Six reasons why 2011 is an outsourcing service buyers market

Outsourcing broker Burnt-Oak Partners thinks that 2011 could be a buyers market for outsourcing services as supplier revenues decline.

The company believes the fall could be as high as 5-6% in real terms.

Robert Morgan director of Burnt-Oak Partners gives six reasons why 2011 might be a buyers market for outsourcing.

Technological innovation – investment in new approaches and technology has a natural defined cost step reduction built into it. Virtualisation, applications on demand, pay only for what you use etc, have all taken root and will soak up client commodity services at large discounted rates

Existing contracts up for renew or termination – 2011 has an unusual number of outsourcing contracts coming to an end, whilst few will actually stop or change hands, savvy clients will use the times to bargain hard and end up paying significantly less either by going to competition or threatening to go to competition

Multi-sourcing is now seen as too expensive – large retained in-house functions to control the supply / demand interface has not led to better services or sustained cheaper pricing. A more educated approach being adopted by clients is towards the natural pairing of suppliers which results in less management being required, more efficient and effective services and cheaper combined service pricing

Fewer mega deals – are driving the tier one suppliers (IBM, HP) to “need” more mid-sized deals and the competition between tier one and tier two (Atos Origin, T-Systems) has become fierce, with price reduction the prime weapon of choice

Market consolidation – HP now have to prove that the EDS purchase has worked and against a large number of terminating contracts. More recently Atos Origin will need to show that the Siemens IT Solutions  (SIS) purchase will be worthwhile. Both HP and Atos need to achieve sales to prove their investment was sound. Savvy clients will exploit this by sign bargain basement priced deals

The up-turn in Governmental contracts led by the British government will not deliver until late 2011 and even then not in the volume analysts expect. Other European governments await the UK’s initiative and leadership especially on shared services, but few governments will bring significant work parcels to market in 2011