The future of IT outsourcing, by all expert projections, will continue to grow in the years to come. As data shows, more and more businesses will choose to outsource their services to specialist providers. How will technology change the future of IT outsourcing?”, What will be the nature of supplier-customer relationships? and “Which IT outsourcing trends will prove to be the biggest game-changers? In today’s article, we will try to answer these and other questions to prepare ourselves for outsourcing partnerships in 2019. So let’s unlock the top 7 IT outsourcing trends that are emerging on the horizon.
What does the future hold for IT outsourcing?
According to the GSA report, 70% of companies surveyed are going to outsource more in the upcoming years. And 35% of them plan to do so significantly. In this regard, 84% of service providers expect the outsourcing industry to grow and 37% believe it will do so remarkably.
In 2017, the global traditional outsourcing industry generated $88.9 bn in revenue. The total contract value of the information technology outsourcing (ITO) market amounted to $64.3 bn. Analysts at Technavio predict that this figure will grow to over $409 bn by 2022.
Such growth prospects of the IT industry are promising for both clients and vendors. Yet, as growth goes up, so does business’ complexity.
The changing nature of IT outsourcing relationships
Before long, what we call outsourcing will be totally revised and reshaped. Boundaries between outsourcing and partner relationships will start to blur. And in the short run, they will become truly obscure.
Today, outsourcing has a lot of negative associations. The majority of companies don’t even reveal that they outsource some of their operations to external service providers. But in years to come, outsourcing will become indispensable to most companies. Modern markets require businesses to change, grow, and innovate faster with every day. So they will need reliable partners to boost their capabilities. Therefore, we will be undergoing a disruptive change in the IT outsourcing ecosystem, with software development service providers becoming strategic partners of their clients.
Global IT skills shortage
The lack of in-house engineering talent will be one of the main drivers of the IT outsourcing industry. Companies will choose to outsource their services to more attractive destinations in Central & Eastern Europe due to the shortage of tech professionals in their own countries.
According to the latest survey, over 70% of technology employers in the UK expect to face a talent shortage over the next 12 months. It was estimated that 600,000 vacancies in digital technology cost the country £63 bn a year.
In the USA, IT talent shortage is also a growing problem. The report by Gartner predicts that by 2020 there will be 1.4 million computer specialist job openings. It will create a talent shortage that universities won’t be able to fill by even 30%.
In general, automation and artificial intelligence will speed up a shift in required workforce skills. McKinsey report predicts that the strongest growth in demand will be for basic digital skills and advanced technical skills such as programming.
Source: Global Sourcing Association
7 IT outsourcing trends you should watch out for in 2019
New business models will change the landscape of IT outsourcing as we know it. The outsourcing industry will become more collaborative and competitive at the same time. Service providers will be happy to hear that clients intend to ramp up their software development teams.
Successful collaboration will be based on a partnership between a client and a supplier. In particular, clients will look for IT outsourcing vendors who provide customer-centricity and are progressed with new technologies. Those who fail to adapt won’t stand up to the competition.
#1 Less focus on driving cost reductions
The relationships between a client and a software development provider will be more process and people driven and less price-oriented. No doubt, cost reduction is and will remain the main advantage of outsourcing engineering work. However, it won’t be a decisive factor when choosing a service provider.
Increasingly, clients will be focusing more on the value delivered rather than on cutting costs. IT outsourcing companies will become systems integrators and partners to their customers. They will share greater risk and focus on delivering value-added services.
#2 Shift away from a single IT outsourcing provider
In the future, no big company will be able to ensure all the technical skills needed to run business operations. It will be impossible to sufficiently supply all the organization’s needs with the help of the in-house expertise only. Thus, businesses will be likely to outsource their services to multiple vendors. They will look for partners that have deep expertise in specific areas. Therefore, the world of IT outsourcing will be moving towards narrower specialization. Vendors will concentrate on attracting clients from specific industries. As the ISG data shows, in 2008, 42% of the Forbes G-2000 largest global businesses outsourced IT to single companies. Today, this figure has declined to just 15%. 34% of companies rate themselves as above average for maintaining multi-vendor environments. As we can see, this trend has already started and will only strengthen in the upcoming years.
On the other hand, those software development providers who manage to gather a wide range of engineering expertise under one roof and at the same time increase service quality will have a significant competitive advantage. For instance, Lebara, a UK telecom, used to outsource development of its multiple products to vendors distributed across the world. To gain more control over delivery, the company transferred most of its software development to one vendor that had the best quality and was able to build partner relationships. Read more about Lebara and N-iX partnership.
#3 The rise of alternative IT outsourcing destinations
The largest share of global outsourcing revenue in 2017 was generated in Europe, the Middle East and Africa (EMEA). Among these regions, India and China are the leading outsourcing countries with total IT export of about $150 bn.
In the years to come, countries of Central & Eastern Europe will provide stiff competition to India and China. In particular, Poland, Ukraine, Romania, and Belarus will become a new software development hot spots. The IT dynamics in Ukraine has already ensured a fertile soil for setting up an offshore software development team. The country already has 166,000 software developers and by 2020 this number is expected to grow to staggering 250,000.
#4 Brand-new contract models
Both clients and IT service providers alike anticipate making use of new contacting changes. This will help them make IT outsourcing more interpersonal and value-driven. As the GSA report states new contracts will be based on outcomes rather than outputs.
Software development providers will be contracted as service integrators sharing risk and responsibility. Procurement will become an important part of the contracting process. Notice periods will be significantly shorter. Competition between service providers will increase. So outcome-based contacts will help clients select the best IT vendor who can deliver value.
#5 Outsourcing of core business services
The size of the global Business Process Outsourcing market in 2017 accounted for $24.6 billion. Interestingly, the report by Global Industry Analysts, Inc. predicts that it will reach $220 billion by 2020.
Industry experts expect that supplier-customer relationships will become more trustworthy. It will change from the outsourcing of non-core services to the outsourcing of core business operations. Vendors will be strategic partners of clients and bearers of the niche-specific knowledge. Modern companies will feel a drastic need to tap into their expertise to keep businesses streamlined and competitive. Outsourcing of non-core activities will be popular but no longer sufficient for companies that want to be ahead of the game.
#6 Intelligent automation of manual processes
Automation is one of the major IT outsourcing trends that will drive a revolution in the future. The use of virtual agents and bots streamlining routine tasks will be powering all industries. Vast investments will flow into robotic process automation (RPA) and artificial intelligence (AI).
As the data from the GSA report shows, 83% of surveyed people believe that RPA will be of greater significance in the next decade. And 80% of respondents think the same of AI. Demand for professional data scientists, big data analysts, and AI experts will increase. Switching to automation models will be a must for IT outsourcing vendors who want to deliver to the needs of their clients.
#7 Cloud sourcing
With businesses migrating to cloud, demand for cloud computing will skyrocket. Gartner projects that about $1 trillion in IT spending will be affected by the shift to cloud by 2020. As companies move to cloud outsourcing, there will be an increased need for public cloud platforms for data storage. Service providers will need to provide more online data centers and equipment.
At the same time, security threats will become an even bigger concern for enterprises that operate in cloud environments. Thus, they will outsource their security services to eliminate possible breaches. It will allow them to delegate responsibilities and utilize a vendor’s expert knowledge.
Looking at the above trends, 2019 is going to be promising. Changes in the global IT outsourcing trends will bring more trust and transparency. Enterprises will look for partners who can help them move faster and give them a competitive edge over others.
Software outsourcing vendors, at the same time, will have to adapt to the new market demands to live up to the clients’ expectations. Collaboration and interdependence will be at the heart of IT outsourcing relationships.
As the competition goes up, clients will need to develop specific strategies for choosing the best service provider among a variety of others. Outsourcing will become a mainstream phenomenon with every business wanting to partner with specialists in their niche. Being abreast of what is coming is essential for clients who want to keep up with new tendencies to innovate their business.