Contracts below $25 M continue to the most important, even as ITO and BPO contract sizes are shrinking

1. Contract Sizes:
The Lifeline of the Business
Contracts below $25 M continue to the most important, even as ITO and BPO contract sizes are
by Ed Nair
C OnTRACTS are the lifeline of the outsourcing
business: the number of contracts signify the
general pace of the business and the size of
the contracts (in terms of total contract value and an-
nual contract value) denote the overall momentum
search does not offer much visibility into that band.
Hence, we look at some published research from TPI
Inc. , a sourcing research and advisory company that
tracks contracts on a quarterly basis.
From this, we can infer that contract sizes less than
of the industry. $25M are important for not only mid-tier companies
It is very clear that contract sizes of less than $50 but also for Tier 1 companies. There were nearly 600
M (total contract value) are the mainstay of the in- contracts with total contract value of more than $25M
dustry. This is more so for companies in the mid-tier. in 2009. ITO contracts clearly lead the way with at
The dynamics of the band of contract sizes less than least three out of four contracts being an ITO contract,
$50M is far more interesting. Unfortunately, this re- though this is not the case in Fig.1 in the $1B plus cat-
FIG.1
AREA ITO BPO
COMPANY SIZE 1M-10M 10M-100M 100M-1B 1B+ 1M-10M 10M-100M 100M-1B 1B+
CONTRACT SIZES
Less than $50M 197 1203 6260 396 76 337 2404 534
$51M-$99M 5 26 52 16 2 1 44 52
$100 M- $ 299 M 0 16 8 0 0 4 10
Source: TPI Inc.
FIG.3 FIG.2
# of
Relative Percent of Total Contracts Awarded by TCV Band Quarter Contracts Area
> $25 M TCV
In 2009, almost 70% of all ITO BPO
66% 68% 67% 69% Broader Market contracts were 1Q2009 141 101 40
53% valued at under $100M in TCV.
2Q2009 148 118 30
3Q2009 140 108 32
4Q2009 168 110 58
24% 23% 23% Total 597 437 160
16% 15% 18% 16% 18% 16% 15% Source: TPI Inc.
egory because the study sample
Less than $ 100 M $100M-$199M Greater than$200M includes more BPO companies
n 2005 n 2006 n 2007 n 2008 n 2009 Source: TPI Inc. in the $1B plus category.
The above slide from TPI’s
presentation clearly shows that
Average TCV ($M) of Industrywide Contracts >$25M from 2006 onwards contract
sizes have been shrinking. For
Both ITO and BPO at lowest average
231 TCV level in the past five years.
example, in 2009, nearly 70%
201 of the contracts were less than
173 161 157 $100M in TCV compared to
145 148 140 147 142
127 126 128 53% in 2005. The figure also
105 97
shows that 2009 was a tough
year with both ITO and BPO at
All Industrywide Contracts ITO BPO
lowest average TCV level in the
n 2005 n 2006 n 2007 n 2008 n 2009 Source: TPI Inc. past five years. GS
14 GlobalServices www. globalservicesmedia.com GS100-2010