April 13, 2025
Managing Partner
Despite predictions to the contrary, tech outsourcing remains a vital business strategy. Seventy percent of companies currently leverage it, and 84 percent plan to maintain or expand these arrangements.
Tech companies will increase the outsourcing market to $955 billion by 2028 as they increasingly leverage external partners for competitive advantage. Santiago & Company's research reveals five critical actions for successful outsourcing that drive cost reduction, operational efficiency, and sustainable growth in today's technology landscape.
Tech outsourcing remains a cornerstone of modern business strategy. Santiago & Company's recent survey of nearly 230 technology executives reveals that 76% of companies continue to leverage outsourcing, with 84% planning to maintain or expand these arrangements over the next year and a half. Broader market projections align with this and indicate the global outsourcing market will reach $769.7 billion in 2024 and grow to $904.9 billion by 2027 at a compound annual growth rate of 5.54%.
While some companies pursue outsourcing to address capability gaps or enhance quality, cost reduction and efficiency gains drive more than half of outsourcing decisions. The financial benefits are compelling – companies typically report average cost savings of 18-35% through outsourcing. Additionally, outsourcing enables organizations to redirect resources toward innovation and research, boosting these investments by an average of 13%.
Achieving these desired outcomes requires clear objectives paired with disciplined execution. Through extensive client engagements, we've identified five critical actions that consistently lead to successful outsourcing initiatives.
Begin by determining which technological capabilities differentiate your organization and should remain in-house. This critical first step requires an honest assessment of where your technology must be world-class and where cost efficiency takes precedence. One UK business process provider, illustrates this approach by retaining product engineering as a core advantage while outsourcing technical support to lower-cost partners. Competitive advantages vary across companies, but identifying, maintaining, and developing these key capabilities establishes the foundation for long-term outsourcing success.
Analysts projected the IT outsourcing market to reach $512.5 billion by the end of 2024 and grow at a compound annual rate of nearly 11% to reach $777.7 billion by 2028. Banking, financial services, insurance, healthcare, and IT/telecom generate the most significant revenues for IT outsourcing, with the BFSI industry alone accounting for 30.29% of the sector's total value – approximately $155 billion in 2024.
Understand your management limitations and maintain sufficient in-house expertise to oversee service providers effectively. Establish clear responsibility boundaries. Your provider may control solution architecture, which must align with your enterprise objectives. Measure performance using your metrics rather than theirs to maintain control and prevent vendor lock-in.
A large utility succeeded by bringing critical control functions, particularly service management, back in-house when disaggregating a complex outsourcing arrangement. This approach reflects a growing trend, with 58% of enterprises expected to move from concentrated service locations to a more diversified presence. This shift enables better control while still leveraging the benefits of outsourcing.
Rather than addressing isolated challenges, ensure outsourcing arrangements integrate seamlessly with your organization's structure and processes. A leading global insurance market exemplified this approach when outsourcing technology and transformation functions by evaluating sole-source, champion-challenger, and best-of-breed models across all capabilities to determine which best supported its strategic priorities.
This holistic view is increasingly vital as technologies evolve. For instance, robotic process automation (RPA) is transforming the outsourcing landscape, with 40% of companies expected to integrate RPA into their processes by 2026. Additionally, approximately 40% of companies now leverage artificial intelligence for various outsourced tasks, including customer service, data entry, and decision-making processes.
Many providers, especially hyperscalers, frame their offerings around cloud migration, data monetization, and AI potential. However, it's crucial to understand precisely what you're contracting. Is it genuinely digital and data transformation or merely infrastructure? After extensive discussions about cloud transformation and data strategy, a bank's chief operating officer discovered that a hyperscaler's proposal amounted to little more than cloud capacity and professional services, leaving all delivery risk with the bank.
This clarity becomes even more critical considering the rise of cloud-based outsourcing, which offers businesses flexibility, scalability, and cost-efficiency. Leading cloud providers now offer robust security measures and high reliability, ensuring data protection and minimizing downtime. However, organizations must still carefully evaluate what they're purchasing beyond the marketing language.
Even the strongest strategy falters without proper execution, and most value leakage occurs during implementation. Begin planning early, allowing adequate time for due diligence and negotiations. Assemble a capable team to manage the sourcing process and ongoing vendor oversight.
When employees are affected, recognize that signing the deal represents just the beginning. Develop comprehensive plans for consultations, smooth transitions, and enhanced support during initial phases. Clear communication and continuous sentiment tracking across all teams remain vital for success, particularly given that 47% of companies report significant improvements in process efficiency due to automation in outsourcing.
Numerous success stories across industries demonstrate the value of strategic outsourcing. CitiGroup moved over 11,000 jobs offshore in 2012, saving over $1 billion annually while developing highly trained teams in global centers of excellence. Similarly, WhatsApp leveraged Eastern European developers with just 30 employees to build its application, which was later sold to Facebook for $19 billion.
Now used by over 8 million active users daily, Slack owes much of its success to outsourcing its development to MetaLab. This user-interface design firm collaborated to create the software from the ground up. These cases demonstrate that well-executed outsourcing can create tremendous value when followed by the abovementioned five principles.
As cost pressures intensify and technology evolves rapidly, strategic outsourcing offers a path to sustainable savings and superior service delivery. By implementing these five actions, organizations can unlock more excellent value and ensure their outsourcing partnerships drive enduring success in an increasingly competitive global landscape.
In conclusion, the modern tech outsourcing landscape is rapidly evolving, and companies that strategically identify their core competencies, ensure robust long-term control and adopt a holistic approach to IT delivery stand to gain significantly. As our analysis shows, targeted actions ranging from safeguarding your competitive advantages to clear, comprehensive planning are critical to harnessing the transformative potential of outsourcing. By understanding both the financial impact and the underlying industry trends, you can drive sustained innovation and operational excellence.
Ready to Transform Your Tech Outsourcing Strategy?
Connect with us to explore how you can implement these five actionable steps to boost efficiency, mitigate risks, and unlock new growth opportunities. Schedule a consultation today, and let our expert team guide you toward a smarter, more resilient outsourcing model that positions your business for long-term success.
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