The Dramatic Shift in Outsourcing

A new IDC study reveals some fundamental changes in the outsourcing marketplace. The 10th annual IDC study of the top-100 worldwide outsourcing deals uncovers an increase in deals with more global reach, an increase in the number of competitors, a rise in network and desktop outsourcing, and a reduction in combined deal value. These developments, according to "Top 100 Outsourcing Deals of 2005," demonstrates increased competition and customer demand for improved capabilities, and pressure for outsourcers to alter their business models to successfully compete and expand in the coming years. The study found that although six players captured 54 percent of the top-100 contract value in 2004, it took just five players to capture about the same amount (53.5 percent) in 2005, with IBM Global Services leading the way, followed by EDS, BT Group, CSC, and T-Systems. The total contract value of the 100 worldwide outsourcing deals decreased by 3.1 percent, from $70.1 billion in 2004 to $67.9 billion in 2005. The study finds a reduction in the number of both megadeals and deals ranging from $500 million to $1 billion. However, the number of deals fewer than $250 million experienced a dramatic increase from eight in 2004 to 23 in 2005. The study also finds that the number and value of business outsourcing deals declined in 2005, while the value and number of IT outsourcing deals increased has companies look to offload software development. "The world of deal-making for large outsourcing contracts in 2005 saw a slight decline in signings by total deal value, a reduced number of megadeals valued at $1 billion and higher, and an increase in the number of players competing in this segment," says David Tapper, IDC director of outsourcing, utility, and offshore services research. Tapper says outsourcing providers will need to include more flexible and new service capabilities, develop a new breed of partnerships with software and system providers, and seek new customers in the SMB and consumer spaces, as well as emerging markets with entirely new business models. "These shifts, along with other key trends in the market, such as a customer's need to lower costs and drive increased productivity, are creating fundamental changes in the outsourcing marketplace that will require player to radically alter their delivery models." Related articles: Business Protect Data By Sending it Out Costs Still Drive the Decision to Outsource