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Trends in outsourcing and services
Stuart Ravens
Ed Thomas
1 May 2014
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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.
Contract volume increased by 39% in the North American private sector, but the number of awards was half that recorded in Europe.
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TCV and number of deals, 2009 to 2013
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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 Southern Water all awarded IT services contracts.
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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 looking for more choice from vendors, in terms of how services are delivered and priced. At the same time, technology trends such as cloud are increasing the number of options available to clients.
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Private sector contracts by price band, 3Q12 to 4Q13
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3Q12 4Q12 1Q13 2Q13 3Q13 4Q13≤$10m >$10m, <$50m ≥$50m, <$100m ≥$100m
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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 insurance.
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Trends in outsourcing and services
Stuart Ravens
Ed Thomas
1 May 2014
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IT solution area – utilities are turning to service providers for more industry-specific work
Worldwide utilities services contracts
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While ITO still dominates, we are seeing an uptick in both BPO and SI work
Worldwide utilities services contracts
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No mega-deals have been signed in the last two years
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EOn/HP
EOn/T-Systems
Hydro One/Capgemini
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2010 – 2011 worldwide utilities contracts 2012 – 2013 worldwide utilities contracts
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However, contracts are lengthening and values are increasing
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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
2010 – 2011 worldwide utilities contracts 2012 – 2013 worldwide utilities contracts
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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.
Systems integration
SSE/Accenture – implementing Oracle applications.
Southern Water/TCS – deploying CRM system.
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CX dominates utility IT projects worldwide in 2014
Source: Ovum
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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“
Sam Laidlaw, Centrica 2010
Innovation
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Transformation in supply and services
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Transformation in customer satisfaction
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#AskBG: social media has to be managed carefully
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And utilities have to learn from their mistakes
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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
Npower recently outsourced its entire CX capability
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Past Future
Network transformation drives adoption of new services
Source: EY
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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
Thames Water/Accenture – IT-OT integration pilot
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Analytics becomes the cornerstone of the digital utility
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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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Summary
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