New data released yesterday by our research arm, TPI Momentum, predicts the number of outsourcing contracts awarded globally will rise this year as organizations seek new ways to optimize critical business functions in an improving economy.
The growing acceptance of cloud computing, increasing interest in multi-sourcing and emerging focus on governance and risk management will fuel outsourcing contract volume this year. But these same factors will narrow the scope of individual outsourcing contracts, driving the value and duration down and intensifying competition among service providers. Some additional predictions and insights from the Report include:
- Pricing of IT outsourcing services has continued to fall as a result of labor arbitrage and a trend toward:
- Shifting some support functions to lower cost delivery locations,
- Remote management,
- Standardized platforms and tools,
- Virtualization,
- Competition from cloud offerings,
- ITIL processes and self help tools.
- Contract renegotiations will be big given about 422 contracts worth a total of $15 billion are expected to expire this year. Since many of these were mega deals signed in a stronger economy, we envision many of these deals will be broken up into smaller transactions providing a boost to contract value.
- The role of captive centers in organizations has expanded beyond just delivery becoming more influential in setting client organizations’ operational strategies, including third party outsourcing decisions. Also monetizations of offshore captive units – driven by firms in the banking and financial services sector – are expected to continue, though service providers are becoming more selective about their captive acquisitions.
Each of these activities will be crucial to helping organizations drive strategic efforts and lower costs. Stay tuned for our next Momentum Market Trends & Insights report on Vertical Industries out in May.
