Digital Urgency Driving Demand for Outsourcing Services
April 26, 2018
Share this

The growing urgency of enterprises to digitally transform their business operations and enhance customer experience was the driving force behind much of the growth in outsourcing innovation, contract awards and spending in 2017, according to the ISG Momentum Annual Report released by Information Services Group (ISG).

Digital transformation contributed to a revival in large contracts with a single service provider, the report said, but noted the overall trend of shorter, limited-scope contract awards continued in 2017 as enterprise buyers sought to maintain flexibility and maintain leverage over service providers.

"Enterprises increasingly see outsourcing as a way to increase their pace of innovation and support their strategic initiatives," said Paul Reynolds, ISG partner and Chief Research Officer. "This is expanding the market for outsourcing services, not cannibalizing it. Digital technologies are unlocking new value from traditional outsourced services, and the need for companies to have a flexible, digital-friendly IT infrastructure is spurring new sourcing for cloud and other services."

Not that cost-cutting is no longer a primary focus, Reynolds said. "Enterprise customers do not want either innovation or cost savings. They want both. And they are increasingly seeking greater than 10 percent savings on service prices when renegotiating with incumbent service providers."

To meet this requirement and keep customer engagements profitable, service providers will need to rely more on automation and other innovations and change how they work with customers to collaborate more closely, the report said.

A prime example of this change is the growing customer preference for outcome-based contracts. Service providers, the report said, would do well to proactively propose new metrics and pricing structures to their customers, or risk losing their business.

Approximately 65 percent of current outsourcing engagements are at risk of not being renewed with the incumbent service provider, the report said. Such market volatility — driven by competitive pricing and offers of greater savings and innovation — will play a key role in determining which providers win their share of the $25 billion of outsourcing contracts up for grabs in 2018.

Higher levels of automation and other innovations are becoming table stakes in service proposals, which reduces the opportunity for them to be differentiators, the report said, citing the example of analytics now being built into many solutions.

ISG expects automation to play a greater role in outsourcing services that focus on IT support and customer engagement and support. Service providers' automation capabilities and intellectual property are becoming more important during the selection process, the report noted.

For their part, service providers expect as-a-service offerings, robotic process automation and intelligent automation to exert the most downward pricing pressure on outsourcing services in 2018.

Agile development capabilities are an increasingly important area of consideration for enterprises. Two-thirds of enterprises expect to have DevOps teams in place within the next 18 months, ISG research has found, and they are looking to contract with providers that will help them make the transition to more agile environments. To meet the demand, providers will have to be more flexible in how they price and deliver Application Design and Maintenance (ADM) services, the report said.

Share this

The Latest

May 23, 2024

Hybrid cloud architecture is breaking the backs of network engineering and operations teams. These teams are more successful when their companies go all-in with the cloud or stay out of it entirely. When companies maintain hybrid infrastructure, with applications and data residing across data centers and public cloud services, the network team struggles. This insight emerged in the newly published 2024 edition of Enterprise Management Associates' (EMA) Network Management Megatrends research ...

May 22, 2024

As IT practitioners, we often find ourselves fighting fires rather than proactively getting ahead ... Many spend countless hours managing several tools that give them different, fractured views of their own work — which isn't an effective use of time. Balancing daily technical tasks with long-term company goals requires a three-step approach. I'll share these steps and tips for others to do the same ...

May 21, 2024

IT service outages are more than a minor inconvenience. They can cost businesses millions while simultaneously leading to customer dissatisfaction and reputational damage. Moreover, the constant pressure of dealing with fire drills and escalations day and night can take a heavy toll on ITOps teams, leading to increased stress, human error, and burnout ...

May 20, 2024

Amid economic disruption, fintech competition, and other headwinds in recent years, banks have had to quickly adjust to the demands of the market. This adaptation is often reliant on having the right technology infrastructure in place ...

May 17, 2024

In MEAN TIME TO INSIGHT Episode 6, Shamus McGillicuddy, VP of Research, Network Infrastructure and Operations, at EMA discusses network automation ...

May 16, 2024

In the ever-evolving landscape of software development and infrastructure management, observability stands as a crucial pillar. Among its fundamental components lies log collection ... However, traditional methods of log collection have faced challenges, especially in high-volume and dynamic environments. Enter eBPF, a groundbreaking technology ...

May 15, 2024

Businesses are dazzled by the promise of generative AI, as it touts the capability to increase productivity and efficiency, cut costs, and provide competitive advantages. With more and more generative AI options available today, businesses are now investigating how to convert the AI promise into profit. One way businesses are looking to do this is by using AI to improve personalized customer engagement ...

May 14, 2024

In the fast-evolving realm of cloud computing, where innovation collides with fiscal responsibility, the Flexera 2024 State of the Cloud Report illuminates the challenges and triumphs shaping the digital landscape ... At the forefront of this year's findings is the resounding chorus of organizations grappling with cloud costs ...

May 13, 2024

Government agencies are transforming to improve the digital experience for employees and citizens, allowing them to achieve key goals, including unleashing staff productivity, recruiting and retaining talent in the public sector, and delivering on the mission, according to the Global Digital Employee Experience (DEX) Survey from Riverbed ...

May 09, 2024

App sprawl has been a concern for technologists for some time, but it has never presented such a challenge as now. As organizations move to implement generative AI into their applications, it's only going to become more complex ... Observability is a necessary component for understanding the vast amounts of complex data within AI-infused applications, and it must be the centerpiece of an app- and data-centric strategy to truly manage app sprawl ...