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Users move from mega deals to multi-sourcing

Firms have begun to shun IT outsourcing "mega deals", preferring to sign a series of smaller deals with different suppliers,...

Firms have begun to shun IT outsourcing "mega deals", preferring to sign a series of smaller deals with different suppliers, according to one outsourcing expert.

The number of outsourcing deals valued at more than £500m increased by 25% worldwide in 2003 compared with the previous year, excluding public sector contracts. However, the total value of mega deals was worth 10% less in 2003 than in 2002, said Duncan Aitchison, managing director, international at outsourcing advisory firm TPI.

One reason for the decline of the mega deal is the growing popularity of business process outsourcing, which often includes parts of a service that would have previously fallen under an IT outsourcing contract.

The UK is the leading European nation in the adoption of business process outsourcing and offshore outsourcing, said Aitchison. Only 20% of European outsourcing agreements have work that goes offshore, compared to about 50% of US deals, he said.

However, the relatively untapped market for outsourcing services among European organisations means the region will be suppliers' prime target in the medium-term, Aitchison said.

Aitchison also rejected a claim by the head of one of the UK's largest IT users that companies had used outsourcing as an easy option. "Outsourcing is not an easy option. It is bloody hard work to get value out of it and to develop the right skills," he said.

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