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ITO Index - Q1 2015

ITO Index - Q1 2015

Who Is This Report For?

NelsonHall’s “ITO Index – Q1 2015” report is one of a series of quarterly reports for tracking trends in the levels and nature of IT outsourcing (ITO) contract and spending activity designed for:

Sourcing managers investigating sourcing developments within IT services and IT outsourcing

Vendor marketing, sales and business managers monitoring ITO contract activity and developing strategies to target ITO service opportunities

Financial analysts and investors specializing in the IT services and IT outsourcing sector.

Scope of the Report

The index assesses developments in the ITO market by providing two complementary analyses: one focused on ITO spending and the other on bookings, i.e. contracts signed. The index therefore provides a dual view on market conditions in ITO by providing a short term view of how spending is to evolve in the next quarter (through its spending analysis) and how it will evolve in the mid-term, in the next 12 to 18 months (through its bookings analysis).

This week’s webcast focused on Q1 2015 announced IT outsourcing contract activity and estimated spending during the quarter for IT services in Q4 2014, IT outsourcing and professional services. It also forecasted full year 2015 spending growth in IT services and ITO.

The report addresses the following questions relates to contract signings/bookings in Q1 2015:

What is the trend in IT outsourcing contract activity globally and by geography (North America, Europe and fast growth markets)?

What is the trend in terms of new scope contract (vs. existing scope contracts) globally, and by geography?

What are the trends in ITO contract activity by sector? What are the dynamics in the commercial and public sectors?

The report also tracks IT services, IT outsourcing and professional services spending in Q4 2014 and in full-year 2014 and before. It responds to the following questions

What is the trend in IT services, ITO and professional service spending in the past quarters and years

What countries are the fastest-growing across North America and Europe?

How will spending evolve during 2015?

Key Findings & Highlights

Q1 2015 Bookings

ITO bookings were up 40% year-on-year (y/y) in Q1 2015. Growth was driven by Europe where bookings increased by 40% y/y. The growth in the region was driven by one mega-deals and a significant number of mid-sized deals. North America was flat. Activity in fast-growth countries (e.g. India, Brazil and China) was anecdotal. It is worth noting that this good Q1 2015 with its 40% growth follows a good Q4 2014 where bookings had been up 50%.

An important KPI is the level of new scope contracts (as opposed to existing scope contracts) that was an estimated 70% during in Q1 2015. This level is the highest since Q1 2012. It was high, although at different levels in both North America and Europe. The level of new scope contracts helps understanding how spending will evolve in the coming six to twelve months.

Q4 2014 Spending

IT services spending in Q4 2014 was up 1%; this mild growth is consistent with data from past quarters: since Q3 2012, IT service spending has varied in the O% to % range. Professional spending growth was ~+2%, while ITO spending growth was a negative 1%, approximately.

2015 Forecast

NelsonHall maintains a cautious 2015 forecast for spending in IT services, IT outsourcing and professional services. This is in spite of improved economic conditions in mature countries and a higher level of new scope contracts impacting positively ITO spending. This is because of the higher adoption of Indian sourcing, which should have a deflationary impact on spending.

NelsonHall therefore predicts that with the adoption of Indian offshoring on a worldwide level (and not only in the U.S.A. and the U.K.), for the first in history, IT services spending growth should only increase mildly.

1. Q1 2015 ITO Bookings Analysis
2. Q4 2014 and 2014 Spending Analysis
3. Q4 2014 Vendor Performance
4. Outlook for 2015

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