Information Services Group (ISG) has released its Q4 2016 EMEA ISG Index™, which reveals that growth in as-a-service sourcing accelerated across the region in 2016, driven by the increasing demand for digital solutions.
The EMEA ISG Index™, which measures commercial outsourcing contracts with an ACV (annual contract value) of ˆ4 million or more, shows that combined ACV in the Europe, Middle East and Africa (EMEA) market reached ˆ11.8 billion in 2016, up 2 percent on 2015 totals. While traditional sourcing value in the region slumped to its lowest point since 2009, as-a-service ACV climbed to just over ˆ3 billion, up 33 percent over the previous year.
Despite the positive annual figures, the EMEA market slipped back in the fourth quarter of 2016. The ˆ3 billion in combined market ACV for the fourth quarter was down 19 percent year on year, albeit on a tough compare with 2015’s stand-out result. This was largely due to a decline in traditional sourcing, which was down 32 percent compared with the same period in 2015. Meanwhile, the as-a-service segment reached a record-high quarterly ACV of ˆ900 million, up 30 percent over the prior-year fourth quarter.
Globally, 2016 ACV climbed 9 percent to reach almost ˆ30 billion, driven by accelerated growth in as-a-service contracting, which finished the year up 38 percent compared with 2015. Infrastructure-as-a-Service (IaaS,) which leapt 54 percent year-on-year, led the growth in this segment and provided a clear indication of the momentum in the as-a-service space.
Market Insights
Building on the trend reported last quarter, DACH recorded its best-ever year for contracting activity, with 187 awards. The region’s drop in traditional outsourcing ACV for the year follows the trend toward greater numbers of contracts at lower value that has already spread across the global market.
In the UK, traditional outsourcing ACV fell 10 percent in 2016 compared to 2015, while the number of contract awards declined by a third, as the region navigated an uncertain political and economic landscape following the EU referendum result. The drop in market values in the UK may also reflect the decline in value of the British pound following Brexit, as the ISG Index™ converts all currencies to U.S. dollars. Financial services, an area on which the UK has historically been reliant, saw results continue to decline, which may have influenced the country’s overall results.
France saw its outsourcing market recover in 2016 compared with a weak 2015. ACV for the year, at ˆ500 million, was up 56 percent year on year as contract activity picked up strongly. The number of contract awards was up 57 percent over the same period in 2015.
Elsewhere, the Nordics sub-region saw double-digit increases in ACV year on year, following a slower 2015, while Southern Europe reached its highest-ever values, with a 75 percent increase in ACV compared to 2015.
Sector Breakdown
By industry, Telecoms and Media saw values increase in EMEA, growing 70 percent in 2016 compared to 2015, its best result in four years. Manufacturing, meanwhile, had a good year for contract activity, with counts growing by a third year on year while its ACV declined 8 percent for the same period.
Financial Services, the largest industry segment in Europe, also saw mixed results. Its ACV held steady compared with last year but still was 15 percent below its prior five-year average as low interest rates continue to drive price compression and cost cutting in many FS markets.
Travel & Transport ACV was at an eight-year low with a 45 percent drop on 2015.
Forecast
John Keppel, partner and president of ISG, said: “Our key takeaway for 2016 is the welcome emergence of as-a-service contracting in EMEA. Although growth in the use of these new technologies and services has been slow to take off in EMEA, we expect to see the impetus around these new solutions build in the region as public cloud providers expand their data center footprint across Europe. In turn, it is likely that traditional sourcing will feel an impact as spending moves from basic operational projects to business-led digital initiatives, and we anticipate double-digit combined market growth in EMEA in 2017."
