Small Providers Armed With Disruptive Tech Change the Outsourcing Game

Enterprises around the world are increasingly buying specialized outsourcing services from smaller, niche providers, according to analyst firm Information Services Group (ISG). Furthermore, buyers are exploring all options to take advantage of fast-changing technologies and evolving operating models on their way to cut cost further.

It seems enterprises are not only finding new technologies as a tool to become agile, they are also considering them cost-effective, because the analyst firm says it found outsourcing contract value dropping even as contract volume is rising.

According to its outsourcing index, the average contract value dropped 9 percent in the third quarter from the second quarter of this year. As many as 344 contracts were signed in the third quarter, up nearly 20 percent from the prior year.

Another trend in the industry is a decrease in the number of large contracts. In the quarter, there were only five mega- deals (contracts valued at more than $100 million annually), the lowest such figure through three quarters in the last decade.

Thanks to Cloud and other advancing technology, IT outsourcing sector appears to be undergoing a drastic change.  In the third quarter, the value of information technology outsourcing (ITO) contracts dropped 15 percent, but there was a significant increase in Cloud and other As-a-Service contracts.

The trend confirms that enterprises are not looking to cut back on outsourcing contracts but they are seizing on new technologies.

Today increasing numbers of IT services are based in the cloud, which changes the nature of contracts and delivery. Then there is the automation software and artificial intelligence (AI) shaking up the IT outsourcing sector.

Another report from ISG says thousands of IT outsourcing contracts due to be renewed over the next three years. In 2016 alone, there are over 1,100 contracts – worth about $20 billion – coming up for renewal around the world.

“Deal values will remain small as businesses focus on areas such as security, digital and cloud,” said John Keppel, president and partner of ISG.