Technology service spending will reach $2 trillion in 2028, rising 4.6% year over year globally, much faster than GDP growth. We recently analyzed the earnings of six technology service providers and surveyed over 2,300 enterprise service decision-makers (with both business and IT titles) from 11 countries around the world to find out what’s going on out there. We have done a three-part analysis of the state of technology services: 1) co-innovation services; 2) provider selection, pricing, and management; and 3) strategic partnerships. Here are some highlights:

  • Strategic service providers must be co-innovation partners, not just job shops. The primary driver of change in services is co-innovation. In this model, providers share risk and are motivated to achieve specific outcomes. They help you coordinate internal stakeholders and orchestrate cloud, software, and AI ecosystem providers. At the heart of co-innovation partner relationships is trust, which, at 47%, is the most important factor in selecting a provider.
  • Providers’ growth stems from demand for core transformations … The days of random projects that didn’t move the needle on business growth or profitability are over. After 15 years of projects, firms are consolidating into core systems and laying the software, data, and process groundwork for the next wave of growth. In a recent earnings call, Cognizant emphasized “large deals” (code word for transformation or outsourcing) driving “fourth-quarter bookings [increasing] 11% year over year.”
  • … and for a new wave of AI business investment. Almost half of respondents we surveyed say that AI is the most important technology for third-party services help — internet of things came in a distant second at 9%. During a December 2024 earnings call, Accenture CEO Julie Sweet reported $1.2 billion in new AI bookings and went on to say, “Those who really want to go into AI are more prioritizing spending as opposed to spending more.”
  • Firms want results — not just people — and they’re willing to pay to achieve it. The survey reveals how prominent performance-based pricing models have become as a way to achieve outcomes, motivate providers, and share risk. In 2024, 45% of services decision-makers expected to expand their use of performance-based pricing and 46% expected to increase fixed-price contracts. We expect providers to make more fixed-price bids as they build generative AI-powered delivery platforms that improve delivery speed, quality, and predictability.
  • Providers respond by amping up asset-driven business models. Thirty-five percent of North American and 38% of Asia Pacific respondents see data, content, and software assets as key benefits to working with service providers. Interestingly, only 25% of European services decision-makers are focused on a provider’s assets. With genAI disrupting service delivery economics — more value at lower cost — it’s important that providers bring more assets and solutions to help enterprises gain an AI advantage.

Manage Service Providers To Maximize The Value They Bring

The survey provides solid benchmarks for effectively managing providers, including these best practices:

  • Regularly meet with your providers. Fifty-two percent of service decision-makers hold quarterly or even monthly meetings with providers to plan the roadmap for the next phase of their projects. By maintaining open lines of communication between providers and employees, organizations establish an integration strategy that fosters collaboration and ensures a cohesive approach toward objectives.
  • Track quality and financial metrics to assess provider engagement levels. Survey respondents report that their organizations monitor key metrics such as quality (54%), financial performance (48%), and end user experience (47%). Organizations should develop a repeatable scoring method based on these metrics as a best practice to align their organizational goals with their partner’s plan.
  • Ensure that providers satisfy stakeholders. Forty-one percent of decision-makers assess providers’ engagement using senior stakeholder satisfaction. Involving stakeholders in the evaluation process provides diverse senior-level management perspectives and helps gather insight into their performance and partnership qualities.

If you want to dig deeper into co-innovation to maximize the value of partners, please reach out to me by scheduling a guidance session or an inquiry via email: inquiries@forrester.com. If you have an offering that moves the needle on co-innovation, performance-based pricing, AI-powered delivery, or ecosystem orchestration, please consider scheduling a briefing: briefings@forrester.com.