Global IT services growing at fastest pace ever: ISG Index

The ISG Index tracks the value of technology outsourcing contracts that are more than $5 million in annual contract value.
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The global market for technology and business services grew at its fastest pace ever in the quarter-ended September 2021, reaching a combined annual contract value (ACV) of $21.8 billion, up 40 percent over last year, according to technology advisory Information Services Group (ISG).

ISG tracks the global information technology (IT) market by following the value of commercial outsourcing contracts that are more than $5 million in ACV every quarter.

The combined market, which takes into account cloud-based 'as-a-service' and managed services markets, recorded a new high for ACVs for the fourth consecutive quarter, led by demand for cloud computing and digital transformation capabilities.

“This is a real structural shift for the market as enterprise customers accelerate their digital transformation strategies, modernise legacy environments, and move to the cloud,”  said Steve Hall, partner and president of ISG.

Nearly $2 billion was added in the combined market over the previous quarter, growing 9.5 percent over the $19.9 billion ACV in the quarter-ended June 2021.

The managed services market, which includes IT and business process outsourcing (BPO) services, grew by 22 percent over the same period last year. IT outsourcing (ITO) ACV was $6.1 billion, up 18 percent over a year ago.

One of the key concerns of the companies is the race for talent.

“We have a real talent shortage to support the digital agenda of so many firms,” said Hall during a quarterly ISG-webinar to discuss global trends in enterprise technology. “Attrition is high. It's probably at near all-time highs.”

Service providers are reporting attrition rates 500 to 1000 basis points higher than normal, he added.

India’s IT companies such as Tata Consultancy Service (TCS), Infosys, Wipro, and HCL Technologies, which compete in the managed services market, have been struggling to retain talent.

Organisations are using all means at their disposal to reduce attrition and add talent as quickly as possible—increasing campus hires, doing more lateral hiring, and using more subcontractors.

TCS, the most valued IT exporter from India, said on October 8 that it will hire 77,000 freshers—the highest ever—in the current fiscal year ending March 2022, almost twice its initial estimate of 40,000.

This also means higher spend that will impact margins, Hall said. This market has great race and inflation clauses that make it very difficult for service providers to adjust their price, he noted.

The BPO sector, meanwhile, has surged 32 percent, to a record $2.3 billion.

“BPO is headed towards using data and technology to solve domain specific problems," said Stanton Jones, Director and Principal Analyst, ISG, during the call. "So, it'll be less about using people to run a process, and more about using technology to optimise.”

The cloud-based as-a-service market was up 55 percent over last year. It touched a record $13.4 billion in the quarter ended September 2021. This, ISG said, is “the highest quarterly growth rate ever, topping the previous high of 50 percent in the first quarter of 2016.”

It accounts for nearly 60 percent of the market. “We see a strong linkage between cloud growth and applications growth, as companies really get serious about refactoring their application portfolio as they move more workloads to the hyperscalers,” Jones explained.

Both infrastructure-as-a-service (IaaS) and software-as-a-service (SaaS) grew at a record pace, with IaaS up 57 percent, to a record $9.7 billion, and SaaS up 53 percent, to a record $3.7 billion. This is mainly due to the massive scale and speed of the hyperscale platforms such as AWS and Microsoft Azure.

Another trend shaping the industry is the transformation of engineering services. Engineering ACV was up nearly 300 percent over the last year crossing $600 million in the quarter ended September 2021.

Industrial enterprises are not just digitising their products, but also improving their processes to create products with connected experiences for their customers.

“More transformation programmes will be defined spanning a converged information technology, engineering technology, operational technology, and consumer technology transformation to increase value realisation,” according to ISG.

Edited by Kunal Talgeri

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