 16% 15%
n 2008
n 2009
Source: TPI Inc.
Average TCV ($M) of Industrywide Contracts >$25M Both ITO and BPO at lowest average TCV level in the past five years.
231
201 145 148 140 127
173 161 147 142
105
All Industrywide Contracts n 2005
14 GlobalServices
157
97
BPO
ITO n 2006
126 128
n 2007
n 2008
n 2009
Source: TPI Inc.
www. globalservicesmedia.com
1Q2009 2Q2009 3Q2009 4Q2009 Total
141 148 140 168 597
Area ITO 101 118 108 110 437
BPO 40 30 32 58 160 Source: TPI Inc.
egory because the study sample includes more BPO companies in the $1B plus category. The above slide from TPI’s presentation clearly shows that from 2006 onwards contract sizes have been shrinking. For example, in 2009, nearly 70% of the contracts were less than $100M in TCV compared to 53% in 2005. The figure also shows that 2009 was a tough year with both ITO and BPO at lowest average TCV level in the past five years. GS GS100-2010