Faced with increased competition and pricing pressure, global service providers have been increasing their focus on their most lucrative \n\nbusiness segments in recent years. And that restructuring is beginning to bolster their bottom lines. During the second quarter of 2014, IT \n\noutsourcing providers saw the highest growth in their operating margins in five years, according to outsourcing consultancy Everest Group.\n\n\nThe average operating margin for leading global service providers was 13.2 percent last quarter, up from 10.6 percent during the first \n\nquarter of this year. (Everest Group defines leading global service providers as Accenture, Aon Hewitt, Convergys, CSC, HP Enterprise Services, \n\nIBM Global Services, Unisys and Xerox Services.)\n\n[ How software-defined everything will change outsourcing ]\n\nMost recently, in October HP announced that it would be splitting into two publicly traded companies in order to increase focus \n\nand respond to the differing demands of the enterprise and consumer market.\n\n\nIn 2013, Michael Dell took the eponymous tech company private in order to concentrate on long-term strategy rather than quarterly \n\nearnings. IBM continues to divest itself of its lower margin businesses, such as customer care, while making targeted acquisitions to build \n\ncloud and analytics capabilities. Infosys brought in new leadership \n\nand has separated its products, platform, and solutions business from its offshore labor-based offerings to develop end-to-end solutions for \n\nthe enterprise.\n\nIT Outsourcers Reduce Costs and Focus on Profit\n\nThere has been a need for IT outsourcers to reduce costs and focus on profitable business segments due to sluggish demand in mature \n\nmarkets and an increased interest in setting up global in-house centers in lieu of outsourcing, says H. Karthik, a partner in Everest Group's \n\nglobal sourcing practice.\n\n\n"The trend around restructuring is likely to continue, driven by hyper competition and price wars. Advantages \n\nof offshore cost arbitrage have already been reaped," Karthik says. "Leading service providers are looking for new models to differentiate \n\nthemselves. Outsourcing providers are investing in social media, analytics, and cloud for future growth and aggressively pricing their services \n\nto increase market share," he says.\n\n\nOther service providers are looking to inorganic growth and collaboration to build capabilities, according to Karthik. In January, for \n\nexample, HCL Technologies and CSC announced a strategic partnership to \n\naddress the application modernization market.\n\n\nAnd industry watchers expect other outsourcers to make some major changes in the near term. HP, the majority owner of Mphasis, plans \n\nto sell its stake in the Bangalore-based IT service provider. CSC has been talking to private-equity firms about a possible leveraged buyout.\n\n\n"It is under speculation that CSC may split its public sector and commercial operations before putting itself up for sale," Karthik says. \n\n"Wipro and HCL are likely to be the potential bidders for CSC's commercial operations, which will help them to strengthen their presence in the \n\nUnited States and Europe," Karthik says. "Tech Mahindra, which has been actively looking out for a midcap acquisition, is believed to be in \n\ntalks with HP for acquiring its stake in Mphasis."\n\n\nDell and EMC have been holding merger talks. Capgemini plans to move half of its global workforce to India by 2016 in an effort to cut \n\ncosts. French IT service provider Atos plans to spin off its Wordline payments business via IPO and double its Indian workforce.\n\n\nCustomers should keep a close eye on their IT service providers to make sure vendors' strategies and investments are aligned with their \n\nown business needs. Ultimately the targeted attention on next-generation technologies should increase competition and decrease prices, says \n\nKarthik, giving outsourcing customers more bargaining power with their providers.