Decline in IT outsourcing market reaches a ten-year low point
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In 2012, the global market for IT outsourcing services faced a significant downturn, with a total value of IT services contracts signed (TCV) of $96.8 billion — the lowest since 2002, according to reports from that period.
The decline was evident in various aspects of the market. The TCV in 2012 was 14% lower than in 2011, and the number of deals signed, at 1,427, represented a 15% decrease from the previous year and the lowest since 2002. Six megadeals (worth $1 billion or more) were signed during the second quarter, but none were recorded in the fourth quarter. The total value of contracts signed by private sector organizations in 2012 was the lowest since 1998.
The financial performances of the world's largest IT outsourcers also showed signs of weakness in 2012. IBM struggled to maintain even flat growth for its outsourcing business, while Hewlett-Packard wrote down the value of its IT services division to over $8 billion.
The weak performance in IT services spending was observed in both the public and private sectors, a trend attributed to several factors. Economic uncertainty, following the global financial crisis, led many organizations to reduce spending or delay large outsourcing contracts. Clients started focusing more on cost optimization, shorter contracts, and in some cases, insourcing IT functions rather than large-scale outsourcing.
The outsourcing market became highly competitive, with downward pressure on prices affecting revenue growth. Some clients experienced dissatisfaction with service quality, delivery issues, or cultural and communication challenges. The rise of cloud computing and automation began to change the landscape, reducing the emphasis on traditional outs sourcing models.
For the most precise and detailed factors as reported by Ovum specifically, one would need to consult their 2012 market analysis reports or press releases. Unfortunately, the provided search results do not contain this specific data.
Despite the challenges, there were some positive signs. Accenture, an IT outsourcing and consultancy provider, saw a 9% increase in sales during its 2012 financial year, up to $27.9 billion. The fourth quarter, while showing a "dismal" performance with TCV falling 34% year-on-year to $20.8 billion and the number of deals signed dropping 17%, was not a complete loss.
As we move forward, it will be interesting to see how the IT outsourcing market evolves in response to these challenges and the opportunities presented by emerging technologies.
- The decline in the IT outsourcing market in 2012, as indicated by the lower total value of IT services contracts and the reduced number of deals, was not only associated with the industry, but also reflected in the finance sector, as shown by the financial struggles of IBM and Hewlett-Packard.
- As the IT outsourcing market evolves, it's expected that technology will play a significant role in shaping its future, with emerging technologies such as cloud computing and automation potentially providing new opportunities for growth and innovation in the sector.
