As IT Outsourcing Deals Grow, So Do Advisory Firms
With an estimate of more than half a trillion dollars in total contract value, multiyear IT outsourcing deals have become so common that IT executives are turning to outsourcing intermediaries to build successful deals, according to a market report released by Forrester Research on Jan. 12.
In a worldwide IT and applications outsourcing market now worth over $120 billion per year, these specialized consultantsIT "dealmakers"hold a tremendous amount of sway over customers, a well as the overall sourcing industry, the report found.
Advisory firms help customers with the strategic decision-making that precedes a transaction, making sure that the sourcing goals are tied clearly to business objectives. Advisory firms are also hired to pace the march to a signed contract and in some cases, helping to ensure a successful launch, according to the report.
Forrester, based in Cambridge, Mass., reports that outsourcing agreements grew 7 percent in 2006, and will continue to take up an increasing amount in total contract value, meaning that all the more money stands to be made by outsourcing advisory firms.
Of seven companies profiled in the report, Deloittes OAS (Outsourcing Advisory Service), which supports offshoring and outsourcing initiatives, was the largest with 120,000 total employees, 300 to 350 sourcing advisors and 10 percent year-over-year growth.
While it distributes its advisors primarily in the Americas, Europe and the rest of the world is home to 40 percent of the companys advisors.
NeoIT, targeting the strategy-setting aspects of multi-tower outsourcing, had a year-over-year advisory growth. Seventy-five percent of its sourcing advisors are in the United States. Twenty percent are in Europe and 5 percent are in Asia.
The PA Consulting Group, emphasizing its ability to collaborate with customers throughout the entire sourcing deal process, has 3,200 employees, 400 of whom are sourcing advisors. The company had 9 percent year-over-year growth, and 60 percent of its advisors are located in Europe, followed by the Americas (30 percent) and Asia (2 percent).
Pace Harmons 40 consultants are former senior executives, lawyers and consulting partners, and are the bulk of its 50-person company. With 40 percent year-over-year growth, the vast majority (95 percent) of its advisors are headquartered in the Americas.
EquaTerra, in serving a global client base, has 160 employees, 130 of whom are sourcing advisors. It had flat year-over-year growth, and the bulk of its advisors (88 percent) are in the Americas.
In its own research released Jan. 16, EquaTerra found that there was positive but slow demand growth in the overall BPO (Business Process Outsourcing) and ITO (IT Outsourcing) markets in the fourth quarter of 2006.
While 46 percent of the companys advisors indicated that demand levels were down, 61 percent felt that they were up, suggesting that while demand is generally growing, it is at a slower pace than in prior years.
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