Outsourcing Will Continue to Grow in 2009 Despite Economic Slowdown

The outsourcing industry is not immune to the ripple effects of the widespread economic volatility, however, in an economic downturn, cost will trump value considerations, according to Gartner, Inc. The fifth annual “Gartner on Outsourcing, 2008-2009” report shows that the global economic slump has meant that outsourcing clients are re-evaluating their contracts to improve efficiency and costs. This is affecting provider selection and retention, how services are or will be delivered, delivery location and contract pricing. Beyond the drivers of efficiency and cost, however, many organizations will also experience business change as a result of repercussions of the economic crisis, which will impact current outsourcing or plans for outsourcing.

For organizations that are outsourcing, contract terms may be altered in response to corporate change: some will downsize, others will expand, acquisition and divestiture will impact others, and still others will cease to exist. Many organizations that are not outsourcing will consider or move aggressively to outsource their IT or business processes to focus on their core business. More than ever, buyers and providers must be attentive to contract issues to ensure a certain level of flexibility, since business change is almost certain.

In 2009, Gartner expects competition for outsourcing deals, particularly for standardized IT outsourcing (ITO) services, to be fierce. Some buyers will be lured by low prices from providers trying to make quarterly revenue goals or build market share. In 2008, based on analysis of Gartner’s Outsourcing Contract Database, about 76 percent of announced outsourcing contracts represented new deals; the remaining percentage was a combination of contract extensions, expansions or renewals.

Alternative delivery and acquisition models (ADAMs) will see a net boost in adoption due to the economic conditions in 2009. ADAMs will deliver IT services through new approaches, such as software as a service (SaaS), business process utility (BPU), infrastructure utility (IU), remote management services (RMS) and Web platform/cloud computing.

IU is defined as a key initiative for IT organizations during the next 12 months by many organizations. Providers that de-emphasized IU investment will react to the growing "everything as a service" buzz by refreshing their messages, creating new service bundles and reactivating investments. IU will gain more market share at the expense of traditional data center outsourcing service, which will put pressure on traditional IT outsourcing providers to deal with the pricing pressures that IU services represent and create change in their service portfolios and within their client bases.

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