ISG Says Demand for Digital Services Will Pace Sourcing Growth in 2019

Demand for Cloud Solutions, ADM and Automation Driving Market Upward

Demand for traditional sourcing will increase in 2019 and there will be even stronger growth for digital services, according to a new market research report released by Information Services Group, a leading global technology research and advisory firm.

The ISG Momentum 2018 Market Trends & Insights Annual Report forecasts public cloud-based IT and business process services to be one of the strongest segments of the market in 2019, while DevOps and agile business adoption will keep the market strong for application development and maintenance (ADM) services.

Enterprises will continue to put heavy emphasis on automating as much as possible, which will fuel continued demand for robotic process automation (RPA), new IT service management (ITSM) tools and services, artificial intelligence, self-service functions for employees and customers, and other forms of automation, the report said.

“ISG expects traditional outsourcing will increase in 2019 and there will even stronger growth for more digitally driven services,” said Paul Reynolds, ISG partner and chief research officer. “We expect this expansion will occur despite macroeconomic headwinds in most major markets. Digital transformation momentum is currently so strong that it will overcome expected obstacles and lead to continued outsourcing expansion.”

The report notes there are 1,407 outsourcing contracts due to expire in 2019, collectively worth $25 billion. Both figures are down from recent years but represent a significant replacement market opportunity. About a third of the expiring contracts are for ADM services.

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Many specialist firms and aggressive midsize providers are well positioned to compete with more established incumbents for these opportunities, the report said.

“With more than a 1,000 multimillion-dollar contracts for various ITO (IT outsourcing) and BPO (business process outsourcing) services expected to be awarded in 2019, it will be challenging for many service providers to win profitable contracts,” Reynolds said. “Service providers increasingly need agility in their terms of engagement with prospective clients, which puts many incumbents at risk.”

The ISG report also forecasts 5G will not see widespread adoption in 2019, although enterprises and carriers will pursue many proof-of-concept projects. Blockchain, at a higher level of maturity than 5G, will see many pilot projects, with ISG observing “a continuous increase in production-level programs.” IoT is even more mature and many more pilots will scale into production during 2019, ISG said.

In addition to looking ahead, the ISG Momentum Annual Report takes a look back at market performance in 2018. Key findings include:

• A record 1,726 contracts worth at least $5 million were issued in 2018. Annual contract volume has increased 25 percent over the past five years.
• Outsourcing penetration among Forbes® Global 2000 companies, at 68 percent, remained at an all-time high, equal to the prior year.
• BPO contract volume increased 24 percent in 2018 to a record high, as growing enterprise demand for specialization led to a spike in awards for industry-specific BPO services.
• Total contract value (TCV) in the market declined slightly in 2018, and at $95.2 billion was at the second-lowest level of the past decade.
• Among industries, retailing produced the greatest year-over-year percentage growth in TCV, 127 percent, representing a net gain of $2.7 billion. Insurance had the largest overall net gain, $4.6 billion, followed by health care equipment and services, with $3.4 billion in growth.

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“2018 delivered a clear reminder the outsourcing market is strong and very well positioned to grow in the short term and beyond,” Reynolds said. “It is easy to lose sight of the industry’s fundamental strengths in this era of short-term contracts, changing client preferences and ongoing pressure for providers to deliver more value, explore new technologies and enable digital transformation.”

The ISG Momentum Annual Report documents 2018 contract award and spending totals by region, vertical industry, ITO, BPO, specific service line and service provider, and provides up to 10 years of historical data for perspective. This year’s report also includes a special section, “Nine Factors to Customer Satisfaction that Determine a Service Provider’s Fate,” based on ISG’s 2018 Customer Experience Study. With a blend of ISG’s proprietary data, original market research and market intelligence, the report offers insight into what is driving outsourcing activity and what new opportunities are emerging. To view an executive summary of the report, click here.

The latest ISG Momentum report is part of an ongoing series of market research reports that focus on outsourcing activity by service line, vertical industry and geographic location. To learn about these or other ISG Momentum services and information products, visit the ISG Momentum Research page on the ISG website.

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