UK IT outsourcing set to continue after service levels improve during pandemic

Two-thirds of UK organisations expect to outsource at the same level or more over the next two years, after service providers proved their worth during the Covid-19 pandemic.

Research conducted by Whitelane Research for PA Consulting also found that a desire to cut costs remains the most common reason behind the decision to outsource IT.

In total, 65% of all respondents said they will continue to outsource at the same rate or will outsource more, with a third planning to increase their outsourcing, while only 16% said they will outsource less.

The research found that financial services and the manufacturing/chemicals sectors plan to increase outsourcing the most. The public sector showed the least appetite for IT outsourcing, with only 21% of organisations planning to increase it and 36% planning to bring work back in-house.

Two-thirds (66%) of respondents to the survey said cost reduction was their number-one driver for IT outsourcing, while increased scalability to business needs was cited as a reason by 56%, some 10% more than last year. Just over half (51%) said IT outsourcing was seen as a means of enabling them to focus on their core business.

Manish Khandelwal, IT transformation expert at PA Consulting, said the IT outsourcing industry has embraced the changes that have come about since Covid-19.

“[It has] used the opportunity to reduce operating costs, introduce new ways of working, focus on innovation and improve productivity,” he added. “Covid-19 accelerated the pace of digital transformation and customers, service providers and employees have all have come together and demonstrated unprecedented agility and resilience.”

He said that going forward the demand is expected to increase, with digital transformation across all industries increasing and demand for talent “intensifying”.

“This is good news for those that can differentiate – particularly those that can seamlessly integrate core IT outsourcing solutions with cloud platforms and build attractive employee value propositions to hold and attract the best talent.”

In terms of customer satisfaction, 89% of 628 IT services contracts taken into account were rated by enterprise customers as satisfactory and customers were even more satisfied with cloud sourcing relationships, with 96% of 878 contracts reported as satisfactory

A total of 54% of participants said there has been no change to the quality of services during the Covid-19 pandemic and one-third said it had improved to a degree.

Indian IT services giant Tata Consultancy Services ranked highest in terms of customer satisfaction in the IT services sector, while Amazon Web Services was ranked number one for infrastructure cloud platforms.

Suppliers need to get in shape because demand is already picking up, according to ISG. The company, which records all contracts worth $5m or more, said more than $17bn was spent on IT and business services in the first three months of this year, 11% more than the equivalent period last year.

These numbers reflect a recovery in spending, which has been held back after economic activity collapsed during the Covid-19 crisis, which began to hit enterprises in March 2020.