As-A-Service Models Leading to Decline of Traditional Outsourcing

As-a-service contract value increased 38% in the fourth quarter of 2016, while traditional IT and business process outsourcing market declined by 25%.

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Digital technologies are driving today’s sourcing industry, with as-a-service offerings beginning to outpace traditional outsourcing, according to Information Services Group’s (ISG) annual report.

The report shows that as-a-service contract value increased 38% in the 4Q16, while the traditional IT and business process outsourcing market declined by 25%. Together, they produced $9.6 billion in contracts value.

As-a-service, which includes both software- and infrastructure-as-a-service options, now represents nearly 40% of global annual sourcing contract value (ACV).

Within as-a-service, says the report, Infrastructure-as-a-Service (IaaS) has outpaced software-as-a-service (SaaS). In the fourth quarter alone, IaaS ACV was three times that of SaaS.

What is worrying outsourcers is the decline in the number of mega deals, with ISG saying that it expects the trend to continue going forward.

Enterprises are increasingly embracing the digital opportunity to transform their operations, enhance their engagement with customers, and better leverage their connections with suppliers, according to ISG President John Keppel.

As technologies changed, so have expectations. Enterprises are increasingly hoping that their sourcing partners will help them achieve speed, mobility, innovation, and increased productivity.

With more services moving to the Cloud, traditional IT outsourcing service providers are scrambling to reform their business models.

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For the traditional sourcing providers, the good news is banks are looking content with their service, with the share of financial services in their revenue increasing 12% last year.

The healthcare industry is also handing out a lot of contracts to outsourcers. Changing laws with regard to Medicare compliance, coupled with new opportunities in care and claims management, are driving healthcare providers towards outsourcers.

By service type, ITO posted $3.2 billion of ACV for the quarter, while the BPO market generated $2 billion in contract value.

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