Customer services dominated the UK outsourcing market in 2016 while the sector remained stable in the face of high economic and political volatility, according to the Arvato UK Outsourcing Index.

The research, compiled by business process outsourcing (BPO) provider Arvato and industry analyst NelsonHall, revealed customer services contracts accounted for 17% of UK outsourcing spend over the year, with a total value of £1.04 billion (2015: £449m), up from 7% in 2015.

The majority of the deals were to be delivered in the UK, with just 4% of agreements going to offshore locations, compared to six% in 2015.

The findings suggest that integrating digital and traditional contact channels remains a key driver for customer service deals, with the vast majority (87%) of contracts signed last year featuring multi-channel delivery, compared with 59% in 2015.

Media and telecoms businesses were the most active buyers of outsourced customer services in 2016 spending £707 million, followed by retail firms which were responsible for £194 million.

IT application and network management were the next most popular service lines outsourced in the UK market, with deals agreed worth £906.7 million and £503.3 million respectively, according to the findings.

Debra Maxwell, CEO of CRM Solutions, Arvato UK & Ireland, said: “The findings of the latest Index reflect the fact that excellent customer service is a key differentiator for businesses serving an increasingly digital customer base. With customers now also in the driving seat when it comes to how they communicate with brands, providing a seamless approach to the customer journey has become the norm. A growing number of businesses are partnering with specialist providers to deliver a multi-channel service which brings together both digital and traditional channels.”

The overall UK outsourcing market remained largely stable in 2016, according to the research. The findings revealed a 7% year-on-year rise in the number of outsourcing deals procured across the UK last year, despite the overall value of the market falling by 5% over the period. Outsourcing deals worth a total of £6.2 billion were agreed in the UK over the period.

The research partners say there has been a shift away from the traditional large, multi-process contracts towards procuring smaller, more focused deals. Overall, average UK contract values fell by 11% year-on-year in 2016, with the average length of deals signed remaining constant at 53 months.

Outsourcing growth among financial services businesses.

The financial services sector saw strong growth in outsourcing activity in 2016, with the value of contracts procured reaching £769 million, up 11% on the previous year.

According to the research, the rise can be attributed to a sharp increase in BPO spending as businesses turned their attention to deals in policy services, HR and property and casualty claims processing. The findings show BPO contracts worth £621 million were signed across the sector last year, up 87% on 2015.

Patrick Quinn, CEO of Arvato Financial Solutions UK & Ireland, said: “The financial services industry remains under pressure to transform, both in terms of improving services for customers and finding new cost savings.”

“It’s clear from the research that a growing number of companies across the industry see outsourcing as a viable strategy to address these challenges through introducing new innovations and ways of working. There are some very positive signs for the sector’s health looking forward, with a high proportion of first-time outsourcing deals (57%) procured last year.”

The Arvato UK Outsourcing Index is compiled by leading BPO and IT outsourcing research and analysis firm Nelson Hall, in partnership with Arvato UK. The research is based on an analysis of all outsourcing contracts procured in the UK market during 2016.

(Source: Arvato UK & Ireland)