Big Deals Mark Outsourcing's RevivalBy Stan Gibson | Posted 2004-08-02 Email Print
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Deals proliferate as the outsourcing industry rebounds.
The large outsourcing deal is back. So claims outsourcing consultancy TPI in a study that finds large deals being signed at a pace ahead of a year ago. "Megadeals appear to be making a comeback," said Peter Allen, partner and managing director of TPI.
In apparently supporting evidence that emerged the same week the study was released, EDS signed an eight-and-a-half-year, $1.1 billion deal with Bank of America to integrate the network of FleetBoston, which BoA acquired. In a way, the deal is not that extraordinary. EDS was already handling BoA's network in a 10-year, $4.5 billion deal signed last year (proving the big deal never went away?) and was transforming it to handle voice over IP, according to Dan Ellison, EDS vice president of global sales.
FleetBoston's network has more than 1,600 banking or call centers and a vast flotilla of ATMs. The consolidated net will let BoA sell its products and services to FleetBoston customers. EDS will bring aboard more than 150 FleetBoston employees in the deal.
On the heels of that agreement, Computer Sciences announced a seven-year, $600 million deal to provide Aon's U.S. operations with IT support services. CSC will handle Aon's telecommunications and data networks, desktop support, help desk services, and other IT support tasks. However, Aon, a risk management company, will retain control over application development and maintenance, as well as overall IT strategy. Most of Aon's 600 employees handling the outsourced functions will go over to CSC, the companies said.
TPI said, without elaborating, to look for more big deals in the months ahead. The consultancy is in a position to know, since it advises large companies on outsourcing deals and advised the parties in the BoA-EDS and the Aon-CSC signings.
But wait a minute. Keane, which reported outstanding quarterly financial results within days of the above announcements, said that the size of its deals is generally down but that their number and profitability are up. Keane's bookings were $282.3 million, a 25 percent increase over those in 2003's second quarter.
"The size of deals has been decreasing," said Keane Vice President Larry Vale. "Companies want to do smaller, more selective outsourcing."
Business is up, however, and the reason, according to Vale, is that companies are spending discretionary dollars on new development projects that have been deferred over the last several years. "New sales are up, year over year, 125 percent," said Vale. "That leads us to believe that we're in the midst of a broad-based recovery."
And Keane is spending as well, acquiring last month SAP UK's consulting company, Fast Track. Keane is also hiring again and will hold an open house in Boston Aug. 12.
Bigger deals or just more deals? One way or another, outsourcing is back.
Out and about
If big outsourcing deals never went away, the desktop never went away, either, both as a business necessity and as a sinkhole of IT administrator costs and never-ending upgrade cycles, as well as a supermarket for stolen passwords and data. Keying on that opportunity, EDS has been beta testing SP2 (Service Pack 2) of Microsoft's SMS (Systems Management Server) 2003 and reports significant improvements in patch management and in deployment of software images on new systems. EDS is making the SMS upgrade a key component of its so-called Agile Workplace initiative, which is intended to automate most management tasks.
Microsoft's sinking of $850 million into its Microsoft Business Solutions unit includes a hefty integration and consulting services component.
After a lengthy bidding process, previously noted in this column, the BBC will sell its BBC Technology unit to Siemens Business Services, which will provide the BBC with IT services for the next 10 years under a deal worth up to $3.6 billion. The deal must clear approval hurdles, however, and isn't expected to close until the fall.
Send e-mail to Stan Gibson at email@example.com.