Outsourcing delivers

Research shows that strong outsourcing deals can boost company shares' performance

Research shows that strong outsourcing deals can boost company shares' performance

IT outsourcing has emerged as a new strategy for boosting a company's share price during the economic downturn.

Well-managed outsourcing deals can boost a company's share price over its rivals by an average of 5.3%, an extensive survey on the UK's leading companies has revealed.

The survey tracked the outsourcing activity and market performance of every FTSE 100 company over the past five years. It provides the first firm evidence that successful outsourcing deals can have a positive impact on a company's share value.

The findings shatter the conventional wisdom in the industry, which has viewed outsourcing only as a way to strip out costs and streamline business operations.

The survey, conducted for Computer Weekly's Internet portal CW360.com by outsourcing consultancy Morgan Chambers, also spotlights the changing nature of the outsourcing market.

The market for information communications technology and business process outsourcing is now worth £22.9bn. More than half (56%) of the top 100 companies outsource their internal business and IT processes.

So-called "mega deals" - typically worth hundreds of millions of pounds - delivered an average 5.3% increase in share value over the sector average when tracked up to six months into the contract. The deals, involving more than 20 companies in the survey, also bumped up the share price to nearly 5% above the FTSE 100 average.

"These strategic partnerships represent a maturing of the outsourcing market and the confidence corporates have in committing often mission-critical activity to these relationships," the report said. Companies are staking their budgets on longer, one-partner deals and relationships rely more on the performance of the customer's business, sharing risks and rewards. Outsourcing contracts are longer, averaging more than six years - an increase of over a year during the survey.

The financial services sector businesses, primarily banks, are the biggest users of outsourcing (22.4%), followed by aerospace and defence (15.6%) and oil and gas (14.2%).

The lucrative FTSE 100 outsourcing market is dominated by a handful of service providers and consultancies. IBM Global Services leads the pack with more than £5bn of the market, followed by IT services giant EDS with about £3bn.

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