Smaller deals offer a boost for outsourcing

While the number of megadeals has fallen, an increase in smaller contracts means the total value of all outsourcing deals signed in 2008 was £30bn — a third more than 2007's total

Despite a jump in the very largest outsourcing deals, it seems businesses are increasingly turning towards smaller contracts.

According to analyst house Gartner, the number of outsourcing deals worth less than $50m (£35m) increased in 2008, while those worth more than $50m declined.

In 2008, 12 megadeals — those worth $1bn or more — were agreed, totalling around $17.1bn in value, up from 10 worth $12bn in total in 2007. However, the figure is significantly down on the period between 2000 and 2006 when the average total contract value for megadeals was $28bn per year.

According to Gartner, the average duration of deals is also falling as businesses become more selective about what they outsource.

However, the total value of all outsourcing deals signed in 2008 was $42.2bn — up a third on 2007's total of $29.5bn, which Gartner puts down to the larger number of smaller deals signed.

Gartner vice president, Allie Young, said in a statement: "While economic forces can change priorities, the basic drivers of outsourcing remain intact — organisations still outsource for cost, efficiency, access to skills, focus on core business, innovation, modernisation and even business transformation."

The largest outsourcing contracts signed in 2008 were both worth $2.5bn. One of these was awarded to TCS — the first time an Indian IT services company has secured a year's largest deal.

2008 was also the first time the EMEA region overtook the Americas as the number one market for the number of deals signed, with 162 versus 158. Global deals made up 25 percent of all deals.

Young added that a tightening of IT budgets is likely to see a slowdown in the number of contracts signed during 2009 but this should recover towards the end of the year.