IT outsourcing service providers will increasing supply smaller and more adaptable arrangements, a study predicts.

A report by analyst IDC states the megadeal approach to the practice – defined as arrangements costing $1 billion – is being replaced with smaller contracts.

The company’s study of the top 100 IT outsourcing arrangements has found the combined value of these decreased by 39.2 per cent between 2006 and 2007.

Research analyst in IT outsourcing and utility services for the firm Terrance Strom states while the megadeal has not died the market may be seeing “cyclical saturation”.

“Service providers will need to continue to invest in lower cost and more flexible delivery models, wisely expand their global footprint, and focus on emerging markets as the source of material growth,” he claims.

Earlier in the month, figures from Sentrum suggested 43 per cent of firms use IT outsourcing to provide their data centres.