ISG Momentum® Market Trends & Insights 2017 Annual Report
In 2017, the outsourcing market rebounded from its previous-year decline and produced growth in spending and contract awards across most geographies. Several of the largest segments of the market had above-average growth. The banking, financial services and insurance (BFSI) segment produced $7.1 billion more TCV in 2017 than the year before. Application development and maintenance (ADM) contract volume grew by 34 percent and its TCV rose by 29 percent. ITO activity was strong around the world and across service lines, while the BPO market was uneven.
Digital transformation remains a strong outsourcing driver and contributed to a revival in large contracts with a single service provider. However, the overall trend of shorter, limited-scope contract awards continued as clients sought to maintain flexibility and hold leverage over service providers.
Some key 2017 developments and 2018 influences are highlighted below and explored more fully in chapters throughout the report.
- ITO activity was very strong around the world. Each region increased its total contract value (TCV) from ITO contracts by at least 9 percent, and EMEA, the largest regional market, grew by 18 percent.
- ITO significantly outperformed BPO worldwide in 2017, although the Americas BPO market expanded by $3.1 billion.
- The Asia Pacific region continued to increase its share of Forbes® Global 2000 companies, but the region’s outsourcing penetration rate among those companies remains low.
- Clients increasingly want to use outsourcing to expand their pace of innovation and to support other strategic initiatives. The continued shift away from focusing on outsourcing as a cost-saving mechanism is opening opportunities for new types of services and technologies.
- Organizations that want to embrace DevOps are contracting with service providers to help them make the transition. Two-thirds of outsourcing clients expect to have DevOps teams in place within 18 months, ISG research found. Service providers need to be prepared to offer flexibility in how ADM services are delivered and priced.
- Clients do not want either innovation or cost savings. They want both. And they are increasingly seeking greater than 10 percent savings on service prices when renegotiating with incumbent service providers. To meet this requirement and keep the customer engagement profitable, service providers will often need to rely more on automation and other innovations, and to change how they work with clients to collaborate more closely.
- Approximately 65 percent of current outsourcing engagements are at risk of not being renewed with the incumbent service provider, according to ISG Research. Problems in the relationship, new competition, the incumbent’s inability to match prices or savings offered by competitors, and client desire to try new providers or technologies are leading factors that put renewals at risk.
- More clients are seeking outcome-based contracts. Service providers can gain an advantage in the market by highlighting their success in outcome-oriented engagements, and by proactively proposing new metrics and structures to clients.
- ISG expects automation to play a greater role in outsourcing services that focus on support, both for IT support and customer engagement and support. Service providers’ automation capabilities and intellectual property are becoming more important to clients during the selection process.
- As clients become more strategic, service providers are investing more in advisor relations programs in an effort to increase market awareness of their differentiating features. ISG especially sees renewed focus on advisor relations among large Western service providers.
- The growth of robotic process automation will increase the downward pressure on service prices in 2018. RPA demand remains strong and is expanding to more functions.