In the global outsourcing arena, clients are increasingly opting for multiple vendors instead of a single vendor for more flexible alternatives, faster payback, and lower risk. Will this augury spell an end to mega outsourcing deals?The global BPO landscape is changing spectacularly. The days of full service and 10-year multibillion outsourcing deals are fast vanishing. The size of outsourcing deals is decreasing and the length of contracts is shortening. Companies are bringing their operations back in-house or opting for selective outsourc-ing. This tectonic shift has put large technology service vendors such as EDS, IBM, CSC, Accenture, ACS, etc., under pressure.
The shrinking size of these mega deals can be attributed to fundamen-tal changes in clients’ behavior. They want to avail the benefits of economies of scale provided by big vendors. At the same time, they also want to reap the benefits of emerging technology. It is very difficult for the service providers to offer clients expected services, which may erode their profitability. So, they rely on the negotiated terms to protect their profitability. However, generat-ing more revenue through tight project management over a long period leads to dissatisfaction and termination of the project. As a result, they start look-ing for other avenues of outsourcing such as establishing their own offshore captive operations or opting for multi-vendor outsourcing to take advantage of the best of the breed’s services, which offers more flexibility, defined scope and easier alignment with cus-tomers’ requirement.
Unlike in the past, mega outsourcing deals are losing pace and smaller deals are gaining momentum. According to a Datamonitor report, there is a declin-ing trend in the size of the deals and in the duration of long-term contracts. It reveals that due to increasing multi-sourcing trend, the size of the average IT and BPO contracts is declining globally. In the first quarter of 2005, the average size of the contract fell down by 18%, to $68.9 mn from $84 mn last year. Besides, there is a de-clining trend in the order booking for outsourcing to IBM, Accenture and Unisys Corp based on their quarterly performance. |
