Beat the Odds
In good times or in bad, outsourcing is always a safe bet.If you have any doubts about why some of the big IT consulting firms and integrators are flourishing despite the poor economy, the answer in a nutshell is outsourcing. This shouldnt come as a surprise to anyone who has been involved in the technology business for any length of time. Typically, whenever the economy tanks, corporate America seeks to cut overhead by farming out its IT operations. Consequently, the major players in this market are reaping some hefty rewards. Earlier this year, as an example, EDS landed a $2.2 billion, 10-year outsourcing deal with Sabre. More recently, it announced new or extended outsourcing contracts worth about $220 million. Similarly, Cap Gemini Ernst & Young signed a $350 million deal with Continuum Health Partners, and IBM has secured a number of big outsourcing contracts, including a $450 million agreement with the largest cable operator in the United Kingdom, NTL Inc. Outsourcing accounted for 40 percent of IBMs $8.7 billion Q2 service revenues.
The major players have been the chief beneficiaries of the current outsourcing boom. For instance, at the time when so many other integrators were getting pounded, EDS Q2 earnings rose 18 percent, and its revenues rose 9 percent. The good news for smaller consultancies and solutions providers, however, is that these deals are often so complex, the big firms bring in numerous other service providers to help implement them. As an example, the $664 million project to outsource the county of San Diegos IT is being carried out by a Computer Sciences Corp.-led consortium called the Pennant Alliance.