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ISG Momentum® Market Trends & Insights 2018 Service Line Report

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by Paul Reynolds
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The general trend of enterprises pursuing digital transformation and the more specific enterprise desire to automate various business processes are helping outsourcing adoption in almost all BPO and ITO service lines. 2017 was a strong year for outsourcing contract volume and spending, and most service lines had positive momentum in the first half of 2018. Each service line has its own business conditions, outsourcing opportunities and obstacles, and contracting trends, but ISG found several consistent influences. Most notable is the desire for innovative automation and enhanced intelligence to be built into systems and processes.

The ITO market produced its best year-over-year contract award growth rate in a decade in 2017, and the BPO market had the fourth-most contract awards ever, despite a slight decline in volume. ISG also identified more outsourcing contracts with the cloud in scope in 2017 than in any other year. Highlights for the individual service lines profiled in this report are presented below.

Application Development & Maintenance (ADM) – This service line is perhaps the biggest beneficiary of the widespread enterprise desire to transform and innovate. Companies are expanding their ADM outsourcing to support their transformation efforts, which contributed to 29 percent growth in standalone contract award volume and an 18 percent rise in cumulative annual contract value in 2017. There were many new ADM engagements related to redeveloping or migrating enterprise applications to run in hosted environments, enabling apps and services with artificial intelligence, and automating application testing and support functions.

Data Center – The mainframe services market is very strong and both mainframe and server support services had positive momentum in the first half of 2018. Clients are motivated to outsource their mainframe, server and other data center services so they can take advantage of new types of automation that are now being offered, many of which use analytics and cognitive technology to prevent incidents.

Managed Network Services (MNS) – Many of the innovations occurring today are delivered over networks, and the MNS service line is benefiting. Many clients believe they need to be involved in Internet of Things systems and separately want to expand their cloud infrastructure. These developments have led to increased outsourcing to MNS providers, which have expanded their services to include more software-defined network (SDN) and network function virtualization (NFV) offerings and enhanced security.

Workplace Services – The scope and diversity of offerings in this service line have increased significantly and now include many innovative options to encourage enterprise collaboration. Outsourcing activity increased considerably in the first half of 2018 after a relatively quiet 2017.

Finance & Accounting Outsourcing (FAO) – This service line also had strong first-half 2018 momentum. Clients want to apply robotic process automation (RPA) and blockchain to many transactional and data entry processes, while also making more use of analytics to make the CFO function more strategic and forward-looking.

Human Resources Outsourcing (HRO) – There was a rise in standalone contracts awarded for various functions that make up the human resources outsourcing category. It is now quite common for enterprise clients to use SaaS HRO solutions, and adoption is also increasing for RPA, chatbots, cognitive intelligence and AI.

Procurement – RPA and analytics are prominent components of procurement outsourcing solutions. Contract awards declined in 2017, but the Americas region was leading a market rebound in early 2018.

Engineering Services Outsourcing (ESO) – Similar to the ADM market, ESO service providers are benefiting from the desire for more intelligence and automation to be embedded in processes and products. Many clients are deciding how they should reorganize their engineering operations, which gives service providers an opportunity to support clients with consulting in addition to traditional engineering services.

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