• September 16, 2005
  • By Marshall Lager, founder and managing principal, Third Idea Consulting; contributor, CRM magazine

Europe Orders Out for IT Jobs

Firms in Germany and Great Britain closed most Q2 2005 outsourcing contracts among European providers, which totaled more than 5 billion euros, according to a Forrester Trends report, "European IT Outsourcing Deals: Q2 2005." U.K.-based companies remained well in the lead, with 39 percent of the total deals, while runner-up Germany lost ground in a competitive environment whose mean deal size and total number of engagements shrank. The Netherlands found itself matched in percentage of deals signed with Italy (a newcomer to the report), each with 10 percent of the total deals signed. The other new entry to the list of nations participating in outsourcing in Europe was Norway, with EDB signing four deals totaling 84 million euros. "In total, we identified 67 outsourcing deals involving 22 vendors that exceeded our threshold of 10 million euros in contract value," the report states; the previous year saw 69 deals. Authors Sonoko Takahashi and Andrew Parker report that mean deal size reached 5 billion euros, 2.2 billion euros higher than the same quarter in 2004 (accounted for by a single deal between BT Global Services and the U.K. ministry of defense). This amount is less than half the value of deals signed in Q1 2005. Approximately 41 percent of deals were in the smallest category, 10 million to 20 million euros. Furthermore, the length of deals contracted along with the size. "We tracked only four deals of 10 years or longer; only two deals exceeded 500 million euros in contract value," the report states. "Buyers desired shorter service life cycles and closed more contracts of fewer than five years compared with Q2 2004." The distribution of sectors where outsourcing deals were signed underwent changes as well. Infrastructure outsourcing declined for the first time in seven quarters, with 58 percent of Q2 2005 deals versus 60 percent the same quarter of 2004. In addition, more than two-thirds of infrastructure engagements were blended with application management and development efforts. The biggest outsourcing growth areas were in business processes, network, and telecommunications. The number of BPO deals was the largest ever reported in the study, with more than 25 percent of total deals. This figure is nearly twice that of last year's similar period, according to the study. Telecom and network outsourcing accounted for nearly a third of this quarter's deals, up from 18 percent one year ago. However, nine of the 13 industries covered in the survey shrank. "Buyers in continental Europe are dipping their toes into outsourcing with short and small deals," the report concludes. "Vendors are eager to boost markets outside the U.K., but have failed so far." To drive outsourcing momentum on the continent, the study recommends vendors should use the United Kingdom as "an experimental playground," testing business models and pricing strategies there. Vendors should also learn from peer experience, studying outsourcing best and worst practices with the help of organizations like BITKOM, the National Outsourcing Association, and Cigref. Buyers of outsourcing should be selective, remembering that deals must be strategically sound, as well as financially thrifty. "Buyers are beginning to understand that a short contract cycle and a more specific service focus in each deal work well to help them keep their outsourcing activity controlled and flexible and to benefit from the competitive market these deals create," the study states. "This selective sourcing approach helps buyers reduce risk and improve services." Related articles: Cost Savings and Business Reform Drive Verticals' Outsourcing Growth
Evolved Outsourcing for Financial Services The Telecom Industry Leads the Outsourcing Surge
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