IT outsourcing market reaches tipping point, top 30 firms in UK

28 August 2017 8 min. read

Two-thirds of businesses who currently outsource IT solutions will continue to do so at the same rate or more, with 35% citing that they are planning to ramp up, according to a new study. Just 22% are planning to outsource less. The overall majority of UK organisations therefore seem satisfied with their outsourcing solutions, while the market increased by 4% over the past year, indicating the level of satisfaction will continue to prompt more businesses to invest in the tactic.

Outsourcing is a practice used by different companies to reduce costs by transferring portions of work to outside suppliers rather than completing it internally. In the midst of a boom in digitalisation, with new market innovators suddenly threatening to disrupt long-time market incumbents who are slower to adapt to new technology, outsourcing IT solutions has become an increasingly popular way for businesses to improve their digital work practices at low cost. While the long-term failure to invest in the IT and digital skills of permanent staff can present problems of its own, outsourcing in order to present short-term solutions can prove highly effective.

The 5th annual 'UK IT Outsourcing Study', conducted by Whitelane Research in cooperation with PA Consulting Group, has investigated more than 800 unique IT outsourcing contracts. Contracts held by 250 of the top IT spending organisations in the United Kingdom across all industry sectors, suggested that while IT outsourcing could be considered at a “tipping point”, as automation and AI are tipped to phase out a number of jobs in multiple sectors over the coming years, the actuality is more complex. One notable example saw the famous Amazon AI Alexa recently applied to the world of finance advisory work, and the suggestion in some quarters is that the growing rate of outsourcing in IT consulting will become decreasingly sustainable as IT solutions like this become common-place.

However, overall fulfilment remains relatively high with outsourcing as a cost-cutting IT solution, with 86% of respondents of the outsourcing study indicating they were to some extent satisfied with professional service firms they had externally contracted. This figure has remained constant over the past 5 years. 10% were very satisfied while the bulk of 47% were plainly satisfied. At the other end of the spectrum, only 1% of respondents said they were very unsatisfied with the results of outsourcing.

Satisfaction of IT outsourcing providers

The top IT outsourcing firms

Following previous research publish by PA, little has changed over the past two years in terms of how top IT outsourcing companies were ranked via customer satisfaction. Despite having fallen from top spot with a decline in satisfaction of 3% over the past two years, Tata Consultancy Services (TCS), remains in the top five, while Getronics has risen to first along with Hexaware on 84% approval ratings. Computacenter, one of Europe’s major IT infrastructure services providers, also maintains a 77% rating, to rank joint fifth with TCS, Getronics. Cognizant have maintained their position over the same period of time, ranking fourth behind internet giants Amazon, the only major newcomer to the very top table of outsourcing, on 79% satisfaction.

SCC (76%) maintained their position in the top ten over the past two years, while beneath them the rankings became more fluid. Mindtree and Sopra Steria (both 75%) and Salesforce and HCL (both 74%) meanwhile round off the top ten, displacing HP (68%), Atos (70%), Infosys (68%) and NIIT (68%), all of whom saw satisfaction in their services fall. The firms still maintain a strong presence in the top thirty however.

General satisfaction tends to show that these top performers fell into one of three broad categories. Many of the companies listed are focused in application development activities, as with Microsoft, Telefonica. Some are specialist providers focusing on providing more intricate services as well, as with Vodafone. Others focus on cloud provision to deliver a well understood, standard offering to their customers with minimal commitment, however with such a clearly defined outline of what they deliver to manage the expectation of clients, these services are arguably harder to state disappointment in. Earlier this year, international outsourcing association IAOP released a list of the globe’s best outsourcing advisors. The list, which was weighted to account for the diversity of outsourcing offerings of firms, favoured a larger number of consulting firms than this particular survey, due to this.

Client satisfaction of IT outsourcing service providers

Looking ahead, despite businesses changing the way they work and presenting new challenges to the industry, outsourcing is likely to remain in high demand meanwhile. Plans to outsource more have increased by 4% in comparison with last year according to researchers, indicating continued growth for the UK IT outsourcing market. Only 22% of respondents have stated they aim to outsource less, in direct contrast to 35% who plan to up their outsourcing – suggesting an overall increase will continue into next year. Meanwhile a majority of 65% of respondents 65% said they will continue to outsource at the same rate or more, further bolstering expectations of a strongly performing outsourcing market.

Despite AI and automation threatening to provide long-term measures for cost-saving then, implementation is often still costly, despite falling prices in technology. Reducing costs is the highest priority for organisations who outsource (69%), an increase of 9% since last year, and the tactic is arguably still seen as the best way to make quick savings in the immediate future of an organisation. Business transformation is the 2nd most important driver meanwhile, which includes the implementation of AI and automation which a number of industries continue to struggle with, increasing by 16% in the last year and suggesting that in the immediate future at least, the outsourcing market will be a beneficiary rather than a victim of digital disruption.

Expectations of UK’s IT outsourcing market

While the market pattern in the UK is similar across Europe in terms of motives meanwhile, the reasons for the continuing increase in the market contrast developments in the Netherlands dramatically. While Dutch companies also rated savings as one of the chief reasons to outsource, the top reason given was to enable clients to better focus on their core business. That motive had drastically outstripped cost-cutting and IT development in the Netherlands’ outsourcing market over recent years, increasing 9% between 2014 and 2016, suggesting Dutch companies take a more holistic approach to outsourcing than their British and European counterparts. This may position outsourcing operations there in better stead than in the UK to survive a peak in demand resulting from automation.

According to Martin Molloy, a Sourcing Expert at PA Consulting Group, “The [UK] market for outsourcing is at the biggest tipping point since the term was coined. There are lots of “predictions” and “forecasts” suggesting that end for service providers is nigh. The reality is much more complex than that. The journey to leveraging new technologies such as Automation, Robotics, AI is only just starting and its impact on the outsourcing market is yet to be accurately predicted. What we can say is that there are huge potential opportunities from these new technologies but, like most change projects, this will be a complex journey.”

Related: The best IT outsourcing providers in the United Kingdom (2015 edition of the study).