The Big Comeback: IT Outsourcing Contracts Resurge, According to Gartner

Two recent notable contracts indicate a resurgence of large-scale outsourcing agreements. Canada Post recently announced its agreement to transition its IT shared-service provider, Innovapost, to Deloitte Canada in order to enhance the delivery of digitally enabled offerings. Additionally, Vodafone revealed a 10-year, $1.5 billion deal with Microsoft to support digital platforms across Europe and Africa for over 300 million businesses, public sector organizations, and consumers.

According to Gartner’s John-David Lovelock, these contracts signify the beginning of a trend in major IT outsourcing. Lovelock emphasized that CIOs are facing significant challenges in recruiting and retaining employees due to the “great resignation” experienced by many companies. The desired IT skill sets are increasingly being sought after by technology providers, making it more difficult for organizations to bridge the technology skills gap.

Lovelock acknowledged that technology is playing an increasingly crucial role in various industries, transitioning from a back-office function to a revenue-generating one. However, finding the right talent to develop the required technology for digitally driven business initiatives is becoming increasingly challenging. As a result, Lovelock suggested that organizations should consider comprehensive outsourcing as a long-term solution, as short-term, small-scale outsourcing deals may not adequately address the skills shortage.

Lovelock predicts that by 2027, most industries will spend 50% more on IT contractors than on internal IT staff, driven by the CIO’s struggle to retain highly skilled employees. He noted that the demand for higher skillsets will continue to grow with the emergence of new technologies.

Gartner’s latest forecast indicates that IT services will experience significant growth in 2024, becoming the largest segment of IT spending for the first time. This growth is primarily attributed to companies investing in projects focused on organizational efficiency and optimization during a period of economic uncertainty.

While some companies with notable tech innovation may be able to attract and retain top tech talent, Lovelock suggests that companies facing hiring challenges tend to view IT purely as an expense and opt for short-term solutions, such as hiring IT contractors. Smaller firms may find it easier to secure such contracts, while larger IT service providers may see them as an entry point to larger discussions and opportunities.

Lovelock emphasized that the return of IT outsourcing contracts alters the role of the CIO. Instead of solely deciding on strategic direction and technology implementation, CIOs must now also manage the people who are responsible for implementing and running the technology on behalf of the company.

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