Death of the Services Megadeal | Sherpas in Blue Shirts

Posted On March 17, 2016

A lot of people in the marketplace are talking about how the large outsourcing transactions are fewer and fewer and soon to be extinct. There are many reasons for the breaking up of megadeals into smaller ones. One is that large, multi-tower deals over time become hard to manage. Another reason: It doesn’t matter how good a provider’s performance is in any tower; it’s always better in another tower. Clients compare the towers against each other and then look for another provider in the towers where they deem the incumbent to be “less good” than in other towers.

However, there are still a number of large deals out there. They fall into two categories.

1. Late adopters. Businesses are now coming into the market for transformational deals, and they’re coming in a big way. Some of these are, in fact, massive deals. Besides late movers, there are clearly a number of transformational deals happening as the result of the sale of a shared-services organization or a GIC. Yes, these types of transactions are fewer that in the past, but their extinction has been exaggerated.

These deals used to be the providence of just the MNCs (IBM, CSC, Accenture, EDS). Now we see some of the Indian firms, notably HCL recently with Volvo, participating in this.

2. End-to-end deals. We’re seeing an uptick in large, end-to-end deals with a number of digital and automation factors now are driving companies to think less about multi-tower deals and think, instead, more about a business process or service. Where we see companies contracting for a business service, we see very large transactions, typically with a transformational theme underpinning them.

Often, these come out as sole source deals rather than RFPs. Since these deals are built around a service line (such as HR or supply chain), it makes sense to give it to one provider.

With the provider consolidation trend in decline, and in some cases reversing, it is reasonable to expect that the unbundling of the multi-tower deals will continue and will spread from the infrastructure-centric transaction to large application-centric relationships. But as evidenced by the new late-mover deals and end-to-end deals, the death of the megadeal is like the Mark Twain quote: “The reports of my death have been greatly exaggerated.”

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