The rush of entrepreneurs scrambling to transform business operations with digital tools is stoking demand for outsourcing services, according to the latest study by Information Services Group (ISG).
“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,” said Paul Reynolds, ISG Partner and Chief Research Officer.
It is not that cost-cutting is no longer a primary focus. Entrepreneurs want both innovation and cost savings, the report added.
There has also been a revival in large contracts, but service buyers have continued to demand further cuts in pricing.
“They are increasingly seeking greater than 10% savings on service prices when renegotiating with incumbent service providers,” Reynolds added.
To avoid losing contracts, service providers are under pressure to propose new metrics and pricing structures to customers. Even so, approximately 65% of current outsourcing engagements are at risk of not being renewed with incumbent service providers, the report has predicted.
To keep customer engagements profitable, service providers will need to rely more on automation and other innovations while trying to collaborate more closely with their clients.
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.
Amid competitive pricing and offers of greater savings and innovation, service providers are striving to win their share of the US$25 billion in outsourcing contracts up for grabs in 2018.