Sourcing Industry Recovers From Recession, With Managed Services Segment Leading the Pack

The global sourcing industry is showing clear signs of recovery, with the managed services sector registering a strong 10% growth in the third quarter.

Considering ISG’s ‘state-of-the-industry’ report, the annual contract value (ANV) rose 3%, to $14.6 billion, the second-best quarter ever behind only the first quarter of 2020.

The demand for managed services rose sharply during the three months period, as businesses began restructuring their operations in the wake of the pandemic. The rising tide of mergers and acquisitions (M&A) and the economic stimulus in the United States could have also contributed to the sudden spike in the demand for services.

“In Q3, we saw a record number of restructurings, up 67 percent from last quarter, along with a 54 percent gain in banking industry ACV and a 91 percent spike in ACV for industry-specific BPO,” said Steve Hall, president of ISG.

The quarter witnessed five mega deals compared with only one in the previous 2^nd quarter.

Contracts in the cloud services sector increased by more than 10% as entrepreneurs accelerated their digital transformations and shifted more work to the cloud.

“COVID-19 remains an ongoing concern, but enterprises have shifted to virtual models that have pushed the acceleration of digital transformation,” Hall added. “We are not seeing a V-shaped recovery, but transaction volume is robust even as some clients continue to delay decisions and sales cycles are lengthened.”

Within managed services, information technology outsourcing (ITO) increased 3 percent over the prior quarter, to $5.0 billion, though it still trailed the prior year by 7 percent. BPO advanced 38 percent quarter-over-quarter, to $1.6 billion, or 1 percent higher than 2019.

ISG is forecasting the managed services market will be down 6 percent for the full year, 150 basis points better than its July forecast. The firm is expecting the as-a-service market to grow by 15.5 percent in 2020, up from its 11 percent forecast in July.

“Managed Services was healthier than we anticipated in the third quarter. We see pipelines refilling and ACV growth could accelerate if some large deals come to award in the fourth quarter,” Hall said.