ISG: Conditions Align for Outsourcing to Grow Significantly in Five Industries

ISG: Conditions Align for Outsourcing to Grow Significantly in Five Industries

Trending Data Predicts Consumer Durables, Oil & Gas Operations, Insurance, Banking and Utilities Could Quickly Expand Outsourcing, New Report Finds
 Outsourcing activity is set to expand significantly in five major vertical industries consumer durables, oil and gas operations, insurance, banking and utilities according to an extensive market analysis released today by Information Services Group (ISG) (NASDAQ: III), a leading technology insights, market intelligence and advisory services company.

Under ISG’s exclusive methodology, the five growth industries cited above were the only verticals to earn a “high” rating for both their potential for new outsourcing adoption and their potential for expanded outsourcing spending. ISG analyzes recent outsourcing adoption, spending changes by market participants, historical patterns of activity and current industry dynamics to arrive at its conclusions. Overall, ten different industries earned a high rating for new adoption potential and nine rated highly as expansion candidates, but only the five cited industries ranked highly in both categories.

The complete analysis is included in the new ISG Momentum Market Trends & Insights 2015 Vertical Report, which also presents exclusive data on outsourcing spending, recent contract awards, average per-company spending and the current outsourcing penetration rates for Forbes Global 2000 companies in 27 different vertical industries (see Figure 1 for summary data). The report, which measures outsourcing activity and spending by annual contract value (ACV) for the 12 months ended March 31, 2015, found current outsourcing penetration rates are at or near record levels for many vertical industries, however overall ACV declined by 4 percent during the period studied.

Digital disruption was a major factor in limiting overall spending. Many organizations recognize the need to build more automation and digitization into their internal and customer-facing operations and are acting on it, but many are not making long-term commitments to outsourcing agreements until they solidify their digital strategies. In addition, expansion of cloud computing, X-as-a-Service offerings and automation solutions continue to produce year-over-year price declines for many traditional outsourcing services, which further limits spending growth.

The five verticals that ranked as “high” for both outsourcing expansion and new adoption potential all exhibited strong demand for innovation and are looking to outsourcing service providers for ideas. Consumer durables, utilities and oil and gas companies have all shown strong interest in Internet of Things (IoT) and other innovations to drive down their production and distribution costs. Meanwhile banks and insurance companies are seeking innovation in mobile and online platforms for attracting and servicing customers, and in applying analytics to the data they collect.

“The drive to innovate, often by applying SMAC and other digital technologies, has produced an interesting array of projects and is leading companies to expand outsourcing, often to acquire new capabilities or to reduce time-to-market for new products and services,” said Paul Reynolds, chief research officer at ISG. “Each vertical is unique in how the themes of innovation and digitization are playing out and how outsourcing is being used. Because of these developments, we found opportunity in all verticals for outsourcing to help businesses in new ways, even within industries and companies where outsourcing is quite mature.”

Figure 1: Outsourcing Adoption Rates and Spending Changes by Vertical Industry

Vertical Industry Comparisons of Forbes Global 2000 Companies by
ACV Spending Classification

Vertical

Number of G2000 Companies

Percentage That Outsource

Y/Y Growth

Aerospace & Defense

20

70%

-7%

Banking

294

56%

-2%

Business Services & Supplies

44

70%

-15%

Capital Goods

64

47%

9%

Chemicals

69

54%

-7%

Conglomerates

39

64%

-14%

Construction

70

34%

12%

Consumer Durables

75

49%

-6%

Diversified Financials

177

27%

-15%

Drugs & Biotechnology

52

54%

-7%

Food Markets

34

59%

-8%

Food, Drink & Tobacco

86

41%

-14%

Healthcare Equipment & Services

39

49%

-14%

Hotels, Restaurants & Leisure

28

54%

-3%

Household & Personal Products

50

46%

-6%

Insurance

114

57%

1%

Materials

104

33%

-11%

Media

48

67%

-7%

Oil & Gas Operations

126

40%

3%

Retailing

71

49%

-4%

Semiconductors

29

31%

-31%

Software & Services

40

63%

-20%

Technology Hardware & Equipment

71

55%

-7%

Telecommunications Services

62

90%

-3%

Trading Companies

16

50%

309%

Transportation

68

59%

-10%

Utilities

110

52%

24%

Overall

2000

50%

-4%

Source: ISG Research

The data presented on outsourcing spending, penetration, contract activity and service provider market share are derived from the ISG Contract Database. The data are supplemented with information gleaned from interviews with outsourcing professionals and secondary research to put the data into perspective by identifying current outsourcing drivers and obstacles that are specific to each industry.

The 2015 Momentum Market Trends & Insights Vertical Report is part of a series of quarterly reports that focus on outsourcing activity by service line, vertical industry and geographic location.

To read the executive summary of this report or to learn about other Momentum services and information products, please visit www.isg-one.com/web/services/momentum/.

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

w

Connecting to %s