This is often attributed to a move away from broad-scope, single-source contracts toward more focused multi-source engagements. But on the other hand, the world’s fourth largest specialist IT services company Accenture has just reported a fantastic set of numbers for its most recent quarter, which included 12% in new contract signings, while the rise of India’s top services vendors continues unabated on the back of bigger, increasingly complex deals.
Clients have been expected to ditch their incumbent suppliers as their first-generation mega-deals expire and break up the work among multiple suppliers. But apart from General Motors, there haven’t been many other publicized examples where this has happened in the last couple of years, and high-profile customers such as BAE Systems (with CSC), Tenet Healthcare (Perot Systems), and DaimlerChrysler (T-Systems) all extended billion-dollar deals in the last year.
ComputerWire’s IT Services Contracts Database, which tracks all publicly disclosed IT and BPO deals with a minimum value of $1m, tracked a steady flow of new contracts in the second quarter of the year. In the three months ended June 30, 2007, we recorded a total of 367 deals which was down 7% on the number tracked in the year-ago quarter, but up 2% on the level of the first quarter of this year. The second-quarter 2007 deals were worth a combined $28.3bn, which represented an improvement over the year-ago period of 27% but a decline of 40% in comparison to the first quarter.
The first-quarter numbers were boosted by some major US government procurements, and there was major activity in this area again in the second quarter with the General Services Administration announcing the winners of the second phase of its $20bn Networx program to modernize the communications infrastructure supporting federal agencies. AT&T, Level 3, MCI, Qwest Communications, and Sprint were the five main winners.
But the biggest success story of the second quarter was emerging Italian IT services vendor Almaviva, which at the end of last month clinched the largest-ever computing services contract awarded by the Italian government. The supplier, which incorporates former Telecom Italia division Finsiel, bagged a $1.7bn deal to provide infrastructure and applications services to the Ministry of Agriculture.
This was just one of 10 billion-dollar deals announced during the second quarter, with each of the five main Networx awards estimated to top the $1bn mark. Elsewhere, EDS won a major coup in Germany, a market long expected to open up to outsourcing, with a $1bn contract with retail giant KarstadtQuelle, which had previously outsourced its IT to Atos Origin.
But two of the billion-dollar deals were in the business process outsourcing space, which gave some much-needed momentum to a market which has made stuttering progress in recent quarters. Convergys won a 10-year human resources outsourcing deal with Johnson & Johnson, and Capita was awarded a 12-year deal with UK insurance company Resolution Life to administer its closed and open book policies.
BPO contract signings had slowed down in 2006 as suppliers focused on improving the profitability of some of their heavily-customized first generation deals, but there were encouraging signs in the second quarter with new HRO wins for Hewitt Associates (Rogers Communications), Convergys (Fifth Third), and Ceridian (LloydsTSB).
There was also some momentum in F&A outsourcing with wins for Xansa (NHS) and major new vertically focused BPO deals for Accenture (Washington Gas Light), and CSC (Swiss Re). Perhaps the most intriguing development in BPO in the second quarter was the First National Bank of Arizona awarding the first ever end-to-end mortgage outsourcing deal to Accenture. Major growth is expected in this area as mortgage lenders look to cut their administrative costs in an increasingly competitive market.
In terms of trends in sourcing, there was an interesting move away from multi-sourcing in the major deals announced during the second quarter. Only 8% of the top 100 contracts tracked during the period were classified as multi-source engagements (led by the five Networx awards), while 13% were consortium deals. Both levels were down on the comparative numbers for 2005 and 2006.
In total, the 367 contracts were shared out between 147 vendors, although familiar names took the two largest individual shares by dollar value. IBM Global Services accounted for 6% of the $27.9bn total on the back of new wins with Royal & Sun Alliance, Banque Cantonale Vaudoise and Absa. Meanwhile, EDS was one of seven vendors claiming a 5% share. In addition to the KarstadtQuelle deal, the Texan giant announced new wins with Coca Cola Femsa, Orange, and Canada’s Public Works and Government Services division. EDS needs to keep the momentum going for the rest of the year if it is to achieve its full-year signings target of $23bn, after picking up only $3.4bn in the first quarter.
