What jumps out first from the research is that 2010 was a very strong growth year in terms of overall new contract signings and extensions. Specifically, Everest tracked over 50 new contract signings and 30 contract extensions in the procurement BPO market. To qualify as a contract, each had to be at least $1MM in annual contract value with a minimum term of three years. In other words, Everest's figure, we would suggest, significantly undercounts the overall size of the market from an absolute deal standpoint given the propensity of many providers to start on a pilot basis before progressing and signing larger, multi-year deals with new accounts. So if Everest says there's good news in 2010, it's actually probably great news for 2011 and beyond as the numerous smaller transactions we observed last year convert into longer-term relationships.
Still, Everest suggests that most companies are proceeding with caution, even in deals that are large enough to meet the criteria for inclusion in their study. In the report's synopsis, Everest suggests that the "number of small-sized contracts increased in 2010" representing some "75% of the total number of contracts signed." For Everest, "small contracts" are those with total contract value (TCV) of less than $15 million. From a scope standpoint, sourcing, is specifically increasing in popularity as a means of "generating quick savings." Technology, which we'll cover in more detail during our interview with Saurabh later in this series of posts, is also taking center stage. Specifically, 60% of contracts in 2010 involved "technology augmentation and/or platform enablement" with the "trend being more amplified in the "source-to-contract process than in the P2P process."
The biggest beneficiaries of the overall procurement BPO market growth in 2010 were the largest players with the leaders, "Accenture, IBM and ICG Commerce," together which accounted "for nearly 75%" of the overall market in terms of annual contract value (ACV)" and approximately "50% in terms of new contract signings." Still, competition is increasing as a "large group of major contenders" has "intensified the competition in the market."
In 2010, only seven procurement BPO contracts were terminated, Everest suggests. Which industries led way in terms of overall adoption? Everest suggests that CPG and retail accounted for "35% of the market share in terms of TCV in 2010. The middle market also 'regained' momentum in 2010, accounting for nearly 45% of contact signings." Companies are also engaging on an increasingly worldwide basis with providers, as 35% of contracts signed in 2010 were "global in nature" compared with 25% in 2009.
During our dialogue, Saurabh reiterated his study's findings that sourcing is taking on an increased importance. "The number of PO contracts that have a sourcing-focus (still around indirect or non-core spend) continued to increase in 2010 as clients look for quick and high ROIs," he notes. At the same time, it's also "interesting to note that F&A outsourcing contracts bundled with procurement processes also increased significantly in 2010 -- representing an increasing role that CFOs are playing in this space."
Stay tuned as we continue our discussion with Saurabh, exploring the evolution of the procurement BPO marketplace.
For further reading on the subject of procurement BPO, you can download, for free, Spend Matters and HfS' latest joint research on the subject: