IT outsourcing deal size data shows decade-long decline

By Stephanie Overby, CIO |  IT Management, outsourcing

An analysis of last year's outsourcing activity reveals the continuation of a decade-long decline in deal size. While the numbers of mega-deals and mid-range contracts awarded each year has remained relatively stable since 2002, those valued at $100 million or less have more than tripled, according quarterly data from outsourcing consultancy Information Services Group (formerly TPI).

The shift toward smaller IT services deals has been happening for the past several years, with sub-$100 million deals holding steady at around 70% of contracting activity since 2009, according to ISG. While IT contracting activity in 2011 increased by 8% over last year and is up 86% since 2005, total contract values declined slightly year-over-year in the fourth quarter, and the full-year total of $66 billion represented a 6% decline over 2010.

In the less mature business process outsourcing (BPO) space, the preference for littler deals has been more pronounced. "Organizations have been more cautious to adopt emerging BPO strategies as they wait to see if provider capability and quality is really there as promised," says John Keppel, partner and president of research and managed services for ISG.

It's not just new or smaller outsourcing customers inking deals of a lesser size. While the percentage of Global 2000 clients signing IT contracts is down from 69% (by contract volume) in 2004 to 44% today, an increasing number of big, experienced outsourcing buyers are signing smaller contracts.

"Especially in the Americas, we see many companies awarding ITO deals on their second and third generations, and they have become much more sophisticated," Keppel says. "A decade ago, a client may have awarded an ITO contract to one service provider with instructions to 'take care of everything'. These days, clients are separating out asset purchases from services and splitting the service stream by scope to many different service providers."


Originally published on CIO |  Click here to read the original story.
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