Outsourcing hits record levels in Europe

The value of outsourcing contracts in the UK increased by 150% in the three-month period to the end of June 2015, as Europe saw a record number of contracts awarded.

In its latest index of IT and business process outsourcing contracts, ISG recorded 169 deals valued at €4m or more, with a total value of €2.2m.

This is welcome news for the outsourcing sector in Europe, which suffered a 25% fall in spending in the first three months of the year. ISG blamed this on caution in the run up to the UK general election.

The number of contracts for the second quarter of 2015 was the highest ever, but the total value was 12% lower than the same period a year ago, with only two mega-deals worth €80m or more signed.

The financial services and energy sectors recorded a lot of activity in the period, while there was a decline in contract activity in the manufacturing, transportation and telecoms sectors.

ISG Europe partner and president John Keppel said the outsourcing industry is seeing an increase in smaller deals. “More deals than ever are being signed at much lower contract values, driven by increased use of multi-sourcing and the impact of digital strategies. The ever-increasing activity levels in Europe, the Middle East and Africa indicate that outsourcing is more popular than ever,” he said.

Keppel said of multi-sourcing, where buyers seek shorter and smaller contracts with niche providers, is driving this. “Digital disruption is also having a significant impact, with buyers avoiding larger, longer-term contracts as they plan their digital strategies amid a wave of new technologies and operating model,” he said.

In the UK both the value and the number of contracts increased by 150%. 

Keppel said ISG is bullish in the short-term and expects the next quarter to record growth compared with 2014. “Longer term, it will be interesting to see how the trend toward a higher number of lower value contracts plays out in the second half of 2015,” he said.