Outsourcing Activity in Europe Is Growing During Economic Downturn

Almost 60 per cent of organisations in Western Europe will outsource more IT and business process functions in 2009, while renegotiation of existing contracts will rise to more than 60 per cent, according to a recent survey from Gartner.

"The outsourcing market's growth has slowed from 2008, but today's market is characterised by a high volume of activity across the board," said Claudio Da Rold, vice president and distinguished analyst at Gartner. "For many clients, these outsourcing contracts very often include offshore work and intense renegotiations. Last year, the activity was primarily concentrated on renewals and new deals."

The online survey was conducted among 116 companies across Western Europe during the last week of November 2008 and the first week of December 2008. The survey was directed to individuals who were involved in decision making on outsourcing and IT services in 2009.

This survey showed that organisations are increasingly relying on outsourcing to achieve cost optimisation. More than 70 per cent of respondents rated budget and cost containment as their top concern in 2009, up 17.5 per cent from 2008.

"The focus on cost reduction is driving a high usage of outsourcing and global delivery in Europe in 2009 and 2010. However, under the current economic and technological conditions prices are going to decrease, creating a market full of opportunities and challenges for both end-users and external service providers," Mr Da Rold. Gartner anticipates prices of IT services outsourcing to decline by 5 per cent to 20 per cent through 2010.

In addition, the survey found that more organisations (36 per cent, up 10 per cent from 2008) are in the initial stage of their next outsourcing endeavour, with no plans yet (10 per cent), establishing their outsourcing strategy (20 per cent), or starting the implementation or selecting the provider (6 per cent).

"Some inexperienced organisations that are driven into outsourcing to achieve rapid cost reduction may create another wave of unsatisfactory outsourcing contracts, a situation that happened in the 2001-2002 economic downturn," said Mr Da Rold. "This must be avoided in such an uncertain business climate as the inflexibility of bad outsourcing relationship can seriously harm business viability." Gartner predicts that through 2012, inflexibility caused by an excessive cost reduction focus results in business disruption in 30 per cent of outsourcing deals, including the inability of the buyer to compete effectively.

Regarding the type of outsourcing and services that European organisations are looking for, the respondents showed an increased interest in alternative delivery and acquisition models (ADAMS) such as infrastructure utility (IU), software as a service (Saas) and cloud computing among others. "Interest among European organisations is growing fast, as well as adoption rates that are already in the range of 30 per cent, with plans to ramp up to 50 per cent through 2010 *, indicating the requirement for more efficient, better, faster and less expensive IT solutions," Mr Da Rold added.

Posted to the site on 6th May 2009