Demand for access to talent driving UK IT outsourcing growth

Increasing demand for IT talent is driving the IT outsourcing sector, with 63% of UK organisations planning to continue outsourcing at the current level or increase outsourcing over the next 12 months, with nearly a third of these planning to spend more.

According to a survey of 750 UK organisations by PA Consulting and Whitelane Research, 83% of public sector organisations in the UK rank the need for talent as the main reason they outsource, while 62% of financial services firms put access to talent as their main driver.

In terms of the IT being invested in, automation technology was the top priority, with 58% of organisations investing in automation services contracts to lower costs and reduce the need to recruit more staff. Over half (52%) of organisations cited simplifying and consolidating IT as a driver of IT outsourcing.

Manish Khandelwal, IT transformation expert at PA Consulting, said headwinds in the wider economy mean the need for transformation has never been greater for a number of UK organisations.

“However, the war for talent continues to be intense, coupled with real and significant cost pressures,” added Khandelwal. “This is pushing organisations to rebalance their technology delivery organisation and operating model, optimise the use of outsourcing and insourcing, utilise talent at global locations, and maximise the value from the technology investments they have made over the last few years.  

“The outsourcing industry continues to thrive, and the industry players that are innovative, proactive and can translate advancements in new technologies to deliver practical, tangible solutions at pace will have the opportunity to grow even stronger.”

The survey also found that more organisations are attempting to introduce global distribution models, with 33% setting up outsourced operations offshore in locations such as India and 27% in nearshore locations in regions including central and Eastern Europe.

According to the report, 64% of organisations surveyed were either “satisfied” or “very satisfied” with their current IT services suppliers. India’s Tata Consultancy Services (TCS) and Infosys came top in terms of satisfaction.

Three-quarters of organisations said they were satisfied with their cloud service providers, with Amazon Web Services (AWS) top for infrastructure as a service and Microsoft Office 365 number one for software platforms in the cloud.

Despite continued demand from businesses to restructure their IT, the UK IT services market fell in the first quarter of this year as a result of global economic uncertainty.

According to the latest figures from ISG for UK IT and business process outsourcing (BPO) services contracts, spending by organisations in the first three months of this year was down as the value of cloud services contracts fell. It found that in the UK, the biggest spending country in the EMEA region, organisations spent $1.2bn on IT and BPO services in the first quarter of 2023. This was 2% lower than the same quarter last year and a massive 36% down on the final quarter of 2022. ISG records all deals worth over $5m to calculate the total contract value for a period.