5 Outsourcing Trends to Watch

CIO - 1. Smaller Deals. A decade-long decline in the size of IT services contracts continues. While the number of mega-deals and midrange contracts awarded each year has remained fairly stable since 2002, the number of those worth $100 million or less has more than tripled, according to outsourcing consultancy Information Services Group (formerly TPI).

2. New Pricing Models. With continued pressure on their profit margins, outsourcing providers are considering more innovative--and often riskier--engagement models, including joint ventures, business-outcome-based pricing, revenue-sharing arrangements, and dedicated centers of excellence.

3. Multi-Sourcing Wranglers. CIOs have largely rejected broad, single-source deals in favor of a best-of-breed outsourcing model that uses a variety of specialty firms. But that doesn't mean they've figured out how to manage the multi-sourcing beast. Some IT organizations are hiring people to bring the necessary management skills in-house. But IT service providers are also setting themselves up as services integrators that will oversee multiple providers and manage end-to-end delivery. Time will tell how well this fox-watching-the-henhouse model plays out.

4. Increased Focus on Security. It's only a matter of time before a major IT service provider suffers a public security breach. Outsourcing companies are looking for new and better ways to protect data--their own and their customers'--says Mark Ruckman, an independent outsourcing consultant at Sanda Partners. In the meantime, security liability limits have become one of the most contentious negotiation issues between outsourcing customers and vendors today.

5. Cloudsourcing. The outsourcing deal pipeline is getting a boost from such next-generation delivery models as cloud offerings and remote infrastructure management, says consultancy Everest Group. Service providers are trying to address some of the technical and perception issues that have delayed widespread adoption of cloud services.

Read more about outsourcing in CIO's Outsourcing Drilldown.