TBR's Global Delivery Market Landscape Research Highlights and Outlook

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TECHNOLOGY BUSINESS RESEARCH, INC.

TBR’s Global Delivery Market LandscapeResearch Highlights and OutlookTechnology Business Research (TBR) Quarterly Webinar Series

Nov. 20, 2013

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2 TBR Quarterly Webinar Series | 11.20.13 | www.tbri.com | ©2013 Technology Business Research Inc.

Boz HristovResearch Analyst, TBR’s Professional Services Practice

Email: [email protected]: @boztbr

Ramunas SvarcasSenior Analyst and Engagement Manager, TBR’s Professional Services Practice

Email: [email protected] Twitter: @rjstbr

Global Delivery Market Landscape Research Highlights

Webinar presenters

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• TBR reports are unique for their deep, holistic analysis of leading vendor businesses.• Financial modeling and TBR insights help

customers gain a better understanding of vendor business models.• TBR reports and webinars are responsive to

client timelines, clear and concise, and provide insights across multiple layers of a vendor’s organization and infrastructure.• TBR’s strategic assessment provides an

impartial check on a vendor’s progress toward meeting its strategic objectives. • Vendors covered in the GDML study include:


TBR Global Delivery Market Landscape Semiannual Report

TBR’s Global Delivery Market Landscape delivers insight and value through in-depth analysis in a concise, consumable format

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Global Delivery Market Landscape Key Takeaways

Why did headcount continue to decelerate in 2Q13?

How are vendors improving support delivery and reducing costs?

How are India-centric vendors climbing up the value chain?


The Global Delivery Market Landscape covers total, onshore and low-cost headcount trends, delivery support investments and profitability drivers

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India-centric Vendors•Cognizant, HCLT, Infosys, TCS, Wipro ITS•High low-cost leverage, onshore local hiring, platform BPO, reliance on freshers

SIs•Accenture, Atos, Capgemini, CSC, Xerox Services•Vertical expertise, domestic lower-cost labor, freshers onshore, pyramid management

SIs with Support & Maintenance•Dell Services, HP Services, IBM GS, T-Systems •Cross-company capabilities, global integration, consulting

2Q13 YTY low-cost headcount: up 9.4%Onshore headcount: down 2%

2Q13 YTY low-cost headcount: up 1.1%Onshore headcount: down 6.8%

2Q13 YTY low-cost headcount: up 8.2%Onshore headcount: up 12.9%

India-centric vendors are moving up the value chain and expanding onshore consulting and delivery capabilities


TBR Vendor Segments

Vendor goals center on revenue expansion in emerging markets and global growth of cloud computing and cloud computing professional services.

Low-cost leverage, industrialization, IP

assets, emerging market expansion, cloud computing

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Market uncertainty and vendors moving beyond the era of labor arbitrage forced continued deceleration.


Vendors are expanding IP portfolios through in-house developments.


India-based firms increased emphasis on industrialized delivery models and expanding onshore consulting delivery capabilities.


SOURCE: TBR RESEARCH AND ESTIMATES; COMPANY DATA AND ESTIMATES

Headcount growth continues at a slower pace industrywide as firms prepare for a rebound by cloud demand

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Headcount growth decelerated across all vendors; the focus remains on improving profitability through restructuring and IP assets

Along with the weakening demand for IT services, the key factor contributing to the slowing of headcount growth in the first half of 2013 was the heightened development and integration of IP assets in vendors’ delivery models. Vendors scaled back hiring as they shifted labor-intensive C&SI processes to scalable IP-based offerings to grow profits.

Year-to-Year Headcount Changes in 2Q13

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Only three countries offering diverse language skills and nearshore presence for clients experienced double-digit headcount growth


Year-to-Year Headcount Changes by Region and Country

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Nonlinear model will succeed at the expense of revenue expansionGlobal Delivery Market Landscape Research Highlights

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As the labor arbitrage model runs its course, the next inflection point in service delivery will be the shift from low-cost labor to no-labor models enabled by cloud and automation, helping vendors generate viable nonlinear growth.

Despite stalled IT services revenue growth, headcount growth continues at a slower pace as firms prepare for a rebound driven by cloud

Note: Graph reflects a weighted average growth rate for the 14 IT services vendors.

Severe Correction

ContinuedCorrection

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Standardized processes and tools coupled with internal initiatives are prime investment areas to break the link between revenue and headcount

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Profit Results and Correlating Changes in Headcount Metrics

Executive Summary: Profit Results and Headcount Metrics

Key: 2Q12 vs. 2Q13 Improvement Deterioration No change

While low-cost leverage is key to the profit equation, profitability is influenced by delivery efficiency, market conditions and offerings

• All vendors except HP increased low-cost headcount year-to-year.• Profit margins improved for eight of

the 14 vendors examined in the study.• Margins are influenced by market

conditions, effective staff pyramid management, leverage of industrialized delivery models, assets and tools as well as IP-enabled and platform-based solutions. • Alternative corporate strategies for

growth, such as acquisitions, R&D and new alliances, can also impact margin improvement.

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Low-cost leverage is a key determinant of operating margin, but more vendors are turning to tools and IP to improve profitability


Low-cost Leverage Impact on Operating Margin

Successful execution of IP asset creation will positively impact margin performance; however, only a few vendors are realizing the benefits of such activity.

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Vendors’ investments in profitability factors have varied degrees of success


Overall Revenue per Employee and Operating Income per Employee Results

Less than half of the vendors in the study saw increased operating income per employee through operational efficiency, global delivery, automation and high-margin offerings.

Restructuring Automation

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Vision and execution beyond the traditional “bread and butter” business model is required to become an India 2.0 vendor

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Profit Results and Correlating Changes in Headcount Metrics

Executive Summary: Profit Results and Headcount Metrics

Key: 2Q12 vs. 2Q13 Improvement Deterioration No change

India-centric vendors are willing to sacrifice short-term margin gains for long-term competitiveness

• Successful low-cost labor use continues to drive the best profit margins for India-based vendors.• India-based vendors are adding

onshore resources to:o Expand consulting capabilitieso Overcome Visa issueso Increase proximity to the

customero Invest in manpower and IP

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India-centric vendors recognize the importance of onshore resourcesGlobal Delivery Market Landscape Research Highlights

India-centric vendors:•Expanded Continental Europe presence through M&As•Hired local freshers and experienced professionals to offset potential impact of U.S. visa reform and grow on-premises consulting capabilities•Boosted onshore headcount to increase client face time and pursue high-margin deals in consulting

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Adoption of a nonlinear growth model and revenue cannibalization will allow India-centric vendors to better compete globally


• India-centric vendors are expanding IP asset offerings through alliance partners and in-house developments to cultivate a nonlinear growth model.• Revenue and headcount growth for India-centric vendors will continue to decelerate as the

increased use of automation tools leads to revenue cannibalization and margin improvement.

Balanced Approach

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Questions?

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Boz HristovResearch Analyst, TBR’s Professional Services Practice

Email: [email protected]: @boztbr

Ramunas SvarcasSenior Analyst and Engagement Manager, TBR’s Professional Services Practice

Email: [email protected] Twitter: @rjstbr


Webinar presenters

Twitter: @TBRincSlideShare: www.slideshare.net/TBR_Market_InsightYouTube: www.youtube.com/user/TBRIChannelLinkedIn: http://www.linkedin.com/company/technology-business-research

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TECHNOLOGY BUSINESS RESEARCH, INC.

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TBR's Global Delivery Market Landscape Research Highlights and Outlook

Business

tbr research

vendors delivery models

support delivery

services vendors

onshore headcount

market expansion

delivery support investments

market uncertainty