The EMEA ISG Index, which measures commercial and public sector outsourcing contracts with an annual contract value (ACV) of €4 million or more, shows that the combined commercial market reached €3.5 billion in the first quarter of 2017, up more than 19 percent sequentially and year on year.
The as-a-service segment rose steadily, with values increasing 48 percent over last year, and 13 percent sequentially from the fourth quarter of 2016, as organizations increasingly embrace digital solutions.
Traditional sourcing ACV also surged ahead. The €2.5 billion in ACV awarded was the highest in more than a year and was boosted by the award of six mega-relationships in the region.
Traditional sourcing still dwarfs as-a-service in EMEA – a point of difference between this region and the Americas and Asia Pacific regions.
In the Americas, traditional and as-service sourcing claim essentially equal shares of the market, while in Asia Pacific, as-a service sourcing is now double the size of the traditional market.
Public Sector Decline
In contrast to the commercial market, public sector ACV in EMEA declined sharply in the last 12 months. The €6.3 billion of ACV awarded was down by almost half compared with the previous year, due to a slow-down in contracting brought about by political uncertainty across Europe.
Going forward, the public-sector market should return to its usual €8 billion – €10 billion mark.
Globally, ACV for the combined commercial and public sector market stood at €18.7 billion for this quarter. While this performance was up 15 percent from the fourth quarter of 2016, it fell short of the €20.5 billion benchmark reached in the first quarter of 2016.
Global as-a-service ACV increased by over €1 billion, or 38 percent, in the first quarter of 2017 compared to the same period last year.
Looking at traditional sourcing by country, the UK registered its highest ever ACV in a quarter, with €1.4 billion awarded. This follows three consecutive weak quarters in 2016 as UK businesses slowed their spending due to uncertainty over political and technological change.
First-quarter ACV in the UK was further boosted by the award of four mega-relationships.
Similarly, DACH saw a return to form in the first quarter of 2017, with ACV up 56 percent on the prior quarter and 15 percent year on year. This was lifted by the award of two mega-relationships and a 14 percent upturn in the number of contract awards.
Traditional sourcing ACV for France paints a less positive picture. The €70 million awarded in the first quarter was the country’s weakest performance in five years.
The run-up to elections in France may have impacted activity, with ACV plummeting more than 60 percent compared to the final quarter of 2016. The Nordics region also took a tumble this quarter, with ACV down 36 percent sequentially, but flat year on year.
By industry, the data reveal a mixed picture. The largest vertical, Financial Services, saw robust growth over the last 12 months.
As-a-service ACV in the sector rose 43 percent as banks and insurers embrace new technologies to deliver the cost reductions and customer services they are under pressure to provide.
The Business Services sector was another strong performer. In the last 12 months, its ACV reached just over €1 billion, with as-a-service accounting for more than half of the total, indicating this industry segment is rapidly adopting cloud-based services.
The Telecom and Media vertical also posted positive results, up 31 percent compared with the prior year.
In contrast, ACV in the Manufacturing sector tumbled 37 percent in the last 12 months, compared with its stand-out performance in the previous period. Despite the fall in Manufacturing ACV, the sector’s as-a-service values grew by 27 percent in the same period.
John Keppel, partner and president of ISG, said: “There is a lot to be positive about, with the EMEA market showing strength in both traditional sourcing and as-a-service contracting.
After a slow start, as-a-service continues to go from strength to strength. As a result of this and some robust activity in traditional sourcing, we expect high single-digit gains in the EMEA market for the rest of 2017.”