IT Services Outsourcing – Procurement Best Practices & Sourcing Strategies

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IT Services Outsourcing Market Global Size:

According to ELINT Market Research’s recent IT services outsourcing procurement market research report, the global market size achieved a significant $573 billion value in the year 2022. This promising fact exhibits that this sector is developing constantly since multiple industries and businesses employ outsourcing methods to acquire technical professionalism to stay strong in this vast competitive IT landscape.

Market Definition:

Nowadays, the IT services market is continually transitioning toward the latest technologies. Thus, sometimes businesses working in this vibrant sector experience a lack of expertise which they need to conduct different operations, like software development, cybersecurity, cloud computing, data handling, etc.

Consequently, several organizations outsource experts at affordable prices to leverage their capabilities. These specialists are usually located in distinct regions. Hence, companies don’t need to invest in workplace infrastructure, and they can hire them for particular jobs without investing large capital.

Major IT Services Outsourcing Market Drivers:

1. Increasing Focus on Cost Optimization Among Organizations –

The IT services outsourcing method greatly helps businesses in cost optimization, since they can acquire experts from different cities or countries without investing in their residential needs and office setups. Therefore, they can get their jobs done at inexpensive costs. Additionally, with this technique, companies can integrate their on-site staff with offshore teams, and create an efficient work atmosphere for them.

2. Expansion of High-Tech Technologies –

In the last few years, various cutting-edge technologies emerged in the vast landscape of IT services, like cloud computing, big data, artificial intelligence, IoT, machine learning, etc., which are driving high demands for IT professionals among organizations. In this context, companies search for worldwide talents and outsource them to execute their business operations. This way they can save in-house investments, and try to stay ahead in the competitive domain.

3. Flexible Business Operations in Organizations –

Adaptability and scalability work as important factors in business functions, because sometimes companies face urgent needs for expertise to scale up their projects. In this situation, outsourcing helps organizations hire resources for particular tasks, without disrupting their in-house team. Thus, this is another reason that causes expansion in the IT outsourcing sector.

IT Services Outsourcing Market Challenges:

1. Data Safety Concerns –

The foremost challenge that IT businesses experience is the risk of data breaches since they hire external service providers. Hence, the possibility of cyber attacks increases. In this matter, companies must ensure they have robust safety standards and encryption methods to secure sensitive information.

2. Scarcity of IT Professionals –

Another major challenge that most IT companies face is a lack of technical expertise due to day-by-day transiting technologies. Because of this reason, competition is also rising among multiple industry players, since they are trying to obtain great expertise in their organization.

3. Communication Barrier Across International Teams –

Whenever any company hires global resources, they need to ensure effective and constant communication with them to complete their operations. However, sometimes few obstacles make collaboration difficult, which include language hindrances, distinct time zones, culture variations, and more.

IT Services Outsourcing Market Opportunities:

1. Development in IT Technologies –

As the latest technologies like artificial intelligence, machine learning, IoT, big data, etc., are occurring, they are opening new work opportunities for technical experts and companies in the vast IT services market. They can leverage these technological refinements to foster their growth and competitiveness.

2. Rising Alliances Between IT Businesses and Outsourcing Services Providers –

Expanding digital transformations open doors for both outsourcing solution providers, and IT firms, since they are making partnerships and helping each other stay strong in the evolving technical services market.

3. Operational Cost Optimizations –

Optimizing operational costs is becoming easier for IT businesses with the help of outsourcing. Now, they can acquire technical skills, either for temporary or permanent periods at affordable prices, and focus on deriving maximum value from small investments.

IT Services Outsourcing Market Segmentation:

1. Type of Service –

The first segmenting factor for the IT solutions market is the types of services, that service providers offer like software and application development, technical consulting, system integration, and much more. Hence, organizations can choose the kind of IT service, they require to conduct their operations.

2. Type of Industry –

The next segmenting factor for the IT services outsourcing market is a type of end-user industry that employs outsourcing solutions. Presently, various sectors utilize outsourcing methods which include, wholesalers, manufacturing, healthcare, commercial, banking, technical, telecom, and many more.

3. Size of Organization –

Various sizes of organizations are operating in the massive IT services market like small, medium, or large enterprises, which employ outsourcing solutions according to their individual technical requirement. Thus, this also works as a key factor to segment the IT service outsourcing market.

Emerging Engagement Strategies of the IT Services Outsourcing Market:

Engagement strategies are very important for businesses to obtain outsourcing solutions wisely. The first engagement method is the single-supplier approach, which allows companies to fulfill their particular outsourcing requirements from only one provider. This method facilitates communication since organizations need to deal with a single supplier, but also sometimes creates troubles since they are depending on one distributor.

On the flip side, the multiple-supplier approach helps companies satisfy their technical expertise needs from multiple outsourcing solutions providers. Thus, in this method, organizations get the flexibility to obtain experts from various suppliers, but they are also required to ensure an efficient collaboration with all the distributors.

Pricing Models in the IT Services Outsourcing Market:

The IT services outsourcing market includes different pricing models, which help service providers and consumers to make fair financial agreements. The first model is the time and material pricing method in which companies make billings depending on the real-time resources used in the particular project.

The next cost model is fixed pricing, which allows companies to create a predetermined price structure, that they will spend on their whole project. However, they need to invest capital wisely since this method restricts any further changes in the fixed cost structure.

Furthermore, transaction-based pricing methods help companies to spend money on particular deals and tasks which gives adaptability but also causes inconsistent expenditures.

Additionally, the last cost model is outcome-based pricing in which organizations align expenses with pre-decided outcomes of projects. Thus, businesses must wisely use this model according to their project’s nature and predicted returns.

KPIs in the IT Services Outsourcing Market:

With the help of key performance indicators (KPIs), service providers and companies assess their partnerships’ efficiency in the IT service outsourcing market. The foremost KPI is response time, which helps organizations to take immediate and timely assistance from their outsourcing solution provider, in any difficult condition.

The next KPI is resource turnover, which helps companies evaluate the turnover of outsourced solutions that they obtained from distributors, and administer their manpower. Further, the application breakdowns per day KPI help businesses to timely measure the dependability and strength of outsourced applications.

Moreover, network availability KPI allows companies to calculate the performance and adaptability of their IT infrastructure to manage the constant flow of their operations. Further, the percentage of work offshored KPI helps businesses to examine insights about their outsourced tasks’ progress.

Additionally, the last KPI in this list is the percentage of reopened tickets, which allows companies and service providers to keep an eye on the repetition of problems occurring during business operations, and what are the solutions to solve them.

Impactful Cost Component in the IT Services Outsourcing Market:

Outsourcing service providers and companies use one key cost component to make their financial accords accurate. In this price component, both parties keep track of a provider’s delivery cost which nearly comprises more than 60% of the total outsourcing expenses. This factor is essential since it holds a substantial amount in the prevalent cost structure of IT outsourcing partnerships.

Key Destinations in the IT Services Outsourcing Market:

In the global IT services outsourcing market some prominent countries appeared as leaders in conducting outsourcing operations which include India, China, Malaysia, Indonesia, Vietnam, Philippines, Bulgaria, Ukraine, Poland, Romania, Hungary, Czech Republic, Slovakia, Brazil, Mexico, and South Africa. These nations outsource technical expertise as per their individual needs and try to stand out in the competitive IT services market.

Price Determining Factors in the IT Services Outsourcing Market:

The IT services outsourcing market constitutes various price-determining factors, that help in making a balance between the relations of businesses and IT services providers. The first factor is customer maturity, which helps outsourcing solution providers examine the experience and expertise of consumer organizations.

Another consideration is contract size in which the scope and length of outsourcing accords affect pricing formats. Further, the type of outsourcing service is the next factor, since complex services can expense more to companies. Additionally, the supplier relationship price factor determines, how nicely outsourcing solution suppliers and their customers are managing their relations.

Moreover, in the last price-determining factor, companies check the abilities, skills, and experience of the providers, from whom they are obtaining outsourcing services.

Contract Period in the IT Services Outsourcing Market:

The IT services outsourcing market consist of two types of contracts. The first contract lasts for 3-5 years, which companies usually prefer when they work with any service provider for the first time to check their knowledge. The other contract lasts for more than 5 years, which organizations employ when they want to pursue a long-term project with the outsourcing service providers.

Leading Suppliers of the IT Services Outsourcing Market:

Numerous reputable businesses are meeting the global demands for IT outsourcing services, which include Accenture, Capgemini, Cognizant, Fujitsu, HP Enterprise, IBM, Infosys, NTT Data, Tata Consultancy Services, and Dxc Technology.