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2018 UK IT Outsourcing Study

UK IT outsourcing growth to slow as organisations look to innovate more and protect intellectual property

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The 2018 UK IT Outsourcing Survey confirms that the UK market establishes the direction and major trends that continental Europe then follows. Outsourcing in the UK is close to saturation, with mature clients rebalancing their in-house and outsourced IT supply chain delivery. A major alarm bell for service providers is the growth in insourcing as clients strive to deliver more innovation.

Yet the UK market should continue to grow, albeit slowly, as reduced costs and access to resources are still seen as benefits of outsourcing.

“As businesses are increasingly technology-driven, the IT supply chain cannot remain back office centric. While overall satisfaction with IT service providers remains high, if they’re seen as bereft of new ideas they’re destined to be relegated to the role of suppliers of utility computing.”

Manish Khandelwal,
PA sourcing expert

About the survey

The 2018 UK IT Outsourcing Study, conducted by Whitelane Research in collaboration with PA Consulting Group, investigated more than 750 unique IT outsourcing contracts. This represents more than £15bn of annual IT spend across more than 240 of the largest users of IT services in the UK.

It’s the UK’s most comprehensive client study covering IT outsourcing and IT service provider performance.

SNAPSHOT OF FINDINGS

The UK is the most mature sourcing market in Europe, and the trends seen here will filter through to the continent over the next few years. The clearest example of this is the pattern of insourcing seen in the UK compared with continental Europe - mature clients are rebalancing IT supply chains between in-house and outsourced capabilities. 

Two years ago, PA observed that the UK IT outsourcing market was approaching saturation, and that trend is continuing. Only 27 per cent of respondents are planning to outsource more, while 58 per cent will keep the same level or outsource less.

Clients are damning in their assessment of the innovation capability of service providers. Almost three-quarters (74 per cent) plan to insource to drive innovation. This is alarming for service providers, who pride themselves on investing in disruptive and innovative technologies such as AI and robotics. 

Overall, the market will continue to grow slowly with 27% of UK clients planning to outsource more and 22% planning to outsource less

The top reasons for outsourcing are cost reduction (68%) and access to resources (57%)

Applications services are still the most attractive to outsource but they tend to consolidate legacy estates and rationalise the next generation of application sourcing deals. Agile outsourcing is still in its infancy

Mature clients continue to rebalance their in-house and outsourced services with 22% of respondents planning to outsource less

Insourcing is fuelled by a need to drive innovation (74%) and to build and retain intellectual property (74%)

Automation, AI, and robotics present a significant opportunity with 47% of clients not yet capitalising on the technology

Cloud providers, such as Amazon, Salesforce and Microsoft, score highly on customer satisfaction as clients value the flexibility and savings. While ERP providers suffer across a range of factors including flexibility, proactivity and price

A significant minority of clients consider their sourcing strategy (25%), transition (28%) and integration (25%) capabilities to be unsatisfactory, risking significant loss of benefits through poor execution

Established providers (TCS, Cognizant, Computacenter) have been joined at the top of the satisfaction table by newcomers (Amazon, Hexaware and Getronic), although some traditional organisations are seeing sustained decline.

Future trends

Clients are placing more importance on innovation but the survey shows that less than 25 per cent achieve it with their current service providers. This means both clients and service providers need to prioritise innovation and put mechanisms in place to address it properly.

Bridge gaps in understanding

Service providers need a better understanding of why clients outsource. Their perspectives are more in sync than in the past, but some significant differences still exist, especially when it comes to service quality and innovation. Service providers believe they're more important in the outsourcing relationship than clients do.

Agile is the new normal for delivery

In the UK, 58 per cent of organisations are already using Agile as the preferred delivery model, while another 23 per cent plan to adopt it.   Clients and suppliers alike will need to establish more appropriate commercial models and new ways of working together to fully realise the benefits of agile delivery.

Benefitting from robotics and artificial intelligence

Forty per cent of UK organisations have adopted robotics or artificial intelligence (AI) to address business challenges (a figure that’s some way behind Nordic enterprises). Three out of five clients say the benefits of the technology are significant or very significant.

What do outsourcing clients in the UK do to succeed?

  • Design an IT delivery organisation that supports both the bottom-line efficiencies and top-line growth agenda of the business
  • Reassess the balance in the IT supply chain between insourcing and outsourcing
  • Embrace new ideas and technologies, from both established and new service providers
  • Expose the service provider to the business representatives
  • Relook at the benefits of supplier-inspired innovation
  • Maintain a long-term view of the sourcing relationship
  • Balance contracts with proper change management and active governance.

Our insights

Contact us

Manish Khandelwal

PA IT transformation expert

Martin Tennant

PA IT transformation expert

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