After the collapse, the global IT and business outsourcing sectorfirst-quarter total spending. The light at the end of the tunnel, seen , has now brightened up the entire sector as businesses start spending again; according to ISG, which records all contracts worth $5m or more, just over $17bn was spent on IT and business services in the first three months of this year. This was 11% more than the same period .
Cloud-based, as-a-service contracts worth $9.9bn were signed during the period, representing a 15% increase on the first quarter of. Meanwhile, the value of managed services contracts, which is traditional outsourcing, increased by 7% to $7.2bn during the same period.
The 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
Steve Hall,demand had improved steadily over the past three quarters. “Deals are filling the pipeline as economies loosen pandemic restrictions, and enterprises continue to make imperative,” he said. “Providers are focused on meeting that needs by concentrating on modernization, cost optimization, and helping customers create resilient and agile operations and personalized omnichannel experiences.”
In the EMEA region, total contracts signed were worth $6bn, a 20% increase on this time. Cloud-based services accounted for $2.5bn of the total after a 16% increase in the amount spent in the first quarter of .
The total value of traditional outsourcing deals was $3.5bn, 23% up. A total of $3bn was IT outsourcing, with about $500m in business process outsourcing.
Looking forward, ISG expects cloud services contracts to increase by 18% in value this, while traditional outsourcing spending will be 5% higher in 2021.
“Many large infrastructure-as-a-service providers focus on growing the top line and winning share, but ultimately they will have to generate profits. Building scale via long-term agreements with large enterprises may provide that path to better margins,” said Hall.
“Software-as-a-serviceto focus on their land-and-expand strategies inside the client footprint, so they can upsell new products and build scale while also expanding internationally to tap new and under-penetrated geographies.”
ISG predicts growth through large, transformation-focused deals for traditional outsourcing this.
“These multi-tower transactions encompass infrastructure, applications, andand modernization,” said Hall. “As the pandemic begins to ebb, we see decision-making ramping up with a greater willingness on the part of enterprises to sign large deals. Megadeals are a prerequisite for solid industry growth.”
Mark Lewis, the senior consultant at Macfarlanes, who specializes in outsourcing contracts, agreed there is a strong outsourcing return. Still, he said demand is changing with thearea. “It isn’t outsourcing as we used to know it, but it’s outsourcing all the same”.
“And we are seeing the growth of longer-term (3 to 5 years) public andoutsourcing arrangements, here often underlying and being provided within platform or application services arrangements or supply chains,” added Lewis.
“Just look at the uptake by UK central government under G-Cloud and what was Cloud First. And there is much more cloud-native adoption in the regulated financial services,” he added.
Peter Schumacher, CEO of management consultancy, said clients are outsourcing heavily and expect it to continue through the year. “Our conversations with CIOs at some of the indicate that demand for IT services is very strong and likely to continue through the year,” he added.
He said this is driven by pressure to take out cost and compete against digital leaders like Amazon.