Report

UK IT Sourcing study 2021

Two-thirds of organisations plan to continue or increase IT outsourcing in the next two years

As businesses across sectors focus on technology-driven transformation, the UK IT outsourcing market continues to grow. The 2021 UK IT Sourcing Study explores the trends behind this growth through the most comprehensive UK survey to date.

COVID-19 has accelerated the pace of digital transformation across industries. It’s evident that industry has embraced the change, using the opportunity to reduce OpEx, introduce new ways of working, focus on innovation and improve productivity. Customers, service providers and employees have all come together and demonstrated unprecedented agility and resilience. As businesses look to grow post-pandemic, we expect the demand to swell with digital transformation across all industries accelerating and the war for talent only intensifying. It’s good news for those that can differentiate – particularly those that can seamlessly integrate core IT outsourcing solutions with cloud platforms and build attractive employee value propositions to hold and attract the best talent.”
PA Head of Strategic sourcing

Snapshot of findings

Over the next two years, 33% of UK businesses are predicting they’ll outsource more, up 2% since last year. This stability could be due to organisations currently not looking to make any changes due to uncertainty caused by COVID-19.

Insourcing also remains stable, with 16% of organisations planning to outsource less compared to 15% last year. The main driver of insourcing is the need to build and retain ownership of Intellectual Property.

Overall, respondents are satisfied with their IT service providers, with 89% of all 628 IT sourcing relationships rated satisfactory.

The Manufacturing and Chemicals sector is predicting the largest increase in outsourcing, with 59% of organisations planning to outsource more, 26% above the average for the UK. This is in sharp contrast with the public sector, where only 21% plan to increase their level of outsourcing and almost 36% will outsource less.

Despite a decrease of 5% in importance since last year, cost reduction remains the main driver for organisations planning to outsource more in the UK (66%), but there are some variations across sectors. In Manufacturing & Chemicals, 60% say cost reduction is their main drive, while 50% of public sector respondents feel the same.

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. Yet overall, satisfaction is high, with 96% of all 878 cloud sourcing relationships rated satisfactory.

At the same time, use of cloud looks set to continue to grow in the UK as two-thirds (67%) of organisations predict that more than half of their new applications will be running on public cloud in two years’ time. Yet only 28% predict at least half of their legacy applications will be on cloud. This is due to organisations believing cloud migration won’t be straightforward or even possible, with potentially significant risks that might not be economically viable.

Key findings from the research

The top reasons for outsourcing remain cost reduction (66%), more scalability to business needs (56%) and increased focus on core business (51%).
Mature clients continue to rebalance their in-house and outsourced services, with 16% of respondents planning to outsource less.
Those planning to insource cite a need to build and retain ownership of Intellectual Property (74%), faster time to market and/or improved quality outcomes (39%), and the cost of outsourcing (39%) as key drivers.
Satisfaction remains high for cloud providers, with 96% of all 878 relationships rated satisfactory. Amazon Web Services (AWS) achieves first place (80%) for infrastructure cloud platforms, whereas Microsoft 365 remains top of the ranking for software cloud platforms with 82%.
35% of organisations currently outsource cyber security services. The Energy and Utilities sector has the highest levels at 62%, while the public sector lags with only 24%. Overall, though, satisfaction is good at, with 66% satisfied or very satisfied with their providers.
Internally, clients continue to view integration with existing or legacy systems as their number one challenge to successfully transitioning to public cloud (69%.) Security and privacy issues come second (54%), followed by governance and internal capabilities to manage cloud providers and solutions (37%).

How outsourcing clients can succeed

  • Seamlessly integrate core IT outsourcing solutions with cloud platforms and build attractive employee value propositions to hold and attract the best talent
  • Adopt cloud for new applications to minimise integration complexities in the future and leverage the expertise of the cloud providers
  • Exploit lessons learnt from COVID-19, which proved remote working doesn’t affect quality or productivity, and benefits the environment and minimises wasteful commuting time
  • Design an IT delivery organisation that supports 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 such approaches
  • Be realistic about what key suppliers can achieve in the long-term and plan accordingly.

Explore more

Contact the team

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