An Update: the European IT Outsourcing Market

Catching up after a long absence from SSON column, I thought I would share with you my 10 main take-aways from what is to me the most extensive and representative survey dedicated to IT outsourcing in Europe. The survey is conducted every year by Whitelane Research in 14 different European countries. In 2014 it covered 4,217 unique IT outsourcing contracts from 1,470 top IT spending organizations across all industry sectors, for a total contract value of more than €40 billion. So what do we learn from that huge collection of data? 1. The first thing we learn is that if there is one activity that shows no sign of slowdown in Europe, it is IT outsourcing: 36% of survey participants said they would continue outsourcing to the same extent in the coming years, and 43% said they would outsource more. 2. But the expected market growth is not even across countries. For those of you eager to expand business in Europe, the top 5 markets with above average expected growth in IT outsourcing are: % respondents with plans to outsource more France Spain Denmark Austria & Switzerland Netherlands 52% 51% 47% 44% 43% 3. Expected growth rate is also uneven across functional domains. Together with "Application development, maintenance and testing"," Data center/application hosting", are the IT outsourcing domains where we can expect the biggest growth. % respondents that will grow outsourcing Application development, maintenance and testing Data center / application hosting Network and telecommunications End-user services 25% 22% 13% 18% 4. Turning to the strategic drivers of that growth in IT outsourcing, although cost reduction remains the primary reason for outsourcing overall, non-financial drivers gain in importance - indicating a growing maturity of the market: Drivers of IT outsourcing 2014 survey 2013 survey Cost reduction Focus on core business Access to resources Improvement of service quality Business transformation More financial flexibility More transparency on costs 63% 56% 44% 43% 34% 31% 17% 69% 52% 47% 43% 25% 35% 18% 5. Looking beyond averages, there seem to be two stories behind the growth in IT outsourcing in Europe. While in some countries, clients remain very much focused on cost reduction – that is Austria, Switzerland, France and Germany – in other countries, focusing on a company’s core business has taken over as most important driver of IT outsourcing. That is the case in the Netherlands, the UK, Denmark, and Belgium, where cost reduction takes only a second seat in new IT outsourcing decisions. 6. But whatever the drivers, it is hard to imagine why the market would not continue to grow when we know that the average satisfaction level of client companies in Europe is 70/100, and only 11% of clients surveyed indicated they were not satisfied with their service provider(s). Despite all the negative press, it seems like outsourcing does work … 7. Europe-wide, the podium of IT service providers by client satisfaction score is dominated by Indian and global providers. But the European Top 10 hides important nuances at individual country level. In most markets large global players co-exist with smaller local providers. And thanks to differentiated strategies, both can reach high levels of satisfaction: While clients of global providers value the global delivery capabilities and low cost options; local providers can play the card of proximity and responsiveness to local needs. Top 10 IT service providers in Europe (by client satisfaction) TCS Cognizant Computacenter Accenture Tech Mahindra Infosys Wipro Atos Capgemini Orange Business Services 8. Looking at specific KPIs behind client satisfaction, service providers tend to score high on service delivery quality, reporting quality, and account management. But the one area for improvement that clearly stands out is pro-activity. 9. One notable exception to the low pro-activity complaint is Tata Consultancy Services. TCS actually emerges as the big winner of Whitelane study, scoring the highest on general client satisfaction and on most individual KPIs assessed. 10. Turning to sourcing capabilities of client companies, there seems to be a lot of room for improvement in the areas of transition & change management, and governance and supplier management. No wonder then that clients need help to succeed in these critical stages of any outsourcing deal, and regret that providers do not show more pro-activity in the matter. As a faculty member in a business school, I take this as an action item: helping client companies develop the necessary outsourcing capabilities, and helping providers meet the needs of clients to leverage the growth of outsourcing in Europe. For more information on the survey methodology and results: http://whitelane.com/research/ [inlinead]

An Update: the European IT Outsourcing Market

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