Report: IT Outsourcing Still Shows Growth

Managed service providers can breathe a collective sigh of relief. The reason: The outsourcing market is holding its own, according to a recent report from market watcher TPI.

But first, there is some less-than-stellar news to share. TPI found that the outsourcing sector, overall, declined year-over-year. Worldwide, contract volumes dropped 11 percent, while total contract value declined 22 percent compared with the first half of 2008. Business process outsourcing (BPO) was an important contributor to the downward trend -- BPO total contract value plummeted 69 percent year over year. BPO involves the outsourcing of entire business functions, such as human resources or accounting, as well the underlying technology.

Now the Good News

But IT outsourcing, the sector relevant to most MSPs, actually showed increased activity, TPI noted. Total contract value in the Americas region grew 6 percent in the first half of 2009.

While TPI’s research focuses on larger deals -- commercial contracts worth $25 million or more -- the uptick in activity underscores an interest in offloading IT work that should benefit service providers of all sizes.

Even the higher end of the market extends beyond like likes of CSC and IBM.

Mark Mayo, president of Global Resources Management at TPI, said a large range of companies in the outsourcing industry at the $25 million-and-above level. TPI each year generally sees about 100 different service providers with a least one award meeting the $25 million criteria. Mayo said 86 different service providers have inked at least one contract of this size or greater during the first two quarters of this year.

Going Vertical

TPI’s market analysis also pointed to a handful of vertical markets showing outsourcing momentum: diversified financials, retail, telecom, and transportation. In spotlighting retail, TPI joins Datamonitor and IDC, both of which tip that sector as generating outsourcing business.

“The retail industry has a number of interesting dynamics at play,” Mayo noted. “First, there is significant private equity influence in this market, and they are looking for creative ways to impact the cost structure and value of their portfolio companies. Outsourcing is one of these tools.”

The current economic situation has prompted retailers to look for ways to conserve capital and reduce ongoing costs, Mayo said. In addition, service providers now target retail, “developing analytical capability to help with the revenue generation and delivery model effectiveness, and platform solutions to lower the delivery cost structure.”

Transportation shows a similar pattern. Mayo said the industry now experiences significant cost pressure along with volume volatility and downward revenue pressure.

“Consequently, companies are looking for ways to lower their cost structure and make their cost structure more variable and better able to deal with volume swings,” Mayo explained.

TPI’s analysis suggests that service providers can find opportunities in a tough market. The task before MSPs is to draw the line of logic between the services they provide and their customer’s cost concerns and industry-specific issues.

Contributing blogger John Moore covers Master MSPs, Web hosts and emerging opportunities. Follow MSPmentor via RSS; Facebook; Identi.ca; and Twitter. And sign up for our Enewsletter; Webcasts and Resource Center.
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