AI and offshore outsourcing on the rise

61% of Organisations Plan to Maintain or Increase IT Spending on External Providers. Thirty per cent of survey respondents plan to increase their IT spending on external providers over the next two years, down 5% compared to 2024. Meanwhile, 31% expect no change in their spending, 22% plan to spend less, and 17% remain unsure.

Financial Services Sector Leads in Plans to Insource More. Across the UK and Ireland, 22% of organisations plan to spend less of their IT budget on service providers, indicating a shift toward insourcing. This trend is strongest in the financial services sector, where 26% of organisations indicate they will move their spend from outsourcing to insourcing.

Business Transformation Top Driver for Increased Outsourcing. Business transformation emerges as the primary driver for organisations planning to spend more on external providers, cited by 59% of respondents, a 7% increase from last year. Scalability follows closely at 52%, with access to innovation at 50%. Although access to resources and talent remains significant (44%), it has declined by 13 percentage points from the number one spot in 2024.

Knowledge Retention and Cost Reduction Drive Insourcing. The primary driver for reducing spending on external providers is the desire to retain critical in-house expertise (68%). Additionally, 49% find insourcing more financially attractive than outsourcing, highlighting a focus on cost management. Other drivers include faster time to market/improved quality, and the development of captive delivery centres (33%).

AI Usage Grows, But Business Impact Still Limited. AI adoption is accelerating, with only 6% of respondents not using AI/GenAI, down from 22% in the previous year. The majority (42%) rely on accessible tools such as ChatGPT and Copilot. However, the business impact remains limited: 18% say the impact has been minor, 5% note significant operational changes, and only 4% have seen a full business transformation.

Strong AI Investment Outlook Despite Operational Barriers. Eighty-eight per cent plan to increase AI investments over the next 2 to 3 years, with 34% anticipating a significant increase and 54% a moderate one. Only 4% intend to maintain current levels, and none foresee a decrease. Key challenges to AI adoption include compliance concerns (55%), a lack of skilled personnel (46%), and data quality issues (45%).

Offshore Delivery to Increase, Driven Mainly by the Financial Services Sector. Offshore outsourcing remains appealing, with 35% of respondents planning to increase offshore activities, while only 14% intend to reduce them. The majority (51%) anticipate no change. Financial services are leading this trend, with 48% planning increases, notably above the UK and Ireland average, compared to 33% in manufacturing/chemicals and 24% in the public sector.

Clients Call for More Strategic Engagement from Providers. Clients desire more proactive challenge from their IT service providers: 41% cite a lack of proactive challenge as the top weakness. Additionally, 29% say providers lack sufficient business knowledge, and another 29% cite the use of inexperienced resources.

Satisfaction Scores for IT Service Providers Reach Record Highs. 38 IT service providers feature in the UK&I study, including five new entrants: GTT, KPMG, Stefanini, Vodafone, and Zensar. Hexaware remains number one for general satisfaction, with a score of 85%, followed by EPAM (83%), HCLTech, TCS, Infosys, and Persistent (each with a score of 82%). The average satisfaction score has risen to 75%, the highest to date.

Exceptional Performers: Thirteen service providers have achieved Exceptional Performer status in one or more IT service towers, with satisfaction scores exceeding the market average and above the standard deviation:

Application Services: Hexaware, EPAM and Persistent

Cloud & Infrastructure Services: HCLTech, Infosys and TCS

Workplace Services: Wipro, HCLTech, Stefanini and Capgemini

Network & Connectivity: GTT, DXC Technology and TCS

Security Services: TCS, Deloitte, HCLTech and KPMG

General Satisfaction: Hexaware, EPAM, HCLTech, TCS, Infosys and Persistent

Public Cloud Adoption Remains Strong. Most organisations (77%) plan to either maintain their current level of cloud adoption (41%) or expand their public cloud volume significantly (36%). A small percentage (2%) plan to reduce their public cloud usage, while 21% are unsure.

AWS and Microsoft Lead in Cloud Platform Satisfaction. Among the 1,119 cloud platform relationships evaluated, 58% received ratings of satisfied or very satisfied. Amazon Web Services (AWS) leads the ranking for infrastructure cloud platforms with a score of 77%, improving from second place last year, while Microsoft Dynamics 365 tops the ranking for software cloud platforms with a score of 73%.

The UK&I study forms part of Whitelane’s annual European studies. We conduct interviews with sourcing executives, including CIOs, CFOs, or their direct reports, to gather insights into their sourcing plans and opinions regarding IT/cloud service providers. Spanning across Europe, these studies provide a comprehensive overview of the IT sourcing landscape within each country. Through the survey, we identify and analyse key sourcing and cloud trends, evaluate and rank leading IT service providers based on key performance indicators (KPIs) and IT service towers, and examine governance trends along with the impact of emerging technologies.