IT outsourcing renewals lead to dissection of contracts

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It has seemed quiet in the IT outsourcing market for quite some time now with big deals seemingly few and far between.

Last week Fujitsu signed a big deal with the Post Office where it is acting as a service integrator. Fujitsu is managing TalkTalk, Capita and MDS in a five year deal. Anthony Miller, analyst at Techmarketview, believes the contract could be worth £500m.

I was talking to a contact of mine this morning and he told me there are more deals being done but that they are smaller. This, he says, is because a lot of deals are up for renewal and businesses are using this as an opportunity to break contracts up. This is to reduce risks and could be a trend that was fuelled by the government's strategy of reducing contract sizes.

In its latest report IT analyst firm Gartner firm revealed a 7.8% rise in spending on IT outsourcing services in 2011 compared to $228m 2010.

Bryan Britz, research director at Gartner said that deals are being shrunk as a result of the industrialisation of services and cloud services.  "Revenue cannibalisation resulting from client adoption of industrialised, and often cloud-based, services risks muting the growth opportunities for the ITO providers that are heavily weighted in infrastructure outsourcing."

I spoke to Fujitsu's UK head, Duncan Tait, today. I am going to write an interview piece but I also asked him about contracts being broken up.

He said it is a definite trend for taking larger deals and breaking them up. "This is both in the public and private sectors."

"This is a trend that will continue for some time," added Tait.

Perhaps it won't end until every major contract has been broken up. But as everything goes around in circles I am sure in a few years businesses will start bundling deals back together to cut costs.

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This page contains a single entry by Karl Flinders published on May 28, 2012 2:22 PM.

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