Focus of near-term outsourcing boom rings alarm bells for traditional revenues

Outsourcing investments continue to grow as enterprises wrestle with the need to flex rapidly to meet changing demands. Significantly, our chart shows the greatest plans for increases in investment in outsourcing is in services supporting the technologies that prepare the way for more work to be automated, in processes running in the cloud: IT infrastructure (including Cloud), Cyber Security, large scale ERP, SaaS implementations, and application development and maintenance. The data comes from the latest HFS Research Pulse Survey (H2 2021), which surveyed 600 enterprise leaders working in Global 2000 companies.

• 75% of businesses with revenues of under $5b, and 67% of businesses with revenues over $5b, expect to increase their spend on outsourcing for IT infrastructure (including Cloud), by 5-20%.
• Comparatively smaller enterprises (sub $5bn in revenue) are leading the way across the board. The gap in planned investment vs their larger ($5b+) rivals is greatest in IT testing (24 points) and cyber security (22 points).
• Pulse Survey data shows the ‘smaller’ companies are also planning to increase their investment in IT by marginally more than larger rivals (64.6% are increasing budget by 5-20% vs 63.9% of the +$5bn enterprises) – suggesting they are not outsourcing instead of modernising, rather that they are having to catch-up with moves made earlier by larger competitors.

The Bottom Line: Expect a near-term boom in outsourcing tech and a body blow to traditional transactional and commoditized work

Plans for fast-rising investments in outsourcing technologies suggest a booming short-term future for the industry. But the focus of that spend also threatens the viability of more traditional outsourcing. Enterprises are investing in outsourcing activities which lay the foundations for placing more of their processes in the cloud, and in turn automating transactional and commoditized outsourcing work within F&A, payroll and HR.