ISG: Demand for Specialists Pushes Outsourcing Volume Higher

ISG Momentum® Report Finds Contract Counts Rising More than Total Spending Across Service Lines as Clients Split Scope and Engage Multiple Service Providers

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Information Services Group, Inc.

Dec 01, 2014, 11:42 ET

STAMFORD, Conn., Dec. 1, 2014 /PRNewswire/ -- Buyers of IT and business process outsourcing services increasingly are splitting the work among specialist providers, resulting in historically high levels of contracting activity and changes in the nature of outsourcing arrangements, according to research from Information Services Group (ISG) (NASDAQ: III), a leading technology insights, market intelligence and advisory services company.

The latest Momentum® Market Trends & Insights Report® from ISG, which examines trends in eight leading information technology outsourcing (ITO) and business process outsourcing (BPO) service lines, shows enterprise clients eschewing the large, bundled service agreements of the past in favor of smaller, shorter engagements with more specialized service providers.

Clients also have become notably more open to new outsourcing models (e.g., with different onshore/offshore ratios or hybrid organizations) and to new pricing structures, especially pricing models that offer elasticity.

"Clients are using outsourcing more strategically to support their larger business strategies," said ISG Chief Research Officer Paul Reynolds. "This has important competitive implications. Service providers need to be trusted advisors to their clients and be more proactive in suggesting new processes and technologies to improve the business. This will require deeper domain expertise, which many service providers are already developing through investment or acquisition. To remain competitive, it will no longer be enough to be the lowest-cost provider."

ISG observes changing attitudes toward outsourcing that are driving the changes in contracting activity. While cost savings is still the leading outsourcing driver, clients are increasingly using outsourcing to help them become more innovative and agile. Clients are more willing to work with service providers that may not be able to meet all their needs, but can deliver exceptional performance in a specific process area. These drivers are producing increased multi-sourcing for the ITO service lines (Application Development & Maintenance, Data Center, End User Computing and Managed Network Service) and a rise in industry-specific BPO.

As clients' use of multisourcing is growing, so is their appreciation for the need to coordinate activity among service providers. ISG notes increasing demand for service integration and management (SIAM) services, and accelerated development of new governance models. Clients are more willing to invest in these new methods and additional resources to improve outcomes, ISG finds.

In some service lines, particularly Managed Network Services and Data Center, clients are appointing a master integrator that is responsible for coordinating activity among different contractors and ensuring that service levels are not hurt by lack of cooperation or technical incompatibilities.

Niche service providers have been gaining market share in most service lines, although most client spending still goes to large, traditional multinationals. While the general trend is toward more specific, standalone contracts, bundled activity was up in some BPO service lines as clients upgraded their technology platforms as part of a business process makeover.

Enterprise demand for mobility, analytics and social media applications has been beneficial for service providers with strong application development capabilities. Standalone ADM contract activity rose sharply as clients used additional service providers to reduce the backlog of demand for new apps.

The 2014 Momentum® Market Trends & Insights Service Line Report takes an in-depth look at eight leading ITO and BPO service lines: Application Development & Maintenance (ADM), Managed Network Services (MNS), Data Center, End-User Computing (EUC), Human Resources Outsourcing (HRO), Contact Center Services (CSS), Procurement Services, and Finance & Accounting Services (F&A). It also provides high-level spending data on other BPO services, and for the first time, looks at the dynamics within the industry-specific BPO space.

This latest Momentum® report is part of a series of quarterly reports that focus on outsourcing activity by service line, vertical industry and geographic location. To read the executive summary of this report or to learn about other Momentum services and information products, please visit www.isg-one.com/web/services/momentum/.

About Information Services Group

Information Services Group (ISG) (NASDAQ: III) is a leading technology insights, market intelligence and advisory services company, serving more than 500 clients around the world to help them achieve operational excellence. ISG supports private and public sector organizations to transform and optimize their operational environments through research, benchmarking, consulting and managed services, with a focus on information technology, business process transformation, program management services and enterprise resource planning. Clients look to ISG for unique insights and innovative solutions for leveraging technology, the deepest data source in the industry, and more than five decades of experience and global leadership in information and advisory services. Based in Stamford, Conn., the company has more than 850 employees and operates in 21 countries.

For additional information, visit www.isg-one.com.

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SOURCE Information Services Group, Inc.