CIOs are getting smarter about how they manage their resources. Notably, they are increasingly outsourcing, and experimenting very successfully with various models, client organizations, and integration approaches.

Indeed, estimates suggest that the IT outsourcing market in Luxembourg is around €448 million, which represents 30% of the total ICT services in Luxembourg (valued at €1.5 billion).

But how can you be sure that you’re getting the best out of your outsourcing? KPMG recently published the results of the second edition of its survey on IT outsourcing services providers for the financial services in Luxembourg. The survey provides an overview of the services catalogues, strategies, and go-to-market approaches of managed services providers recognized as PSFs (Professionnels du Service Financier).

This edition of the survey highlights some of the market trends and best practices for a successful digital transformation. To begin with, it confirms one of the main trends found in 2014: optimizing IT costs remains the main factor for businesses deciding whether to outsource their IT services to a third party. A second important factor is agility and the capacity to align IT infrastructure to the changing business environment.

The third most important driver in deciding to outsource—dropping from the second position in the 2014 survey—is the need to gain the commitment from a service provider regarding performance. “This can be explained,” says Philippe Bovy, Associate Partner in KPMG Luxembourg’s IT Advisory Department, “by the fact that the range of available IT solutions has become more mature and industrialized. This guarantees a higher level of service reliability, and therefore reduces the dependency on an outsourcing contract to ensure IT services performance.”

Another trend concerns the contract period for new engagements: while in the past contracts were signed for five or seven years, today three years is usually the maximum. Vincent Koller, Partner at KPMG Luxembourg, explains that “most IT services are aligned to the same level of standardization, so the level of transformation and adaptation to integrate a new service provider is becoming less of a burden. As a consequence, transition costs are lower compared to previous engagements and, therefore, don’t need to be recovered over a long period, as was usually the case before.”

This year’s survey also shows that the average contract value of an outsourcing engagement has decreased, a trend which is expected to continue. Only 40% of respondents anticipate an increase in ITO costs in the short- to mid-term. Besides the standardization of IT services, the decrease of the contract size can be explained by a change in the CIO’s purchasing behavior. Indeed, as Philippe Bovy confirms, “there is a trend for replacing large single-sourcing contracts with multi-sourcing engagements, in order to implement a best-of-breed approach where different suppliers are onboarded following a competitive selection process, in order to provide different IT services to the same client.”

The emergence of a service integration and management (SIAM) framework will consequently be required in order to properly manage the entire value chain when IT services are provided by different organizations.

To learn more about the findings of the survey, please contact our experts Philippe Bovy or Vincent Koller.

About the KPMG IT Outsourcing Provider Study 2018:

In this second edition, the survey assesses IT service providers in Luxembourg, looking at their capabilities, services offerings, strategies, and how they have evolved over the last four years. Each provider’s services is identified in categories such as data governance, service desk, and cloud services.

Disclaimer: the results of this study are solely based on feedback from ITO providers that participated in our survey. This study does not represent the opinion of KPMG Luxembourg, which only facilitated, gathered, and analyzed the survey results.

Click here to obtain the survey: https://home.kpmg/lu/en/home/insights/2019/02/it-outsourcing-provider-study-2018.html