Outsourcing in 'conservative' utilities sector set to increase

August 3, 2011 — The cash-strapped utilities industry will increasingly turn to IT outsourcing over the next year as many organizations finally realize they have no choice but to consider it because of the potential cost savings, according to Ovum.

In a new report, the independent technology analyst claims that the recent uptick in the number of IT outsourcing contracts awarded by utilities in Europe and North America is set to grow steadily over the next 12 months as the industry faces unprecedented pressure.

Stuart Ravens, Ovum principal analyst and co-author of the report, commented: "The utilities industry is particularly conservative and until recently very few companies had passed significant business to outsourcing companies.

"However, we have already seen a weakening of this conservatism, with a small but significant number of IT outsourcing contracts awarded in recent months. We believe this number will steadily increase over the next year and beyond. With unprecedented pressure to drive down costs, many utilities are realizing that they can no longer afford to ignore outsourcing.

"They are being driven down this path by a number of market forces, including the need for new infrastructure investments, ongoing industry consolidation and increasing interest in smart energy initiatives."

According to the report, the areas utilities will look to outsource include infrastructure and application projects as well as back-office activities. In addition, utilities implementing smart energy initiatives will present significant opportunities to systems integrators.

Outsourcing projects awarded by utilities over the last few months include E.ON's $1.4 billion deal with Hewlett-Packard, which was awarded in December 2010 and will see HP deliver data center operations and workplace services for more than 80,000 employees at the German giant. Meanwhile in March this year Capgemini was awarded a $162 million contract from French energy company EDF to provide service desk, procurement, and managed desktop services to 15,000 IT users.

Ravens added: "This shift in attitude by the utilities sector obviously represents a massive opportunity for vendors. The more effective IT outsourcers will be the ones that can communicate how removing IT capital expense allows for more investment in addressing industry challenges around regulation, the environment, and infrastructure improvements."

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