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2020 UK IT Outsourcing Study

As businesses across sectors focus on technology-driven transformation, the UK IT outsourcing market continues to grow. The 2020 UK IT Sourcing Study, conducted by Whitelane Research in collaboration with PA, explores the trends behind this growth through the most comprehensive UK survey to date.

The survey investigated more than 1,150 contracts to uncover insights into the UK IT sourcing market and anticipate the future of IT transformation. The study pre-dated the UK COVID-19 lockdown.

“Technology investments continue to grow and, with the impact of COVID-19, the trend will only accelerate as organisations move from physical to digital workplaces. There’s a significant opportunity for service providers that can drive seamless delivery using collaboration technologies.”

Manish Khandelwal,
PA transformation expert

About the survey

The 2020 UK IT Sourcing Study, conducted by Whitelane Research in collaboration with PA Consulting, investigates more than 550 unique IT sourcing relationships and 600 cloud sourcing relationships held by over 250 participants of the top IT spending organisations in the United Kingdom.

This makes it the most comprehensive UK survey to date with more than 1,150 contracts investigated.

SNAPSHOT OF FINDINGS

Over the next two years, 30% of UK businesses are predicting they’ll outsource more, down 2% since last year. Insourcing remains stable with 15% of organisations planning to outsource less (compared to 16% last year) in a bid to improve time to market and the quality of outcomes.

Financial services and manufacturing businesses are predicting the most outsourcing, with half of organisations planning to outsource more (20% above the average for the UK). This is in sharp contrast with the public sector, where only 22% plan to increase their level of outsourcing and almost one in five will outsource less.

While cost reduction is the main driver for organisations planning to outsource more in the UK (71%), there are some variations across sectors. All manufacturing respondents cited this as a key driver – perhaps reflecting concern over post-Brexit tariffs – while only 38% of public sector respondents said cost reduction is their main concern. This could be because public sector clients believe focusing on cost is impacting service quality, reflected in their consistently lower satisfaction scores compared to the private sector.

Use of Cloud continues to grow in the UK, with more than 600 cloud sourcing relationships evaluated and 37% of organisations predicting that more than half of their application portfolio will be in the Cloud by 2022. There are differences across the sectors, with 62% of public sector organisations making the same prediction compared to just 18% in manufacturing.

Overall, the market will continue to grow, with 31% of UK clients planning to outsource more and 15% planning to outsource less. ‘Don’t know’ was up to 19% from 13% last year.

The top reasons for outsourcing are cost reduction (71%), business transformation (50%) and improving service quality (50%).

Mature clients continue to rebalance their in-house and outsourced services, with 15% of respondents planning to outsource less.

Those planning to insource cite faster time to market and improved quality (88%), the need to build and control their intellectual property (63%) and the challenge of working with providers in Agile/DevOps teams (58%) as key drivers.

Cloud providers, such as Amazon, Salesforce and Microsoft, continue to 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. The biggest cloud adoption challenge continues to be integrating with existing legacy systems.

Internally, clients know they need to improve their own capabilities. Most said they need to make significant or moderate improvements to transition and change management (86%), business relationship management and demand forecasting (85%), and sourcing strategy (79%).

Future trends

Cloud adoption has gathered pace but legacy integration difficult

Almost half of those polled expect 50% of their application portfolio to be running on a Cloud platform in two years, though there are significant variations across sectors. Only 18% of manufacturers make this claim, while 62% of the public sector does, highlighting the UK government’s ‘Cloud first’ policy. Integration with existing or legacy systems remains the main barrier to cloud adoption (77%). Clients are continuing to lean on competent service providers to overcome the barriers to transitioning to Cloud.

Agile is well established but effectively working with providers challenging

Among those planning to outsource less, 58% said the challenge of working with providers in Agile and DevOps teams is a key driver. This reflects experiences across the industry. With changes to ways of working and contracting practices, there’s an opportunity for clients with the right mindset, and suppliers with consulting capability to seize sizeable benefits.

Clients need to invest in capabilities

The continuing client shortcomings (perceived by them and their suppliers) in sourcing strategy, transition and change management, and supplier and business relationship management continue to be significant obstacles. Consultants will continue to provide specialist resource and fill gaps, but successful organisations will develop core capability in these areas.

COVID-19 has changed the game in terms of collaboration

COVID-19 has changed how providers and clients use collaboration technologies and quickly implement changes. Successful clients and suppliers will re-evaluate the way they interact and ensure they sustain the beneficial changes forced on them by the pandemic. Those who revert to old ways will fail to thrive.

What do outsourcing clients in the UK do to succeed?

  • Design an IT delivery organisation that supports the agendas for both bottom-line efficiencies and top-line growth while recognising the skills needed to effectively manage business and supplier relationships.
  • Reassess the balance in the IT supply chain between insourcing and outsourcing.
  • Ensure contracts with suppliers recognise and facilitate new ways of working, such as Agile and DevOps, and actively work to integrate approaches.
  • Take a pragmatic long-term view of the relationship with key suppliers.

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Manish Khandelwal

PA IT transformation expert
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