third quarter 2014 global isg outsourcing index
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Hosted by:
Moshe Katri,
Cowen and Company
14 October 2014
The Global ISG Outsourcing Index
Third Quarter 2014
Market Data and Insights
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Covering the state of the outsourcing industry for global, commercial contracts.*
Welcome to the 48th Quarterly Outsourcing Index Review
Esteban Herrera Partner
John Keppel Partner & President
Dr. David Howie Partner
Paul Reynolds Chief Research Officer
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At a Glance
Scorecard 3Q14 3Q Y/Y 3Q Q/Q ACV ($B)* Change Change
Global Market $ 4.6 -21% -28%
New Scope $ 3.0 -10% -27%
Restructurings $ 1.6 -36% -31%
Mega-relationships $ 1.1 -12% -32%
ITO $ 3.4 -23% -31%
BPO $ 1.2 -17% -18%
Americas $ 1.9 11% -17%
EMEA $ 2.4 -36% -26%
Asia Pacific $ 0.3 -27% -64%
YTD YTD ACV ($B)* Change
$ 17.1 13%
$ 10.8 22%
$ 6.3 0%
$ 4.5 24%
$ 13.0 22%
$ 4.1 -9%
$ 6.2 18%
$ 8.7 3%
$ 2.2 59%
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Broader Market Quarterly ACV is down 21% Y/Y on slower contracting activity. YTD, ACV is still at the second-highest level ever, up 13% against 2013.
Year-to-date Broader Market ($B)*
Year-to-date Contracting Counts
Broader Market Contract Award Trends
660 511
631 631 528 518 408 343 332 329
239 352 252 295
235 221 227
163 141 142
-
250
500
750
1,000
201413121110090807062005
1H Counts 3Q Counts
$12.5 $9.3
$12.5 $10.2 $12.5 $10.2 $11.1 $8.7 $8.9 $9.2
$4.6 $5.9
$5.7 $6.1
$4.4 $4.3 $4.5
$3.1 $2.8 $3.9
$4.6
$5.4 $7.1 $5.6 $7.1 $4.9
$6.1 $4.5 $5.5
201413121110090807062005
$0
$5
$10
$15
$20
$25
1H ACV 3Q ACV 4Q ACV
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Both ITO and BPO quarterly ACV down Y/Y. Year-to-date, ITO ACV stands at all-time high while BPO ACV has trended lower, down 9% from 2013.
BPO Year-to-date ACV ($B)*
ITO and BPO Contract Award Trends
ITO Year-to-date ACV ($B)*
BPO Year-to-date Counts
$9.6 $6.2
$7.8 $6.7 $9.5
$7.4 $7.8 $6.3 $6.6 $6.7
$3.4
$4.4 $3.7
$4.4
$3.1
$3.1 $3.1
$2.1 $1.8 $2.7
201413121110090807062005
$0
$5
$10
$151H ACV 3Q ACV
ITO Year-to-date Counts
176 184 235 231 192
154 137 115 130 105
66 104
91 110 96
75 87 55 60
50
-
100
200
300
400
201413121110090807062005
1H Counts 3Q Counts
484
327 396 400 336
364 271 228 202 224
173
248 161 185
139 146
140
108 81
92
-
100
200
300
400
500
600
700
201413121110090807062005
1H Counts 3Q Counts
$2.9 $3.0 $4.7
$3.5 $3.0 $2.8 $3.2 $2.4 $2.3 $2.4
$1.2 $1.4
$2.0 $1.7
$1.2 $1.1 $1.4 $1.0 $1.0 $1.2
201413121110090807062005
$0
$2
$4
$6
$8
1H ACV 3Q ACV
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Americas quarterly ACV was up 11% Y/Y even as the number of contract awards fell back. Year-to-date, ACV is up 18% from 2013 with New Scope ACV growing 30%.
Americas Year-to-date ACV ($B)*
Americas YTD Segment Details ACV ($B)*
Americas Contract Award Trends
Americas Year-to-date Counts
265 195
278 259 239
219 168 142 149 130
97 137
104 119 101 83
84 61 49 57
-
100
200
300
400
500
201413121110090807062005
1H Counts 3Q Counts
$4.3 $3.5 $5.0
$3.7 $5.6
$4.2 $3.1 $3.4
$4.6 $3.8
$1.9 $1.7
$1.9 $2.0
$1.9
$1.9
$1.3 $0.9 $1.1 $1.8
$1.5
$1.9 $2.3
$1.1 $2.3
$1.8 $2.7 $1.7 $2.0
201413121110090807062005
$0
$2
$4
$6
$8
$10
1H ACV 3Q ACV 4Q ACV
$3.9
$2.3
$3.7
$2.5
$1
$2
$3
$4
$5
$6
New Scope Restructuring ITO BPO
Range of Prior 4 YTDs Avg of Prior 4 YTDsYTD 3Q13 YTD 3Q14
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Year-to-date, U.S. ACV has risen 17% against 2013. Both Canada and Brazil ACV have advanced as a result of some larger contract awards.
Americas Contract Award Trends Detail
Americas Sub-regions Year-to-date ACV ($B)* Americas Industry YTD ACV ($B)*
$0.41
$0.27
$0.06 $0.03
$-
$0.1
$0.2
$0.3
$0.4
$0.5
$0.6
Canada Brazil Other LatAm Mexico
Range of Prior 4 YTDs Avg of Prior 4 YTDs YTD 3Q13 YTD 3Q14
$5.38
$-
$1.0
$2.0
$3.0
$4.0
$5.0
$6.0
$7.0
$8.0
U.S.
$0.91
$1.71
$0.66
$0.71
$0.46
$0.41
$0.41
$0.73
$0.16
$- $1.0 $2.0
Manufacturing
Financial Services
Telecom & Media
Healthcare & Pharma
Business Services
Retail
Consumer Products &Goods
Energy
Travel, Transport &Leisure
Avg of Prior 4 YTDs YTD 3Q14
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Co. Revenues < $2 B Co. Revenues $2 -10 B
ISG Sourcing Market Standouts in the Americas Americas-based providers head up the Big 10 Sourcing Standouts. Providers with substantial offshore profiles lead in both the Building and Breakthrough tiers.
1Top 10 in region across all company sizes Placements based on ACV of commercial contract awards in the past 12 months sourced from ISG Contracts Knowledgebase®. Service providers in alphabetical order; no rankings implied. Revenues sourced from Hoovers and individual company financial fillings
The Building 10
Sourcing Standouts
The Breakthrough 10
Sourcing Standouts
CBRE Group CGI
Cognizant1 CompuCom
Genpact HCL1
Infosys1 Tech Mahindra
Teleperformance Wipro
Accenture1
BT Capgemini1
CSC1 Dell IBM1 ISS
RR Donnelley TCS1
Xerox1
Allscripts Healthcare Solutions EXL
Garda World iGATE1
KPIT Technologies Minacs Neoris
NIIT Sitel
Syntel
SOURCING STANDOUTS BY COMPANY SIZE
The Big 10
Sourcing Standouts
Co. Revenues > $10B
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EMEA quarterly ACV is down 36% Y/Y as the number of awards drop markedly. Year-to-date, ACV is up slightly at 3% on the strength in ITO.
EMEA Year-to-date ACV ($B)*
EMEA YTD Segment Details ACV ($B)*
EMEA Contract Award Trends
EMEA Year-to-date Counts
316 257 275 298
225 237 198 159 140 173
115 176 110 144
110 106 116
77 76 66
-
100
200
300
400
500
201413121110090807062005
1H Counts 3Q Counts
$4.6 $4.1
$7.3
$1.4
$0
$2
$4
$6
$8
New Scope Restructuring ITO BPO
Range of Prior 4 YTDs Avg of Prior 4 YTDs
YTD 3Q13 YTD 3Q14
$6.3 $4.8 $5.5 $5.4 $6.0
$4.6 $7.2
$4.1 $3.3 $5.0
$2.4 $3.7 $3.0 $3.6 $2.0
$1.8
$2.5
$1.7 $1.5
$1.8
$2.6 $2.8 $4.2
$3.5 $4.1
$2.2
$2.5 $2.4
$2.8
201413121110090807062005
$0
$2
$4
$6
$8
$10
$12
$14
1H ACV 3Q ACV 4Q ACV
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France and Southern Europe help support year-to-date gains in EMEA while the more mature markets of the U.K., DACH and the Nordics pull back from 2013.
EMEA Contract Award Trends Detail
EMEA Sub-regions Year-to-date ACV ($B)* EMEA Industries YTD ACV ($B)*
$2.8
$1.5 $1.3 $1.3
$0.3
$0.9
$0.4 $0.2
$-
$0.5
$1.0
$1.5
$2.0
$2.5
$3.0
$3.5
$4.0
U.K. &Ireland
DACH Nordics France Benelux SouthernEurope
Africa &Middle
East
E. Europe& Russia
Range of Prior 4 YTDs Avg of Prior 4 YTDs
YTD 3Q13 YTD 3Q14
$1.6
$1.9
$1.4
$1.4
$1.0
$0.5
$0.3
$0.4
$0.2
$- $1.0 $2.0 $3.0
Financial Services
Manufacturing
Travel, Transport &Leisure
Energy
Telecom & Media
Business Services
Retail
Consumer Products& Goods
Healthcare & Pharma
Avg of Prior 4 YTDs YTD 3Q14
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Co. Revenues < $2 B Co. Revenues $2 -10 B
ISG Sourcing Market Standouts in EMEA Large multinationals and providers with strong local “home market” profiles head up both the Big 10 and Building 10 tiers.
1Top 10 in region across all company sizes Placements based on ACV of commercial contract awards in the past 12 months sourced from ISG Contracts Knowledgebase®. Service providers in alphabetical order; no rankings implied. Revenues sourced from Hoovers and individual company financial fillings
SOURCING STANDOUTS BY COMPANY SIZE
Co. Revenues > $10B
Capita Carillion1
Cognizant1 EVRY HCL1
Infosys1 Mitie Group
Orange Business Services Tech Mahindra
Tieto
Accenture1 Atos1 BT1
Capgemini1 CSC
Fujitsu HP
IBM1 TCS1
T-Systems
HH Global
iGATE
Innovation Group
Kelway
MAYKOR
NGA Human Resources
NNIT A/S
Quindell
Sitel
The Building 10
Sourcing Standouts
The Breakthrough 10
Sourcing Standouts
The Big 10
Sourcing Standouts
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Asia Pacific quarterly ACV is down 27% Y/Y on the absence of large contract awards. Year-to-date ACV is up almost 60% on substantial contracting activity.
Asia Pacific Year-to-date ACV ($B)*
Asia Pacific YTD Segment Details ACV ($B)*
Asia Pacific Contract Award Trends
Asia Pacific Year-to-date Counts
79 59
78 74 64 62
42 42 43 26
27 39
38 32
24 32
27 25 16 19
-
20
40
60
80
100
120
140
201413121110090807062005
1H Counts 3Q Counts
$1.4
$0.8
$2.1
$0.1 $0.0
$0.5
$1.0
$1.5
$2.0
$2.5
New Scope Restructuring ITO BPO
Range of Prior 4 YTDs Avg of Prior 4 YTDs
YTD 3Q13 YTD 3Q14
$1.9 $0.9
$2.0 $1.1 $0.8
$1.4 $0.7
$1.2 $1.0 $0.4
$0.3
$0.5
$0.8
$0.5 $0.4
$0.6
$0.7 $0.5
$0.2
$0.3
$0.5
$0.6
$0.5 $1.0
$0.7
$0.9 $0.8
$0.4 $0.8
201413121110090807062005
$0
$1
$2
$3
$41H ACV 3Q ACV 4Q ACV
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YTD Asia Pacific ACV gains are the result of stepped up activity in ANZ and large awards in Japan. China and India bounce back from weaker 2013 results.
Asia Pacific Contract Award Trends Detail
$0.60
$0.46
$0.61
$0.31
$0.22
$0.02 $-
$0.2
$0.4
$0.6
$0.8
$1.0
$1.2
$1.4
ANZ India andSouth Asia
Japan GreaterChina
SoutheastAsia
South Korea
Range of Prior 4 YTDs Avg of Prior 4 YTDs
YTD 3Q13 YTD 3Q14
Asia Pacific Sub-regions Year-to-date ACV ($B)*
$0.49
$0.33
$0.63
$0.28
$0.18
$0.05
$0.07
$0.15
$0.04
$- $0.2 $0.4 $0.6 $0.8
Telecom & Media
Financial Services
Manufacturing
Travel, Transport &Leisure
Energy
Business Services
Healthcare & Pharma
Consumer Products& Goods
Retail
Avg of Prior 4 YTDs YTD 3Q14
Asia Pacific Industries YTD ACV ($B)*
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Co. Revenues < $2 B Co. Revenues $2 -10 B
ISG Sourcing Market Standouts in Asia Pacific Japanese providers join large multinationals in the Big 10 Sourcing Standouts list. Australian and India-based providers contribute greatly to the two smaller tiers.
1Top 10 in region across all company sizes Placements based on ACV of commercial contract awards in the past 12 months sourced from ISG Contracts Knowledgebase®. Service providers in alphabetical order; no rankings implied. Revenues sourced from Hoovers and individual company financial fillings
SOURCING STANDOUTS BY COMPANY SIZE
Co. Revenues > $10B
Cognizant1
HCL
Infosys1
Orange Business Services
Singtel Optus
Tech Mahindra
UGL Limited
Unisys
Wipro1
Accenture1 AT&T
Capgemini CSC1
Fujitsu1
Hitachi IBM1
NTT
TCS1
Telstra1
Aegis ChinaSoft1
Hollysys Automation Itron
Kratos Defense & Security
NGA Human Resources Pactera
Ramco
Redknee Solutions
SITA
The Building 10
Sourcing Standouts
The Breakthrough 10
Sourcing Standouts
The Big 10
Sourcing Standouts
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Relative to the Commercial Sector, Public Sector ACV has grown steadily since 2009. Most ACV is generated by ITO awards, although it varies by geographic market.
Public Sector Trailing 12 Months Counts
Global Public Sector Award Trends
1,198 1,143 1,201 1,181 1,061
1,213
1,043 954 852 745
4Q13 -3Q14
4Q12 -3Q13
4Q11 -3Q12
4Q10 -3Q11
4Q09 -3Q10
Commercial Sector Public Sector
Public Sector Trailing 12 Months ACV ($B)*
$21.7
$38.8 $33.7
$30.1 $25.4 $23.4
4Q13 -3Q14
4Q12 -3Q13
4Q11 -3Q12
4Q10 -3Q11
4Q09 -3Q10
Commercial Sector Public Sector
$30.1 $26.3
$22.0 $18.4 $18.1
$8.7 $7.5 $8.1 $7.0 $5.3
4Q13 -3Q14
4Q12 -3Q13
4Q11 -3Q12
4Q10 -3Q11
4Q09 -3Q10
Public Sector ITO ACV Public Sector BPO ACV
Public Sector ITO vs. BPO TTM ACV ($B)* Public Sector Regional ITO vs. BPO % TTM ACV
86%
47%
93%
37%
14%
53%
7%
63%
U.S. & Canada U.K. ContinentalEurope
Australia
ITO BPO
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$18.1 $22.6
$32.0 $31.4
4Q13 - 3Q144Q12 - 3Q134Q11 - 3Q124Q10 -3Q114Q09 - 3Q10
Commercial Sector Public Sector
4.05 4.36
3.20 4.10
69%
11% 6% 9%
4%
U.S. &Canada
U.K. ContinentalEurope
Australia Other
North America, led by U.S. Dept. of Defense, accounts for a large share of Public Sector sourcing activity followed by the U.K., Australia and Continental Europe.
Share of Public Sector ACV for Trailing 12 Months Top Public Sector Providers in Recent 12 Months*
Global Public Sector Award Trends Continued
*Service providers in alphabetical order; no rankings implied. Placements based on ACV of public sector contract awards sourced from ISG Contracts Knowledgebase ®.
BT
Capita
Carillion
CGI
HP
Interserve
Serco
Accenture
Atea
Atos
Capgemini
HP
IBM
T-Systems
Accenture
Boeing
CSC
Data#3
Fujitsu
IBM
Serco
Global Average Deal Size and Duration Compare
Avg. Duration in Yrs.
Avg. Contract Value ($K)
U.S. & Canada Australia
U.K. Continental
Europe
BAE Systems
CACI
General Dynamics
Leidos
Lockheed Martin
Northrop Grumman
SAIC
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Special Topic for 3Q14
ISG MOMENTUM® METHODOLOGY FOR SOURCING OPPORTUNITIES ASSESSMENT
Paul Reynolds
Chief Research Officer
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Historic vs. Potential Industry Characterization
Historical Activity Frames an Industry
$0
$1
$2
$3
2014YTD
'13'12'112010
Chemicals Oil & Gas Ops Utilities
Energy Industry ACV ($B)*
But more information is needed to Characterize the Industry Potential Momentum® Vertical Reports gauge a market’s maturity and momentum
Amount of industry business available but not yet captured
by service providers
vs U FARMING HUNTING Amount of industry growth that can be cultivated from outsourcing relationships in place
Utilities Historical Frame exhibits consistency — over $1B in ACV for past five years — within Energy, a consistent performer on pace for a record high 2014 ACV
1
Utilities Potential ISG’s 2014 Momentum Vertical Report rates Utilities as Medium Hunting and High Farming
2
WHY?
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Industry Challenges local hiring requirements, heavy regulation and M&A activity impact service standardization and flexibility
Medium Hunting: Recent Growth Is Highest of 27 Verticals
$1,395 $1,612
$1,746 $1,695 $1,613
$1,824
$2,006
$3,078
$3,411 $3,340
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
US
$ M
illio
ns
Growth: 5% 16% 8% -3% -5% 13% 10% 53% 11% -2%
Utilities Market Spend (ACV)
18.5 % compound annual growth rate for outsourcing spending by Utilities clients is highest among the 27 verticals Momentum tracks
1
2
2014 Vertical Industry Report
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Innovative solutions abound due to deregulation, smart grid technologies, and ongoing service efficiency needs
High Farming: Low Per-company ACV Leaves Room for Growth
2013 Utilities Average Market Spend
$66.8 $99.8
Utilities
Market Average
50 58
Outsourcing
Not Outsourcing
108 Companies
2013 Utilities Market Composition
46% Penetration Rate is in line with 47% G2000 average
1
Below Average Spend compared to G2000 in 2013
2
3
2014 Vertical Industry Report
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Who’s Winning the Utilities Contracts? The utilities client base is served by a competitive set of service providers. Industry specific BPO solutions and ITO cloud integration are key areas of focus.
18%
16%
14%
12%
12%
12%
12%
10%
10%
6%
6%
6%
6%
6%
6%
6%
Capgemini
TCS
Accenture
IBM
HP
Atos
CGI
CSC
Wipro
Fujitsu
Xerox
HCL
Aon Hewitt
TSystems
Cognizant
Carillion
Utilities Clients Focus on Solutions High BPO adoption focusing on industry-specific solutions at a much higher rate than the global average
► ITO services outsourced slightly below the G2000 average
► Utilities maturing strategy around cloud services increases demand for integration with traditional IT Infrastructure.
Cloud services seen as a foundational element for next-generation IT infrastructures
Cloud strategies needed in all technology elements of a proposal
2013 Service Provider Penetration in Momentum’s Utilities Vertical
n = 50 Companies
2014 Vertical Industry Report
T-Systems
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As ISG forecast, Broader Market ACV lagged Y/Y on lower contract counts
Weakness across both the ITO and BPO markets, although ITO will likely surpass 2013’s results but BPO continues to yield patchy results
All regions are ahead of 2013’s pace
Americas ACV was up Y/Y as large awards in Canada and Brazil supported growth in the region
EMEA 3Q slipped as its key geographic markets pulled back; YTD sourcing activity continues to spread geographically in the continent, especially in France and Southern Europe
Asia Pacific slowed from record 1H14 as large awards were absent; YTD Australia rebounded and Japan becomes noteworthy
Expect a pickup in activity in 4Q14 as we have noticed a buildup of transaction activity likely to be awarded in next few quarters
Expect 2014 ACV to exceed 2013 by double digits, although tepid 3Q14 performance may suppress comparisons against more robust periods like the years 2010-12
3Q14 ISG Outsourcing Index Summary and Outlook
summary market
outlook market
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Please contact us with your questions and comments.
Learn More
Paul Reynolds Chief Research Officer
+1 508 625 2194 [email protected]
ISG insights serving providers and market analysts
www.isg-one.com John Keppel
Partner and President +44 (0)7879 432 212
Will Thoretz Americas Media Contact
+1 203 517 3119 [email protected]
Denise Colgan EMEA and AP Media Contact
+44 1737 371523 [email protected]
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Third Quarter 2014
APPENDIX: SCORE CARD FOR TCV
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The ISG Outsourcing Index has moved to ACV as the primary measure of the Broader Market. In transition, we will continue to provide a high-level TCV view of the market via a Scorecard analysis.
3Q14 TCV Scorecard
*Contracts with TCV ≥ $25M from the ISG Contracts Knowledgebase®
Scorecard 3Q14 3Q Y/Y 3Q Q/Q YTD YTD
TCV ($B)* Change Change TCV ($B)* Change
Global Market $ 22.7 -9% -17% $ 76.3 15%
New Scope $ 15.7 1% -14% $ 51.1 23%
Restructurings $ 7.0 -26% -24% $ 25.3 1%
Mega-deals $ 4.9 20% -30% $ 15.1 26%
ITO $ 16.4 -12% -21% $ 56.4 27%
BPO $ 6.3 -2% -6% $ 20.0 -11%
Americas $ 10.3 66% 15% $ 27.6 32%
EMEA $ 10.9 -35% -24% $ 38.6 -1%
Asia Pacific $ 1.5 -26% -64% $ 10.1 54%
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*Contracts with ACV ≥ $5M from the ISG Contracts Knowledgebase®
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Information Services Group is a leading technology insights, market intelligence and advisory services company, serving more than 500 clients around the world to help them achieve operational excellence. ISG supports private and public sector organizations to transform and optimize their operational environments through research, benchmarking, consulting and managed services, with a focus on information technology, business process transformation, program management services and enterprise resource planning. Clients look to ISG for unique insights and innovative solutions for leveraging technology, the deepest data source in the industry, and more than five decades of experience of global leadership in information and advisory services. Based in Stamford, Conn., the company has more than 850 employees and operates in 21 countries.
knowledge powering results®
www.isg-one.com