EquaTerra Whitepaper 1Q09 SP Pulse Survey Results Apr2009 3122

Get to what matters.
EquaTerra Advisor and Service Provider Pulse

Survey Results – 1Q09
Introduction Topics explored include:
EquaTerra is pleased to release the findings from its 1Q09 • Demand and buying patterns, including the impact of
EquaTerra advisor and business and information technology market conditions on the demand for outsourcing and
(IT) service provider Pulse surveys. Through these surveys, related third-party business and IT services
EquaTerra has developed a highly informative gauge that
• The impact of current market conditions on new
provides quarterly insights into trends and projections in the
and existing deal structures and buyers’ outsourcing
outsourcing and third-party business and IT service markets,
governance capabilities and efforts
gleaned from its own field advisors and leading global service
providers. EquaTerra’s advisors are the leading experts on • Outsourcing deal scope, sales cycles, pricing, contract
business and IT services assisting buying organizations actively value and profitability
exploring or undertaking shared services, outsourcing,
offshore and other service delivery alternatives • Service provider pursuit and delivery capacity
Since their inception in 2004, the EquaTerra advisor and The Pulse surveys focus on using outsourcing and other third-
service provider Pulse surveys have yielded insightful analysis party services to support the following functional areas:
of current and ongoing market trends. They capture changes • Customer care/call center
in demand, scope, capacity and related key market indicators. • Finance & accounting
They highlight the changes, and the direction of change, in • Human resources
the business and IT service industry as a whole. The surveys • Information technology
focus on where the market is going and how that direction is • Knowledge process outsourcing
changing – or not – compared to prior quarters and years. • Procurement
EquaTerra also incorporates key quantitative market data and • Vertical industry business services
leading indicators from sources outside the Pulse surveys. The following leading global business and IT service providers
These sources include experiences from direct client advisory were polled for this quarter’s sell-side survey:
engagements and other EquaTerra market research, as well as
service provider performance and satisfaction studies. • Accenture • Infosys
• ACS • Logica
This edition of the advisor and service provider Pulse surveys
• ADP • Outsource Partners
reflects business and IT service market activity during 1Q09
• Capgemini International
(January through March 2009) and projections for the balance
• Ceridian • Perot Systems
of 2009.
• Convergys • TCS
• CSC • Unisys
• Hewlett-Packard • Wipro
• IBM • WNS
Copyright © EquaTerra 2009. All rights are reserved. EquaTerra Advisor and Service Provider Pulse Survey Results - 1Q09 - Page 1
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EquaTerra offers the following conclusions from the 1Q09 Pulse survey:
• BPO and ITO market demand growth improved in 1Q09 • Market conditions are causing some buyers to push to
according to EquaTerra advisors and third-party business open up existing deals for better pricing and other terms
and IT service providers polled. Signs indicate this trend and conditions. Buyers for the most part are not pulling
will continue during the rest of 2009. Pent-up buyer back from existing outsourcing efforts, global sourcing
demand created but not consummated in the second or the use of offshore-based service providers.
half of 2008 is now making it to market. Uncertain
• Global sourcing efforts will face more scrutiny in 2009
market conditions and turmoil within individual buyer
given market events (e.g., terrorist attacks in India,
accounts will continue to slow or stop some sourcing
Satyam implosion and local unemployment trends), but
efforts, albeit less frequently.
will continue to grow. Buyers will increase focus and
• The market for more discretionary third-party services, improve abilities to address and account for risk in global
such as consulting, systems integration and some sourcing efforts.
application development work, is weaker than for
• Buyers in 2009 will migrate and consolidate third-party
outsourcing. The exception is in the public sector and
service work to larger and more established providers
military/aerospace markets where demand for all types
in a flight to quality, but also to gain economies of scale
of third-party business, mission support and IT services
and preferred pricing, terms and conditions. Leading
remains strong. U.S. public sector demand for third-
service providers will remain selective in the clients
party services continues to grow, driven in part by
and the business they pursue while tier two and below
stimulus fund inflows.
providers will scramble for whatever business they can
• Market conditions overall are driving more demand for get.
outsourcing, but the nature of the demand continues
• Market conditions are negatively impacting buyer
to change. Buyers are increasing pricing pressure on
abilities to perform outsourcing governance tasks as
service providers and are demanding more upfront
resources are cut and attention is focused elsewhere
and clearly defined costs savings. The deal sizes are
in the organization. This is dangerous given the key
smaller and there is a strong focus on cost savings and
role outsourcing governance efforts play in enabling
cost avoidance. Pricing pressure varies based on the
outsourcing success and satisfaction.
quality and desirability of both the buyer and the service
provider. • Service provider capacity for deal pursuit is improving,
though this is largely a function of more service provider
selectivity and discretion around the deals and clients
they choose to pursue. Service provider capacity for deal
transition and delivery also is improving.
Distribution of the EquaTerra Pulse survey reports, controlled by EquaTerra, is intended for internal use and select delivery to
EquaTerra clients, prospects and other marketplace representatives. Questions or comments regarding these surveys should be
directed to Stan Lepeak, Managing Director of EquaTerra and EquaSiis Global Research, +1 203 458 0677.
www.equaterra.com
Table of Contents
Please note: this PDF I. Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
also includes embedded II. EquaTerra Advisor Highlights. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
bookmarks to help better III. BPO/ITO Service Provider Highlights. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
navigate through the IV. Market Demand and Market Trends Update. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
document. For a list of Figure 1 - Advisors: Market Demand. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
bookmarks, please click Figure 2 - Advisors: Demand by Service Delivery Model . . . . . . . . . . . . . . . . . . . . . . 7
on the “Bookmarks” tab to Figure 3 - Advisors: Change in Demand by Service Delivery Model. . . . . . . . . . . . . . 7
the left of this PDF. Figure 4 - Service Providers: New Deal Pipeline Projections. . . . . . . . . . . . . . . . . . . . 8
Figure 5 - Service Providers: Demand Next Quarter. . . . . . . . . . . . . . . . . . . . . . . . . . 9
Figure 6 - Weighted Aggregate Market Demand: Advisors & Service Providers. . . . . 9
V. Economy’s Impact on Outsourcing Demand . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Figure 7 - Economic Environment’s Impact on Outsourcing. . . . . . . . . . . . . . . . . . 11
VI. Service Provider Responsiveness to Changing Buyer Needs. . . . . . . . . . . . . . . . . . . . . . 12
VII. Market Conditions: Impact on New Deals. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Figure 8 - Market Conditions: Impact on New Deals . . . . . . . . . . . . . . . . . . . . . . . . 12
VIII. Demand Trends by Functional Area . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Figure 9 - Advisors: Demand by Functional Area. . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Figure 10 - Service Providers: Demand by Functional Area . . . . . . . . . . . . . . . . . . . 14
IX. Advisors:Functional and Process Area Demand . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
X. Service Providers:Functional and Process Area Demand . . . . . . . . . . . . . . . . . . . . . . . . 15
XI. Demand Trends by Industry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Figure 11 - Advisors: Demand by Industry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Figure 12 - Service Providers: Demand by Industry . . . . . . . . . . . . . . . . . . . . . . . . . 16
XII. Sales Cycle. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Figure 13 - Service Providers: Sales Cycle. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
XIII. Pricing Competitiveness. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Figure 14 - Service Providers: Pricing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
XIV. Deal Scope . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Figure 15 - Service Providers: Scope. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
XV. Service Providers: Contract Profitability and Ability to Increase Scope. . . . . . . . . . . . . . 20
Figure 16 - Service Providers: Contract Profitability. . . . . . . . . . . . . . . . . . . . . . . . . 21
Figure 17 - Service Providers: Ability on Increase Scope. . . . . . . . . . . . . . . . . . . . . . 22
XVI. Service Provider Capacity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Figure 18 - Advisors: Service Provider Capacity Overall. . . . . . . . . . . . . . . . . . . . . . 23
Figure 19 - Advisors: Service Provider Capacity, Pursuit. . . . . . . . . . . . . . . . . . . . . . 23
Figure 20 - Advisors: Service Provider Capacity, Delivery. . . . . . . . . . . . . . . . . . . . . 23
Figure 21 - Service Provider Capacity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
XVII. Update on Existing Deal Structures and Outsourcing Governance . . . . . . . . . . . . . . . . 26
Figure 22 - Market Conditions: Impact on Existing Deals. . . . . . . . . . . . . . . . . . . . . 27
Figure 23 - Market Conditions: Impact on Outsourcing Governance (1) . . . . . . . . . 28
Figure 24 - Market Conditions: Impact on Outsourcing Governance (2). . . . . . . . . 28
Figure 25 - Sample #1 from EquaTerra European
ITO Service Provider Performance and Satisfaction Study. . . . . . . . . . . 29
XVIII. Service Provider Market Update . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Figure 26 - Sample #2 from EquaTerra European
ITO Service Provider Performance and Satisfaction Study. . . . . . . . . . . 30
XIX. Deal Snapshot. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
XX. Service Providers: Current Deal Portfolio Status. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Figure 27 - Service Provider Re-competes and Renegotiations. . . . . . . . . . . . . . . . 32
Figure 28 - Service Provider cancellations and now-renewals. . . . . . . . . . . . . . . . . 33
Figure 29 - Service Provider problem contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
XXI. Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
XXII. Appendix - Key Questions by Advisors’
Primary Geography and Outsourcing Focus Area. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
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EquaTerra Advisor Highlights

Rebounded; 49 percent of advisors cite increased demand, up 11 percent quarter over
Overall BPO/ITO Market Demand
quarter (Q/Q) but down 4 percent year over year (Y/Y); stronger in both ITO and BPO
Fifty-one percent say the economy is driving more outsourcing while 44 percent (down six
Economy’s Impact on Outsourcing
percent Q/Q) indicate economics are slowing deal flow
Driving emphasis on
• Cost savings
Market Conditions: Impact on New Deals
• Short term ROI
• Smaller scope deals
Service Provider Capacity – Pursuit Steady Q/Q with constrained levels at 29 percent; improved Y/Y
Service Provider Capacity – Delivery Improved; 22 percent cite adequate levels, up 10 percent Y/Y, 29 percent constrained
Driving buyers to
• Open deals to get better pricing
Market Conditions: Impact on Existing Deals
• Scrutinize deal governance and supplier risk
• Overhaul outsourcing governance
Causing
Market Conditions: Impact on Outsourcing • Uncertainty that complicates renewals
Governance • Cuts to retained organization and outsourcing governance efforts
• Distracting management from supporting outsourcing governance
1. ITO
Leading Market Segments 2. FAO
3. HRO
1. Payroll
Leading HRO Segments 2. HRIT
3. Benefits
1. AP
Leading FAO Segments 2. AR/C&C
3. General Accounting
1. ADM
Leading ITO Segments 2. Infrastructure/Operations
3. Desktop Services
1. AP
Leading Procurement Segments 2. Strategic Sourcing
3. Order Management
1. Energy/Utilities
Leading Industries 2. Banking/Financial Services
3. Public Sector
Market appetite for third-party business and IT services, primarily outsourcing, improved in 1Q09. This was driven by pent-up
demand from the end of 2008 and a stark recognition that dealing with negative global economic conditions requires drastic
action to reduce costs and overhaul operating models. These conditions will continue to drive outsourcing demand in the
second half of 2009 and into 2010 though turbulent market and buyer events still will disrupt deal flow.
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BPO/ITO Service Provider Highlights

Jumped up; 57 percent of service providers cite growth, up 26 percent Q/Q and 14
New Deal Pipeline Growth
percent Y/Y
Demand Next Quarter Improved; 62 percent expect increases, up 9 percent Q/Q and 12 percent Y/Y
Thirty-eight percent say the economic climate is driving more outsourcing, no change
Economy’s Impact on Outsourcing
Y/Y; 57 percent indicate buyers are slowing/ rethinking outsourcing
Driving emphasis on
• Cost savings
• Adding new business with current service providers
• Smaller scope deals
Driving buyers to
• Scrutinize deal governance and supplier risk
• Open deals to get better pricing
• Open deals for other terms/conditions
Causing
Market Conditions: Impact on Outsourcing • Management distraction from supporting outsourcing governance
Governance • Uncertainty that complicates renewals
• Cuts to outsourcing governance efforts
Thirty-three percent cite lengthening, unchanged Q/Q but up 24 percent Y/Y; 57 percent
Sales Cycle
see no change
Much more aggressive; 76 percent cite more competitive pricing, up 32 percent Q/Q and
Pricing Competitiveness
41 percent Y/Y; nearly 2X average
Deal Scope Unchanged; 29 percent cite increases; 19 percent cite declines
Stable; 70 percent cite no change; just 20 percent cite improvement, well below average
Contract Profitability
of 38 percent
Ability to Increase Current Contract Scope Improved; 85 percent expect increases, up 24 percent Q/Q and 33 percent Y/Y
Improved; 43 percent cite adequate levels, up 10 percent Q/Q but down 21 percent Y/Y,
Service Provider Capacity
while just 14 percent cite restrictions
1. ADM
1. FAO, ITO
Leading Market Segments Leading ITO Segments 2. Infrastructure/Operations
2. HRO
3. Desktop, Packaged App Svcs.
1. Payroll, Benefits 1. AP, Order Management
Leading HRO Segments Leading Procurement Segments
2. HRIT 2. Strategic Sourcing
1. Banking/Financial Services
1. AP, AR/C&C
Leading FAO Segments Leading Industries 2. Manufacturing
2. General Accounting
3. CPG, Energy/Utilities
Business and IT service providers polled indicated that demand and pipeline growth improved in the first quarter. Demand
remains stronger for outsourcing than for more discretionary and project-based services. Providers are being forced to deal
with more aggressive pricing demands from buyers and strong emphasis on cost savings and short- term, realistic ROI, though
pressures vary significantly across buyer accounts. Ongoing supplier rationalization creates opportunities for leaders to gain
market share.
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Market Demand and Market Trends Update

Change in demand growth for business process outsourcing (BPO) and IT
outsourcing (ITO), as well as other business processes and IT services, improved in the
first quarter of 2009 according to EquaTerra advisors polled (see Figure 1)1.
• Forty-nine percent of advisors indicated that overall third-party business and

IT service demand levels were up in the quarter up 11 percent from 4Q08, but
down three percent from 1Q09 levels. This level is also below the average 54
percent “up” rating over the life of the survey.
• Just 10 percent of advisors indicated demand levels had declined in the

quarter, above the survey average of six percent but down three percent from
last quarter.
• Advisors supporting work in Europe were somewhat less positive on overall

demand growth than those in the Americas. Advisors supporting global
deals were the most optimistic about demand. Please see the appendix for a
complete breakdown of response levels by geography and type of service work
supported.
Advisors: Market Demand

100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
4Q04 1Q05 2Q05 3Q05 4Q05 1Q06 2Q06 3Q06 4Q06 1Q07 2Q07 3Q07 4Q07 1Q08 2Q08 3Q08 4Q08 1Q09
Down Flat Up Aggregate
Figure 1
EquaTerra added two new questions to the 1Q09 advisor Pulse survey to better
profile the overall market demand for third-party business and IT services. The first
(see Figure 2) assessed the greatest demand level areas across BPO, ITO, other types
of third-party IT services (e.g., consulting, systems integration, project based work)
and internal process improvement efforts (i.e., deploying expanded shared service
of offshore captive operations). The second new question (see Figure 3) assessed the
change in demand for these service delivery models compared to the prior quarter.
1 The aggregate market demand and pipeline levels illustrated in Figures 1-3 are based on a
calculation of the “down,” “flat” and “up” responses to each question and depict a combined
or aggregate total of each quarter’s response levels.
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• ITO was cited as the strongest area of demand across the four service delivery
categories by 59 percent of advisors, followed by BPO at 22 percent.
• The greatest increase in demand was cited for internal transformation and
improvement efforts by 60 percent of advisors. Fifty-six percent of advisors
indicated that the demand for ITO grew quarter over quarter. Just 21 percent
of advisors cited an increase in demand for non-ITO third-party IT services,
which are often viewed by buyers as more discretionary or easier to cut back
because they are delivered via shorter term projects.
Advisors: Demand by Service Delivery Model
ITO 59%
BPO 22%
Internal Imp. 15%
Other IT Svcs 7%
Other 5%
Figure 2
Advisors: Change in Demand by Service Delivery Model
12% 9% 6%
17%
34%
35%
39%
62% Down
Flat
Up
56% 60%
49%
21%
BPO ITO Other IT Svcs Internal Imp.
Figure 3
The increased demand for internal transformation efforts shows that organizations
more often are addressing problems themselves today instead of bringing in
external resources. It is also a function buyers need in order to prepare processes
for outsourcing prior to transitioning them to providers. Typically, this approach is
more common in organizations less prone to outsourcing, such as those in the public
sector.
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The acute need to reduce costs and overhaul operating models will continue to drive
more outsourcing deal flow into the market. This will become more visible via deals
closing in the second half of 2009, though EquaTerra did see an uptick in closings in
March compared to prior months. Demand for other types of third-party services,
like unbundled consulting and more discretionary application development work, will
remain weak throughout 2009. Protectionist trade policies, anti-outsourcing rhetoric,
and anti-globalization efforts with continue to grow in most western markets but
will have limited impact on overall outsourcing levels, though specific measures will
complicate some specific buyers’ sourcing agendas.
Service providers polled were positive regarding new deal pipeline growth
projections (see Figure 4).
• Fifty-seven percent of service providers polled cited pipeline growth in the

quarter. Up 26 percent quarter over quarter and 14 percent year over year, this
level was in line with the survey average.
• Just five percent of service providers cited a decline in pipeline growth.
Service Providers: New Deal Pipeline Projections

100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
1Q05 2Q05 3Q05 4Q05 1Q06 2Q06 3Q06 4Q06 1Q07 2Q07 3Q07 4Q07 1Q08 2Q08 3Q08 4Q08 1Q09
Down Q/Q About the same Up Q/Q Aggregate
Figure 4
There are no major variations on pipeline growth assessments based on the profile
of the service providers polled. Results are more a function of specific service
provider situations and their existing market traction and capacity levels, rather than
functional outsourcing areas served.
Service providers were optimistic about future outsourcing demand growth (see
Figure 5).
• Sixty-two percent of service providers polled expect an increase in demand

next quarter, up nine percent from last quarter and 12 percent from 1Q08.
• No service providers expected demand levels to decline next quarter.
Please note this question is a measure of change in demand growth quarter over
quarter, not absolute demand levels.
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Service Providers: Demand Next Quarter

100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
Decrease Flat Increase Aggregate
Figure 5
The final chart in this section (see Figure 6) highlights general demand trending
over the past 17 quarters. The weighted average is based on response levels from
both advisors and service providers for each quarter. Any aggregate totals above
the line indicate overall market growth, while totals below the line indicate market
contraction.
Weighted Aggregate Market Demand: Advisors & Service Providers
Market Growth
Market Contraction
Advisors Service Providers
Figure 6
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Economy’s Impact on Outsourcing Demand

As these survey results are being published, the global economy is finally showing
some signs of having hit bottom in some areas and signals of recovery in others.
Current economic conditions challenge organizations in many ways:
• Cash flow is tight and being managed very closely.
• Many investments and capital expenditures are being deferred or cancelled if

at all possible even in organizations that can still afford them.
• Access to capital and credit remains constrained, constricting the overall

funding pool available for investments.
• Organizations are looking for ways to reduce costs, defer future investments
and better map costs to their shrunken top lines.
• Organizations are demanding short-term and realistic ROI models on any new
initiatives.
• Buying and decision-making processes are complicated and delayed by larger

corporate and market events, negatively impacting deal flow.
EquaTerra has polled advisors and service providers over the past five quarters as to
how current economic conditions are impacting outsourcing demand levels (see
Figure 7).
• The combined response levels for advisors and service providers show that 45
percent felt market conditions are driving more outsourcing. This level was
down 13 percent from last quarter. Advisors were more likely than service
providers, by a total of 13 percent, to indicate the economy was driving more
outsourcing.
• Fifty-one percent overall indicated economic conditions are causing buyers

to slow or rethink outsourcing decisions. Buyers more often are deferring, not
cancelling, outsourcing initiatives. The deferrals typically are caused by other
events occurring in the buyer organizations that have impacted the sourcing
process, rather than by buyers changing their minds about outsourcing.
• Advisors in the Americas were more likely than those in Europe to indicate the
economy was driving more outsourcing.
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Economic Environment’s Impact on Outsourcing

4% 5%
18% 20%
32%
24% 54% 51%

38% Little/no impact
22%
Slowing/rethinking outsourcing plans
58% Driving more outsourcing

47% 42% 42% 45%
1Q08 2Q08 3Q08 4Q08 1Q09
Figure 7
EquaTerra sees that pent-up outsourcing demand created in the second half of
2008 is now starting to flow faster into the market. Buyers can no longer wait to
significantly respond to bad economic conditions. Change, often radical, is required
to realign costs and operating models to market realities. EquaTerra increasingly is
seeing buyers use troubled times as a motivator to pursue aggressive change efforts
they were too timid or distracted to undertake when times were good. There is a
strong desire to make the deep cuts and major changes to service delivery models
that are required to fundamentally change operating models to better compete with
more aggressive global competition. As one advisor noted, “I see outsourcing plans
being investigated under the current cost pressure that would never have even
been discussed in a normal economic climate.”
Advisors offered the following additional comments on how the current economy is
impacting outsourcing and third-party service usage:
–– “Everyone is looking for value. The faster the speed to value the better.
Significant transformation in terms of dollars needed is being highly
scrutinized as to whether it’s a want or a need.”
–– “In some respects it has paralyzed decision making. Companies that are in
serious trouble are having a hard time affording help. Those that can afford
help are a bit paralyzed. But it looks like things are starting to break loose.
And the service providers are becoming more predatory.”
Service providers added these comments on how the economy is impacting market
demand:
–– “We saw deals in our pipeline slow down considerably in the second half of
last year. Some of those deals are now getting done. And we’re seeing new
deals come into the pipeline now, so yes it looks like companies are inclined
to get something done in 2009.”
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–– “We’re observing significant changes to buyers’ outsourcing plans and

strategies. Clients’ focus on liquidity and survival for now, with a view to
helping them return to growth later, is translating into: increased demand
to learn more about outsourcing but extended drag in making final
decisions; customer requirements are less focused on very specific process
needs and aimed more at ‘share the art of the possible with me;’; clients
say they need to act fast but are driving RFPs through lengthy procurement
processes before down-selecting to one or making the decision to cross the
finish line.”
Service Provider Responsiveness to Changing Buyer Needs

EquaTerra polled its advisors as to how well overall third-party business and IT
service providers are responding to the changing needs of buyers under current
stressed market conditions, involving pricing levels and models, the mix of onshore
and offshore work, flexibility and creativity in the sourcing process and in deal
structuring, etc. Advisors ranked service providers on a one-to-five scale with one
being providers are doing a poor job/are not at all responding to changing buyer
needs and five being providers are doing a good job/very responsively reacting
to changing buyer needs. Overall, service providers scored at the mid-point, 2.99
on the one-to-five scale. There were no major variations by advisor geography or
functional coverage area.

Economic conditions clearly are impacting the volume of demand for third-party
business and IT services and the time it takes demand to get to market. Conditions
also are influencing the deal structure buyers are pursuing. EquaTerra queried both
advisors and service providers in the 1Q09 Pulse on how market conditions are
impacting new and existing outsourcing deals in the market. Respondents were
asked to rank on a one-to-five scale how different buyer responses are to market
conditions relative to their outsourcing efforts (see Figure 8).

Pursuing deals focused on
cost savings
Pursuing deals that have short ROI
timeframes
Pushing SP's to finance/defer/absorb
upfront costs
Pursuing deals smaller in scope
Adding new business w' existing SP's

Service Providers
Focusing more on
onshore/nearshore Advisors
Consolidating business w' large,
tier one SP's
Deemphasizing use of Indian SP's
1.00 2.00 3.00 4.00 5.00

V
Figure 8
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The most commonly cited response identified by both buyers and service providers
was that buyers are pursuing deals primarily focused on cost savings (vs. process
improvement, access to external talent). This response was ranked at 4.3 on the
one-to-five scale.
Advisors and service providers also agreed that buyers are more commonly pursuing
deals that have short (<12 month) ROI time frames, scoring this option just
below 4.0. This trend is more prevalent in smaller deals and single functional and
geographic areas than in larger, global and multi-tower deals where a 12-month ROI
is unrealistic.
There was consensus on buyers pushing service providers to finance/defer/

absorb any upfront change or transition costs. Service providers were strong in
the opinion that buyers are more often adding new business with existing service
providers instead of taking new business to market, highlighting the trend toward
supplier consolidation and flight to quality suppliers.
While the trend to de-emphasize the use of Indian service providers was not
commonly cited overall, it was given greater weight by advisors in the Americas
(3.14) than in EMEA (2.57).
Demand Trends by Functional Area

EquaTerra advisors cited demand trends by functional area (e.g., F&A, HR and IT) as
continuing in the same direction in 1Q09 as the past few quarters (see Figure 9). ITO
was the strongest functional demand area, followed by FAO and HRO. HRO demand
levels did improve for the first time in several quarters, signaling some increased
levels of activity in this market segment. Demand for multi-process HRO (more than
two processes outsourced simultaneously to the same service provider) remains
weak, while demand for one- or two-process HRO remains stronger.
Advisors: Demand by Functional Area
ITO
FAO
HRO
1Q09
Procurement 1Q08
1Q07
CC/CRM
Other
0% 20% 40% 60% 80% 100%
Figure 9
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FAO remained the area of top demand cited by service providers in 1Q09 (see Figure
10) and was followed by ITO. It is important to note that demand levels registered in
the Pulse surveys are impacted by the particular outsourcing service providers polled
in any one quarter.
Service Providers: Demand by Functional Area
FAO
ITO
HRO
1Q09
CC/CRM 1Q08
1Q07
Other
Procurement
0% 5% 10% 15% 20% 25% 30% 35% 40% 45%
Figure 10
EquaTerra has seen both demand and supply grow for outsourcing services beyond
general and administrative back-office functions over the past two to three years.
These new areas include knowledge process outsourcing (KPO) for functions like
engineering, research and development (R&D), analytics and legal process work,
and financial analysis, modeling and analytics. Some of these functions are specific
to certain industries, such as drug development and clinical trial services in the
pharmaceutical market. There is also outsourcing supply and demand growth in
areas such as document services, facilities and real estate management, and logistics
services. Please refer to prior quarterly Pulse survey reports for more details on
demand trends in these outsourcing areas.
Growth in these emerging areas is getting stronger in the current market

environment. EquaTerra expects to see outsourcing demand growth in areas like
R&D and financial analytics. Banking and financial services firms, for example, along
with western pharmaceutical firms, face significant cost and competitive pressures.
In response, they are fundamentally overhauling how they deliver core services.
Recent economic events will only further hasten this trend.
Suppliers targeting these areas in 2009 must balance the desire to build capabilities
and clients in the newer market segments with their ability to continue funding
investments during more challenging economic times. Reduced funding to support
market penetration efforts will slow growth in these areas.
The charts on the following two pages illustrate outsourcing demand by process
area for the four major functional areas – IT, HR, F&A and procurement – covered in
the Pulse surveys.
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Advisors: Service Providers:

Functional and Process Area Demand Functional and Process Area Demand
Advisors: HRO Demand Service Providers: HRO Demand
Payroll Payroll
HR IT Benefits
Benefits
HR IT
Recruiting/Talent Mgmnt
Learning/Training
Compensation 1Q09 1Q09
1Q08 Compensation 1Q08
Workforce Effectiveness
1Q07 1Q07
Recruit/Tal. Mgmnt
Learning/Training
Other Workforce Eff.
Expatriate & Relocation Exp & Relo
0% 20% 40% 60% 80% 100% 0% 20% 40% 60% 80% 100%
Advisors: FAO Demand Service Providers: FAO Demand
Accounts Payable Accounts Payable
AR/C&C
AR/C&C
General Accounting
General Accounting 1Q09 Fin, Control, Risk Mgmnt 1Q09

1Q08 1Q08
1Q07 Travel & Entertainment 1Q07
Travel & Entertainment
Decision Support
Finance, Control, Risk Mgmnt

Other
0% 20% 40% 60% 80% 100% 0% 20% 40% 60% 80% 100%
Advisors: ITO Demand Service Providers: ITO Demand
ADM ADM
Infrastructure/Ops
Infrastructure/Ops
Packaged Apps Svcs

Desktop Services 1Q09 1Q09
1Q08 Desktop Services 1Q08
1Q07 1Q07
Packaged Apps Svcs
Other
Networks/Telco Networks/Telco
0% 20% 40% 60% 80% 100% 0% 20% 40% 60% 80% 100%
Advisors: Procurement Outsourcing Demand Dema Providers:

Service d Procurement Outsourcing Demand
AP AP
Strategic Sourcing Order Mgmnt/Trans Processing
Order Mgmnt Strategic Sourcing
Category Mgmnt Mgmnt/Admin.
Req. & Approval Category Mgmnt
1Q09 1Q09
Fixed Assets 1Q08 Fixed Assets 1Q08
Mgmnt/Admin. 1Q07 Fin. Rep./Analysis 1Q07
Fin. Rep./Analysis Receiving/Inventory

Other Req.Approval
Receiving/Inventory Other
0% 20% 40% 60% 80% 100% 0% 20% 40% 60% 80% 100%
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Demand Trends by Industry

The two charts below illustrate industry demand as cited by EquaTerra advisors and
service providers. Industry rankings generally have been consistent between the two
groups over the past few quarters.
Advisors: Demand by Industry
Energy/Utilities, Oil & Gas
Banking, Fin Svcs, Insurance
Govt (Fed, State, Local), Edu 1Q09

1Q08
1Q07
Pharma/Biotech
CPG, Food/Bev, Retail, Wholesale
0% 20% 40% 60%
Figure 11
Service Providers: Demand by Industry
Banking, Fin Svcs, Insurance
Manufacturing
CPG, Food/Bev, Retail, Wholesale 1Q09

1Q08
1Q07
Energy/Utilities, Oil & Gas
Govt (Fed, State, Local), Edu
0% 20% 40% 60% 80%
Figure 12
There are several key points to highlight relative to demand by industry. One is
increased strength in demand in the banking and financial services industries. This
is not surprising given the challenges buyers in these sectors are facing and the
need they have to reduce costs. It shows that buyers are still striving to execute
sourcing efforts despite the operational challenges they face. Public sector demand
also remains strong, though it is comprised of a proportionally higher percentage
of non-outsourcing third-party services. Ironically, there are also emerging signs
that newly infused stimulus money is being spent on third-party services. Public
sector organizations are showing increased interest in moving from legacy customer
software application environments to commercial ERP (enterprise resource planning)
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systems as a means to reduce operating costs, and improve and standardize service
delivery models. Finally, energy and utility buyers are very focused on reducing
operational costs through the use of internal shared service operations and
outsourcing.
Sales Cycle
For the purposes of the Pulse surveys, the sales cycle is defined as the time period
from RFP release to contract signing. Many factors contribute to the length of the
sales cycle, including:
• What is being outsourced

• Level of buyer sophistication and experience
• Complexity, size and regional/global reach of the potential outsourcing deal
• Degree of multi-sourcing present in the deal portfolio
• Preferred service provider sales pursuit capacity and selectivity
• Whether a sourcing advisor is being used
• Disruption to the sourcing process by turmoil in the buyer organization,
economic uncertainty, or changing macro-business – all heightened issues in
the current market
The Pulse surveys do not measure the absolute length of sales cycles. EquaTerra
estimates, however, the sales cycle for larger deals (those with more than $50 million
in total contract value, or TCV) that are competitively bid is typically six to 12 months
– barring deal flow disruption -- from the time the buyer goes to the market until the
deal is closed.
Current market trends are contributing to both shortening and lengthening sales
cycles. Smaller deals pursued by more experienced buyers can lead to shorter sales
cycles, as can the use of speed sourcing techniques addressed in last quarter’s
Pulse survey. On the other hand, the complexities associated with multi-sourcing
can complicate the sourcing process and extend the sales cycle, as can considering
more intricate pricing arrangements. EquaTerra sees most buyers today more
intensely scrutinizing pricing models and levels. Global deals also are more complex
to source. The major factor affecting sales cycles over the past year, however, has
been sourcing cycle disruption caused by economic events. EquaTerra expects to see
market conditions complicate the sourcing process, especially in industries currently
in flux (such as financial services), for the balance of 2009.
Figure 13 illustrates sales cycle trends according to service providers polled in this
quarter’s study.
• Thirty-three percent of service providers indicated sales cycles were

lengthening, up from last quarter, for the fifth straight quarterly increase.
• Just 10 percent of service providers indicated sales cycles were shortening.
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Service Providers: Sales Cycle

100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
Lengthening Same Shortening
Figure 13
Pricing Competitiveness
Increased pricing competitiveness implies the buyer has the upper hand and is
getting a better priced outsourcing deal. As pricing is one element of determining
profitability, the alternative of less competitive pricing is generally favorable to the
service provider. The consensus among service providers polled, especially Indian
providers, is that buyers are getting more aggressive with their pricing demands.
Figure 14 illustrates pricing trends according to service providers in this quarter’s

study.
• Seventy-six percent of service providers polled indicated that pricing pressure

increased in the quarter. This represents a jump of over 30 percent from last
quarter and last year, nearly double the survey average. Indian service providers
were nearly unanimous on increased pricing aggressiveness.
• Just 24 percent of service providers indicated pricing pressure remained

unchanged, and no providers indicated pricing pressure was becoming less
aggressive.
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Service Providers: Pricing

100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
More Aggressive Same Less Aggressive
Figure 14
While there is a stronger desire among buyers today to get more aggressive
with pricing, a number of factors can ultimately temper final pricing levels. More
experienced buyers generally are aware that the lowest price may not lead to the
best deal. There is concern now in the market among buyers about entering into
deals today that will fail because of bad pricing. Buyers also can reduce overall spend
– the ultimate goal – by lowering consumption levels, but still pay an equitable unit
price for services that help ensure they get the provider’s top resources.
Service providers influence pricing competitiveness by the extent of their own

aggressiveness in pursuing deals. More service providers in the market today are
increasingly selective about the clients and deals they pursue. Service providers are
more closely assessing the risk profiles of clients they are pursuing and adjusting their
pricing accordingly. Buyers in financially difficult situations or industries are treated
with higher risk premiums and contract terms that can increase deal pricing. Buyers
in good standing will receive attractive pricing even with similar risk profiles to those
from the past. Buyers viewed by providers as “platinum” accounts also will get more
favorable pricing. Similarly, highly strategic clients that can propel a provider into
a desirable industry segment, for example, will get better pricing even though the
provider is not offering blanket market reductions.
Providers must still cover their operating costs, overhead, margin and risk. They
continue to look for ways to reduce operating costs and overhead to meet their
current contract commitments and continue to push price competitive policies
regardless of the economic downturn. The net result is more aggressive pricing in
the market, but not routinely egregious pricing terms, at least for top tier service
providers or less desirable buyers.
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Deal Scope
Deal scope is defined as the number of processes, users, geographies, etc., included
in an outsourcing arrangement. Contract value usually is directly correlated to scope,
though the mix of remote/low-cost delivery resources involved also affects contract
value. From the outsourcing buyer’s perspective, understanding trends in scope and
contract value helps not only to determine how aggressively other organizations are
pursuing outsourcing, but also how to define and construct a viable and potentially
optimal-sized deal. The growth of the multi-sourcing/multi-provider outsourcer has
both driven and resulted from smaller deal scope. On average, scope levels have
been flat to declining for the past two years.
Figure 15 illustrates deal scope trends according to service providers polled in this
quarter’s study.
• Scope change levels largely were unchanged in the quarter. Twenty-nine

percent of service providers polled indicated that scope was increasing, down
four percent from last quarter but up 10 percent year over year.
• The majority of providers indicated scope levels were unchanged while 19

percent indicated they decreased in the quarter.
Service Providers: Scope

100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
Decreased Same Increased
Figure 15
Service Providers: Contract Profitability and Ability to

Increase Scope
A variety of factors impact service provider profitability, including deal scope,
transition costs and time frames, and buyer pricing sophistication. Exchange rates
and wage inflation also affect service provider profitability, particularly firms with
extensive global operations. Service providers with a higher mix of remote/low-cost
resources have been putting pressure on the profitability of competitive peers with
fewer lower-cost resources for the past several years. This pressure has eased over
recent quarters as more providers globalize, exchange rate trends shift and market
growth slows.
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Over the past year all providers have faced pressure on existing contract profitability.
This has resulted from buyer pricing pressure, more competition for business, buyer
pull-back on more profitable discretionary services, and an increased focus on cost
cutting over process improvement work.
Figure 16 illustrates contract profitability trends according to service providers polled

in this quarter’s study. The Pulse survey addresses profitability on existing contracts,
not new deals in the pipeline.
• Just 20 percent of service providers polled indicated contract profitability was

improving. This level is up three percent for the quarter, but down 10 percent
for the year and below the survey average of 38 percent.
• Seventy percent cited no change in profitability levels. There was no trending

on scope based on type of service provider polled.
Service Providers: Contract Profitability

100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
Declining Profitability Same Amount Improving Profitability
Figure 16
Figure 17 illustrates service provider expectations about their ability to increase

scope in current accounts. All providers today are very focused on growing business
in existing accounts, with some exceptions (e.g., problem buyers in turmoil). This is
because pursuit costs are lower than competing for new business, but it also helps to
protect their base as buyers rationalize suppliers and cut back on spend levels.
• Eight-five percent of service providers expected to increase scope in current

accounts, up 24 percent from 4Q08, the second highest level recorded in the
life of the survey. This bodes well for future deal bookings, as well as improved,
or at least defended, profitability levels.
• No service providers indicated scope would decline in existing accounts.
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Service Providers: Ability on Increase Scope

100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
Decline Remain Constant Increase
Figure 17

Service provider capacity is an important factor that influences other trends, such
as pricing competitiveness, sales cycles and profitability. EquaTerra defines service
provider capacity as the availability of adequate and skilled resources for sales
pursuit, engagement and transition/delivery. Capacity constraints often are more
prevalent in BPO than the more mature ITO market. The challenge service providers
face is the scarce supply of quality experience, which takes time and multiple
outsourcing deals to develop.
Capacity also is tightly linked to service provider aggressiveness in deal pursuit. When
service providers are being more selective and entering into fewer deals, as is often
the case in today’s BPO market, they need less capacity for pursuit and delivery. Thus,
capacity is intentionally constrained to keep costs down and to match capacity to
demand goals. As both BPO buyers and service providers focus more on smaller deals
with fewer processes in-scope, capacity pressure also is lessened.
Figures 18 through 20 illustrate combined capacity levels for pursuit and delivery,
and then separately break out the two.
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Advisors: Service Provider Capacity Overall

100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
4Q05 1Q06 2Q06 3Q06 4Q06 1Q07 2Q07 3Q07 4Q07 1Q08 2Q08 3Q08 4Q08 1Q09
Constrained/Tightening Unchanged Adequate/Increasing
Figure 18
Advisors: Service Provider Capacity, Pursuit

100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
2Q07 3Q07 4Q07 1Q08 2Q08 3Q08 4Q08 1Q09
Figure 19
Advisors: Service Provider Capacity, Delivery

100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
2Q07 3Q07 4Q07 1Q08 2Q08 3Q08 4Q08 1Q09
Figure 20
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• Overall capacity levels remained largely unchanged in the quarter after seeing
gradual improvements over the past year. Twenty-four percent of advisors
overall cited improved capacity, up slightly for the quarter and up nine percent
from 1Q08 (see Figure 18). Twenty-nine percent of advisors cited constrained
or tightening service provider capacity, down one percent year over year.
• Capacity for sales pursuit and deal structuring (see Figure 19) constricted
slightly. Twenty-nine percent of advisors cited constrained levels, up for the
fourth straight quarter and the highest level since 4Q07. Sales pursuit capacity
is dually impacted by more supplier selectivity (improves capacity) and more
market demand (strains capacity, especially as service providers manage down
pursuit costs).
• Capacity levels for deal transition and delivery continued to improve (see
Figure 20). Constrained or tightening citation levels came in at 29 percent,
down quarter over quarter and year over year. Twenty-two percent of advisors
indicated transition capacity was adequate, up from 11 percent last quarter.
Delivery capacity improvement is largely a function of service provider
selectivity in deal pursuit.
Both sales and delivery capacity vary across functional areas of outsourcing and
across different supplier classes. Sales capacity is less constrained for larger global
deals (cited by just 13 percent of advisors) and more constrained in the Americas (37
percent of advisors) than in Europe (28 percent of advisors). Transition and delivery
capacity also was more constrained in the Americas than Europe (41 percent and
23 percent respectively) and in BPO compared to ITO (39 percent compared to 17
percent respectively).
Digging into the reasons for positive and negative changes in service provider
capacity, EquaTerra advisors offered the following comments.
• Pursuit capacity
–– “Bid dollars being focused on ‘must win’ opportunities, speculative punts a

thing of the past.”
–– “Increasing competition is creating a greater focus on sales pursuits. At this
stage all vendors are trying to win more business. In the past vendors have
cut their sales capability and focused on making money from the deals they
have.”
–– “Tendency for constraint in suppliers’ internal costs of sale is balanced by
increased market activity and potential for business.”
• Delivery capacity
–– “There is a push to improve the quality of transition teams; more pressure

on transition cost, no mistakes are allowed!”
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–– “Service provider capacity is already insufficient in a normal market so will

be even more problematic in a market where demand for outsourcing is up
and where contracts are closely aimed at cost reductions for the customer,
which is additionally demanding for the providers to manage.”
–– “Delivery capability seems to be improving. Believe that transactions now
have less aggressive scope and objectives resulting in projects more easily
delivered by the providers.”
–– “Several providers have used this time to enable delivery to catch up with
sales. Delivery adequacy is improving, and service level compliance will
follow.”
Not surprisingly, outsourcing service providers typically have been more optimistic
about their own capacity. Figure 21 illustrates contract pursuit and delivery capacity
trends according to service providers polled in this quarter’s study.
• Forty-three percent of service providers indicated capacity was adequate or

increasing, up 10 percent from 4Q08 but down from 64 percent in 1Q08.
India-based service providers were somewhat more likely to indicate capacity
was improving.
• Just 14 percent of providers indicated that capacity was constrained or

tightening, down for the fourth quarter in a row.
Providers concurred that more client and deal selectivity is helping to improve sales
pursuit capacity levels. The ongoing expansion of global delivery footprints similarly is
helping improve transition and delivery capacity. On the issue of the quality of sales
or pursuit capacity, advisors and services providers continue to have differences of
opinion.

100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
4Q05 1Q06 2Q06 3Q06 4Q06 1Q07 2Q07 3Q07 4Q07 1Q08 2Q08 3Q08 4Q08 1Q09
Figure 21
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Update on Existing Deal Structures and Outsourcing

Governance
This section of the Pulse will review the impact current negative market conditions
are having on outsourcing deals that are in flight (see Figure 22). There has been
much debate in the market about whether buyers will continue forward with existing
deals, push to open up deals to negotiate more favorable pricing and other terms
and conditions, or bring some or all business back in-house as existing deals come
to term. EquaTerra finds, for the most part, these predicted trends are more the
exception than the norm and that most deals continue to move forward under
previously defined terms and conditions.
EquaTerra queried both advisors and service providers as to how market conditions
are impacting existing outsourcing deals in the market. Respondents were asked to
rank on a one-to-five scale how different buyer responses were to market conditions
relative to their outsourcing efforts.
• The most common response cited by advisors was that buyers are opening
deals up to get better pricing (3.74 on the one-to-five scale). This was the
second most common response cited by service providers (3.20), who ranked
as most common the buyers’ efforts to meaningfully scrutinize existing deals
from a governance and supplier financial risk perspective. Advisors gave
high scores to this response.
• Opening up deals to change other deal terms/conditions (e.g., volumes,

performance levels) and overhauling outsourcing governance operating
models (consolidating efforts, for example) also were commonly identified
buyer responses to market conditions.
• Buyers were less commonly identified as shifting more work onshore/

nearshore from current offshore locations or pulling work back altogether
from offshore service providers, though this is occurring selectively in the
market. Logically, buyers involved in larger global deals are less likely to pull
from offshore, which is counter intuitive to the concept of global sourcing.
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Opening up deals up
to get better pricing
Scrutinizing existing deals
relative to risk
Opening up deals up to change
other deal terms/conditions
Overhauling governance
operating models
Service Providers
Investing more in governance
Advisors
Shifting more work
onshore/nearshore
Pulling work back
offshore altogether
1.00 2.00 3.00 4.00

V
Figure 22
Market Conditions: Impact on Outsourcing Governance

EquaTerra also examined the degree to which and in what ways market conditions
are impacting buyer organizations’ ability to successfully conduct outsourcing
governance efforts. There is a concern that outsourcing governance, a collective
set of activities often under-funded and under-appreciated even in good economic
times, could bear an undue and ill-advised brunt of cut-backs as organizations pare
back expenses. Pulse findings tend to support this concern.
EquaTerra views quality outsourcing governance processes and models, resources

and supporting software tools as critical enablers to outsourcing success. Our market
research consistently has found a direct correlation between buyers’ governance
capabilities and investments and outsourcing success and satisfaction.
Overall, both buyers and service providers indicated that market conditions were
having at least somewhat of a negative impact on buyer outsourcing governance
operations (see Figure 23). Sixty-five percent of advisors indicated conditions were
having a minor negative impact and 20 percent cited a major negative impact.
Advisors in Europe were more likely than those in the Americas (26 percent and 10
percent respectively) to indicate conditions were having a major negative impact.
Service providers were more sanguine, with 44 percent indicating market conditions
having no material impact on buyer outsourcing governance efforts and just six
percent citing a major negative impact.
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Market Conditions: Impact on Outsourcing Governance (1)

100%
90% 15%
80% 44%
70%
60%
50% 65%
40%
30% 50%
20%
10% 20%
0% 6%
Advisors Service Providers
Major Negative Minor Negative No Material
Figure 23
There was a general consensus between advisors and service providers about how
market conditions were negatively impacting buyer outsourcing governance efforts
(see Figure 24).
• The most common response cited by advisors (3.34 on the same one-to-
five scale) was that uncertain organizational future state conditions
are complicating pending renewal and renegotiation efforts. This was
the second most common response identified by service providers after
inadequate support from distracted executives and management (rated
3.39 by service providers and 3.24 by advisors).
• Advisors were more likely than service providers to cite declines in the quality
of service provider services and declines in the levels of service provider
support and communications as problems created by current economic
conditions.
Market Conditions: Impact on Outsourcing Governance (2)

Uncertain org future complicating
renewal/renegotiation
Inadequate support
from execs/mgmnt
Retained org, budget staff/cuts
OG team budget/staff cuts

Outsourcing deal out of
sync with current ops Service Providers
Uncertainty over future
SP stability/viability Advisors
Decline in the quality of SP services
Declines in the levels of SP support
1.00 2.00 3.00 4.00
Figure 24
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EquaTerra urges buyers to use caution in cutting back outsourcing governance

investments as part of general cost cutting efforts. The correlation between
outsourcing governance capabilities and outsourcing satisfaction and success
highlights the importance of a strong outsourcing governance program. Recent new
results from the EquaTerra European ITO service provider performance satisfaction
market studies (see Figure 25) further reinforces this point. Seventy percent of buyers
that rated their outsourcing governance capabilities as excellent were satisfied with
the performance of their outsourcing service providers. Just 53 percent of buyers
that assessed their outsourcing governance capabilities as weak were satisfied with
their service providers’ performance.
Sample #1 from EquaTerra European ITO Service Provider Performance and

Satisfaction Study
ete c es to
Excellent 70%
ep d
Good 64%
s/c
t t
e
Average 57%
e
u t
Weak 53%
e t c on t t r c pr de ( )
Figure 25
Recent market events have made many buyers more nervous about global sourcing
efforts. Terrorist attacks in India, the financial problems experienced by Satyam,
and the global economic turmoil in general have made business-as-usual difficult,
if not impossible, to maintain. Buyers can account for and defend against risk when
entering into new global sourcing efforts in many ways. The bigger issue for many
buyers, however, is addressing risk in already established global sourcing efforts that
were deployed when market conditions were better and attention to risk often not
great enough. Please refer to last quarter’s Pulse whitepaper, as well this webcast, for
EquaTerra’s advice on how to address and manage risk in global sourcing efforts.
Service Provider Market Update

On an ongoing basis EquaTerra conducts a comprehensive market study of ITO
service provider (expanding to BPO providers 2H09) performance and satisfaction
across several European markets. This market study program surveys and interviews
buyers actively engaged in outsourcing efforts with a named set of leading market-
specific providers.
www.equaterra.com
The research unveils direct insights into buyer opinions on service provider
performance levels, also assessing and interpreting general outsourcing demand and
activity trends in the markets covered. Market coverage and due dates for the next
editions of these studies are as follows:
• U.K. (released 4Q08)

• Netherlands (released 4Q08)
• BeLux (2Q09)
• Nordics (2Q09)
• Germany (2H09)
• Pan-European ITO (2Q09)
• Pan-European FAO (2H09)
• North American FAO (4Q09)
• Pan-European HRO (2010)
Figure 26 provides another snapshot of the results from the Pan-European ITO
performance and satisfaction study. It illustrates general satisfaction levels for buyers
in application management (AM), infrastructure management (IM) and end-user
management (EUM) outsourcing efforts. In all cases, over 65 percent of respondents
were somewhat satisfied, satisfied, or very satisfied with their outsourcing efforts and
service providers’ performance levels. This is a positive endorsement of the success
that European buyers are having with their ITO efforts.
Sample #2 from EquaTerra European ITO Service Provider Performance and

Satisfaction Study
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
More Recompetes Same Amount Less Recompetes
Figure 26
EquaTerra also conducted a service provider Pulse survey in the Netherlands this
quarter in parallel with the global advisor and service provider Pulse surveys. We will
release the results from the Dutch study in May 2009. For additional details on this
research offering and copies of executive summary reports for all of these research
efforts, please contact: research@equaterra.com.
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Deal Snapshot
EquaTerra estimates approximately 100 outsourcing deals (in ITO and the functional
BPO areas covered in the Pulse surveys) with greater than $50 million in TCV were
announced in 1Q09. Average TCV for these deals was approximately $260 million.
This compares to approximately 120 deals with an average TCV of $225 million in
4Q08. Two very large U.S. defense industry deals -- Verizon and the Department of
Defense for $2.5B, Lockheed Martin and U.S. Special Operations Command for $5B
-- skewed up the average deal size in the quarter.
Less than 20 of these 1Q09 deals were purely BPO, with an average deal size of
approximately $150 million TCV. When estimating the number of new deals and
average TCV, it is important to recognize that some deals are not publicly announced
or the deal details are not provided. The ultimate TCV of a deal also is likely to change
over the life of the contract. There were approximately 180 total BPO and ITO deals
with TCV levels greater than $25 million in the quarter, down from 225 in 4Q08.
Following is a select list of some of the top deals announced in 1Q09. The greatest
level of market activity during this quarter occurred in the military/aerospace
segments.
Select Top Deals

• Capita win estimated at £500M over 15 years with AXA Sun Life. Capita will take
over customer service and other administrative duties relating to 3.2 million life
and pension policies written by AXA Sun Life.
• IBM win estimated at approximately €360M over seven years with ENDESA
(Spanish/Latin American utility). IBM will provide various IT infrastructure
services to ENDESA and its clients in Spain and Latin America.
• Telefonica win estimated at approximately €350M over five years with

Deutsche Post World Net. Telefónica will offer mobile, fixed voice, and data
services in 28 European countries
• IBM win estimated at approximately $500M over seven years with Kaiser
Permanente. IBM will provide data center operations and application
management services.
• EDS/HP win estimated at approximately £700M over 10 years with Aviva (UK
insurance). EDS/HP will provide a full range of data center services.
• Verizon win estimated at approximately $2.5B over 10 years with the U.S.
Department of Defense (Defense Information System Network Transmission
Services). Verizon will provide a broad range of telecommunications and
network services to military installations globally.
• Lockheed Martin win estimated at $5B over 10 years with the U.S. Special
Operations Command. Lockheed Martin will provide logistics services, including
IT network and infrastructure management.
www.equaterra.com
• HCL Technologies win estimated at $350M over seven years with Reader’s
Digest. HCL Technologies will provide IT infrastructure and network services
globally.
Service Providers: Current Deal Portfolio Status

In the final section of the Pulse survey, EquaTerra asked service providers to profile
the state of their current deal portfolio from several dimensions:
• Recompetes/Renegotiations
• Cancellations/Non-renewals
• Problem Contracts
These results are provided for informational purposes only and to highlight ongoing
market directional trending. They do not represent actual deal total in any of the
categories profiled. The number of service providers citing increased levels of
recompetes and renegotiations rose to 45 percent, the highest level ever recorded
in the Pulse survey. Cancellation and problem account levels remained largely
unchanged.
Service Provider Re-competes and Renegotiations
AM 2% 9% 15% 37% 34% 3%
IM 3% 9% 18% 30% 34% 6%
EUM 3% 10% 19% 31% 32% 5%
Very unsatisfied Unsatisfied Somewhat unsatisfied

Somewhat satisfied Satisfied Very satisfied
Figure 27
www.equaterra.com
Service Provider cancellations and now-renewals

100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
More Same Less
Figure 28
Service Provider problem contracts

100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
Up Same Down
Figure 29
Conclusion
EquaTerra offers the following conclusions from the 1Q09 Pulse survey:
• BPO and ITO market demand growth improved in 1Q09 according to EquaTerra
advisors and third-party business and IT service providers polled. Signs indicate
this trend will continue during the rest of 2009. Pent-up buyer demand created
but not consummated in the second half of 2008 is now making it to market.
Uncertain market conditions and turmoil within individual buyer accounts will
continue to slow or stop some sourcing efforts, albeit less frequently.
• The market for more discretionary third-party services, such as consulting,

systems integration and some application development work, is weaker than
for outsourcing. The exception is in the public sector and military/aerospace
markets where demand for all types of third-party business, mission support
and IT services remains strong. U.S. public sector demand for third-party
services continues to grow, driven in part by stimulus fund inflows.
www.equaterra.com
• Market conditions overall are driving more demand for outsourcing, but the
nature of the demand continues to change. Buyers are increasing pricing
pressure on service providers and are demanding more upfront and clearly
defined costs savings. The deal sizes are smaller and there is a strong focus on
cost savings and cost avoidance. Pricing pressure varies based on the quality
and desirability of both the buyer and the service provider.
• Market conditions are causing some buyers to push to open up existing deals
for better pricing and other terms and conditions. Buyers for the most part are
not pulling back from existing outsourcing efforts, global sourcing or the use of
offshore-based service providers.
• Global sourcing efforts will face more scrutiny in 2009 given market events
(e.g., terrorist attacks in India, Satyam implosion and local unemployment
trends), but will continue to grow. Buyers will increase focus and improve
abilities to address and account for risk in global sourcing efforts.
• Buyers in 2009 will migrate and consolidate third-party service work to larger
and more established providers in a flight to quality, but also to gain economies
of scale and preferred pricing, terms and conditions. Leading service providers
will remain selective in the clients and the business they pursue while tier two
and below providers will scramble for whatever business they can get.
• Market conditions are negatively impacting buyer abilities to perform

outsourcing governance tasks as resources are cut and attention is focused
elsewhere in the organization. This is dangerous given the key role outsourcing
governance efforts play in enabling outsourcing success and satisfaction.
• Service provider capacity for deal pursuit is improving, though this is largely a
function of more service provider selectivity and discretion around the deals
and clients they choose to pursue. Service provider capacity for deal transition
and delivery also is improving.
www.equaterra.com
Appendix - Key Questions by Advisors’ Primary Geography and Outsourcing Focus Area
Question Response Total Global Americas EMEA ITO BPO BPO & ITO
Up 49% 58% 47% 42% 47% 43% 52%
Demand -
Flat 41% 42% 44% 41% 39% 44% 43%
Overall
Down 10% 0% 9% 17% 14% 12% 5%
BPO 22% 27% 28% 12% 6% 52% 17%
ITO 59% 40% 52% 71% 75% 24% 75%
Demand - By
Other IT services 7% 20% 3% 5% 6% 5% 4%
Service Model
Internal improvement 15% 13% 17% 12% 14% 19% 4%
Other IT services 5% 7% 6% 10% 10% 15% 9%
Demand - By Service Model - Change
Up 49% 53% 50% 46% 54% 37% 58%
BPO Flat 39% 47% 46% 29% 31% 41% 42%
Down 12% 0% 4% 25% 15% 22%
Up 56% 69% 59% 50% 51% 33% 76%
ITO Flat 35% 31% 30% 40% 38% 53% 24%
Down 9% 0% 11% 10% 11% 13%
Up 21% 38% 29% 9% 20% 36% 13%
Other IT
Flat 62% 63% 59% 64% 60% 55% 69%
services
Down 17% 0% 12% 27% 20% 9% 19%
Up 60% 73% 50% 62% 63% 67% 61%
Internal imp. Flat 34% 27% 41% 31% 26% 29% 39%
Down 6% 0% 9% 7% 11% 5%
Service SP capacity is constrained/tightening 29% 13% 37% 28% 32% 33% 18%
Provider
SP capacity is unchanged 45% 67% 40% 41% 44% 42% 50%
Capacity -
Pursuit SP capacity is adequate/increasing 26% 20% 23% 31% 24% 25% 32%
Service SP capacity is constrained/tightening 29% 25% 41% 23% 17% 39% 38%
Provider
SP capacity is unchanged 49% 63% 37% 51% 63% 35% 43%
Capacity -
Delivery SP capacity is adequate/increasing 22% 13% 22% 26% 20% 26% 19%
Driving more outsourcing 51% 63% 65% 37% 42% 48% 60%
Economy Slowing/rethinking outsourcing plans 44% 31% 32% 58% 56% 52% 28%
Little/no impact 4% 6% 3% 5% 3% 0% 12%
Adding new business w’ existing SPs 3.47 3.75 3.50 3.36 3.42 3.55 3.48
Consolidating business w’ large, tier one SPs 2.91 3.08 2.91 2.85 2.90 2.90 3.15
Market De-emphasizing use of Indian SPs 2.78 2.73 3.14 2.57 2.75 2.84 2.70
Conditions: Focusing more on onshore/nearshore 3.01 2.75 3.16 3.00 3.07 3.18 2.75
Impact on Pursuing deals smaller in scope 3.72 3.92 3.69 3.68 3.55 3.96 3.81
New Deals Pursuing deals focused on cost savings 4.30 3.93 4.37 4.38 4.27 4.42 4.30
Pursuing deals that have short ROI timeframes 3.84 3.36 4.07 3.84 3.78 3.96 3.86
Pushing SPs to finance/defer/absorb upfront costs 3.82 3.77 3.75 3.89 3.84 3.83 3.81
www.equaterra.com
Scrutinizing existing deals relative to risk 3.66 3.50 3.48 3.83 3.64 3.52 4.00
Opening up deals up to get better pricing 3.74 3.29 3.74 3.90 3.72 3.57 4.11
Market Opening up deals up to change other deal terms/
3.59 3.64 3.42 3.68 3.49 3.52 3.90
Conditions: conditions
Impact on Shifting more work onshore/nearshore 2.54 2.07 2.81 2.56 2.45 2.35 2.74
Existing Deals Pulling work back offshore altogether 2.06 2.00 1.90 2.17 2.10 2.17 1.95
Investing more in governance 3.01 2.93 3.05 3.03 3.15 3.05 2.75
Overhauling governance operating models 3.42 3.38 3.36 3.47 3.47 3.50 3.25
Market Major Negative 20% 20% 10% 26% 22% 25% 14%
Conditions:
Impact on Minor Negative 65% 73% 72% 57% 58% 54% 82%
Outsourcing
Governance No Material 15% 7% 17% 17% 19% 21% 5%
OG team budget/staff cuts 3.27 3.14 3.38 3.24 3.22 3.44 3.36
Retained organization, budget staff/cuts 3.29 3.14 3.32 3.33 3.17 3.42 3.38
Market Inadequate support from execs/mgmnt 3.29 3.57 3.31 3.18 3.14 3.16 3.71
Conditions: Outsourcing deal out of sync with current ops 3.19 2.86 3.16 3.34 2.97 3.32 3.65
Impact on Uncertain organization future complicating
3.34 3.07 3.28 3.49 3.26 3.68 3.17
Outsourcing renewal/renegotiation
Governance Decline in the quality of SP services 2.74 2.36 2.96 2.74 2.67 2.74 2.79
Declines in the levels of SP support 2.71 2.43 2.96 2.67 2.73 2.47 2.68
Uncertainty over future SP stability/viability 3.01 2.57 3.12 3.12 3.06 2.90 3.00
Service Provider Responsiveness to Changing Buyer Needs 2.99 3.36 2.93 2.91 2.87 3.00 3.17
www.equaterra.com
About EquaTerra Contact Us

EquaTerra sourcing advisors help clients achieve If you would like to know more about EquaTerra, please contact us.
sustainable value in their IT and business processes.
Our advisors average more than 20 years of Europe/Asia Pacific Americas
industry experience and have supported over 2000 +44 (0) 845 838 7500 +1 713 470 9812
transformation and outsourcing projects across more infoeuapac@equaterra.com infoamericas@equaterra.com
than 60 countries. Supporting clients throughout
For details of all our locations visit www.equaterra.com/locations
the Americas, Europe, and Asia Pacific, we have deep
functional knowledge in Finance and Accounting, For more information on EquaTerra’s research efforts,
HR, IT, Procurement and other critical business please contact Stan Lepeak at + 1 203 458 0677;
processes. EquaTerra helps clients achieve significant stan.lepeak@equaterra.com
cost savings and process improvement with internal
transformation, shared services and outsourcing
solutions.
www.equaterra.com
Copyright © EquaTerra 2009. All rights reserved. The prior written permission of EquaTerra is required to reproduce all or any part of this
document, in any form whether physical or electronic, for any purpose. 3122_042009.

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Get to what matters.

EquaTerra Advisor and Service Provider Pulse

Introduction Topics explored include:

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EquaTerra Advisor Highlights

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BPO/ITO Service Provider Highlights

Deal Scope Unchanged; 29 percent cite increases; 19 percent cite declines

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Market Demand and Market Trends Update

• Forty-nine percent of advisors indicated that overall third-party business and

• Just 10 percent of advisors indicated demand levels had declined in the

• Advisors supporting work in Europe were somewhat less positive on overall

Advisors: Market Demand

Down Flat Up Aggregate

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Advisors: Demand by Service Delivery Model

Internal Imp. 15%

Advisors: Change in Demand by Service Delivery Model

BPO ITO Other IT Svcs Internal Imp.

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• Fifty-seven percent of service providers polled cited pipeline growth in the

• Just five percent of service providers cited a decline in pipeline growth.

Service Providers: New Deal Pipeline Projections

Down Q/Q About the same Up Q/Q Aggregate

• Sixty-two percent of service providers polled expect an increase in demand

• No service providers expected demand levels to decline next quarter.

Get to what matters.

Service Providers: Demand Next Quarter

Decrease Flat Increase Aggregate

Weighted Aggregate Market Demand: Advisors & Service Providers

Advisors Service Providers

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Economy’s Impact on Outsourcing Demand

• Cash flow is tight and being managed very closely.

• Many investments and capital expenditures are being deferred or cancelled if

• Access to capital and credit remains constrained, constricting the overall

• Buying and decision-making processes are complicated and delayed by larger

• Fifty-one percent overall indicated economic conditions are causing buyers

Get to what matters.

Economic Environment’s Impact on Outsourcing

24% 54% 51%

Slowing/rethinking outsourcing plans

58% Driving more outsourcing

1Q08 2Q08 3Q08 4Q08 1Q09

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–– “We’re observing significant changes to buyers’ outsourcing plans and

Service Provider Responsiveness to Changing Buyer Needs

Market Conditions: Impact on New Deals

Market Conditions: Impact on New Deals

Adding new business w' existing SP's

1.00 2.00 3.00 4.00 5.00

Get to what matters.

There was consensus on buyers pushing service providers to finance/defer/

Demand Trends by Functional Area

Advisors: Demand by Functional Area

0% 20% 40% 60% 80% 100%

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Service Providers: Demand by Functional Area

0% 5% 10% 15% 20% 25% 30% 35% 40% 45%

Growth in these emerging areas is getting stronger in the current market

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