Megadeals on the decline as multi-sourcing rises

Megadeals on the decline as multi-sourcing rises

A decline in global outsourcing megadeals reflects multi-sourcing trend in Australia, Gartner analyst says

A decline in global outsourcing megadeals reflects the move towards multi-sourcing IT services experienced in Australia, according to a new report from Gartner.

Commenting on a recent report, research vice-president sourcing, Jim Longwood, said the outsourcing sector was still growing but with smaller deals and renewals. He noted the number of global deals larger than $US1 billion dropped from 12 to 10 in 2007.

"This is nothing new to Australia, it is really saying that multi-sourcing is here and it is here to stay," Longwood said. "And with Australia being involved in a multi-sourced environment for the past few years, in a sense this is nothing new. We are seeing this trend worldwide."

Locally, the domestic market has plenty of examples of multi-sourcing including the Commonwealth Bank, the South Australian Government, the Australian Taxation Office, Department of Defence and BHP Billiton.

"The market has evolved in terms of user sophistication during the buying process. Secondly service providers now specialise as well," Longwood said.

The Gartner report asserted the average length of megadeals, the majority of which occurred in Western Europe and North America, had increased to 8.9 years in 2007, up from seven years in 2006.

In the Asia-Pacific no megadeals were recorded - predominantly as a result of the development status of many countries and the maturity of the A/NZ market. Longwood claimed we probably wouldn't see many in future as the multi-sourcing trend intensified and Asian countries leap-frogged traditional outsourcing models.

"Australia is as mature as North America and Europe," Longwood said. "In fact, we probably lead the way when it comes to multi-sourcing and multi-sourcing maturity."

The report also noted the four-year average for smaller IT outsourcing contracts in 2007 decreased 13 per cent from 5.2 years in 2006.

Total contract value of the 10 megadeals in 2007 was the lowest for the past eight years at $US12 billion; the average deal value was $US1.2 billion.

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