Index Insider: How Provider Ecosystems Will Evolve in 2025 | ISG

Hello. This is Michael Dornan with what’s important in the IT and business services industry this week.

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Provider Ecosystems

IT spending patterns are evolving in 2025. Our latest study highlights opportunities for providers to benefit from their incumbency with their existing clients and use specialized capabilities to engage with new clients.

Data Watch

Background

Our 2025 IT budgets and spending study shows that enterprises are continuing to focus on cost optimization and efficiency programs to fund transformation and customer experience enabled by AI. This will impact how they manage their provider ecosystem and how they source the skills they need for these new investments.

The Details

• For most enterprises, the overall number of providers engaged will stay the same, with more provider consolidation than expansion.
• Over one-third of organizations we talked to expect to expand engagement with their largest provider.
• Around half the enterprises expect to engage with new providers for niche projects or related skills and capabilities.

What's Next

We see two major vectors of opportunity for service providers in 2025:

• As strategic partners for transformation work across multiple towers that can add further streams of work, especially where a good business case exists (e.g., around cost optimization).
• As sources of innovation around niche capabilities, for example in relation to the burgeoning number of AI use cases.

The number of providers in a typical enterprise ecosystem that is neither strategic nor niche will likely shrink next year. Providers caught between these extremes have two clear options to ensure they are not squeezed out:

• Focus on strengthening their incumbency and strategic relevance with each client by shaping opportunities around business imperatives such as cost optimization and digital transformation.
• Focus on niche capabilities that will differentiate them and increase their relevance to clients.

We’ll be diving into more detail from this study at our UK Sourcing Industry Conference next week in London. We hope you can join us.