Cost argument for outsourcing running out as market matures

Second and third-tier outsourcers, many of them based in Europe, are gaining on the “Big Six” consulting firms (Accenture, ACS, Computer Sciences, EDS, Hewlett-Packard and IBM), according to a study by TPI, an outsourcing advisory firm. The "Big Six" took between them 63 percent of new contracts last year, but in the first quarter of 2005, they've only managed to capture 27 percent.

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Second and third-tier outsourcers, many of them based in Europe, are gaining on the “Big Six” consulting firms (Accenture, ACS, Computer Sciences, EDS, Hewlett-Packard and IBM), according to a study by TPI, an outsourcing advisory firm. The "Big Six" took between them 63 percent of new contracts last year, but in the first quarter of 2005, they've only managed to capture 27 percent. An analysis from Consultant-News.com, republished here on ZDNet, explains that as the market matures, buyers are willing to try out less well-known suppliers.  At the same time, growing bottlenecks in the Indian outsourcing market are all but wiping out the cost argument for outsourcing. But that doesn't spell the end of outsourcing, says the article. Factors like regulatory compliance, eliminating hard-to-manage functions, and improving efficiency will come to the forefront as key driers. The article states:

These value (rather than cost) -based arguments will begin to shift the outsourcing market in favor of firms who can offer distinct professional expertise rather than a cheap and cheerful solution.

Also picking up on these changes is AMR Research, who in a recent outlook said that companies focused on price when looking for a service provider partner to the exclusion of other selection criteria are less satisfied with the results than those that account for the longer term relationship. AMR lists a set of best practices to consider when developing an outsourcing contract, such as; be prepared to trade absolute lowest cost with flexibility, and; keep you contract lengths to a few years to accommodate changes to the relationship with your service provider.