The State of IT Outsourcing under Covid-19

2020 was not an easy year for all of us, due to the Covid-19 pandemic, massive lockdowns, global economic decline and, as a result, many businesses were busted or had to survive somehow. IT industry is no exception as a wide range of businesses cut down expenses on the development, freeze the development of new products. Therefore, outsourcing companies are also experiencing a marked decrease in their revenues. In this article, we will have a look into the Covid-19 impact on IT outsourcing and the perspectives of IT outsourcing in 2021.

The Influence of COVID-19 on IT Outsourcing Market

The world is facing global economic losses in almost every industry. In the World Economic Situation and Prospects report, the UN’s Department of Economic and Social Affairs (DESA) forecasted the growth of the global economy from 1.8% to 2.5% at the beginning of 2020. However, with the Covid-19 emergence, the report projected its significant fall to -3.2% which is “the sharpest contraction since the Great Depression in the 1930s”.

The statistic reveals how seriously the pandemic has affected the global economy with 1-st, and in some countries, 2-nd wave lockdowns. It has significantly decreased consumer demand, caused disruptions in supply chains, and triggered job losses in customer service niches.

IT outsourcing hasn’t become an exception and also faced the negative impact of Covid-19. According to Gartner’s analysis, the spendings on IT worldwide experience a -7.3% decline since 2019 and amount to a total of $3.5 trillion in 2020, with IT Services having a -6.8% reduction and $1,4 million. Statista shares some more data on IT Services with a Pre-Coronavirus prediction of 3.2% growth, and a forecast of -2.6% in May 2020, and -2.2% decline in September 2020.

Though IT Services were adversely affected by the pandemic as many companies have dramatically reduced the spendings on their IT projects and consulting services, it still shows better results than travel and hospitality services.

Almost every industry segment is experiencing a decline. However, those companies that have a major online presence and well-established digital infrastructure are more easily coping with Covid-19 adverse effects than those that have only brick-and-mortar establishments, states the Mid-2020 DESA’sreport. This will lead to deeper business digitization in the future.

From Deceleration to Growth

The state of decline can’t last forever. With the easing of lockdown restrictions and the development of Covid-19 vaccines (and there are at least 5 already authorized and 10 more are in development), economists predict improvements in many spheres in the near future.

The UN DESA states that three scenarios of the world economic growth have been developed: the pessimistic forecasts the economy recovery only by 0.5% at the beginning of 2021, the baseline scenario predicts a 4.1% growth in 2021 and the optimistic forecast shows a more robust recovery with 6.1%.

As to IT Services, Gartner expects a 4.3% growth of overall IT spendings worldwide with a 5.5% increase in IT services in 2021.

Forbes haslisted a number of tendencies that indicate the change to growth in the service market in 2021:

• Bookings for services in 2021 are at their record levels
• Number of deals and size of transactions with service providers is rising
• Consulting market has started to recover
• Number of cloud services is growing rapidly.

Now, businesses are experiencing the phase of practical digital transformation, moving from the experimentation phase that was happening at the beginning of the Covid-19 crisis.

This practical phase involves the reduction of costs and the achievement of an immediate impact. It means that many businesses want to improve their positions in the market by using only secure tools that can guarantee an increase in profits and the number of clients. As a result, businesses will face changes in the service market in 2021.

Market Implications for IT Outsourcing Services in 2021

What are the main changes that businesses will face in the upcoming year in the IT service sphere? Here are some of the predictions for 2021.

Deeper engagement

Most companies will have to make a greater effort to ensure their customers in the success of the developed product. For this, they need to better define product outcomes and deliver high-quality solutions in shorter periods.

All of this is possible only when software developers implement continuous delivery platforms, latest technologies, top-notch development tools, incorporate customer work-flows, analytics, Dev-Ops processes, and real-time tracking of each business step.

Increase in IT outsourcing services

Outsourcing will become a more affordable service for startups, small and medium-sized businesses. It’ll help companies to minimize their development costs while making their products unique.

Meanwhile, medium-sized and big companies will use more staff augmentation services that will back up the IT operations in a company, starting from app development, ending to system management.

Better risk management

The pandemic has raised anxiety about the market’s future, therefore, outsourcing companies have to provide enhanced risk management services, including incident management, cyber risks, disaster recovery, business continuity forecasts, and others. For this, they should develop better-integrated frameworks that would help them to manage and control various forms of risks in the post-pandemic world.

New contraction models

With the deeper engagement of outsourcing companies into the development processes, the standardized time-money contracts are likely to transform into partnership-oriented ones. It means that they will prioritize the app development outcomes and risk mitigation while sharing the profits based on the developed solutions with the outsourcing vendors. The advantages of such contracts involve better transparency, reduced costs of ownership, and increased development speed and agility.

Summary & Outlook

The covid-19 pandemic has changed our lives and the way we conduct businesses forever. Now companies are becoming more cautious about their budget spendings and ready to invest only in the solutions that guarantee stable revenue increase and the number of buyers.

IT outsourcing companies also have to adjust to the world changes. Therefore, in the near future, businesses that outsource their software and app development can expect from their IT outsourcing partners deeper project engagement, enhanced risk management strategies, and even new contract models.