IT outsourcing falls back as business process outsourcing surges

In fact, the last quarter has been the worst in four years for the total value of major contracts awarded. The value of contracts let in the first three quarters of the year is down 2% on the same period of 2005, and 11% down on 2004. The fall in contract values is partially due to an ongoing trend towards shorter term contracts. However, TPI’s data also points to a real reduction in expenditure, with the firm predicting a 1% fall in outsourcing providers’ annual revenues this year. ITO will be down 3.6% it says, while BPO grows around 10%. “July to September has seen more BPO contracts awarded than in any previous quarter, totalling some $4.5 billion,” says TPI managing director Duncan Aitchison. “The growth in BPO market and decline in ITO are not unrelated,” he says. “As organisations place more and more processes in the hands of third parties they no longer require the associated infrastructure and hence have less IT to outsource.” And he adds: “Second-generation contracts tend not to entail the establishment of costly infrastructure, the capital cost of which is generally amortised across the contract term. We are also witnessing a drive from buyers adopting a more selective approach. “As the outsourcing market has matured, there has been a shift towards smaller, single-process contracts awarded to the strongest providers, combined with organisations bringing a limited number of operations back in-house.”