U.K. Outsourcing Market Gets More Competitive

British outsourcing customers are getting pickier -- and are prepared to not work with a provider or go back in house if things don't work out.

According to a new study by European outsourcing market tracker Whitelane Research, 13% of organizations are planning to insource (or outsource less), while 20% percent of the 700 existing contracts will not be renewed with the current service provider.

"There are many surprising things about the research," Jef Loos, Whitelane's head of sourcing research Europe, told Information Week. Loos was struck, for example, by the fact that almost 50% of all outsourced contracts have been renegotiated in the last couple of years by CIOs. In 80% of cases, he said, the renegotiations delivered cost reductions, better terms and conditions and/or quality improvement.

[ Things could be looking up for British IT job seekers. Read U.K. IT Job Market Shows Growth. ]

According to Loos, the feedback shows that U.K. outsourcing customers have become more selective -- but also that providers are targeting their customers more closely to avoid costly tender processes that they likely won't win.

The firm says buyers should also plan for further consolidation in the service provider area, citing Atos' acquisition of Siemens SIS, North America's CGI swoop on former U.K. independent Logica and Vodafone's buyout of Cable & Wireless as examples of a trend that's likely to continue.

Loos and his team also advise companies to do more "sole sourcing," or renegotiating and renewing the contract with only the current service provider. This lets customers who are satisfied with their outsourcing contract avoid expensive transitions while suppliers avoid expensive tendering processes. In many cases, Loos says, these savings allows suppliers to offer their customers a discount.

Whitelane's data may also cast light on another approach to outsourcing: the cloud. "Compared to our studies in other European countries," Loos said, "we see that the U.K. market is most mature in terms of the usage of cloud computing."

Loos explained that the first wave of outsourcing's development was about handing over IT assets, resources and activities between the end user and service provider, the second wave was more business-oriented and involved selective outsourcing, and the third wave was the rise of the ASP (application service provision) model. "Some British outsourcing users consider cloud the fourth wave of the business service," he said.