Companies Seek to Grow Outsourcing Value with Smaller Deals

"Let's Get Small" was a phrase that popped up in a particularly weird -- and inspired -- Steve Martin comedy bit from the late 1970s.

Now, companies are going for value, not humor, as they "get small" with their outsourcing initiatives. Advisory firm Morgan Chambers says that companies in the UK will shy away from multimillion-dollar outsourcing contracts in the coming year, and will instead spend 20 percent to 25 percent of their outsourcing budgets on small offshore contracts.

It's a trend previously noted by other observers. According to IDC, the total contract value of the world's top 100 outsourcing deals declined 3.1 percent, from $70.1 billion in 2004 to $67.9 billion in 2005. Yet the number of deals valued at $250 million or less nearly tripled, from eight in 2004 to 23 in 2005.

And PMP Research says that 77 percent of the companies it surveyed plan to use multiple outsourcing suppliers in the future, compared to just 16 percent planning to go with a single supplier. The reason, says a PMP analyst, is that large contracts with a single supplier often result in higher costs, less flexibility and reduced service levels.

The main thrust of a multiple supplier strategy, she says in this IT Business Edge interview, is to select suppliers who can best fulfill a need or requirement and also to keep those suppliers in line by showing willingness to spread outsourcing business around.