IT Outsourcing Surges Amidst Global Uncertainties

Outsourcing spending as a percentage of the IT operational budget is the highest it has been in the last five years. Organizations are accelerating their strategic plans in response to the continued economic uncertainty and social instability. They are looking to strategic partners to ensure business continuity.

Outsourcing has provided much-needed support for IT departments as they move to become more resilient, flexible, and responsive while reducing downtime. IT leaders expect to increase their outsourcing budgets this year, according to our new IT Outsourcing Statistics 2023 study. As shown in Figure 1 from our full study, for organizations that outsource IT work, the percentage of their IT operational budget going to service providers rose to 8.1%, from 5.6% in 2022.

One reason organizations continue to increase their outsourcing budgets is to facilitate digital transformation. The pandemic showed the importance of digital business models, as nearly every part of the economy required remote or virtual access. Customer behavior and expectations are likely changed forever. This requires an omnichannel, hyper-personalized experience driven by digital technologies. Finding strategic partners to aid in digital transformation is certainly a priority for many. And simply “getting out of the data center business” so that IT can concentrate on these higher-value efforts is another factor.

“In the current economic climate, saving money is certainly one of the objectives for outsourcing,” said Reneece Sterling, research analyst for Computer Economics, a service of Avasant Research, based in Los Angeles. “But greater motivation is to take advantage of the agility that a strong  partner can bring.”

Here are other key findings from our study this year:

• • Network operations outsourcing has increased the most in terms of frequency, which is the percentage of companies outsourcing a particular function. About 48% of companies now outsource at least some of their network operations, compared with 40% last year. Outsourcing this function is moderately cost-effective and has a high service success experience.
  • Application development is the most frequently outsourced function in the study. Around 64% of organizations outsource some or all of this function.
  • Help desk, and desktop support are the top IT functions for reducing costs through outsourcing. The economies of scale that service providers offer make these areas good opportunities for cost savings.
  • The functions with the greatest potential for improving service through outsourcing are web operations, cloud infrastructure management, and data center operations. These are good examples where the incentive to outsource may not just be about saving money but on doing things better.
  • The outsourcing of web operations delivers the best value when looking at both cost and service delivery.

In the full study, we profile outsourcing activity for 11 IT functions: application development, application management, cloud infrastructure management, data center operations, desktop support, disaster recovery services, help desk services, IT security, network operations, system implementation/integration, and web operations.

For each IT function, we measure the frequency and level of outsourcing. We also look at the current plans of IT organizations to increase or decrease the amount of work they outsource. Finally, we examine the customer experience to assess whether organizations are successfully lowering costs or improving service through outsourcing.

This Research Byte is a brief overview of our report on this subject, IT Outsourcing Statistics 2023. The full report is available at no charge for our subscribers, or it may be purchased by non-clients directly from our website (click for pricing).