Demand for IT outsourcing services falls
Market Trend

Demand for IT outsourcing services falls

Demand growth for third-party business and IT outsourcing (ITO) services weakened in Q2 2010 according to the EquaTerra survey, Taking the Pulse of the European Outsourcing Market.

While inherent outsourcing demand remains positive and is growing overall, many buyers remain cautious in their efforts, especially when it comes to making upfront investments and entering into complex deal arrangements. Economic uncertainty in the UK and in the Eurozone economies weighed heavily on buyers’ decision-making processes and added to their reticence to make large investments, EquaTerra said.

Buyers continue with strenuous efforts to reduce operating costs and overhaul service delivery models, with internal process improvement and alternative delivery models like shared services gaining in importance as change agents. Cloud computing models, especially Software as a Service, are generating significant interest both as a complement to and in lieu of traditional outsourcing, but most buyers are still assessing cloud computing opportunities and defining overall strategies. Over 50% of buyers actively engaged in ITO indicate they will certainly or probably outsource more. Just 9% of European organisations engaged in ITO plan to outsource less going forward.

EquaTerra also polled its advisors, its experts on business and IT services, and service providers on the impact of current economic conditions on outsourcing demand levels.

Just 36% of European advisors polled feel that market conditions are driving more outsourcing. This level is down 10% from last quarter and 22% from Q2 2009. Advisors and service providers generally are aligned in their scoring of this response.

Over half of European advisors indicate that economic conditions are causing buyers to slow or rethink outsourcing decisions. This level is up 17% in Q2 2009. While buyers more often are deferring rather than cancelling outsourcing initiatives, the number seeking alternatives to traditional outsourcing as a change agent is growing. Buyers that pursue outsourcing are placing a keen focus on the viability of the business case and on the cost and risk elements of their efforts.

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