ISG Momentum® Market Trends & Insights Service Line Report 2019

An average of nearly 10 outsourcing contracts were signed each day in the first six months of 2019, with both the ITO and BPO segments on a pace to set their single-year contract volume records. There is positive momentum across most regions and service lines. The hot start to 2019 followed a strong 2018, when volume increased in both segments and was at its highest ever for ITO. Large IT service providers have benefited in this environment, with the Large Western service provider category winning the most contracts, and their Large Indian competitors achieving the most market share improvement.

Consistent with the past few years, much outsourcing contracting is occurring because clients want to add specific skills and capabilities. Clients are turning to service providers so they can more quickly introduce artificial intelligence into a range of business processes. The desire to increase automation is an outsourcing driver for both ITO and BPO, and there is widespread demand for analytics as part of business process solutions. Modernization is a theme across service lines and is a driver for continued cloud adoption growth.

Market data and trends highlights for the individual service lines profiled in this report are presented below.

Application Development & Maintenance (ADM) – The demand boom for application services continues and 2019 could set a new record for the amount of ADM contracts awarded. Clients need a lot of help in preparing applications for modern architectures, notably in migrating or redeveloping apps for the cloud. Expertise in DevOps, test automation and AI is in strong demand.

Data Center (DC) – There was strong demand for both server and mainframe services, plus a sharp rise in full ITO contracts that bundle data center management with other IT services. One of the demand drivers is enterprise urgency to take full advantage of the cloud and create a modern hybrid infrastructure. ISG sees a high demand for cloud strategy and migration services, with hyperscale cloud providers increasingly trying to win parts of that business. Outcome-based contracts are becoming more popular among data center services clients.

Managed Network Services (MNS) – This service line is experiencing significant year-over-year changes in contract structure preferences. Standalone contract volume plummeted in 2018 while bundled agreements rose and the telco-to-telco segment rebounded. For the year, total market ACV rose 5 percent, and all segments were relatively strong in the first half of 2019. Changing business needs are leading enterprises to update their networks. There is significant demand for software-defined network (SDN) technology, and enterprises are paying attention to 5G developments.

Workplace Services – This is a leading segment of the ITO industry in both market growth and innovation. Contracting activity was extremely strong in the first half of 2019 as enterprises continue to outsource to gain access to more powerful collaboration capabilities and other functionality to support their workers.

Finance & Accounting Outsourcing (FAO) – This segment is marked by a large volume of small contracts. The first half of 2019 saw more contracts awarded than in all of 2018, but not as much ACV. Niche service providers won a high percentage of the 2019 contract awards, which is one of the implications of the trend that finance & accounting outsourcing is being driven by enterprise desire to make their financial operations more modern, automated, intelligent and innovative.

Human Resources Outsourcing (HRO) – Volatile year-to-year swings continue as contract activity fell sharply in 2018. Spending on standalone HRO contracts in the first half of 2019 surpassed the full-year total for 2018. HRO is another service line where demand for modernization, cloud solutions and RPA are leading clients to outsource.

Procurement – Enterprises want to modernize their procurement operations because they are recognizing the strategic contribution procurement can make to the business. As a result, outsourcing spending and contract volume have been rising. Service providers that offer integrated dashboards, analytics and RPA capabilities in their offerings are well positioned to benefit from current client demand.

The following chapters provide more insight on these developments plus extensive data to document outsourcing activity.