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Success in a flat market - a sign of good times ahead?

With increased competition and in a stationary market, concentrating on core activity becomes ever more vital. Outsourcing deals offer corporations the virtuous cycle of decreasing costs, increasing EBITDA and the subsequent increase in shareholder value.

Deals are becoming more comprehensive. Instead of outsourcing along traditional functional lines, the scope of the services covered now cuts across the organisation in a more horizontal way. Generally, today's outsourcing contracts are seen as being more inclusive, covering a great deal of process redesign work, redeployment and retraining of the people transitioned to the supplier, and almost always include the information technology that enables and supports the business processes. The goal is to provide an even greater opportunity for generating innovation, speed to market and shareholder value through this more integrated approach.

The suppliers like to suggest that they can be all things to all clients. The reality is that each supplier has its strengths and weaknesses. There is an expanding level of knowledge on the part of the client community as they utilise specialist consultancies such as Morgan Chambers (www.morganchambers.com) in Europe and TPI (www.tpi-sourcing.com) in the US to help them identify those outsourcing providers that most closely match their need for increased ROI.

Over the last five years, the outsourcing market in the UK alone has been worth GBP22.9 billion. A third of this figure has been generated from BPO deals. One look in any business or consulting publication gives the same view; outsourcing is going to be the only game to be in for the next 24-36 months.

The continuing pressure on businesses, particularly in a difficult economic climate is continuing to drive the outsourcing market. BPO and offshoring are boosting growth in a flat services market. According to Nelson Hall, (www.nelson-hall.com) the number of outsourcing deals has more than doubled compared with the same period last year.

Although many contracts are being signed for longer and for more money, traditional IT outsourcing deals have slowed as companies delay major financial decisions because of the economic uncertainty. An increasing number of suppliers competing for deals combined with low-cost offshore options means businesses are able to get more competitive prices.

There has always been heavy price competition in the outsourcing space because one of the primary drivers has always been and remains cost reduction. There is greater competition and awards going to a broader portfolio of suppliers and that does make for a stronger price competitive market. It is an intensely competitive market today and that is having an impact on both new and existing relationships.

CSC, EDS and IBM still maintain a firm grip on the outsourcing market but others are creeping up and there is an increasing number of suppliers, partly due to the rise in offshore activity, HP, in particular, is making up some serious ground on the top three.