Outsourcing IT

Companies are increasingly farming out functions such as IT security and application hosting, according to a report from analyst firm Computer Economics.

The company interviewed over 130 companies in North America for its report, IT Outsourcing Statistics 2015/16, asking them about their outsourcing practices. Overall, it found that outsourcing is keeping pace with a rising overall IT operating budget.

Median IT budgets rose 3% in the last year, and outsourcing continued to account for a tenth of that money overall. Large companies continue to be the leaders in outsourcing, spending a median average of 7.8% of their IT budgets on it. This compares to 6.7% for mid-range companies and 3.7% for small firms.

Under the covers, though, the functions being outsourced are changing. IT security outsourcing is increasing, as are web/ecommerce systems and application hosting, according to Computer Economics.

Application hosting is the most popular function to outsource, with 62% of organisations doing it, and two thirds expecting to do more so in the future.  The rise of SaaS is a big contributor to application hosting, the report suggested.

Not all IT functions are being outsourced at the same rate. Datacenters and database administration are  all flat, as is application development.

The percentage of work application development work farmed out by companies is typically low, and often project-based, the report suggested. The median average of a firm’s total application development work that it will farm out is around a fifth.

Customers just aren’t that happy with the service from application outsourcing providers. A third of those who outsource application development found the service worse than doing it in-house, while 42% found it the same.

Cost certainly isn’t a driver either. Fewer than one in five organizations who outsource application development work (17%) save money on it. In fact, 58% of them find it costing more.

The outsourcing of network operations and disaster recovery is also flat. That’s odd, because disaster recovery is one of the IT functions that the report says has the biggest potential for reducing costs through outsourcing. Another is desktop support.

Expect to see outsourcing increasing gradually over time, concluded the firm, as the adoption of cloud computing continues.

One reason for the general health of IT outsourcing could also be that it’s simply too difficult to find the staff. Canadian firms have resorted to temporary workers to fill the IT talent gap.

Some companies have also been found replacing Canadian workers with foreign ones in a bid to cut costs, sparking outrage. In 2013, RBC was found to have bought in IT workers from India via outsourcing company IGATE. The firms had been working together since 2005, it was revealed.

Since then, the Canadian Government has clamped down on workers entering the country under its Temporary Foreign Worker program. Perhaps this could also fuel the growth of outsourcing contracts over the next few years?

Computer Economics looked at 132 north American organizations with at least $50m in annual revenues, or $2m in IT operational spending.