IT outsourcing to surge in 2021
The COVID-19 pandemic is driving digital transformation, which in turn accelerates technology outsourcing.As COVID-19 brought the worldwide economy to a sudden and screeching halt, businesses of all shapes and sizes found themselves adrift in uncharted waters. To stay afloat, most businesses dramatically accelerated their digital transformation efforts.
In typical times, this also would have led to an increased reliance on IT outsourcers, according to a survey by the Boston Consulting Group of 200 selected companies across industries.
"Many companies were forced to take unprecedented steps to survive: 79% said that they asked service providers for help in some form, such as longer payment terms (47%), price reductions (45%), or free support for more processes or additional services (41%)," the survey authors said in a blog post about the survey.
But, like most everything else in 2020, what one would expect to happen, did not. Because of the fear, uncertainty and doubt sowed by the pandemic, businesses began hoarding cash, while cutting expenses to the bare minimum. These efforts were not uniform, however.
To manage the transition to remote work and online customer engagement and order fulfillment, many businesses increased spending on cloud, particularly software as a service (SaaS). (The now-familiar headlines of video conferencing provider Zoom growing by 300% almost overnight were hard to miss.)
This continued through the first three quarters of 2020 but began to turnaround late last year, as the global economy became more predictable, said Kevin Parikh, CEO of Avasant, an outsourcing advisory and management consulting firm.
"Shock and awe and fear happened in [first three] quarters of 2020. And then there was a recognition that big investments were needed in the fourth quarter to transform, to survive. I have one client who told me they went from zero to 50,000 global video calls a day — 50,000 a day — by flipping a switch," he said.
Cuts in IT outsourcing spend due to the pandemic eased from $83 billion in the spring to $31 billion at the end of 2020, said Gunjan Gupta, a principal research analyst at Gartner.
"Some of the service providers, they are reporting even double-digit growth," she said. "I think the acceleration is going to continue for the rest of 2021 and 2022."
Global IT spending on end-user services is forecast to grow 4.4% to $1.19 trillion in 2021, according to Gupta. This is compared to a spending reduction of 2.6% in 2020. That is just the tip of a very big iceberg.
After contracting 4.6% in 2020 to $490 billion, worldwide IT spending on consulting and implementation services are predicted to experience a 4.5% CAGR through 2024. While worldwide spending on IT-centric managed services, infrastructure, and application support, which decreased 1.1% in 2020 to $475 billion, will see a CAGR of 5.3% through 2024.
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