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Research

Looking Ahead and Back at Outsourcing Trends and Spending

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by Paul Reynolds

The 2016 ISG Momentum® Market Trends & Insights® Annual Report provides a comprehensive accounting of outsourcing contract, activity, spending and service provider market share, identifies the top trends and drivers for client outsourcing behavior and makes a number of predictions about the market direction for 2016 and beyond. The analysis and commentary help make sense of a market that saw outsourcing spending fall considerably even while when more contracts were awarded than in any other year in history.

The report describes an important shift in outsourcing motivation. Clients are using outsourcing more strategically to fill skills gaps, take advantage of new technologies and reinvent processes. Many companies that are pursuing digitalization are using outsourcing to help the transformation.

Insight from client surveys and other sources indicates that companies are focusing less on short-term cost savings and more on the long-term outcome from their sourcing engagements. Yet they are negotiating very aggressively. Service providers are under pressure to reduce prices and provide value-added services without compensation. The number and value of contracts being renegotiated are both near-record levels, which is a sign of the increasing pressure enterprise buyers are putting on service providers.

Increased use of outcome-oriented outsourcing contract structures is one of several important predictions made in the report. Others include:

  • Current clients are planning to expand their use of outsourcing. Many will extend outsourcing to new service lines and functions, including support for transformation programs.
  • Robotic process automation (RPA) is winning acceptance and will experience a sizable jump in adoption.
  • The year 2016 is expected to set the record for the number of expiring outsourcing contracts. Many expiring contracts will be split into a series of smaller-scope opportunities, which will increase competition in the market.
  • Clients will ask service providers to take on a greater share of risk in general, and specifically to take more responsibility for information security. One report chapter details the current information security risk landscape. It covers threats and protections specific to the Internet of Things, cloud services, mobile infrastructure, analytics, social media and other emerging technologies.
  • Clients will pay more attention to vendor management. There is increased opportunity for service providers to sell vendor management, brokerage, service integration and management (SIAM) and similar services.

The full report combines comprehensive data and analysis about outsourcing spending and contract volume with additional news and observations about some of the leading influences and issues in outsourcing today. It includes more than 50 graphics that provide valuable data and insight about outsourcing spending levels and trends.