The summer of 2010 is almost behind us and with it the third anniversary of the global financial meltdown that began with the US sub-prime crisis in August 2007, followed by the collapse of Lehman 12 months later.

Where some were initially optimistic about the duration of the downturn, others were able to discern the start of what would be a protracted recovery; 2009 was a particularly tough year and for many an annus horribilis.

In outsourcing, financial services is, perhaps understandably, where the impact has been felt the most. Certainly, outsourcing may not have witnessed such a drastic halt such as the one witnessed in the public listings and other financial sectors, but a slowdown was most definitely felt by most industry players as the effects trickled down.

“The financial services sector, seen by many as the most traditional user of outsourcing services was very quiet last year. It had little money to invest in new ITO projects and spent most of its time renegotiating contracts. Meanwhile, BPO was almost dead – no one really had the capital for the investment required,” said Alistair Maughan partner at international law firm Morrison Foerster.

However there are clear indications that this trend may be slowly reversing. Indeed, figures released in the latest Market Vista report, indicated that the banking, financial services and insurance (BFSI) sectors in particular have seen a 41% increase in transactions, with most contracts signed in the banking sub-sector; volume recorded was double over the Q1 this year.

The increase in transactions in the BSFI sector is indicative of a larger trend, which we are likely to see evolving: the increased attention to Cloud computing and XasS (anything as a service).

As the private and public sectors move to increase efficiencies and cut spending, Cloud computing presents a way to increase capacity or add capabilities on the fly without investing in new infrastructure, training new personnel, or licensing new software. It encompasses any subscription-based or pay-per-use service that, in real time over the Internet, extends IT's existing capabilities.

ITO suppliers are constrained to respond to client’s business demands through building capabilities to solve technical problems, expand services, and build consultative front ends and customised solutions for client’s differentiation.

Market experts suggest that this could see ITO suppliers in Central and Eastern Europe step up to respond to transformations caused by SaaS and Cloud Computing, adjust costs, upgrade delivery models among others issues.

In the UK there has been much talk about the G-Cloud. A strategy that would support everything from pooled government data centres to a communal email solution, collaboration tools and staff-editable wikis. It could allegedly save government £3.2bn of its annual £16bn IT budget – perfectly meeting the chancellor's 20% savings target. [The current ad hoc network of department- hosted systems is composed of a dozen dedicated government secure data centres, costing close to £250m each.]

“We don’t see an increase in Government IT happening over the next 12 months based on current deal flow as well as on the procurement cycle – it takes a good 12 months to get through a procurement process. This means such projects would not be implemented before autumn 2011,”commented Maughan.

Another trend that has been slowly building up is a move away from megadeals and into multi-sourcing type deals.

Indeed, for some in the outsourcing industry, these mega deals have become a thing of the past. The breaking down of larger contracts into smaller deals could open up the possibility of using smaller suppliers and manageable projects with appropriate governance and flexibility as required by volatile business environments, and altering systems when business change demands it.

“Under present circumstances, the projects will be axed (e.g Building Schools for the Future) or re-shaped. Reducing down the size of projects and capping them at £100m is also likely to be part of the landscape of the coming months,” notes Maughan.

“Anything above a £1m will have to go to ministers with projects over £100m going all the way to the top for authorisation,” continues Maughan “Reducing down the scope of projects is also likely to make them more manageable.”

The blending of the services provisions market is also a trend that has been evolving in the last three years. The distinction between Tier-1 providers (Accenture, IBM, EDS, CSC); mid tier/niche (Capita, Capgemini, Unysis), and the traditional (offshore) vendors (TCS, Wipro, WNS) was more of less clear.

However, things may not be as clearly delineated anymore. Tier-1 players are trying to develop their offshore capabilities while traditional providers are establishing onshore presence; mid Tier vendors are perhaps feeling a squeeze as they find it more difficult to compete with the larger players.

This market consolidation is also illustrated by acquisitions like that of EDS by Hewlett Packard, Perot Systems by Dell, ACS by Xerox or TCS’ purchase of UK-based Diligenta.

Whether reactionary, proactive or a bit of both; the trends evolving in the outsourcing market have been a few years in the making. Nevertheless, it would be unwise to bet on these trends evolving in a particular direction.

And while recent Gartner reports suggest the UK’s Government IT spending will be higher than financial and manufacturing sector. It also assumes that Chancellor George Osborne, in his aim to bring public sector to 1997 levels, will be successful in transforming people-driven processes into IT-driven processes – according to industry experts, that’s 450,000 jobs we are talking about cutting.

It would seem that before anything can happen the government is going to have to bite the bullet and make up its mind: efficiencies and virtualisation vs. unemployment. It’s going to be a tough one.