IT services: End of multi-sourcing is nigh

MELBOURBE, AUSTRALIA: Multi-sourcing is dead; long live the trusted advisor. As contracts reduce in size, power is being redistributed to the key players in many outsourcing engagements, according to Ovum.

In the new report, the independent IT and telecoms analyst firm finds that on the back of an ever reducing number of megadeals the average contract value has fallen to USD$65m in the first nine months of 2011.

Jens Butler, Principal Analyst of Ovum and author of the report commented, “The mix of major providers in outsourcing contracts has shifted from the much-heralded multi-sourcing approach to a more contained portfolio of suppliers and services in recent contracts.”

The report uncovered the increasing prevalence of single “capstone’ vendors “controlling” larger proportions of contracts. On average 60 per cent of total contract values (TCV) are being allocated to a single, lead supplier across multiple supplier deals signed since 2009 highlighting the fact that consolidation of control and governance is shifting to a single, trusted supplier model.

“The more mature markets are moving towards consistency in contract size and length, enabling suppliers the ability to plan and think strategically and develop value that can be delivered through the lifecycle of the contract”, said Butler.

The report notes that in the emerging markets, cost management and control are less of a core factor in decision making and there is a tendency to leverage IT to support business growth and expansion. As such, the key driver for enterprises when investing in IT is speed of delivery.

Butler recommended that enterprises need to be prepared to engage with multiple suppliers, offer a big enough carrot of additional services and to be prepared offer more applications into the mix in the emerging markets.