CIO Magazine reports that the IT outsourcing industry had its worst first quarter in annual contract value of deals awarded since 2004, according to research firm Information Services Group (ISG). It is down 27 percent from the same time last year. The survey of 500 IT leaders revealed significant weakness in the Asia Pacific and the Europe, Middle East, and Africa (EMEA) regions.
Despite the weakness in this report, ISG believes that current IT outsourcing deal slowness does not set the stage for weakness in the future. Last year was actually one of the strongest ever for the IT outsourcing industry so some of the weakness may have resulted from deals that closed early and were taken from quarter. There is a good chance that a weak first quarter may lead to stronger quarters in the rest of the year, with a glut of contracts slated to close later this year.
It is worth noting similarities and differences between TEM Outsourcing and IT Outsourcing when discussing the strength of the market. First, both areas are changing rapidly with improved capabilities, flexibility, and lower costs. Cloud computing is having a big impact on enterprises; with TEM, enterprises are shifting from long haul circuits that serve data centers to cloud services that are hosted locally. This can help drive reductions in telecom spending for organizations that have software to manage the transition of services. It is also critical to verify that old long haul services to the data centers are disconnected and removed from billing.
There are also areas where TEM and IT outsourcing are taking different paths. According to ISG, larger deals with IT outsourcing (worth more than $30 million annually) declined by 25 percent both in number and value over the previous year. Organizations realize the scope and size of these deals make them difficult to manage. The volume of smaller IT Outsource deals continued to grow steadily to make up for their drop in size. With TEM, however, larger deals are growing as enterprises look to find providers that can manage fixed and mobile services. Mobile services are growing in terms of the range and scope of offerings from expense management to procurement and policy management. In addition, the scope of deals is growing with additional services and expansion to both domestic and international programs.
The value proposition for TEM cost savings and network efficiency continues to grow. Solutions providers are adapting to changes in how enterprises use telecom services, and providing strong value propositions to clients. These trends ensure that TEM Outsourcing will continue to grow in both volume and value.