This year looks set to see outsourcing feature regularly in the IT headlines.. The market is likely to consolidate as outsourcing companies buy smaller rivals. A rapid return to growth for outsourcing deals is likely and cloud computing could mature to the mainstream.
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Experts predict a wave of acquisitions as outsourcing suppliers consolidate.
Robert Morgan, director at sourcing consultancy Hamilton Bailey, says an outsourcing household name in Europe might disappear. "We will see the absorption of a major European outsourcer into another company, probably an American company." He says there are a few candidates. "There are still companies that are run quite badly and are clinging to scale being everything."
Peter Brudenall, lawyer at Hunton & Williams, says the next 12 months will see a few of the big Indian outsourcing service providers increase their European capability through acquisition. "We will see some of the Indian suppliers building up their delivery presence in Europe. This will mean buying medium to large service providers."
Harry McDermott, CEO at consultancy Hudson & Yorke, which works in the Telecoms sector, predicts that a mobile phone operator will acquire a company to add managed mobile services to its portfolio. "I believe managed mobility services will become a big issue in 2010. I think we will see a big mobile operator acquire a major player in the fixed telco or IT outsourcing space."
Duncan Aitchison, EMEA president at sourcing consultancy TPI says he expects to see an increase in the total value of outsourcing contracts signed in this market into 2010. "We believe we are likely to see a rise in the number of large contracts awarded both globally and in Europe in the next six to nine months."
"In 2009 we saw relatively slow large-scale outsourcing activity, (those contracts valued at €20m or more). The earlier slowdown of activity was driven by a lack in corporate decision making, as companies struggled to cope with the impact of the global recession. With signs of confidence returning to the market, the larger businesses, who are the primary drivers of the outsourcing market, appear to be willing to make more strategic, long-term decisions about their sourcing strategies."
Ade McCormack, business IT consultant at Auridian and Financial Times columnist, thinks 2010 will be the year that cloud-based services gain momentum. "There will be a big move to cloud-based outsourcing. The increased financial pressure on organisations means they need to be more demand orientated," he says.
Mark Lewis, lawyer at Berwin Leighton Paisner, says this year will make or break cloud computing. "We will either see that cloud computing will take off in 2010 and change the market or we will find that it is just another fad and will have no impact," he says.
Douglas Hayward, analyst at IDC, believes outsourcing suppliers will increasingly be paid depending on the volume of services used.
"2010 will see a strong increase in the use of outcome-based payment models, as enterprises extract better value from service providers. Outcome-based models allow enterprises more easily to scale service consumption up or down, making costs more variable. Enterprises will combine outcome-based with input-based models - outcome-based models will not become dominant, let alone will they replace input-based models, but they will gain importance, they will cease to be seen as experimental, and will become accepted as a normal part of the contract toolkit," he says.