IT Outsourcing 2019 Overview & Trends

1. What Is Outsourcing?

Today it has become a very common practice to work with external vendors to process various business activities, starting with operational things like payroll, inventory management, content development, or hiring through an employment agency to business processes management.

  • In 2017 65% of the companies that have outsourced have continued to do it in 2018. (Outsourcing Insight)
  • In terms of value, about 84.2% of outsourcing deals originated from the USA, followed by the UK at 5.2%. Spain and Australia were two other key outsourcing markets. (KPMG, 2017)
  • The Deloitte survey results confirm a significant increase in organizations using outsourcing to enhance M&A efforts — from 45 percent in 2016 to 67 percent in 2018.
  • The top three benefits identified by Deloitte research in 2018 are to reduce the need for transition service agreements (34%), to accelerate the integration of the new organization (33%), and to lower operating costs of the acquired entity (31%).

2. What Is IT Outsourcing?

IT outsourcing is the practice of working with external vendors to handle some information technology functions.

2.1. Top 10 Outsourced IT Functions

Application development — a service provider is responsible for developing new or enhancing existing applications (web, mobile, etc)

  • The revenue of the global BPO industry in 2018 was at $23.6 billion. (Statista)
  • 31% of IT services was outsourced in 2017. (Outsourcing Insight)
  • 37% of companies planned to increase the amount of work to outsource for app development in 2017. (IT Outsourcing Statistics 2017/2018)
  • Total budget for IT outsourcing rose from 10.6% in 2016 to 11.9% in 2017 and keeps growing in 2019. (Logicfy)

3. Why Companies Outsource?

Following the research made by Deloitte, there are a few reasons why companies outsource.

  • 57% do it to focus on business objectives.
  • 47% to solve capacity issues.
  • 31% to improve service quality
  • 28% to take help from talented professionals
  • 17% to manage their business environment
  • Making innovation a key component of the contract (43% in 2018 vs. 21% in 2016), and
  • Increasing provider compensation as they innovate (37% in 2018 vs. 16% in 2016)

4. Forms of Outsourcing

Outsourcing is an umbrella term and it has a few types depending on the location of the 3rd party service provider chosen to work with.

  • language requirements
  • cultural similarity
  • time difference
  • service costs

5. IT Outsourcing Models

Besides outsourcing types based on the location, there are also 3 main outsourcing models that describe the relationships between the business and the IT service vendor.

  • learning the ins and outs of local labor laws and taxes.

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