Outsourcing on the rise

Amidst the slowdown, some companies are outsourcing some of their IT needs as a cost-cutting strategy or a means of focusing on their core business. In fact, in 2008, about 76% of announced outsourcing contracts represented new deals.

A new report from Gartner shows existing outsourcing clients are re-evaluating their contracts to boost efficiency and reduce costs. This affects provider selection and retention, how services are to be delivered, delivery location, and contract pricing.

As you might guess, competition for outsourcing deals remains fierce. According to Gartner, the key here is flexibility because business change is likely. Some may need to alter contract terms, other businesses will downsize, and others will expand or acquire other firms.

“Almost one-quarter of these contracts were a continuation of outsourcing with an incumbent provider. With the continued uptake of selective outsourcing, a provider can remain a key supplier of services to a particular client, yet potentially lose a portion of its historic contract value,” said Allie Young, vice president and distinguished analyst at Gartner.

One trend to watch for is alternative delivery and acquisition models – what Gartner dubs ADAMs. These include new approaches to delivering IT services, such as software-as-a-service, business process utility, infrastructure utility, remote management services, and cloud computing.

“During the next five to seven years, a broad set of new and alternative IT delivery models – already in use by aggressive early technology adopter organizations – will become mainstream,” predicts Ben Pring, research vice president at Gartner. “Market excitement over new delivery methods is intensifying and whetting buyers’ appetites for new options and services that promise greater flexibility, speed-to-solution, lowered capital investment, and pay-for-use models.”