Current Trends in IT Outsourcing and the Rise of XLA’s
At TC2 we continue to see IT outsourcing as an important and growing space for enterprise customers. Recent engagements confirm the shift away from “factory” style managed services toward dedicated staffing models as well as the evolution of IT tooling approaches and the rise of the experience level agreement (XLA).
In this 11-minute podcast, TC2 Managing Director Ben Fox and Senior Consultant Bryan Carriker join Tony Mangino to discuss current trends in IT outsourcing deals and the role of XLAs that measure end-user satisfaction and overall experience rather than just technical metrics.
If you would like to learn more about our experience in this space, please visit our Strategic Sourcing and Technology Consulting & Strategy Development webpages.
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The IT outsourcing and managed services market continues to grow, with estimates suggesting it is worth several hundred billion dollars globally and expected to see annual growth rates between 6% to 13%1. This growth is driven by various factors, including the expansion of existing outsourcing scopes, the need for new capabilities that are easier to source externally, and the recognition that certain functions are better handled by specialized outsource partners.
One significant shift in the market is the decline of “Factory” style managed services for large enterprises. This model, where service providers use shared resources across multiple customers, has several drawbacks. These include a lack of familiarity with the client’s infrastructure, limited customization, and the necessity to use the service provider’s tools. Instead, most outsourcing deals now favor dedicated supplier staffing models, where the service provider assigns a permanent staff to a single customer. This approach allows for customized services, adherence to the client’s IT processes, and the use of the client’s tools.
The evolution of tooling approaches has also played a crucial role in this shift. Previously, one of the key benefits of outsourcing was the service provider’s leading-edge tools. However, this often led to complications and a sense of being locked into the service provider’s ecosystem. Nowadays, clients prefer to select, deploy, and own their tools, with the service provider using and maintaining these tools. This change makes it easier to switch outsource suppliers and provides better visibility and control over the environment.
Another emerging trend is the rise of Experience Level Agreements (XLAs) as an alternative to traditional Service Level Agreements (SLAs). XLAs focus on measuring the end user’s holistic experience and satisfaction with IT services, rather than just the speed of issue resolution. While traditional SLAs remain prevalent, service providers are increasingly supplementing them with XLAs to differentiate themselves. XLAs typically involve proprietary vendor tooling that combines various metrics into an overall experience measure, which is then baselined and used to set performance levels and improvement targets.
In conclusion, the IT outsourcing landscape is evolving, with a shift towards dedicated staffing models, client-owned tooling, and the introduction of XLAs. These changes aim to provide more customized, efficient, and user-centric services, reflecting the growing importance of user experience in IT service delivery.
