New data from TPI suggests that the number of outsourcing contracts awarded globally will rise in 2010 as organizations look for new ways to optimize critical business operations in an improving economy.
The TPI Momentum Market Trends & Insights 4Q09 Annual Report released last week predicts that the growing acceptance of cloud computing, increasing interest in multi-sourcing, and emerging focus on governance and risk management will fuel outsourcing contract volume this year. Not surprisingly, the report also says these same factors will narrow the scope of individual outsourcing projects, driving down their value and duration and intensifying competition among service providers. In addition, I suspect a reliance on smaller deals and an enhanced commitment to social responsibility will emerge as major themes.
The report also found that:
422 outsourcing contracts valued at $15 billion are expected to expire in 2010, a 40 percent increase over the total contract value of last year's expiring awards and the highest level in five years. Many are large contracts signed when the global economy was stronger that will be broken up and awarded in smaller transactions, providing another boost to contract volume this year, TPI predicts.
While pricing is always a prominent factor cited by buyers, it became significantly more important in last year's recessionary environment based on ratings of winning service providers' strengths. Terms, stability, strength of existing relationship, and technology and tools also ranked high among winners' strengths, reflecting clients' desire for tactical solutions that deliver reliable, low-risk savings.
Unfortunately, only slightly more than one-third of outsourcing proposals directly met buyers' objectives in 2009, down from nearly half the year before. According to the report, proposals frequently fall short or reflect misguided attempts to fit an existing solution into the buyer's problem. (That's why it's critical to thoroughly understand a client's objectives when developing a proposal.)
Service providers will continue to need different go-to-market strategies for each geographic region. While the IT outsourcing (ITO ) market in the Americas has been fairly consistent for the last three years, Europe has now surpassed it, setting a record for the highest spending in one year, and Asia Pacific had its fifth consecutive year of growth.
More information about the TPW report is available here.