Business services outsourcing is the major driver of Hewlett-Packard Co.'s $13.9 billion
play for Electronic Data Systems Corp. Based on fiscal 2007 performance, the companies
say their combined services business would post annual revenue of $38 billion, and presumably position them to better compete with industry leader IBM Corp. With that in mind, it seems worth exploring some recent trends in outsourcing and how well EDS is positioned in light of those. For this, we turned to Technology Partners International Inc., and its
TPI Index, a measure of global outsourcing trends.
According to TPI, business services outsourcing was one of the fastest-growing outsourcing segments in 2007, up 11% on contracts valued at
$8.5 billion. That robust performance is projected to continue in 2008, particularly in regard to contracts valued at more than $1 billion. The 27 so-called megadeals signed in the past six months was an all-time high for any similar time period, according to TPI. That bodes well for EDS, which, like IBM, is well positioned globally to compete for those high-value deals. Most recently EDS signed a $1 billion, eight-year deal to provide IT services to the Singapore government. While not a megadeal, the company also landed a seven-year, $715 million deal in December to manage IT services for Bristol-Myers Squibb Co.
Another trend worth noting is the rise in outsourcing contracts awarded in Europe, the Middle East and Africa. The EMEA markets saw a 65% increase in contracts, surpassing contracts awarded in the Americas, another good sign for big, global providers. In addition, companies have added to the scope of their existing outsourcing contracts over the past six months at a greater rate than in any other similar time period -- an indication, according to TPI, that companies are generally satisfied with their existing providers.
It also indicates a reluctance by buyers of big, expensive, global outsourcing services to change providers, which should be some comfort to HP and EDS as they plan the combination of their outsourcing businesses. Competitors, of course, usually try to capitalize on any customer uncertainties resulting from an integration. It would be surprising if IBM and others didn't do that here. -
Suzanne Stevens
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