Spending on IT Outsourcing Continues to Rise

 

IT spending on outsourcing is rising sharply this year after remaining somewhat restrained over the course of the prolonged recession. This expansion in IT outsourcing reflects both the cyclical recovery in IT spending as well as the longer-term growth in IT outsourcing as percentage of total IT spending.

In their annual outsourcing study titled "IT Outsourcing Statistics 2012/2013", Computer Economics finds that the percentage of the IT budget designated for outsourcing services is up 23% at the median in 2012 over the prior year. This is an increase and a distinct change from the prior three years for the typical IT organization in North America.

The primary take away from the report tells us that as businesses continues to stabilize and slowly grow their  IT budgets, IT outsourcing is once again on the rise. This is particularly true in areas such as help desk support that have been more recently overwhelmed by the growth of BYOD over the last few years.

Please See Data Mobility and Security Biggest Cloud Computing Concern

Among organizations that outsource IT work, the percentage of their total IT budgeted for outsourcing services rose to 8.6% at the median, from 7.0% the prior year, for an increase of 23%. In 2011, spending on outsourcing had remained at about the same level as 2010.

Over the course of the recession, many organizations reduced spending on outsourcing services, particularly application development, and a rise in outsourcing activity would be anticipated at the start of a recovery period. 

With this budget cycle, however, IT organizations are increasing both IT spending and, in a significant way, spending on IT outsourcing. While this is partly cyclical as organizations renew spending on application development and other capital projects. According to the report, "we believe the longer-term outlook is for outsourcing to consume a larger share of the IT operational budget."

The study also reinforced the notion that IT organizations are beginning to embrace cloud-based applications as well as expand outsourcing of data center operations. Other factors are also supporting decisions to outsource IT functions, including the ever-present desire to reduce costs.

Among organizations that outsource IT work, the percentage of their total IT budgeted for outsourcing services rose to 8.6 percent at the median, from 7 percent the prior year. As businesses stabilize following a recession, IT outsourcing is finally increasing, along with general IT spending. In 2011, spending on outsourcing had remained at about the same level as 2010. According to the report, "We believe the longer-term outlook is for outsourcing to consume a larger share of the IT operational budget."

Other Key Findings:

1. The use of software-as-a-service (SaaS) continues to gain strength, making application hosting the fastest-growing outsourcing service in the study. While the amount of the typical portfolio being hosted by outside parties remains low, the number of organizations outsourcing application hosting is up nearly 37% year-over-year and more than half of all organizations that outsource this function are planning to increase the amount of work they outsource. Please note that in this study we do not distinguish between multitenant cloud applications (SaaS) and single-tenant hosted applications: we group both of them into an outsourcing category we refer to as “application hosting.”

2. Data center outsourcing is another form of outsourcing with a positive trend line. There is a connection here with the previous finding. Advancements in data center technology are creating economies of scale for data center operators as well as SaaS solution providers.

3. Web/e-commerce systems and application development are the two most widely outsourced functions. The outsourcing of application development surged over the past year, but the rebound is mostly cyclical. The trend indicates slower growth is ahead. Likewise, web/e-commerce systems outsourcing is another mature service at a high adoption level that is likely to grow relatively slowly compared to other services.

4. Help desk and desktop support are the IT functions with the greatest potential for successfully reducing costs through outsourcing. That is no surprise. Meanwhile, the functions with the greatest potential for improving service are desktop support and IT security. That makes desktop support a clear winner in the customer experience category. This analysis suggests times are changing. Organizations often shied away from desktop support outsourcing because of concerns about service. Today, while customers are still not singing the praises of desktop support service providers, they are at least satisfied service providers are doing as good a job as internal support staff.

 

 

 

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Bill has been a member of the technology and publishing industries for more than 25 years and brings extensive expertise to the roles of CEO, CIO, and Executive Editor. Most recently, Bill was COO and Co-Founder of CIOZone.com and the parent company PSN Inc. Previously, Bill held the position of CTO of both Wiseads New Media and About.com.

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