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Friday, October 13, 2006

The Changing Nature & The Reinvented Measure

I recently wrote about the trends in outsourcing wherein amongst other things, I wrote about diminishing contract tenures. TPI finds that 2006 may be Challenged to Reach 2005’s TCV Level. With limited number of megadeal activities, the restructurings continue to influence the broader market. It points out that the average duration of a Broader Market contract has decreased 12 percent in the last five years. In ITO, it decreased 18 percent, while for Business Process Outsourcing (BPO) it dropped 5 percent. It finds that fewer multi-process contracts have been signed so far in 2006 than in each of the past three years - there have been seven, compared with 20 in all of 2004, and 11 in 2005. The shift is towards an increasing number of smaller, single-process contracts compared with larger, multi-process contracts. This trend which holds true for both BPO and ITO contracts, is characterized by an unprecedented percentage of contract restructurings, with even shorter average contract durations. India-based providers are beginning to sign business in infrastructure-related areas, with more than a quarter of TCV share in the pure applications development and maintenance (ADM) market, more than any single multinational service provider. In view of the changing nature of outsourcing contracts, TPI finds that the traditional perspective of total contract value doesn’t fully convey the underlying trends in terms of the annual flow of contracting and has begun to use a new metric of annualized contract value (though others were using this metric quite often), which it believes will provide the market with a much more insightful measure of the trends. The contours of outsourcing are slowly but clearly changing - one that calls for a fresh view from service providers to win faster and bigger, given that almost every plaeyr irrespective of histroy or geography seems to be making progress.

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