NelsonHall ITO Index Shows Decline in ITO Bookings Activity in Q2
2014, with Some Geographical Variations
This week, NelsonHall held its quarterly IT outsourcing (ITO) Index Webcast, conducted by Dominique Raviart, Director ITO Research. The Index assesses developments in ITO bookings activity globally.
This week’s webcast focuses on Q2 2014 announced contract activity, and also forecasts full year 2014 spending growth in IT services and ITO.
ITO bookings in Q2 2014 declined by 25%. This followed a weak quarter in Q1 2014.
An important KPI, the level of new scope contracts (as opposed to existing scope contracts) was an estimated 12%. This level is at the lower end of the traditional range. As always with IT outsourcing, bookings have strong quarterly variations, due to the timing of very large deal signings…. And we believe that some large deal signings will become public in Q3.
There are notably different dynamics across regions: Q2 2014 ITO bookings were down 70% in North America on very little level of new scope contracts, particularly for large contracts with a TCV over $100m. This is abnormal and reflects dynamics of a renewal-led market in North America. Client demand in the region has evolved from large single-supplier ITO contracts to having relationships with multiple suppliers, hence relatively smaller engagements than in the past. Adoption of Indian offshoring in the commercial sector is also driving down total contract values. And of course, cloud computing is also affecting ITO contract bookings.
In contrast, in Europe, ITO bookings were up 40% in Q1 2014 and flat over H1 overall. But the level of new scope activity remains low. The growth in the commercial sectors, where bookings were up 60%; the public sector continues to see a decline in ITO awards.
Activity in emerging regions/high growth countries was limited in Q2 2014.
Looking ahead to full-year 2014, NelsonHall forecasts that the low levels of bookings will continue to impact ITO spending worldwide. But the better economic conditions are driving additional project services related to ITO relationships. In total, NelsonHall expects flat ITO growth in 2014, with IT services growing by 2% over the year.
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