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IT outsourcing is increasing, but not as we know it

IT outsourcing is growing in the UK, as organisations spend more as part of their digital transformations

IT outsourcing in the UK is on the up, fueled by a general increase in IT spending as public and private sector organisations digitally transform.

 Much of the growth is driven by a new breed of service providers, but more traditional service providers that have adapted their services to meet changing customer demand are also prospering.

A study from Whitelane Research and PA Consulting, which looked at 760 IT sourcing deals, found 71% of UK organisations plan to outsource at the same amount or more this year.

Meanwhile, the study revealed that for the first time since 2015, organisations are planning to insource less. Only 16% are planning to insource more IT, compared with 22% last year.

The growth is partly due to the increased take-up of emerging service providers challenging more traditional players through digital services. This is the result of businesses increasingly adopting the latest technologies to streamline operations. These include automation software, cloud computing, artificial intelligence (AI) and mobile apps.

For example, where in the past an organisation might have opened a contact centre to deal with customer services, or hire more staff to work in call centres so when a new product is launched they can today use AI and automation software to complete large parts of the work.

“Technology-driven challenger organisations are transforming the way services are delivered and consumed across sectors,” said Manish Khandelwal, IT transformation expert at PA Consulting.

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The report said that entry barriers are reducing for digital age service providers and businesses are more open to work with smaller players.

But it’s not only smaller challengers that are growing with some traditional players, who have evolved their offerings, are taking advantage of an overall increase in IT spending.

“Technology investments are growing, presenting significant opportunities for established service providers and new entrants with differentiated offerings,” said Khandelwal. “Service providers that are able to transition from traditional delivery and commercial models without compromising the service quality are looking at an exciting future ahead.”

When it came to customer satisfaction Hexaware, Amazon Web Services, NIIT and Tata Consultancy Services (TCS) were the highest ranked.

In a recent interview with Computer Weekly, Shankar Narayanan, head of TCS in the UK, said today it is possible to broadly divide customers into two groups in terms of the service they want.

“One group is asking what can be done to make the organisation lean and agile,” he said. “They want to know how they can simplify the process, the technology and everything they have today.

“The second group is thinking about how they build a business using technology,” said Narayanan. “They want to establish what their ideal world will look like and a path to get from where they are to that point.”

Peter Schumacher, CEO at management consultancy the Value Leadership Group said the European IT services sector is experiencing its best period of performance in the last 30 years. “The traditional service providers that are the big winners have rethought their strategy and organisational capabilities to gain the ability to continuously create new sources of advantage.”

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