EquaTerra Whitepaper 2Q09 Pulse Report July2009 3131

Get to what matters.
EquaTerra Advisor and Service Provider Pulse

Survey Results – 2Q09
Introduction • The impact of current market conditions on global

sourcing preferences and locations
EquaTerra is pleased to release the findings from its 2Q09
EquaTerra advisor and business and information technology • Outsourcing deal scope, sales cycles, pricing, contract
(IT) service provider Pulse surveys. Through these surveys, value and profitability
EquaTerra has developed a highly informative gauge that
provides quarterly insights into trends and projections in the • Service provider pursuit and delivery capacity
outsourcing and third-party business and IT service markets, • Challenges buyers face in successfully completing
gleaned from its own field advisors and leading global service outsourcing transition efforts
providers. EquaTerra’s advisors are the leading experts on
business and IT services, assisting buying organizations The Pulse surveys focus on using outsourcing and other third-
actively exploring or undertaking shared services, outsourcing, party services to support the following functional areas:
offshore and other service delivery alternatives. • Customer care (CC)/call center
Since their inception in 2004, the EquaTerra advisor and • Finance and accounting (F&A)
service provider Pulse surveys have yielded insightful analysis • Human resources (HR)
of current and ongoing market trends. They capture changes • Information technology
in demand, scope, capacity and related key market indicators. • Knowledge process outsourcing
They highlight the changes, and the direction of change, in • Procurement
the business and IT service industry as a whole. The surveys • Vertical industry business services
focus on where the market is going and how that direction is The following leading global business and IT service providers
changing – or not – compared to prior quarters and years. were polled for this quarter’s sell-side survey:
EquaTerra also incorporates key quantitative market data and
• Accenture • IBM
leading indicators from sources outside the Pulse surveys.
• ACS • ICG Commerce
These sources include experiences from direct client advisory
• ADP • Infosys
engagements and other EquaTerra market research, as well as
• Capgemini • Mercer
service provider performance and satisfaction studies.
• Ceridian • Patni
This edition of the advisor and service provider Pulse surveys • Convergys • TCS
reflects business and IT service market activity during 2Q09 • CSC • Unisys
(April through June 2009) and projections for the balance of • HCL • Wipro
2009. Topics explored include: • Hewitt • WNS
• Demand and buying patterns, including the impact of • Hewlett-Packard
market conditions on the demand for outsourcing and
related third-party business and IT services
Copyright © EquaTerra 2009. All rights are reserved. EquaTerra Advisor and Service Provider Pulse Survey Results - 2Q09 - Page 1
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EquaTerra offers the following conclusions from the 2Q09 Pulse survey:
• Business Process Outsourcing (BPO) and IT Outsourcing • As buyer appetites for global sourcing remain strong,
(ITO) market demand remained steady in 2Q09 their preference in locations from which to source
according to EquaTerra advisors and third-party business services continues to diversify. More buyers are seeking
and IT service providers polled. Signs indicate this trend to have global services delivered from locations beyond
will continue during the rest of 2009. While there India. This is a function of buyer desires to diversify, the
remains some amount of pent-up buyer demand, it is increased competitiveness of emerging markets like
emerging in the form of deals relatively slowly. Uncertain South America, and the expansion of Indian and global
market conditions and turmoil within individual buyer providers into more markets. Overall it represents an
accounts continue to slow some sourcing efforts. ongoing move toward a true global sourcing model
where buyers deploy and manage global service chains
• The market for more discretionary third-party services,
just as they have global supply chains.
such as consulting, systems integration and some
application development work, is weaker than for • Service provider capacity overall has become more
outsourcing. The exception is in the public sector and constricted, especially for deal pursuit. While supplier
military/aerospace markets where demand for all types selectivity has helped to improve capacity, this trend has
of third-party business, mission support and IT services been offset by decreases in budgets for pursuit activity,
remains strong. U.S. public sector demand for third- elongated pursuit efforts in certain buyer accounts, and
party services continues to grow, driven in part by an overall increase in buyer demand. Service provider
stimulus fund inflows. capacity for deal transition and delivery also slipped a bit
in the quarter.
• Market conditions overall are driving more demand for
global or “offshore” sourcing as the need and desire • Outsourcing buyers continue to face challenges in
to cut costs outweighs other factors that detract from managing transition efforts. Efforts are hampered by
global sourcing (e.g., trade protectionism, increased both a lack of adequate and skilled resources, as well
availability of labor in western markets at a lower cost as ineffective and inadequate planning and processes.
than seen in several years). There is also more interest in This leads to transition efforts not being completed on
nearshore services, highlighting the overall growth of all time, within budget and with the required functionality.
models of outsourcing, as well as buyer desires to take Critically, it too often means that poorly handled initial
advantage of good deals wherever they can find them. transition efforts negatively affect the start of the
relationship between the client and the service provider.
Distribution of the EquaTerra Pulse survey reports, controlled by EquaTerra, is intended for internal use and select delivery to
EquaTerra clients, prospects and other marketplace representatives. Questions or comments regarding these surveys should be
directed to Stan Lepeak, Managing Director of EquaTerra and EquaSiis Global Research, +1 203 458 0677.
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Table of Contents
I. Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
II. EquaTerra Advisor Highlights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
III. BPO/ITO Service Provider Highlights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
IV. Market Demand and Market Trends Update. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Figure 1 - Advisors: Market Demand. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Figure 2 - Advisors: Demand by Service Delivery Model . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Figure 3 - Advisors: Change in Demand by Service Delivery Model. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Figure 4 - Service Providers: New Deal Pipeline Projections. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Figure 5 - Service Providers: Demand Next Quarter. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Figure 6 - Weighted Aggregate Market Demand: Advisors & Service Providers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
V. Economy’s Impact on Outsourcing Demand . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Figure 7 - Economic Environment’s Impact on Outsourcing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
VI. Market Conditions: Impact on Global Sourcing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Figure 8 - Market Conditions: Impact on Global Sourcing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
VII. Demand Trends by Functional Area . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Figure 9 - Advisors: Demand by Functional Area . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Figure 10 - Service Providers: Demand by Functional Area . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
VIII. Advisors: Functional and Process Area Demand. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
IX. Service Providers: Functional and Process Area Demand. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
X. Demand Trends by Industry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Figure 11 - Advisors: Demand by Industry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Figure 12 - Service Providers: Demand by Industry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
XI. Global Sourcing Trends. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Figure 13 - Advisors: Change in Sourcing Model Preference/Demand. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Figure 14 - Service Providers: Change in Sourcing Model Preference/Demand. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Table 1 - “Hottest” Near and Offshore Destinations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
XII. Sales Cycle. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Figure 15 - Service Providers: Sales Cycle. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
XIII. Pricing Competitiveness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Figure 16 - Service Providers: Pricing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
XIV. Deal Scope . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Figure 17 - Service Providers: Scope. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
XV. Service Providers: Contract Profitability and Ability to Increase Scope. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Figure 18 - Service Providers: Contract Profitability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Figure 19 - Service Providers: Ability on Increase Scope. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
XVI. Service Provider Capacity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Figure 20 - Advisors: Service Provider Capacity Overall . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Figure 21 - Advisors: Service Provider Capacity, Pursuit. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Figure 22 - Advisors: Service Provider Capacity, Delivery. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Figure 23 - Service Provider Capacity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
XVII. Update on Outsourcing Governance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Figure 24 - Root Causes for Transition “Failure” . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Figure 25 - Most Frequently Ignored Aspects of Transition by Buyers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Figure 26 - Percent of Transitions Completed On Time/Budget and to Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Figure 27 - How Often Transitions Negatively Affect Start of Buyer/Service Provider Relationship . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
XVIII. Service Provider Market Update . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
XIX. Service Providers: Current Deal Portfolio Status . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Figure 28 - Service Provider Re-competes and Renegotiations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Figure 29 - Service Provider Cancellations and Non-renewals. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Figure 30 - Service Provider Problem Contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
XX. Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
XXI. Appendix - Key Questions by Advisors’ Primary Geography and Outsourcing Focus Area. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
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EquaTerra Advisor Highlights

Steady; 46 percent of advisors cite increased demand, down 3 percent quarter
Overall BPO/ITO Market Demand
over quarter (Q/Q) and 6 percent year over year (Y/Y)
58 percent say the economy is driving more outsourcing (up 7 percent Q/Q), while
Economy’s Impact on Outsourcing
36 percent indicate economic conditions are slowing deal flow
Tightening; 38 percent cite constrained levels, up 9 percent Q/Q; 21 percent

Service Provider Capacity – Pursuit
indicate levels adequate
Tightening; 38 percent cite constrained, up 9 percent Q/Q; 18 percent cite

Service Provider Capacity – Delivery
adequate levels, down 4 percent Q/Q
1. India
Top Global Sourcing Locations 2. Central/Eastern Europe
3. Philippines
1. Insufficient transition management

Transition: Top Reasons for “Failure” 2. Lack of understanding of the deal/scope
3. Ineffective relationship and program governance during transition
1. Re-aligning the retained organization

Transition: Most Frequently Ignored Aspects 2. Adequately resourcing the transition project
3. Effectively managing the change
1. ITO
Leading Market Segments 2. Finance and Accounting Outsourcing (FAO)
3. Human Resources Outsourcing (HRO)
1. Payroll
Leading HRO Segments 2. Benefits
3. Human Resources Information Technology (HRIT)
1. Accounts Payable (AP)

Leading FAO Segments 2. Accounts Receivable (AR)/Credit and Collections (C&C)
3. General Accounting
1. Infrastructure/Operations
Leading ITO Segments 2. Application Development and Maintenance (ADM)
3. Desktop Services
1. AP
Leading Procurement Segments 2. Order Management
3. Strategic Sourcing
1. Energy/Utilities, Banking/Financial Services

Leading Industries
2. Public Sector, Pharma
The market for third-party business and IT services, primarily outsourcing, was in a holding pattern in 2Q09 according to
EquaTerra advisors polled. Demand levels were positive and in line with levels from last quarter and last year. The economy
remains the dominant factor impacting demand and deal flow, mostly to the upside. Despite market noise to the contrary,
global sourcing use remains steady, though there is an uptick in demand for nearshore/onshore services and for offshore
services in locations other than India.
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BPO/ITO Service Provider Highlights

Improving; 65 percent of service providers cite growth, up 8 percent Q/Q and 13
New Deal Pipeline Growth
percent Y/Y
Demand Next Quarter Steady; 63 percent expect increases, up one percent Q/Q and 13 percent Y/Y
58 percent say the economic climate is driving more outsourcing, up 20 percent

Economy’s Impact on Outsourcing
Q/Q; 42 percent indicate buyers are slowing/rethinking outsourcing
Steady; 25 percent cite lengthening, down eight percent Q/Q and up 10 percent
Sales Cycle
Y/Y; 60 percent see no change
Easing; 53 percent cite more aggressive, down 22 percent Q/Q but up 18 percent
Pricing Competitiveness
Y/Y
Deal Scope Varies; 26 percent cite increases; 26 percent cite declines
Contract Profitability Improving; 50 percent cite improvement, up 20 percent Q/Q and 24 percent Y/Y
Ability to Increase Current Contract Scope Fell back; 63 percent expect increases, down 22 percent Q/Q and 11 percent Y/Y
Unchanged; 40 percent cite adequate levels, in line Q/Q and Y/Y, while just 15
Service Provider Capacity
percent cite restrictions
• India
Top Global Sourcing Locations • South America
• Central/Eastern Europe
• Lack of understanding of the deal/scope

Transition: Top Reasons for “Failure” • Insufficient transition management
• Insufficient knowledge transfer and testing
• Re-aligning the retained organization

Transition: Most Frequently Ignored Aspects • Adequately resourcing the transition project
• Ensuring adequate involvement of the client business units in the transition
1. ITO 1. ADM, Infrastructure/Operations

Leading Market Segments Leading ITO Segments
2. FAO, HRO 2. Packaged Application Services
1. Payroll
Leading Procurement 1. Order Management, Strategic Sourcing
Leading HRO Segments 2. Benefits
Segments 2. AP
3. HRIT
1. Banking/Financial Services
1. AP, AR/C&C 2. Manufacturing
Leading FAO Segments Leading Industries
2. General Accounting 3. Consumer Packaged Goods (CPG),
Energy/Utilities
Business and IT service providers polled were incrementally more positive on demand and pipeline growth in the second
quarter. Demand remains stronger for outsourcing than for more discretionary and project-based services. Pricing pressures
have eased a bit from last quarter though providers still must work hard to defend and rationalize adequate pricing levels. Deal
scope continues to fluctuate across providers and accounts. Providers must continue to focus on deals that deliver strong cost
savings and short- term, realistic return on investment (ROI), but also work to help buyers prepare for the inevitable market
upturn.
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Market Demand and Market Trends Update

Change in demand growth for BPO and ITO, as well as other business processes and
IT services, held steady the second quarter of 2009 according to EquaTerra advisors
polled (see Figure 1)*.
• Forty-six percent of advisors indicated that overall third-party business and IT

service demand levels were up in the quarter, down three percent from 1Q09,
but up eight percent from 2Q08 levels. This level is also below the average 53
percent “up” rating over the life of the survey.
• Just seven percent of advisors indicated demand levels had declined in the
quarter, in line with the survey average, down three percent from last quarter.
• Demand levels generally were similar across geographies and functional

areas, with advisors that work in Europe somewhat less positive on overall
demand growth than those in the Americas. Please see the appendix for a
complete breakdown of response levels by geography and type of service work
supported.
Advisors: Market Demand

100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
Down Flat Up Aggregate

Figure 1
*The aggregate market demand and pipeline levels illustrated in Figures 1-3 are based on a
calculation of the “down,” “flat” and “up” responses to each question, and depict a combined or
aggregate total of each quarter’s response levels.
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EquaTerra advisors were polled on demand levels across the different categories of
business and IT services (see Figure 2). These categories are BPO, ITO, other types
of third-party IT services (e.g., consulting, systems integration, project based work)
and internal process improvement efforts (i.e., deploying expanded shared service
of offshore captive operations). Figure 3 illustrates the change in demand for these
service delivery models compared to the prior quarter.
• ITO was cited as the strongest area of demand across the four service delivery
categories by 67 percent of advisors, up eight percent from last quarter,
followed by BPO at 18 percent.
• ITO also showed the greatest increase in demand quarter over quarter, cited
by 59 percent of advisors. Fifty-five percent of advisors indicated that demand
for internal transformation efforts like shared services were up in the quarter.
Just 19 percent of advisors cited an increase in demand for non-ITO third-party
IT services. These services often are viewed by buyers as more discretionary or
easier to cut back because they are delivered via shorter term projects.
Advisors: Demand by Service Delivery Model
ITO 59%
BPO 22%
Internal
15%
Improvement
Other IT Svcs 7%
Other 5%
Figure 2
Advisors: Change in Demand by Service Delivery Model
2% % %
7
% %
%
%
Down
Flat
% 0
% Up
BPO ITO Other IT Svcs Internal Improvement
Figure 3
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The increased demand for internal transformation efforts shows that organizations
today more often are addressing problems themselves in addition to bringing in
external resources. Also, it is a function of buyers needing to prepare processes for
outsourcing prior to transitioning them to providers. Typically, this approach is more
common in organizations less prone to outsourcing, such as those in the public
sector.
The acute need to reduce costs and overhaul operating models will continue driving
more outsourcing deal flow into the market. This will become more visible via deals
closing in the second half of 2009 . Demand for other types of third-party services,
like unbundled consulting and more discretionary application development work, will
remain weak throughout 2009. Protectionist trade policies, anti-outsourcing rhetoric,
and anti-globalization efforts will continue growing in most western markets, but
will have limited impact on overall outsourcing levels, though specific measures
will complicate some specific buyers’ sourcing agendas. Global sourcing trending is
addressed below.
Service providers polled were increasingly positive regarding new deal pipeline
growth projections (see Figure 4).
• Sixty-five percent of service providers polled cited pipeline growth in the

quarter, up eight percent quarter over quarter, 13 percent year over year, and
11 percent over the survey average. These are the highest levels recorded since
the second quarter of 2006.
• Just five percent of service providers cited a decline in pipeline growth.
Service Providers: New Deal Pipeline Projections

100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
Down Q/Q About the same Up Q/Q Aggregate

Figure 4
There are no major variations on pipeline growth assessments based on the profile
of the service providers polled. Results are more a function of specific service
provider situations and their existing market traction and capacity levels, rather than
functional outsourcing areas served.
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Service providers remained optimistic about future outsourcing demand growth (see
Figure 5).
• Sixty-three percent of service providers polled expect an increase in demand

next quarter, up one percent from last quarter and 18 percent from 2Q08.
• No service providers expected demand levels to decline next quarter.
Please note this question is a measure of change in demand growth quarter over
quarter, not absolute demand levels.
Service Providers: Demand Next Quarter

100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
Decrease Flat Increase Aggregate

Figure 5
The final chart in this section (see Figure 6) highlights general demand trending
over the past 18 quarters. The weighted average is based on response levels from
both advisors and service providers for each quarter. Any aggregate totals above
the line indicate overall market growth, while totals below the line indicate market
contraction.
Weighted Aggregate Market Demand: Advisors & Service Providers
r t r
Ma e Con act on
Advisors Service Providers

Figure 6
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Economy’s Impact on Outsourcing Demand

The global economic recession seems to have bottomed out in 2Q09 though great
variations exist across geographies, industries and individual organizations. There
is also much debate about whether the recovery will show a “V” or “L” shape, i.e.,
rebound strongly or result in slow growth for the foreseeable future. Regardless,
economic conditions continue to heavily impact buyer usage and preferences for
third-party services and the manner in which they consume these services.
EquaTerra has polled advisors and service providers over the past six quarters as to
how current economic conditions are impacting outsourcing demand levels (see
Figure 7).
• The combined response levels for advisors and service providers show that 58
percent felt market conditions are driving more outsourcing. This level was up
13 percent from last quarter. Advisors and service providers were in sync on
this response.
• Just 39 percent overall indicated economic conditions are causing buyers to

slow or rethink outsourcing decisions, the lowest level in three quarters. Buyers
more often are deferring, not canceling, outsourcing initiatives. The deferrals
typically are caused by other events occurring in the buyer organizations that
have impacted the sourcing process, rather than by buyers changing their
minds about outsourcing.
• There were no major variations in responses from advisors based on geography,

though advisors supporting ITO efforts were somewhat more likely to say that
economic conditions are driving more outsourcing than those supporting BPO.
Economic Environment’s Impact on Outsourcing

4% %
1 % %
%
%
% %
% %
5 %
% % %
1Q08 2Q08 3Q08 4Q08 1Q09 2Q09

Driving more outsourcing Slowing/rethinking outsourcing plans Little/no impact
Figure 7
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Buyers can no longer wait to significantly respond to bad economic conditions.

Change, often radical, is required to realign costs and operating models with market
realities. EquaTerra increasingly is seeing buyers use troubled times as a motivator
to pursue aggressive change efforts they were too timid or distracted to undertake
when times were good. They have a strong desire to make the deep cuts and major
changes to service delivery models required to fundamentally change operating
models to better compete with more aggressive global competition.
Advisors offered the following additional comments on how the current economy is
impacting outsourcing and third-party service usage:
–– “Buyers seem to have emerged from a period of ‘don’t know what to

do’ into a position of ‘need to do something’ to drive efficiency and cost
reduction.”
–– “It really depends on the client maturity; all are involved in general belt
tightening but continue to look for avenues that improve the bottom line.
The less mature organizations seem to have even more apprehension and
longer decision making processes now.”
–– “Companies whose cultures or external (socio-political) environments did
not accept outsourcing are now considering it due to the economy.”
–– “The number of deals has increased but the size of the deals is much
smaller. One reason for this could be related to the speed in which the
buyers want to complete deals. If they focus on areas they have direct
control over versus bundling multiple towers into a deal, they simplify and
expedite the strategy and assessment period.”
–– “Much of the recent uncertainty is reducing and organizations are
beginning to see a way forward- a period of slow but stable growth with a
focus on costs.”
Service providers added these comments on how the economy is impacting market
demand:
–– “We’re observing significant changes to buyer outsourcing plans and

strategies. Client focus on liquidity and survival for now, with a view to
helping them return to growth later, is translating into continued increased
demand from many clients and organizations to learn more about
outsourcing, but we’re also seeing extended drag in organizations making
final ‘go’ or ‘no go’ decisions; customer requirements are less focused
on very specific process needs and aimed more at ‘share the art of the
possible with me,’ clients say they need to act fast but are driving requests
for proposal (RFPs) through a lengthy procurement process before down-
selecting to one or making the decision to cross the finish line. It’s vital that
providers and advisors guide customers through the current crisis to help
them focus on cost savings and act with speed now, receive value-oriented
benefits over time and exploit opportunities in the future.”
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–– “1. Increased demand for outsourcing 2. Broader scope (multi-tower deals)

3. Need for speed - shorter transition timelines”
–– “Concerns over costs due to the current economic environment is driving
up interest in understanding more about service provider fees and is
increasing demand for full fee transparency.”
–– “Increased focus on offshore component of outsourcing to leverage on
extensive cost arbitrage. Consolidation of vendors into a smaller group
to enable better governance and increased initiatives on innovation and
transformation aspects. Focus on fixed outcome/transaction-based pricing
model rather than time and material model considering financial planning
required to weather the economic storm.“
Market Conditions: Impact on Global Sourcing

Market conditions are impacting buyer demand levels and usage patterns for global
or “offshore” service provisioning. Some of the impact is driven by changing market
economics, such as exchange rate trending, declining wage levels and inflation
rates, and the increase in surplus labor in western markets (see Figure 8). Increasing
service trade protectionist rhetoric and policies in western markets also are having
a dampening effect, albeit not to a significant degree. While buying patterns are
changing and include the use of more local or nearshore resources for certain
services, overall the growth of global sourcing continues relatively unabated.
EquaTerra polled service providers and its advisors in 2Q09 on what impact various
current market conditions are having on buyers’ global sourcing preferences and
patterns (see Figure 8). Advisors and service providers were asked to what degree
they agreed or disagreed with five positions related to trending in global sourcing.
They ranked their responses on a one-to-five scale where one represented strongly
disagree and five strongly agree. The only trend with consensus agreement, and
it scored just above the mid-point, was that outsourcing buyers are growing more
interested in offshore services delivered from locations other than India. This trend
is natural as the number of quality and viable global sourcing locations expands and
Indian service providers themselves diversify delivery capabilities beyond their home
market. Neither advisors nor service providers see as a major trend buyers pulling
back from global sourcing in general, from overall globalization efforts, or in their
use of India-based service providers.
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Market Conditions: Impact on Global Sourcing
Buyers are growing more interested in offshore services

delivered from locations OTHER than India
The current POLITICAL ENVIRONMENT is causing buyers

to pull back from global sourcing
Current economic and market conditions are causing
buyers to pull back from GLOBALIZATION efforts in Service
general
Providers
Current ECONOMIC CONDITIONS are causing buyers to Advisors
pull back from global sourcing
Current market conditions are causing buyers to pull

back from using Indian-based Service Providers
1.00 2.00 3.00 4.00 5.00

1=Strongly Disagree, 5=Strongly Agree
Figure 8
Demand Trends by Functional Area

EquaTerra advisors cited demand trends by functional area (e.g., F&A, HR and IT) as
continuing in the same direction in 2Q09 as the past few quarters (see Figure 9). ITO
was the strongest functional demand area, followed by FAO and HRO. HRO demand
levels did improve for the first time in several quarters, signaling some increased
levels of activity in this market segment. Demand for multi-process HRO (more than
two processes outsourced simultaneously to the same service provider) remains
light compared to three or four years ago, though more so in the Americas than in
Europe, while demand for one- or two-process HRO remains stronger. There is some
indication that demand for multi-process HRO is picking up, in part as new suppliers
enter the market.
Advisors: Demand by Functional Area
ITO
FAO
HRO
2Q09
CC/Customer Relationship 2Q08
Management (CRM) 2Q07
Procurement
0% 20% 40% 60% 80% 100%
Figure 9
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ITO was also the top area of demand cited by service providers in 2Q09 (see Figure
10) followed by HRO and FAO. It is important to note that demand levels registered in
the Pulse surveys are impacted by the particular outsourcing service providers polled
in any one quarter.
Service Providers: Demand by Functional Area
ITO
FAO
HRO
Other 2Q09
2Q08
Procurement 2Q07
CC/Customer Relationship
Management (CRM)
0% 20% 40% 60%
Figure 10
EquaTerra continues to see growth in demand for outsourcing beyond the back
office and in non-traditional functional and process areas like research and
development, real estate services, facilities management, analytics and other areas
of knowledge process outsourcing. Demand in these areas has been impacted by
current market conditions, which in some cases have lessened the need for these
services, but in others have made outsourcing more appealing as buyers seek to
reduce costs and overhaul service delivery models.
The charts on the following two pages illustrate outsourcing demand by process
area for the four major functional areas – IT, HR, F&A and procurement – covered
in the Pulse surveys. There are no major changes in demand levels across these
functions and processes compared to recent quarters.
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Advisors: Functional and Process Area Service Providers: Functional and Process
Demand Area Demand
Advisors: HRO Demand Service Providers: HRO Demand
Payroll Payroll
Benefits Benefits
HRIT HRIT
Compensation Compensation
2Q09 2Q09
Workforce Effectiveness 2Q08 Learning/Training 2Q08
2Q07 2Q07
Recruiting/Talent Mgmnt Recruiting/Talent Mgmnt
Learning/Training Workforce Effectiveness
0% 50% 100% 0% 50% 100%
Advisors: FAO Demand Service Providers: FAO Demand
AP AP
AR/C&C
AR/C&C
General Accoutning
General Accounting
2Q09 Travel & Entertainment 2Q09
2Q08 2Q08
Travel & Entertainment
2Q07 Financial, Control, Risk Mgmnt 2Q07
Finance, Control, Risk Mgmnt Decision Support
0% 50% 100% 0% 50% 100%
Advisors: ITO Demand Service Providers: ITO Demand
Infrastructure/Operations ADM
Infrastructure/Operations
ADM
Packaged Application Svcs
Desktop Services
2Q09 Desktop Services 2Q09
2Q08 2Q08
Networks/Telecommunications
2Q07 Other 2Q07
Packaged Application Svcs Networks/Telecommunications
0% 50% 100% 0% 50% 100%
Advisors: Procurement Outsourcing Demand Demand

Service Providers: Procurement Outsourcing Demand
AP Order Mgmnt/Trans Processing
Order Mgmnt Strategic Sourcing
Strategic Sourcing AP
Category Mgmnt Category Mgmnt
Mgmnt/Admin. 2Q09 Fin. Rep./Analysis 2Q09

2Q08 Mgmnt/Admin. 2Q08
Requisition & Approval
2Q07 Fixed Assets 2Q07
Fixed Assets
Receiving/Inventory
Fin. Rep./Analysis
Requisition Approval
0% 20% 40% 60% 80% 0% 20% 40% 60% 80% 100%
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Demand Trends by Industry

The two charts below illustrate industry demand as cited by EquaTerra advisors and
service providers. Industry rankings generally have been consistent over the past few
quarters.
Advisors: Demand by Industry
Energy/Utilities, Oil & Gas
Banking, Financial Services,

Insurance
Government (Fed, State, Local),

Education 2Q09
2Q08
Pharma/Biotech
2Q07
CPG, Food/Beverage, Retail,

Wholesale
0% 20% 40% 60% 80%
Figure 11
Service Providers: Demand by Industry
Banking, Financial Services,

Insurance
Manufacturing
CPG, Food/Beverage, Retail,

Wholesale
Pharma/Biotech 2Q09
2Q08
Healthcare 2Q07
Telecommunications
0% 20% 40% 60% 80% 100%
Figure 12
Several key points depict demand by industry. One is the ongoing increase in
demand in the banking and financial services industries. This is not surprising
given the challenges buyers in these sectors are facing and their need to reduce
costs. It shows that buyers are still striving to execute sourcing efforts despite
the operational challenges they face. Public sector demand also remains strong,
though it is comprised of a proportionally higher percentage of non-outsourcing
third-party services. Ironically, there are also emerging signs that newly infused
stimulus money is being spent on third-party services. Public sector organizations
are showing increased interest in moving from legacy customer software application
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environments to commercial ERP (enterprise resource planning) systems as a means

to reduce operating costs, and improve and standardize service delivery models.
Finally, energy and utility buyers are very focused on reducing operational costs
through internal shared service operations and outsourcing.
Global Sourcing Trends

EquaTerra polled service providers and its advisors as to what degree buyer
preferences and interest levels in their focus area changed - or not - over the past
12 months relative to global service delivery in new outsourcing deals they are
pursuing. Respondents ranked perceived changes on a one-to-five scale, where one
represented significant decrease in preference and/or demand, three represented no
change, and five represented a significant increase in preference and/or demand.
The results illustrate that in general demand did not decline for any type of
outsourcing, global sourcing demand remains strong, and is for the most part
growing (see Figure 13 for advisor responses and Figure 14 for service provider
responses). In parallel, demand for nearshore outsourcing also is increasing.
• Forty-seven percent of advisors indicated there was some or significant increase

in demand for offshore outsourcing. Levels were just 39 percent for service
providers, though the majority (56 percent) indicated demand for offshore
outsourcing was unchanged.
• Thirty-nine percent of advisors and 56 percent of service providers indicated

demand was up for nearshore outsourcing services.
• Only 34 percent of advisors and 28 percent of service providers indicated they

are seeing an increase in demand for onshore services.
Advisors: Change in Sourcing Model Preference/Demand

% % % %
100%
%
80% 6 %
60%
%
40% 5%
%
20% %
% % %
% % % %
0%
Onshore Nearshore Offshore Nearshore/offshore
outsourcing outsourcing outsourcing captives
Significant decrease Some decrease No change

Some increase Significant increase
Figure 13
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Service Providers: Change in Sourcing Model Preference/Demand

%
100%
%
80% 33%
0% 2%
60%
40% %
5 %
20% 4
% % %
0%
Onshore Nearshore Offshore Nearshore/offshore
outsourcing outsourcing outsourcing captives
Significant decrease Some decrease No change

Some increase Significant increase
Figure 14
EquaTerra polled advisors and service providers on the “hottest” destinations for near
and offshore outsourcing services (see table 1). The last time this question was asked
was in the 3Q07 Pulse survey. Reflecting changes in the market, the destinations
represented have been updated since the last survey, with South America broken out
and South Africa and Vietnam added.
“Hottest” Near and Offshore Destinations

Advisors Advisors Service Service
2Q09 3Q07 Providers Providers
2Q09 3Q07
Canada 9% 11% 11% 11%
Central/South America/Caribbean N/A 39% N/A 39%
Central America/Caribbean 15% N/A 33% N/A
Central/Eastern Europe 56% 67% 50% 67%
Russia 3% 0% 0% 0%
China 15% 33% 33% 33%
India 60% 89% 61% 89%
Philippines 34% 22% 39% 22%
South Africa 3% N/A 0% N/A
South America 26% N/A 56% N/A
Vietnam 0% N/A 6% N/A
Other Asia Pacific 6% 11% 0% 11%
Other EMEA N/A 0% N/A 0%
Other Africa 3% N/A 6% N/A
Other Middle East 1% N/A 0% N/A
Other 5% 0% 0% 0%
Table 1
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India remained the leading preferred location identified by 61 percent of advisors

and 60 percent of service providers. This level represents a decline of over
20 percent since 3Q07. Seventy-one percent of advisors supporting ITO work
identified India as a top offshore source of services. Central and Eastern Europe
remained strong at 50 percent overall and 78 percent for advisors in Europe, but
also fell back from 3Q07. Leading up-and-coming markets are South America,
identified by 56 percent of advisors, and Central America and the Caribbean at
33 percent. These findings highlight the clear movement in that market away
from point-to-point outsourcing from the west to India and toward a true global
model for service delivery.
Sales Cycle
For the purposes of the Pulse surveys, the sales cycle is defined as the time
period from RFP release to contract signing. Many factors contribute to the
length of the sales cycle, including:
• What is being outsourced
• Level of buyer sophistication and experience
• Complexity, size and regional/global reach of the potential outsourcing deal
• Degree of multi-sourcing present in the deal portfolio
• Preferred service provider sales pursuit capacity and selectivity
• Whether a sourcing advisor is being used
• Disruption to the sourcing process by turmoil in the buyer organization,
economic uncertainty, or changing macro-business – all heightened issues in
the current market
• Whether a buyer is using an expedited model
The Pulse surveys do not measure the absolute length of sales cycles. EquaTerra
estimates, however, the sales cycle for larger deals (those with more than $50
million in total contract value (TCV)) that are competitively bid is typically six to
12 months – barring deal flow disruption – from the time the buyer goes to the
market until the deal is closed. The time frame typically has been compressed
15-25% over the past year given market conditions.
Current market trends are contributing to both shortening and lengthening sales
cycles. Smaller deals pursued by more experienced buyers can lead to shorter
sales cycles, as can the use of speed sourcing techniques (see related EquaTerra
research on this topic – http://www.cio.com/article/492917/Speed_Sourcing_
The_New_Outsourcing_Trend_) addressed in last quarter’s Pulse survey. On the
other hand, the complexities associated with multi-sourcing can complicate
the sourcing process and extend the sales cycle, as can considering more
intricate pricing arrangements. EquaTerra sees most buyers today more intensely
scrutinizing pricing models and levels. Global deals also are more complex to
source. The major factor impacting sales cycles over the past year, however, has
been sourcing cycle disruption caused by economic events. EquaTerra expects to
see market conditions complicate the sourcing process for the balance of 2009.
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Figure 14 illustrates sales cycle trends according to service providers polled in this
quarter’s study. Sales cycle trending improved modestly in the quarter.
• Twenty-five percent of service providers indicated sales cycles were
lengthening. This level is higher than the survey average, but marks the first
quarter-over-quarter decline since the end of 2007.
• Fifteen percent of service providers indicated sales cycles were shortening.
Service Providers: Sales Cycle

100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
Lengthening Same Shortening

Figure 15
Pricing Competitiveness
Increased pricing competitiveness implies the buyer has the upper hand
and is getting a better priced outsourcing deal. As pricing is one element of
determining profitability, the alternative of less competitive pricing is generally
favorable to the service provider. The consensus this year among service
providers polled, especially Indian providers, is that buyers are getting more
aggressive with their pricing demands. Last quarter saw the highest level of
service providers (75 percent) represented over the life of the Pulse surveys
indicating that pricing pressure was increasing.
Figure 16 illustrates pricing trends according to service providers in this quarter’s
study.
• Fifty-three percent of service providers polled indicated that pricing pressure

increased in the quarter. While a high percentage, this level represents a
decline of over 20 percent from last quarter. Indian service providers in
particular indicated they are seeing increased pricing aggressiveness.
• The balance of service providers indicated pricing pressure remained

unchanged.
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Service Providers: Pricing

100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
More Aggressive Same Less Aggressive

Figure 16
While there is a stronger desire among buyers today to get more aggressive
with pricing, a number of factors ultimately can temper final pricing levels. More
experienced buyers generally are aware that the lowest price may not lead to the
best deal. There is concern now in the market among buyers about entering into
deals today that will fail because of bad pricing. Buyers also can reduce overall spend
– the ultimate goal -- by lowering consumption levels, but still pay an equitable unit
price for services that help ensure they get the provider’s top resources.
Service providers influence pricing competitiveness by the extent of their own

aggressiveness in pursuing deals. More service providers in the market today are
increasingly selective about the clients and deals they pursue. Service providers are
more closely assessing the risk profiles of clients they are pursuing and adjusting their
pricing accordingly. Buyers in financially difficult situations or industries are treated
with higher risk premiums and contract terms that can increase deal pricing. Buyers
in good standing will receive attractive pricing even with similar risk profiles to those
from the past. Buyers viewed by providers as “platinum” accounts also will get more
favorable pricing. Similarly, highly strategic clients that can propel a provider into
a desirable industry segment, for example, will get better pricing even though the
provider is not offering blanket market reductions.
Providers must still cover their operating costs, overhead, margin and risk. They
continue to look for ways to reduce operating costs and overhead to meet their
contract commitments and continue to push price competitive policies regardless
of the economic downturn. The net result is more aggressive pricing in the market,
but not routinely egregious pricing terms, at least for top tier service providers or
less desirable buyers. (see related EquaTerra research on this topic - http://www.
equaterra.com/fw/main/OutTake-How-Has-the-Market-Affected-Outsourcing-Pricing-
-1170C514.html)
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Deal Scope
Deal scope is defined as the number of processes, users, geographies, etc. included
in an outsourcing arrangement. Contract value usually is directly correlated to scope,
though the mix of remote/low-cost delivery resources involved also affects contract
value. From the outsourcing buyer’s perspective, understanding trends in scope and
contract value helps not only to determine how aggressively other organizations are
pursuing outsourcing, but also how to define and construct a viable and potentially
optimal-sized deal. The growth of the multi-sourcing/multi-provider outsourcer has
both driven and resulted from smaller deal scope. On average, scope levels have
been flat to declining for the past two years.
Figure 17 illustrates deal scope trends according to service providers polled in this
quarter’s study.
• Scope levels largely were unchanged in the quarter. Twenty-six percent of

service providers polled indicated that scope was increasing, down three
percent from last quarter, representing the third straight quarterly decline.
• Twenty-six percent of service providers indicated that scope level had

decreased. This is the highest level recorded in the life of the service provider
Pulse surveys.
Service Providers: Scope

100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
Decreased Same Increased

Figure 17
The ongoing decreases in scope levels highlight greater buyer increases in smaller,
more manageable and quickly executed deals. Buyers also are closely scrutinizing all
deal components and paring back anything deemed peripheral or discretionary.
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Service Providers: Contract Profitability and Ability to

Increase Scope
A variety of factors impact service provider profitability, including deal scope,
transition costs and time frames, and buyer pricing sophistication. Exchange
rates affect service provider profitability, particularly firms with extensive global
operations. Wage inflation in offshore markets had been an issue for the past
several years, but has largely dissipated, at least for the time being. Service providers
with a higher mix of remote/low-cost resources had been putting pressure on the
profitability of competitive peers with fewer lower-cost resources for the past several
years. This pressure has eased over recent quarters as more providers globalize,
exchange rate trends shift and market growth slows.
The biggest factor impacting contract profitability today is buyer pressure on

pricing and aggressive competitiveness between providers. Over the past year all
providers have faced pressure on existing contract profitability. This has resulted
from buyer pricing pressure, more competition for business, buyer pull-back on more
profitable discretionary services, and an increased focus on cost cutting over process
improvement work.
Figure 18 illustrates contract profitability trends according to service providers polled

in this quarter’s study. The Pulse survey addresses profitability on existing contracts,
not new deals in the pipeline.
• Fifty percent of service providers polled indicated contract profitability was

improving. This represents a jump of 30 percent from last quarter and is the
highest level measured since the end of 2006. There were no clear differences
between classes of service providers when it came to improving profitability.
One additional factor is that this is a relative indicator and levels have
rebounded after several quarters of declining profitability.
• Thirty-nine percent of service providers cited no change in profitability levels.

There was no trending on scope based on type of service provider polled.
Service Providers: Contract Profitability

100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
Declining Profitability Same Amount Improving Profitability

Figure 18
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Figure 19 illustrates service provider expectations about their ability to increase

scope in current accounts. All providers today are very focused on growing business
in existing accounts, with some exceptions (e.g., problem buyers in turmoil). This is
because pursuit costs are lower than competing for new business, but it also helps to
protect their base as buyers rationalize suppliers and cut back on spend levels.
• Sixty-three percent of service providers expected to increase scope in current

accounts. While a healthy level, it is over 20 percent lower that the high levels
recorded last quarter. Last quarter’s levels were a contributing factor to this
quarter’s positive findings on contract profitability.
• No service providers indicated scope would decline in existing accounts.
Service Providers: Ability on Increase Scope

100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
Decline Remain Contstant Increase

Figure 19

Service provider capacity is an important factor that influences other trends, such
as pricing competitiveness, sales cycles and profitability. EquaTerra defines service
provider capacity as the availability of adequate and skilled resources for sales
pursuit, engagement and transition/delivery. Capacity constraints often are more
prevalent in BPO than the more mature ITO market. The challenge service providers
face is the scarce supply of quality experience, which takes time and multiple
outsourcing deals to develop.
Capacity also is tightly linked to service provider aggressiveness in deal pursuit. When
service providers are being more selective and entering into fewer deals, as is often
the case in today’s BPO market, they need less capacity for pursuit and delivery.
Thus, capacity is intentionally constrained to keep costs down and to match capacity
to demand goals. As both BPO buyers and service providers focus more on smaller
deals with fewer processes in-scope, capacity pressure also is lessened. With buyers
becoming more demanding and the market overall tougher to sell into, quality
pursuit capacity has become more an issue.
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Figures 20 through 22 illustrate combined capacity levels for pursuit and delivery,
and then separately break out the two.
Advisors: Service Provider Capacity Overall

100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
Constrained/Tightening Unchanged Adequate/Increasing

Figure 20
Advisors: Service Provider Capacity, Pursuit

100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%

Figure 21
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Advisors: Service Provider Capacity, Delivery

100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%

Figure 22
• Overall capacity levels remained largely unchanged in the quarter after seeing
gradual improvements over the past year. Thirty-eight percent of advisors cited
constrained or tightening service provider capacity, up nine percent from last
quarter (see Figure 20). While below the survey average, this level represents
the fourth straight quarterly increase after several quarters of declines. Twenty
percent of advisors overall cited improved capacity, down slightly for the
quarter but up from 2Q08.
• Capacity for sales pursuit and deal structuring (see Figure 21) continued to
become more problematic. Thirty-eight percent of advisors cited constrained
levels, up for the fifth straight quarter and the highest level since 4Q07. Sales
pursuit capacity is dually impacted by more supplier selectivity (improves
capacity) and more market demand (strains capacity, especially as service
providers manage down pursuit costs). Budget pressures and reduced funding
by providers for deal pursuit also hurt capacity.
• Capacity levels for deal transition and delivery remained steady for the quarter
(see Figure 22). Constrained or tightening citation levels came in at 38 percent,
up quarter over quarter and year over year. Eighteen percent of advisors
indicated transition capacity was adequate, down from 22 percent last quarter.
Both sales and delivery capacity vary across functional areas of outsourcing and
across different supplier classes. Sales pursuit capacity is more constrained in EMEA
(cited by 52 percent of advisors) than in the Americas (24 percent of advisors) and
in ITO (37 percent of advisors) than BPO (22 percent of advisors). Trends in transition
were more consistent across markets and functional areas.
Digging into the reasons for positive and negative changes in service provider
capacity, EquaTerra advisors offered the following comments.
• Pursuit capacity
–– “It seems that providers have relatively full pipelines and with limited
intelligence on what might drop they seem stretched.”
www.equaterra.com
–– “More small outsourcing initiatives with the same capacity for sales makes
the workload per sales person high.”
–– “Provider ‘A’ teams are getting harder to find.”
• Delivery capacity
–– “Transition appears to continue to be the challenge. Appears providers

continue to staff transition teams with people lacking operational
experience. As a result, transition becomes focused on formal deliverables
etc., and not enough on standing up the delivery capability.”
–– “The capacity for transition and delivery seems to get tightened as service
providers are having difficulties in managing their offshore work force.”
–– “We see service provider delivery teams constrained more and more as
demand has increased.”
Not surprisingly, outsourcing service providers typically have been more optimistic
about their own capacity. Figure 23 illustrates contract pursuit and delivery capacity
trends according to service providers polled in this quarter’s study.
• Forty percent of service providers indicated capacity was adequate or

increasing, down slightly quarter over quarter and up slightly year over year.
India-based service providers were somewhat more likely to indicate capacity
was improving.
• Just 15 percent of providers indicated that capacity was constrained or

tightening, in line with levels from the past several quarters.
Providers concurred that more client and deal selectivity is helping to improve sales
pursuit capacity levels. The ongoing expansion of global delivery footprints similarly is
helping improve transition and delivery capacity. On the issue of the quality of sales
or pursuit capacity, advisors and service providers continue to have differences of
opinion.

100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%

Figure 23
www.equaterra.com
Update on Outsourcing Governance

Buyer Transition Challenges
This quarter the Pulse survey’s outsourcing governance section looked at challenges
buyers have with the transition process in outsourcing deals. EquaTerra has long
advocated the importance of outsourcing governance and management to the
success of any outsourcing effort. Transition represents the start of outsourcing
governance efforts, and the time when the proverbial outsourcing “rubber meets
the road” and outsourcing aspirations become reality – or not. The issue is that
transition efforts are inherently difficult and some amount of dissatisfaction and
disappointment is inevitable. The challenge is to minimize problems and accelerate
the transition effort as much as possible.
The Pulse survey first polled service providers and EquaTerra advisors on the
most common causes of transition failure (see Figure 24). “Failure” was defined
as outsourcing objectives not being met as a result of transition. The two most
common reasons cited by a majority of advisors were insufficient transition
management by both parties and lack of understanding of the deal/scope. The most
common reasons cited by 71 percent of service providers and 48 percent of advisors
were ineffective relationship and program governance during transition. What is
clear is that a variety of factors contribute to problematic outsourcing transition
efforts and lead to outsourcing efforts commencing on the “wrong foot.”
Root Causes for Transition “Failure”

Insufficient transition management by both
parties
Lack of understanding of the deal/scope
Ineffective relationship and program governance

during transition
Inadequate transition project planning and due Service
diligence
Providers
Insufficient knowledge transfer and testing prior
to go-live Advisors
Poor personnel on-boarding/transfer process
between the client/service provider
Poor transition deliverable quality
Transition teams not ready at cutover
0% 20% 40% 60% 80%
Figure 24
Digging deeper, EquaTerra assessed the aspects of transition buyers most commonly
ignore and, as a result, lead to the root-cause failures identified above (see Figure
25). Advisors and service providers agreed that re-aligning the retained organization
(e.g., structure, roles and responsibilities, enabling processes) and adequately
www.equaterra.com
resourcing the transition project (e.g., project staffing, subject matter experts (SMEs),
facilities, administrative support) are the two most frequently ignored or overlooked
aspects of transition efforts. Effectively managing the change (e.g., risk mitigation,
communication planning, etc.) was another commonly cited problem.
Most Frequently Ignored Aspects of Transition by Buyers
Re-aligning the retained organization
Adequately resourcing the transition project
Effectively managing the change

Ensuring adequate involvement of the client
business units in the transition Service
Establishing an effective project oversight Providers
committee and joint governance framework
Advisors
Focusing on the process transformation required
for the parties to effectively work together
Ensuring checks and balances are in place to
validate go-live readiness
Validating the contract scope of services
0% 20% 40% 60% 80%
Figure 25
EquaTerra next examined how often outsourcing transition efforts were completed
on time, within budget and with the required functionality, finding a difference
of opinion between advisors and service providers (see Figure 26). Seventy-nine
percent of service providers indicated that almost all or most of transition efforts are
completed on time and budget and to specification, compared to just 13 percent of
EquaTerra advisors. Thirty-six percent of advisors felt that few transition efforts came
in as planned. The broad differences between advisors and service providers are both
a function of the size and complexity of deals being considered, as well as different
interpretations of “required functionality.”
Percent of Transitions Completed On Time/Budget and to Requirements
%
%
%
% Almost all (>90%)

Most (70%-90%)
%
Many (40%-70%)
Few (10%-40%)
% Almost none (<10%)
Figure 26
www.equaterra.com
Finally and most importantly, EquaTerra polled advisors and service providers about
how often they felt transitions negatively affected the start of the relationship
between the client and the service provider (see Figure 27). On this point there was
more consensus, as well as more variation in responses, from service providers. The
majority of advisors polled indicated that over 70 percent of the time transitions
negatively affect the start of a buyer/service provider relationship. A larger
percentage of service providers (20 percent) than advisors indicated that transitions
almost always (90 percent or more of the time) negatively impact the buyer/service
provider relationship. The overall most common response from service providers
was that transitions sometimes (10-40 percent) lead to negative buyer and provider
relationships.
How Often Transitions Negatively Affect Start of

Buyer/Service Provider Relationship
%
%
% %
Almost always (>90%)
Frequently (70%-90%)
3 % Moderately (40%-70%)
% Sometimes (10%-40%)
Rarely (<10%)
2 %
%
Figure 27
The main point to take away from these findings is the importance of both buyers
and service providers adequately preparing for outsourcing transitions efforts.
Buyers must not short transition resources. They must take a structured and
thorough approach to transitions just as they should to designing, deploying and
staffing the outsourcing governance organization. Service providers must ensure
they have adequate and skilled resources to support transition efforts, recognizing
these investments directly correlate to a greater likelihood of a long term positive
relationship with the client.
Service Provider Market Update

On an ongoing basis, EquaTerra conducts a comprehensive market study of ITO
service provider (expanding to BPO providers 2H09) performance and satisfaction.
The ITO studies cover all major European markets, and the FAO program being
launched is global in nature. EquaSiis, an EquaTerra company, now manages the
Service Provider Performance Studies. This market study program surveys and
interviews buyers actively engaged in outsourcing efforts with a named set of
www.equaterra.com
leading market-specific providers. The research unveils direct insights into buyer
opinions on service provider performance levels, also assessing and interpreting
general outsourcing demand and activity trends in the markets covered. Market
coverage and due dates for the next editions of these studies are as follows:
• U.K. (next release 4Q09)

• Netherlands (released 4Q08)
• BeLux (released 2Q09)
• Nordics (released 2Q09)
• Germany (first release 2H09)
• Pan-European ITO (released 2Q09)
• Pan-European FAO (first release 2H09)
• North American FAO (first release 4Q09)
• Global HRO (planned 2010)
EquaTerra also conducted service provider Pulse surveys in the Netherlands and U.K.
markets this quarter in parallel with the global advisor and service provider Pulse
surveys. Click here for additional details on this research offering and to get copies of
executive summary reports for all of the completed research efforts.
Deal Snapshot
The number of outsourcing deals closed in the quarter was low by historical
standards. EquaTerra estimates approximately 90 outsourcing deals (in ITO and the
functional BPO areas covered in the Pulse surveys) with greater than $50 million in
TCV were announced in 2Q09. Average TCV for these deals was approximately $225
million. This compares to approximately 100 deals with an average TCV of $260
million in 1Q09. Only a handful of these deals was purely BPO. When estimating the
number of new deals and average TCV, it is important to recognize that some deals
are not publicly announced or the deal details are not provided. The ultimate TCV of
a deal also is likely to change over the life of the contract. There were approximately
135 total BPO and ITO deals with TCV levels greater than $25 million in the quarter,
down from 180 in 1Q09.
Following is a select list of some of the top deals announced in 2Q09.

Select Top Deals
• IBM win estimated at $250M over seven years with Sun Life Financial of Canada,
extending an earlier deal signed in 2002. IBM will provide a wide range of IT
infrastructure and operational services in addition to the mainframe services.
• HP/EDS win estimated at $245M over five years with the California Department
of Corrections and Rehabilitation. HP/EDS will provide system integration and
software applications modernization services to the state.
• ACS win estimated at $84M over five years with the Virginia Department
of Medical Assistance Services. ACS will provide fiscal agent and provider
enrollment services as well as additional IT-related services.
www.equaterra.com
• Wipro win estimated at $500M over nine years with Unitech Wireless (Indian
telecommunications firm). Wipro will provide an IT platform to support the
delivery of a variety of wireless voice and data services.
• HP/EDS win estimated at $575M over 12 years with the British Columbia Ministry
of Labour and Citizens’ Services. EDS will provide IT systems and application
hosting and data center services, including server and storage systems, and
also consolidate operations from the existing eight data centers into two new
centers.
• IBM win estimated at $375M over seven years with National Bank Financial
Group (Canada). IBM will provide infrastructure management services including
mainframes, server management and end-user services.
• HCL Technologies win estimated at $170M over five years with Microsoft. HCL
will provide IT services for Microsoft’s online service business.
• CSC win estimated at $575M over 10 years with the UK Identity and Passport
Service. CSC will work to upgrade the application and enrollment system with
new capabilities to process applications for passports and ID cards.
Service Providers: Current Deal Portfolio Status

In the final section of the Pulse survey, EquaTerra asked service providers to profile
the state of their current deal portfolio from several dimensions:
• Recompetes/renegotiations
• Cancellations/non-renewals
• Problem contracts
These results are provided for informational purposes only and to highlight ongoing
market directional trending. They do not represent actual deal total in any of the
categories profiled. The number of service providers citing increased levels of
recompetes and renegotiations rose to 45 percent, the highest level ever recorded
in the Pulse survey. Cancellation and problem account levels remained largely
unchanged.
www.equaterra.com
Service Provider Re-competes and Renegotiations

100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
More Recompetes Same Amount Less Recompetes

Figure 28
Service Provider Cancellations and Non-renewals

100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
More Same Less

Figure 29
Service Provider Problem Contracts

100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
Up Same Down
Figure 30
www.equaterra.com
Conclusion
EquaTerra offers the following conclusions from the 2Q09 Pulse survey:
• BPO and ITO market demand remained steady in 2Q09 according to EquaTerra
advisors and third-party business and IT service providers polled. Signs indicate
this trend will continue during the rest of 2009. While there remains some amount
of pent-up buyer demand, it is emerging in the form of deals relatively slowly.
Uncertain market conditions and turmoil within individual buyer accounts continue
to slow some sourcing efforts.
• The market for more discretionary third-party services, such as consulting,

systems integration and some application development work, is weaker than for
outsourcing. The exception is in the public sector and military/aerospace markets
where demand for all types of third-party business, mission support and IT services
remains strong. U.S. public sector demand for third-party services continues to
grow, driven in part by stimulus fund inflows.
• Market conditions overall are driving more demand for global or “offshore” sourcing
as the need and desire to cut costs outweighs other factors that detract from
global sourcing (e.g., trade protectionism, increased availability of labor in western
markets at a lower cost than seen in several years). There is also more interest in
nearshore services, highlighting the overall growth of all models of outsourcing, as
well as buyer desires to take advantage of good deals wherever they can find them.
• As buyer appetites for global sourcing remain strong, their preference in locations
from which to source services continues to diversify. More buyers are seeking to
have global services delivered from locations beyond India. This is a function of
buyer desires to diversify, the increased competitiveness of emerging markets
like South America, and the expansion of Indian and global providers into more
markets. Overall it represents an ongoing move toward a true global sourcing
model where buyers deploy and manage global service chains just as they have
global supply chains.
• Service provider capacity overall has become more constricted, especially for deal
pursuit. While supplier selectivity has helped to improve capacity, this trend has
been offset by decreases in budgets for pursuit activity, elongated pursuit efforts in
certain buyer accounts, and an overall increase in buyer demand. Service provider
capacity for deal transition and delivery also slipped a bit in the quarter.
• Outsourcing buyers continue to face challenges in managing transition efforts.

Efforts are hampered by both a lack of adequate and skilled resources, as well as
ineffective and inadequate planning and processes. This leads to transition efforts
not being completed on time, within budget and with the required functionality.
Critically, it too often means that poorly handled initial transition efforts negatively
affect the start of the relationship between the client and the service provider.
www.equaterra.com
Appendix - Key Questions by Advisors’ Primary Geography and Outsourcing Focus Area
Question Response Total Global Americas EMEA ITO BPO BPO & ITO
Up 46% 45% 49% 40% 45% 42% 43%
Demand - Overall Flat 47% 52% 44% 51% 52% 50% 48%
Down 7% 3% 8% 10% 3% 8% 9%
BPO 18% 14% 29% 11% 0% 40% 17%
Demand - By Service ITO 67% 62% 59% 75% 93% 32% 75%
Model Other IT services 1% 5% 0% 0% 0% 0% 4%
Internal improvement 14% 19% 12% 14% 7% 28% 4%
Demand - By Service Model - Change
Up 43% 40% 43% 45% 50% 39% 45%
BPO Flat 47% 55% 43% 45% 44% 54% 42%
Down 10% 5% 14% 10% 6% 8% 13%
Up 59% 63% 59% 57% 64% 40% 60%
ITO Flat 38% 37% 35% 41% 34% 55% 37%
Down 3% 0% 7% 2% 2% 5% 3%
Up 19% 21% 26% 13% 11% 18% 22%
Other IT services Flat 74% 79% 68% 75% 89% 77% 65%
Down 7% 0% 5% 12% 0% 6% 13%
Up 55% 56% 67% 45% 53% 71% 46%
Internal
Flat 36% 38% 29% 41% 42% 17% 46%
Improvement
Down 9% 6% 5% 14% 5% 13% 8%
SP capacity is constrained/tightening 38% 26% 24% 52% 37% 22% 50%
Service Provider (SP)
SP capacity is unchanged 42% 44% 48% 36% 47% 43% 31%
Capacity - Pursuit
SP capacity is adequate/increasing 21% 30% 28% 11% 16% 35% 19%
SP capacity is constrained/tightening 38% 38% 40% 36% 39% 41% 36%
SP Capacity -
SP capacity is unchanged 44% 43% 40% 48% 44% 36% 43%
Delivery
SP capacity is adequate/increasing 18% 19% 20% 17% 17% 23% 21%
Driving more outsourcing 58% 65% 53% 58% 61% 46% 61%
Economy Slowing/rethinking outsourcing plans 36% 22% 43% 38% 36% 50% 32%
Little/no impact 6% 13% 3% 4% 2% 4% 7%
Economic Conditions - global sourcing 2.44 2.05 2.61 2.51 2.43 2.68 2.22
Market Conditions: Political Environment - global sourcing 2.51 2.59 2.50 2.49 2.52 2.59 2.59
Impact on Global Conditions - Globalization 2.46 2.36 2.50 2.49 2.64 2.32 2.35
Sourcing Indian-based service providers 2.41 2.59 2.50 2.26 2.41 2.44 2.22
Locations OTHER than India 3.44 3.77 3.59 3.19 3.30 3.56 3.53
Onshore outsourcing 3.10 3.14 3.11 3.08 3.10 2.84 3.25
Global Sourcing Nearshore outsourcing 3.27 3.23 3.37 3.23 3.21 3.13 3.39
Trending Offshore outsourcing 3.31 3.55 3.26 3.22 3.31 3.16 3.66
Nearshore/offshore captives 2.91 3.00 2.93 2.85 2.89 2.90 3.07
www.equaterra.com
Canada 9% 9% 24% 0% 7% 13% 12%

Central America/Caribbean 15% 14% 28% 5% 5% 17% 23%
Central/Eastern Europe 56% 50% 20% 78% 56% 52% 54%
Russia 3% 5% 4% 3% 2% 4% 4%
China 15% 18% 12% 15% 12% 9% 31%
India 60% 55% 48% 70% 71% 48% 62%
Global Sourcing
Philippines 34% 59% 40% 18% 12% 78% 46%
“Hot Spots”
South Africa 3% 0% 0% 8% 7% 0% 0%
South America 26% 32% 40% 13% 22% 26% 23%
Vietnam 0% 0% 0% 0% 0% 0% 0%
Other Asia Pacific 6% 0% 8% 8% 10% 4% 0%
Other Africa 3% 0% 4% 5% 5% 0% 4%
Other Middle East 1% 5% 0% 0% 2% 0% 0%
www.equaterra.com
About EquaTerra Contact Us

EquaTerra sourcing advisors help clients achieve If you would like to know more about EquaTerra, please contact us.
sustainable value in their IT and business processes.
Europe/Asia Pacific Americas
Our advisors average more than 20 years of
+44 (0) 845 838 7500 +1 713 470 9812
industry experience and have supported over 2000
infoeuapac@equaterra.com infoamericas@equaterra.com
transformation and outsourcing projects across more
than 60 countries. Supporting clients throughout
For details of all our locations visit www.equaterra.com/locations
the Americas, Europe, and Asia Pacific, we have deep
functional knowledge in Finance and Accounting, For more information on EquaTerra and EquaSiis research efforts,
HR, IT, Procurement and other critical business please contact Stan Lepeak at + 1 203 458 0677
processes. EquaTerra helps clients achieve significant
cost savings and process improvement with internal
transformation, shared services and outsourcing
solutions.
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Get to what matters.

EquaTerra Advisor and Service Provider Pulse

Introduction • The impact of current market conditions on global

Get to what matters.

Get to what matters.

Get to what matters.

EquaTerra Advisor Highlights

Tightening; 38 percent cite constrained levels, up 9 percent Q/Q; 21 percent

Tightening; 38 percent cite constrained, up 9 percent Q/Q; 18 percent cite

1. Insufficient transition management

1. Re-aligning the retained organization

1. Accounts Payable (AP)

1. Energy/Utilities, Banking/Financial Services

Get to what matters.

BPO/ITO Service Provider Highlights

58 percent say the economic climate is driving more outsourcing, up 20 percent

Deal Scope Varies; 26 percent cite increases; 26 percent cite declines

• Lack of understanding of the deal/scope

• Re-aligning the retained organization

1. ITO 1. ADM, Infrastructure/Operations

Get to what matters.

Market Demand and Market Trends Update

• Forty-six percent of advisors indicated that overall third-party business and IT

• Demand levels generally were similar across geographies and functional

Advisors: Market Demand

Down Flat Up Aggregate

Get to what matters.

Advisors: Demand by Service Delivery Model

Advisors: Change in Demand by Service Delivery Model

BPO ITO Other IT Svcs Internal Improvement

Get to what matters.

• Sixty-five percent of service providers polled cited pipeline growth in the

• Just five percent of service providers cited a decline in pipeline growth.

Service Providers: New Deal Pipeline Projections

Down Q/Q About the same Up Q/Q Aggregate

Get to what matters.

• Sixty-three percent of service providers polled expect an increase in demand

• No service providers expected demand levels to decline next quarter.

Service Providers: Demand Next Quarter

Decrease Flat Increase Aggregate

Weighted Aggregate Market Demand: Advisors & Service Providers

Advisors Service Providers

Get to what matters.

Economy’s Impact on Outsourcing Demand

• Just 39 percent overall indicated economic conditions are causing buyers to

• There were no major variations in responses from advisors based on geography,

Economic Environment’s Impact on Outsourcing

1Q08 2Q08 3Q08 4Q08 1Q09 2Q09

Get to what matters.

Buyers can no longer wait to significantly respond to bad economic conditions.

–– “Buyers seem to have emerged from a period of ‘don’t know what to

–– “We’re observing significant changes to buyer outsourcing plans and

Get to what matters.

–– “1. Increased demand for outsourcing 2. Broader scope (multi-tower deals)

Market Conditions: Impact on Global Sourcing

Get to what matters.

Market Conditions: Impact on Global Sourcing

Buyers are growing more interested in offshore services

The current POLITICAL ENVIRONMENT is causing buyers

Current market conditions are causing buyers to pull

1.00 2.00 3.00 4.00 5.00

Demand Trends by Functional Area

Advisors: Demand by Functional Area