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Cost-cutting and digital transformation spur increased European IT outsourcing in 2019

Investing on IT contracting out in Europe increased by 10% last year compared to 2018 as an outcome of organisations’ need to minimize costs while continuing to transform digitally.

Financial investment in both conventional IT outsourcing and as-a-service contracts in the Europe, Middle East and Africa (EMEA) area saw substantial increases in costs, according to figures from the current ISG contracting out index.

Conventional services, in which an organisation purchases individuals to supply a service, saw an 8% increase in spending, striking EUR10.7 bn, while an overall of EUR6.4 bn was purchased cloud-based as-a-service contracts– a 13% rise on the previous year. As-a-service contacts accounted for 37% of the total spending in 2019.

ISG monitors IT and business procedure services agreements in EMEA that are worth over EUR5bn (₤ 4.2 bn). The reason for the increases are mainly two-fold, it stated.

Barry Matthews, partner at ISG, stated cost-cutting and digital change are the underlying drivers of outsourcing growth. “We are seeing great deals of focus on cost decrease, which is not surprising offered the economic uncertainty,” he said.

A by-product of this is much shorter agreements, said Matthews. “Organisations want to get more versatility with their agreements, so are signing much shorter contracts, which have to do with 3 years in length and $15m in worth on average,” he included.

“Meanwhile, everybody is investing in digital, and cloud is core to whatever. All organisations we speak with are trying to transform their business designs around digital, and it all starts with the innovation backbone.”

Matthews stated that in the standard outsourcing section, it is mainly the typical suspects in terms of providers that are being utilized, but the as-a-service market is far more competitive. “We track 2,500 as-a-service companies and it is exceptionally competitive,” he stated. These consist of the reasonably small providers, right up to Google and Microsoft, he included.

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Matthews said even the traditional IT outsourcing providers have some type of platform-as-a-service offering since they have needed to develop into digital experts. “This is part of the factor for so many mergers and acquisitions in the market,” he explained.

But as-a-service, which now accounts for nearly 40% of all agreement worth, according to ISG, will reach a limitation. “You will constantly require individuals to make sure everything interacts and can’t count on whatever as a service,” stated Matthews. “Growth will slow ultimately, however we anticipate as-a-service to continue to grow over the next two years.”

Turning to Brexit, Matthews stated there is still uncertainty for providers on how they will run throughout Europe when the UK ends its shift duration before leaving the EU. “Everyone doubts about things like what it will imply from a travel and regulatory viewpoint, but everybody is presuming it will be OK,” he stated.

This content was originally published here.

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