Ovum Optimistic About UK IT Services Industry

There is reason for optimism in the UK outsourcing industry, thanks to a spate of major contract announcements in the first few months of 2013, according to Ovum. This activity has given a much-needed boost to the industry in the UK, while the government’s emphasis on cost savings has also created opportunities for outsourcing providers, says the global analyst firm.

In a new report on the state of the UK IT services market*, Ovum reveals that although growth in UK and Ireland over the past two years has been anaemic at best (growing 1.5% in 2011 and 2.0% in 2012), things may be looking up. The first five months of 2013 saw the announcement of $7.2bn of new contracts, including three megadeals (contracts valued at $1bn or more) involving three separate vendors: Arvato, Atos and Capita. The total contract value (TCV) announced so far this year suggests that 2013 should surpass the level announced in 2012 ($12.8bn) with relative ease.

However, it remains to be seen whether the spate of deals so far will provide the necessary impetus for significant growth in the IT services industry. “Despite the optimism engendered by the string of large deals announced so far in 2013, market conditions in the UK continue to be challenging,” warns Ed Thomas, IT services analyst at Ovum. “The slow rate of economic recovery means that many enterprises will still be wary of investing in IT projects. However, the recession has also ensured that cost cutting remains one of the top priorities for the majority of companies. This should provide opportunities for IT services vendors, although they will need to offer more than just a cheap service in order to win business in the mature UK market.”
Ovum points to the public sector as a major part of the IT services market in the UK, and this sector has become even more important as the coalition government increases its use of outsourcing in order to meet ambitious savings targets.

While the industry has in the past been monopolized to a large extent by a limited number of large vendors, the UK government has put strategies in place to increase the level of competition. It remains to be seen how effective these changes will be, but there are early signs that government procurement is indeed becoming more open.

“Vendors looking to gain entry into the public sector will inevitably lack experience of working with government clients, particularly when compared to the established players. Successfully delivering public sector projects requires a unique set of skills, which providers will have to acquire before they can compete successfully with the likes of HP and Capita,” concludes Thomas.

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David Dungay

Editor - Comms Business Magazine
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