IS Outsourcing Healthy in Europe, but Vendors Must Change Game Plans to Win, Says IDC

The Western European IS outsourcing services market reached $32.7 billion in 2006, a growth of 7.5%, according to a new IDC study. Positive growth will continue over the forecast period to 2011, but market maturity and changing dynamics will influence vendors' go-to-market and sourcing strategies.

"Skill shortages, cost savings, and the shift to supporting business growth have boosted demand for IS outsourcing, but second- and third-generation IS outsourcing deals are changing the structure of the market, resulting in lower contract values and shorter contracts", said Jennifer Thomson, research manager, European IT Outsourcing and Infrastructure Services. "There is now a fundamental change in power as the customer takes control."

IS outsourcing demand is being driven by the desire to increase efficiency, the ability to scale up or down quickly, access a ready pool of talent, and improve competitiveness while maintaining low cost. Flexibility is the mantra for 2007 and the key demand is for more adaptive or even proactive infrastructures. Clients are demanding high-value project work in discrete and outsourcing contracts, especially legacy modernization, SOA, and rationalization.

There is much debate around multivendor sourcing and this will deepen as the year progresses. In many cases, a multisourcing strategy and cost reduction through offshoring will be considered, but while IDC expects the multisourcing trend to continue, we also anticipate some realism emerging as the true cost and impact of multisourcing are analyzed.

"With outsourcing now fundamentally a buyer's market, driven by increased competition and the switch to standardized offerings, a pick-and-mix scenario is emerging, and this impacting vendor switch rates", said Thomson. "This demands that vendors focus on the long-term approach and on building profitable relationships with key existing clients, as well as building new business."

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