Businesses shun outsourcing ‘megadeals’

Companies are shying away from outsourcing ‘megadeals’ in favour of spreading smaller contracts between several suppliers.

The number of outsourcing contracts worth more than $1bn (£500m) fell from 12 in 2006 to 10 last year, according to figures from analyst Gartner.

Contract value also dropped, with last year’s megadeals totalling $12bn, the lowest level for eight years, and the average contract value falling from $2.6bn in 2006 to $1.2bn in 2007.

Megadeals represented just under 40 percent of the total outsourcing contract value for 2007 and only 6.8 percent of the total number of contracts.

Deals of less than $50m in total value continued to increase and reached 39.5 percent of the total number of contracts.

Analyst Gartner say the figures reflect a shift towards multi-sourcing, where companies look to several providers to deliver business and IT services.

Gartner research director Kurt Potter said in a statement: “Many clients want to test providers’ contracting practices, capabilities and cultures before moving favoured providers into larger contracts, or organisations are using smaller doses of outsourcing to delay larger outsourcing adventures.

“Many providers are pursuing smaller contract strategies as a consequence of the new market realities, new competition and natural market pressures toward commoditisation, which reduces per-unit pricing.”

He added the drop could also be explained by the fact that outsourcing was now seen as business as usual and that less deals are being reported.


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