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Can outsourcers survive the economic storm?

Denise Dubie | Oct. 20, 2008
A majority of IT executives report they are re-assessing how to invest what's left of their 2008 IT budgets.

"Because the value for much of outsourcing is efficiency and process management, we don't see any reason the economy would significantly negatively affect those deals," Smith says. "Our view is the same pattern of activity we've seen in 2008 will repeat in 2009."

Outsourcing deals may continue to multiply, but that doesn't mean that the nature of outsourcing deals won't change -- and in some cases, to the benefit of enterprise IT buyers. TPI notes that the trend toward large multiyear, billion-dollar outsourcing deals is on the downturn, and more targeted, specialized contracts are becoming the norm. Industry watchers attribute this shift to public failures of comprehensive outsourcing contracts and enterprise IT being more strategic in the functions it performs in-house.

"Comprehensive deals aren't as common, and there is a danger to having too many vendor contracts, but generally IT is being more selective on the services it sends out," Forrester's Roehrig says. "Smart execs are using IT services not merely to manage technology plumbing but also to profoundly affect business performance."

According to David Etzler, CEO of OutsourceWorld, activity in the outsourcing market is "higher than ever, but the deal size has changed." The seventh annual OutsourceWorld was held this week in New York and drew about 1,000 attendees looking to learn more about their sourcing options. From talking with CIOs there, Etzler says he discovered companies are learning they don't need to put all their functions under one umbrella with a single provider and many are opting to pick and choose outsourcers that best address specific needs.

"Because of the events of Wall Street, companies are in a complete state of shock but realizing they need to be strategic and look more closely at what their core components are," Etzler says. "The risks they are taking with outsourcers are smaller but more focused on what can really bring gains to the business."

Another benefit of more selective outsourcing deals is that IT buyers can negotiate better contracts with service providers, especially in the down economy.

"The smart service providers understand that this is the worst economic crisis since the Depression, and ultimately they will be hurting too," Roehrig adds. "If they can offer enterprises a way to contain costs while improving businesses, they will be able to prove their worth in the long haul."

 

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