State of IT Outsourcing (2024)

IT outsourcing is the most in-demand form of business process outsourcing in the UK. The market continues to grow rapidly, with revenue projected to reach $39 billion in 2024. So, what is the current state of the IT outsourcing industry in the UK? Our team investigated the latest trends and research to find out more.

IT outsourcing is firmly established as a pivotal business strategy for companies, especially small and medium-sized enterprises (SMEs), to maintain competitiveness and unlock access to innovation.

As businesses increasingly rely on digital solutions, the demand for specialised IT services has soared. IT outsourcing allows companies to access top-tier technology and expertise without the substantial overheads associated with in-house teams.

IT & Technology is in Demand

• IT Support (75%)
• Software Application & Development (69%)
• HR (44%)
• Finance & Accounting (44%)
• Facilities Management (31%)
• Contact Centre (25%)
• Cyber-Security (25%)
• Logistics (19%)
• Risk and Compliance (13%)

What are the Key Trends in IT Outsourcing?

Market Growth

Is the IT Outsourcing market growing in 2024? Data from several sources suggests that it is in demand and growing.

• The IT outsourcing market in the UK is projected to grow annually by 9.53% from 2024 to 2029, reaching nearly £32 billion (Statista.com).
• Almost a third (32%) of UK businesses anticipate increasing their outsourcing efforts over the next two years (PA Consulting).
• 63% of UK organisations plan to continue or increase outsourcing over the next 12 months, with nearly a third planning to spend more (PA Consulting).
• Investment from the public sector and financial services is also growing. 83% of public sector organisations and 62% of financial services firms cite access to talent as their main reason for outsourcing (PA Consulting).

Technology Advancements

Governments and corporations increasingly recognise the strategic importance of investing in advanced technologies such as artificial intelligence (AI) to foster growth, improve efficiency, and meet net-zero commitments.

According to Tech UK, the rising adoption of AI, the Internet of Things (IoT), and enterprise cloud computing is driving demand for higher computing capacity and extensive data storage. This surge in digital data generation and consumption necessitates significant investment in digital infrastructure, including data centres and tower infrastructure, which are essential for supporting the digital economy.

Access to Talent

Despite the exponential rise of AI and machine learning, access to talent is a key driver of business decisions.

Growth areas such as blockchain technology and cybersecurity are fuelling this demand.

Blockchain Growth

Blockchain technology will continue to increase in 2024. The need for blockchain expertise is driving companies to outsource IT services to access skilled professionals who can implement and manage blockchain solutions.

With blockchain's emphasis on security, businesses are outsourcing to ensure compliance with regulatory standards and to mitigate risks associated with blockchain technology. This is particularly evident in the UK where the FCA has been actively working on detailed regulation.

As blockchain technology continues to evolve, its integration into business operations is likely to further stimulate the growth of IT outsourcing and demand for talent.

Cybersecurity Prioritisation

As cybersecurity becomes a higher priority, businesses increasingly turn to experts to safeguard their data. The growing frequency and sophistication of cyber threats drive this shift. According to a recent Deloitte survey, 70% of boards regularly discuss cybersecurity issues, highlighting its critical importance at the highest levels of corporate governance.

This heightened focus on cybersecurity reflects the need for robust protective measures and comprehensive strategies to manage and mitigate risks. Consequently, many organisations outsource their cybersecurity needs to specialised firms offering advanced protection and compliance with regulatory standards.

Related: The Future of Data Security in Outsourcing

Why do SMEs Find IT Outsourcing Valuable?

1. Cost Efficiency: One of the most significant advantages for SMEs is the potential for cost savings. IT outsourcing can reduce the need for in-house resources, lower operational costs, and eliminate substantial capital expenditures on IT infrastructure. This is particularly beneficial for SMEs operating with tighter budgets, allowing them to allocate resources to other critical business areas.
   
   
2. Access to Expertise: Outsourcing allows businesses to tap into a pool of specialised IT professionals who bring advanced skills and knowledge. This access ensures that SMEs stay updated with the latest technological advancements without the need for continuous in-house training.
   
   
3. Scalability: IT needs can fluctuate based on business growth, seasonal peaks, or specific project demands. Outsourcing allows SMEs to scale their IT operations up or down without the constraints or delays associated with scaling an in-house team. This scalability helps manage business cycles effectively.
   
   
4. Focus on Core Activities: Outsourcing IT functions enables SMEs to focus more on their core business activities rather than being bogged down by complex IT challenges. This means business owners can spend more time on strategic growth initiatives rather than managing IT issues.
   
   
5. Risk Management and Compliance: IT outsourcing companies generally have robust security measures and are up-to-date with compliance requirements, which can be cumbersome and complex for SMEs to manage independently. By outsourcing, SMEs benefit from enterprise-level security and compliance measures, protecting them against cyber threats and reducing the risk of data breaches.
   
   
6. Improved Service Quality and Innovation: Outsourcing partners specialising in IT continuously update their skills and technologies to stay competitive. As a result, SMEs benefit from improvements in service quality and efficiency. Additionally, these firms often offer innovative solutions that an internal team might not have considered.
   
   
7. Reduced Downtime and Enhanced Support: Professional IT outsourcing firms typically provide round-the-clock support and proactive maintenance, which can significantly reduce system downtime. This continuous support ensures that IT systems are reliable and issues are resolved quickly, minimising disruptions to business operations.

Key Considerations for SMEs

So, how can SMEs take advantage of IT outsourcing in 2024 to remain competitive?

• Utilise outsourcing to access specialised IT skills, reduce costs, and ensure scalability.
• Delegate non-core functions like IT support, software development, and cybersecurity to external experts.
• Embrace technologies like AI, Internet of Things (IoT), and cloud computing to improve efficiency and drive innovation.
• Prioritise cybersecurity to protect data and comply with regulations.
• Choose outsourcing providers based on expertise, security measures, cost transparency, and service quality.
• Keep up with industry trends and adapt to changing market demands.

How do you Choose the Right IT Outsourcing Provider?

Selecting an IT outsourcing provider is a critical decision that can significantly impact your business. Here are some key factors to consider:

1. Assess Your Needs: Before engaging an outsourcing partner, it's essential to clearly define your business objectives and the scope of services required. What IT functions are you outsourcing? Are you looking for complete managed services or just specific tasks like application maintenance, cybersecurity or infrastructure management? Clear definitions help set realistic expectations and ensure both parties understand the deliverables.
   
   
2. Evaluate Provider Expertise: Evaluate potential outsourcing partners based on their expertise in the specific IT services you need. Look at their track record, certifications, client testimonials, and case studies. The vendor's reputation in the industry, stability, and years of experience are vital indicators of their ability to deliver.
   
   
3. Data Security Measures: Given the potential risks associated with handling data and IT operations, ensure that the outsourcing provider adheres to stringent security standards and compliance requirements relevant to your industry, such as GDPR.
   
   
4. Communication and Support: Effective communication is crucial in any outsourcing relationship. Consider your outsourcing partner's communication channels and language capabilities, especially if you're outsourcing to a foreign country. Partners should offer round-the-clock support to give you the resilience you need.
   
   
5. Cost Transparency: While cost reduction is a common motivation for outsourcing, it's important to understand the pricing models and cost structures vendors propose. Ensure these align with your budget and reflect a fair value for the services you'll receive. Be cautious of very low bids as they may not provide quality service.
   
   
6. Contract Terms and Flexibility: Opt for providers that offer trial periods or pilot projects. Also, the contract should be comprehensive, outlining the services provided, service level agreements (SLAs), compliance standards, confidentiality clauses, and terms for contract termination or renewal. Ensure the contract allows flexibility to scale services up or down based on your business needs.
   
   
7. Management and Reporting: Establish what reporting procedures are needed with your outsourcing partner. Regular updates, reviews, and audits will help you monitor performance against SLAs and maintain control over the outsourced functions.
   
   
8. Long-Term Strategic Fit: Evaluate how the outsourcing relationship fits your long-term strategic goals. An ideal outsourcing partner should address immediate business needs and support your future growth and adaptation in the rapidly evolving IT landscape.

Final Thoughts

IT outsourcing is a strategic move that offers numerous benefits for UK SMEs, from cost savings to accessing specialised expertise. As the market continues to grow, businesses must carefully select their outsourcing partners to ensure they meet their specific needs and maintain high service standards. By doing so, SMEs can leverage outsourcing to drive efficiency, innovation, and growth in an increasingly competitive landscape.

Four years after the pandemic, the changes are still pivotal in transforming the outsourcing industry, making it more resilient and adaptive. Today, businesses are not just looking for cost savings but also for partners who can provide strategic value and drive innovation. As regulations become more complex, there is a growing need for a streamlined approach to manage outsourcing practices efficiently.

Considering these factors, how can your business benefit from IT outsourcing? Have you assessed your current IT needs and explored the potential of partnering with a specialised provider?

Key Questions to Consider

• How can your business benefit from IT outsourcing?
• Have you assessed your current IT needs and explored the potential of partnering with a specialised provider?
• Are you leveraging IT outsourcing to drive efficiency and innovation within your company?
• What steps are you taking to ensure data security and regulatory compliance when outsourcing IT services?
• How are you measuring the performance and success of your IT partnerships?

Read our ultimate guide to business process outsourcing to learn more about outsourcing and whether it's right for your business.