IT Outsourcing Trends for 2025

On this episode of the “Gen AI Breakthrough” podcast, hosts Harish Murthy and Ryan Sebastiani discuss emerging technology outsourcing trends for 2025. They highlight an increase in outsourcing spend and a shift in contracting models due to economic uncertainties and growing demand for digital services. The conversation emphasizes the importance of strategic partnerships and long-term value creation over mere cost savings as companies reassess their sourcing strategies.

Welcome to The Hackett Group’s “Gen AI Breakthrough” podcast, where week after week we hear from experts on how to avoid obstacles, manage detours and celebrate milestones on the journey to world-class performance. This episode is hosted by Harish Murthy, director in Strategy and Business Transformation at The Hackett Group^®. He is joined by Ryan Sebastiani, manager in Technology Transformation at The Hackett Group^®. On this episode, Harish and Ryan discuss emerging technology outsourcing trends for 2025. They highlight an increase in outsourcing spend and a shift in contracting models due to economic uncertainties and growing demand for digital services. The conversation emphasizes the importance of strategic partnerships and long-term value creation over mere cost savings as companies reassess their sourcing strategies.

To begin, Harish highlights two major patterns in sourcing for 2025. The first is an increase in outsourcing that companies are doing, and there has been a higher clip this year than previous ones. The second fundamental shift is in what’s being outsourced and the contracting models. This is due to a general uncertainty with the economy, and the short- and long-term effects of tariffs are unknown. This is also due to a demand for services that has increased significantly since the COVID pandemic. Companies made the painful but necessary decision to export outsourcing contracts, and now those contracts are coming into renewal. Companies are prioritizing strategic partnership – even with cost savings down 20%-30%. The value is not just from the cost, but more thought leadership and more collaborative relationships. There is a bilateral benefit for both parties and an increase in cost investment and product development. Companies are finding it difficult to build generative artificial intelligence (Gen AI) products and are instead looking to third parties. They don’t have the right operating model or governance to drive innovation through outsourcing relationships. Another major trend for companies is to think about and look at their own sourcing program.

In the market, both AI and machine learning are being utilized in outsourcing services. It is more top of mind than it ever has been. Companies are moving away from basic robotic process automation and leaning into enhanced AI automation. The trifecta of AI helps support the service delivery more than what vendors are bringing forward. Data is king and a good data governance program is critical for success. This can increase efficiency and improve decision-making, along with providing cost savings for the customer. However, customers and vendors need to have AI literacy and understand what it means for both parties. Make sure you have compliant data and start with pilots, test it out, and make sure it works before you scale it through organizations. Outsourcing partners can be much more effective because both the innovation and benefits can be passed on through lower prices and service levels.

Lastly, the need for good data also brings about the importance of cybersecurity and data protection. When we bring more data into outsourcing and developing AI, there is a much greater focus on the need to secure that data. This is especially true for information technology (IT) services with cost and service quality. This can also depend on different geopolitical risk factors and how collaboration with teams would happen with a robust level of protection around these operations. It is no longer the one-time check but ongoing vendor management. The vendor management office is more critical, and we need to ensure the client’s data is protected. Some companies are preferring smaller, more reduced vendor lists with limited exposure and oversight. The challenges and benefits from cybersecurity include working with security and data teams to understand the requirements with vendors. You also need to take into account to support these data protection needs by having conversations upfront with vendors. This is the best way to protect them from risks and also by integrating cybersecurity into requests for proposal. We need to make sure that customer data and systems are protected, but also that the vendor ones are too.

Time stamps:

0:49 – Welcome to this episode hosted by Harish Murthy and Ryan Sebastiani.

1:31 – Two major patterns in sourcing for 2025.

5:20 – A shift in how companies view value.

7:22 – Challenges companies are running into.

8:38 – What are you seeing in the market?

12:49 – The importance of cybersecurity and data protection.

15:49 – Challenges and benefits from cybersecurity.