significant operational efficiencies.
TowerGroup views this move as a signal that IT outsourcing "megadeals" are not going away. Despite the high-profile unraveling of major deals between
IBM and JPMorgan Chase or Perot Systems and UBS in the past year, the outsourcing megadeal is continuing to evolve.
TowerGroup believes technology outsourcing agreements in the financial services industry will transform in the following ways:
- True operational efficiency is an important competitive differentiator for large financial services firms. Outsourcing must thus deliver business process
improvements and sustainable operational efficiency gains that go far beyond herding people across company lines for cost cutting purposes.
- Institutions will increasingly pursue deals targeted to specific vertical or horizontal IT functions or business processes - resulting in smaller deal sizes
and shorter contract lengths, accompanied by stronger IT governance and better execution on the part of the institutions themselves.
- As a result of this more targeted outsourcing orientation, traditional outsourcers are seeing a competitive shift within the industry. The ABN AMRO deal signals Indian offshore vendors' new competitive position at the negotiating table for major outsourcing contracts. As institutions pursue best practices in vertical functions and processes, they will split up their contracts just as ABN ABRO has done and farm out work to multiple vendors instead of just one.
TowerGroup estimates that the broader outsourcing market will continue to grow at a healthy rate and over the next three years outsourcing IT spending
will increase from $34.3 billion in 2005 to $47.9B in 2008.