IT Outsourcing Deals To Get Smaller

By SiliconIndia | Wednesday, February 22, 2012

IT outsourcing deals are getting smaller year after year, particularly in the U.S.

But why are IT Outsourcing Deals getting reduced? Why is the IT outsourcing losing its ground?

The reason behind this is companies are not willing to invest their big bucks required for large contracts, says a recent report by outsourcing consultancy TPI. They have decided to go for smaller outsourcing agreements, since it makes a huge difference to the investment. The move toward smaller outsourcing agreements was most apparent in the America, where the total value of contracts was about half of what it was a year ago, reports Stephanie Overby at CIO magazine. Over the past few years there has been a notable shift towards smaller IT services deals, with sub-$100 million deals holding steady at around 70 percent of contracting activity since 2009, according to ISG.

The report suggests that IT contracting activity last year increased by 8% as compared to the year 2010 and was up by 86% since 2005. But the total contract values still continued to decline in the fourth quarter, and last year acknowledged a decline of 6% over 2010.

Decrease in the big bang outsourcing contracts is also a sign of outsourcing saturation. "The market in the U.S.--particularly around the IT area--is mature," said John Keppel, president of information services at TPI. "Penetration rates into the largest of the Global 2000 organizations in each industry group are pretty high, so it is less likely that we will see large, new scope IT transactions coming to market" Said Keppel.