Pan-European IT Outsourcing Intelligence Report 2011

0 | P a g e

IT Sourcing Europe: Nearshore IT Outsourcing

Market Intelligence

Pan-European IT

Outsourcing

Intelligence

Report 2011

Coventry, UK December 2011

Pan-European IT Outsourcing Intelligence Report 2011

2 | I T S o u r c i n g E u r o p e | C o p y r i g h t | A l l R i g h t s R e s e r v e d | 2 0 1 1

Executive Summary

The Pan-European IT Outsourcing Intelligence Report 2011 presents the

summary of the All-European IT Outsourcing and In-House Software

Development research conducted between February and December

2011. In the course of the research the following European countries

were surveyed (in alphabetical order): Austria, Cyprus, Denmark, Finland,

Malta, Norway, Sweden, Switzerland, Netherlands and United Kingdom.

The key goal of the Report is to identify the differences and similarities in

the ways how companies from the above listed countries behave in terms

of:

Overall adoption of IT / software development outsourcing

services

Choosing their IT outsourcing destinations

Choosing their IT outsourcing service providers

Responding to the most critical outsourcing challenges

Managing their vendor relationships

Cost saving

Planning their future adoption of IT / software development

outsourcing services

All countries to be analyzed in the present Report have been divided into

three groups: 1) Nordic Region (Denmark, Finland, Norway and Sweden),

2) DACH, or German speaking region (Germany, Austria and Switzerland)

and 3) United Kingdom, Netherlands, Malta and Cyprus.

Within each group the countries will be compared and contrasted in

terms of:

Top three industries that most actively adopt outsourced

IT/software development

Top three IT outsourcing drivers

Top three IT outsourcing geographies

Top three IT outsourcing challenges

Top three IT outsourcing problem solving practices

Top three IT outsourcing partner search tactics

Most outsourced areas of expertise

Most popular IT outsourcing business / engagement models

Top three IT outsourcing impressions

Top three reasons keeping companies away from IT outsourcing

Future IT outsourcing factors and drivers



Acknowledgement

Herewith IT Sourcing Europe expresses a heartily gratefulness to its

information partners – Ngi (Dutch platform for ICT professionals),

Outsourcing Verband (Austrian/German/Swiss Outsourcing Association),

and Outsourcing Portal (Polish web portal focused on IT Outsourcing

(ITO), business process Outsourcing (BPO), knowledge process

Outsourcing (KPO), HR Outsourcing (HRO), shared services etc) – for their

assistance in the localization and distribution of the 2011 European IT

Outsourcing and In-House Software Development surveys’

announcements, conditions and web links.

Without their gratuitous help IT Sourcing Europe would not have been

able to get the sufficient research sample of participants in each certain

region polled which would have had a negative impact on the surveys’

results and overall quality of trendwatching.



Contents

Introduction ............................................................................................... 5

All-European IT Outsourcing Research 2011 .............................................. 6

Research Goals ....................................................................................... 6

Research Objectives ............................................................................... 7

All-European In-House Software Development Research 2011 ................. 7

Research Goals ....................................................................................... 7

Research Objectives ............................................................................... 7

Research Methodology .............................................................................. 7

Study Sample ....................................................................................... 10

Part I: Nordic Region ................................................................................ 11

Part II: DACH ............................................................................................ 20

Part III: Cyprus, Malta, Netherlands & United Kingdom .......................... 30

Conclusions & Recommendations ........................................................... 40



Introduction

Despite the last year’s predictions that the European Union is likely to

catch up with the United States by the total IT outsourcing (ITO) contracts

value in 2011, the factual state of affairs demonstrates a substantial

decline in the European outsourcing transaction volumes (both in ITO and

business process outsourcing (BPO)). The last Global Services Industry

Quarterly Report by Everest Group, one of the world’s leading

outsourcing consultancies, determines this decline to make 7% from Q2

20111. On the other hand, IT Sourcing Europe’s country-specific surveys

show that the number of the low-value and less asset-intensive

outsourced IT/development projects has increased in Europe in 2011,

compared to 20102.

The current economic uncertainty generally leads to the transformation

of the entire ITO landscape in Western and Northern Europe. The

following distinct shifts have been identified:

From single-supplier megadeals to small multi-supplier contracts

1 Everest Group, “Market Vista: Global Services Industry Quarterly Report, Q3 2011,” <

http://bit.ly/vb4TRf>

2 IT Sourcing Europe, “European IT Outsourcing Intelligence Reports: Austria, Cyprus, Denmark,

Finland, Germany, Malta, Netherlands, Norway, Sweden, Switzerland, United Kingdom” 2011,

<http://www.itsourcing-europe.com/IT_Outsourcing_Reports.html>

From ITO buyers’ reluctance to willingness to change their service

providers who fail to meet their business goals and project

milestones

From dedicated development center and project-based models to

more innovative business / engagement models able to provide

maximum managerial control of the outsourced projects and

transparent pricing

From short-term cost saving goals to longer-term IT management

strategic partnerships and cross-border knowledge exchange

From offshoring to nearshoring

With the double dip effect (or second economic downturn) expected to

reach its peak in 2012, IT Sourcing Europe remains cautiously optimistic

about the future development of the European ITO market. Given that

many corporate IT leaders plan to lay off some of the in-house staff and

increase ITO spending while decreasing overall IT spending, a future

increase in the European ITO transactions becomes almost undisputable.

Companies may simply have no other choice but to seek external

assistance outside their home countries if the financial situation

continues to worsen in the following months. Besides all, outsourcing will

be considered as the only option to gear companies’ productivity gains in

the future.

Geography wise, United Kingdom remains the European leader in terms

of ITO adoption: according to the recent research by Oxford

Economics/Business Services Association3, the UK outsourcing market is

3 Oxford Economics/Business Services Association, “The size of the UK outsourcing market - across

the private and public sectors,” 2011,

< http://www.bsa-org.com/documents/70 >

http://www.everestgrp.com/2011-11-everest-group-q3-report-global-outsourcing-transaction-volume-declines-substantially-for-first-time-in-four-quarters-press-release-8395.html

http://www.itsourcing-europe.com/IT_Outsourcing_Reports.html

http://www.bsa-org.com/documents/70



All-European IT Outsourcing Research 2011

currently assessed at £207bn, contributing £115bn to the UK economy

each year through supplies, goods and services procured by outsourcing

firms. However, effective since January 2011, the VAT rate on all services,

including outsourcing, has gone up to 20% in the UK, which increased the

cost of most of ITO contracts. As a result of this, more UK companies

move their operations to the so-called “tax heavens” such as Malta,

Gibraltar and Cyprus and continue / start outsourcing within / from these

locations.

Additionally, the Nordic region has mobilized significantly over 2011 in

terms of ITO adoption. Currently, the Nordic outsourcing market is valued

at over €5bn of which around 50% belongs in Sweden and the rest is

equally distributed across Denmark, Norway and Finland4.

Research Goals

Identify the general profile of ITO buyers in each respective

country surveyed (company size, industry, annual revenue

4 Burnt Oak Partners, “Nordic outsourcing market heats up,” 2011, <http://www.burntoak-

partners.com/2011/09/01/nordic-outsourcing-market-heats-up/>

growth expectations, length of outsourcing engagement, single

or multi-vendor management)

Determine size of augmented IT teams and value of ITO projects

Determine the most and least outsourced IT / software

development areas

Benchmark the most and least preferred ITO locales

Identify the key factors driving ITO decisions in each country

polled

Rate different factors in terms of their importance in the choice

of ITO destination and service provider

Identify the key ITO issues and problem solving best practices

Find out how ITO buyers search for their ITO partners

Determine the general profile of ITO service providers

Determine the most and least popular ITO business /

engagement models in each country polled

Benchmark ITO buyers’ dependence / independence from service

providers with regards to personnel selection and salaries’

negotiation

Measure the level of satisfaction with ITO service providers as

well as overall impressions of ITO engagements

Compare and contrast the actually incurred versus contracted

costs of ITO engagements

Assess the overall savings from ITO engagements

Determine future ITO plans of current ITO buyers

http://www.burntoak-partners.com/2011/09/01/nordic-outsourcing-market-heats-up/

http://www.burntoak-partners.com/2011/09/01/nordic-outsourcing-market-heats-up/



All-European In-House Software Development

Research 2011

Research Objectives

Get an in-depth understanding of the current ITO demands and trends in each country surveyed

Help current ITO buyers compare own ITO strategy and problems against those of their industry peers

Help current ITO buyers revise and/or improve their current ITO engagements / business models based on the industry best practices

Research Goals

Determine current level of satisfaction with the outcomes of the

in-house software development / IT function management

Identify major challenges of the in-house development that may

lead companies to adopt outsourcing in the future

Identify the major factors that currently prevent companies from

adopting the outsourced development / IT

Identify circumstances that are likely to drive companies to adopt

ITO in the future

Identify ITO locales that seem to be most and least attractive for

today’s non-outsourcers

Rate different factors by their importance in the future choice of

ITO hubs and partners

Research Objectives

Help today’s non-outsourcing companies compare own in-house development / IT issues and problem solving techniques with those of their industry peers

Determine key concerns and fears that prevent today’s non-outsourcing companies from adopting ITO services and make ITO service providers aware of these concerns

Research Methodology

Both IT Outsourcing and In-House Software Development surveys were

designed and hosted by SurveyMonkey, the world’s leading provider of

web-based survey solutions.

The IT Outsourcing survey was comprised of 25 questions divided into 8

question blocks. The In-House Software Development survey was

comprised of 13 questions divided into 4 question blocks. The following

types of questions were used in both surveys: M-C - multiple-choice (only

one answer), multiple-choice (multiple answers) and M/C - matrix of

choices. Some multiple-choice questions contained an open-ended



response option that was included as the answer “other” in the actual

analysis of responses (see Table 1).

Table 1. Question blocks & types

Block Question Type

IT Outsourcing Survey

Respondents’ profile

What is your company size (headcount)?

M-C (1 answer)

What is your primary industry?

M-C (multiple answers)

What revenue growth are you expecting in 2011?

M-C (1 answer)

Do you currently outsource any element of your corporate IT function /software development?

M-C (1 answer)

Outsourcing Behavior

What is your overall IT outsourcing experience?

M-C (1 answer)

If you do staff augmentation, what is the size of your current outsourced team(s)?

M-C (1 answer)

If you do project outsourcing, what is the value of your project(s) (in €)?

M-C (1 answer)

What area of expertise does your outsourced software development fall into?


Do you multi-source? M-C (1 answer)

Where do you outsource your software work?


Outsourcing Drivers & Factors

What are the TOP THREE factors that drove your company's decision to outsource IT?


Rate the following factors in terms of their importance in your choice of the outsourcing destination

M/C (1 answer per row)

Rate the following factors in terms of their importance in your choice of the outsourcing partner


Outsourcing Challenges

What are the TOP THREE challenges of your outsourced IT/development?


How do you respond to your current challenges?


Vendor Relations

How did you find your current ITO partner(s)?


What size is your major ITO partner (headcount)?

M-C (1 answer)

What business model do you use for your outsourced development?


Who decides on your outsourced development team's structure




and members?

Do you know the exact salaries of each of your employee on the outsourced development team?


Evaluate your current level of satisfaction with the outsourced services provided

M-C (1 answer)

Outsourcing Costs

How do actual incurred annual costs of the outsourced development compare to the expected (contracted) costs?

M-C (1 answer)

What are your actual savings from the outsourced software development versus the in-house development?

M-C (1 answer)

Impressions of ITO

What are your general impressions of the outsourced software development?


Future Outsourcing Plans

Do you plan to continue outsourcing your software development?

M-C (1 answer)

In the future, where would you outsource your software development?


In-House Software Development Survey

How do you currently develop/manage your


In-House Software Development Behavior

IT/software products?

If you have an in-house IT team, what size is it (headcount)?

M-C (1 answer)

What part of your corporate budget is spent on IT/software development?

M-C (1 answer)

Are you satisfied with your in-house development outcomes?

M-C (1 answer)

Challenges of In-House Development

What are the TOP THREE challenges of your in-house software development?


How do you respond to current challenges?


Factors Keeping Away from Outsourcing

What are the TOP THREE factors that keep your company away from ITO?


Future Adoption of Outsourcing

Rate each circumstance below in terms of your company's likelihood to begin outsourcing IT/development in the future


Where would you outsource your software development / IT in the future?


Rate the following factors in terms of their importance in your future choice of ITO destination




Rate the following factors in terms of their importance in your future choice of the ITO partner


If you decide to outsource IT / software development in the future, how would you search for your outsourcing partner?


Do you plan to outsource any part of your IT function / software development in 2011?

M-C (1 answer)

Study Sample

The following number of companies took part in IT Sourcing Europe’s

surveys in each country surveyed:

Country # of outsourcers # of non-outsourcers

Total # of participants

Austria 320 213 533 Cyprus 129 100 229

Denmark 434 240 674 Germany 140 164 304

Malta 78 76 154 Netherlands 216 240 456

Norway 285 206 491 Switzerland 422 181 603

Sweden 192 287 479 United Kingdom 387 342 729

Grand Total 2603 2049 4652



Part I: Nordic Region

Figure 1: Top 3 industries that most actively use ITO services in 2011

Figure 2: Top 3 outsourced project areas



Figure 3: Multi-sourcing vs single-sourcing

Figure 4: Top 3 IT outsourcing geographies



Figure 5: IT Outsourcing projects value (€)

Figure 6: Top 3 IT Outsourcing drivers



Figure 7: Top 3 IT Outsourcing Challenges

Figure 8: Top 3 Responses to Challenges



Figure 9: Top 3 IT Outsourcing Destination Selection Criteria

Figure 10: Top 3 IT Outsourcing Partner Selection Criteria



Figure 11: Top 3 IT Outsourcing Partner Search Tactics

Figure 12: Top 3 IT Outsourcing Engagement Models



Figure 13: ITO Buyers’ Involvement in HR Selection on Vendor’s Side

Figure 14: ITO Buyers’ Involvement in Salary Negotiations with Project Team Members on Vendor’s Side



Figure 15: ITO Buyers’ General Satisfaction with Their Service Providers

Figure 16: Top 3 Impressions of IT Outsourcing



Figure 17: Top 3 Factors Preventing Companies from IT Outsourcing

Figure 18: Top 3 Factors Likely to Influence Companies’ IT Outsourcing Decisions in the Future



Part II: DACH

Figure 1: Top 3 Industries that Most Actively Use ITO Services in 2011

Figure 2: Top 3 Outsourced Project Areas



Figure 3: Multi-sourcing vs Single-sourcing

Figure 4: Top 3 IT Outsourcing Geographies



Figure 5: IT Outsourcing Projects Value (€)

Figure 6: Top 3 IT Outsourcing Drivers












Figure 12: Top 3 IT Outsourcing Engagement Models



Figure 13: ITO Buyers’ Involvement In HR Selection On Vendor’s Side

Figure 14: ITO Buyers’ Involvement In Salary Negotiations With Project Team Members On Vendor’s Side



Figure 15: ITO Buyers’ General Satisfaction With Their Service Providers

Figure 16: Top 3 Impressions of IT Outsourcing



Figure 17: Top 3 Factors Preventing Companies From IT Outsourcing

Figure 18: Top 3 Factors Likely To Influence Companies’ IT

Outsourcing Decisions In The Future



The German Austrian Swiss Outsourcing Association (Deutscher Outsourcing Verband e.V.)

represents the interests of outsourcing professionals and organizations and is an

independent partner of outsourcing users, consultants and service providers in Germany,

Austria and Switzerland.

Mission

The main goal of the Association is to further influence the market for outsourcing

services - BPO, ITO and SSC - in the DACH region. The development of dedicated

communication channels and media, a massive expansion of the communication within

the market and the available information as well as the installation of an independent

platform for maintaining and extending the network were identified as key aspects of the

work of the association.

In 2011 the association has established several councils and local representations as well

as relationships with the key organizations and leading professional. Further the

association has actively supported the main industry events and published almost 400

articles with special relevance to the DACH markets for outsourcing services.

Network and Councils

Good co-operation is built on good contacts. Therefore the association aims to establish

good relationships with knowledge carriers, business leaders and other independent

organizations, both on national and on international level. Further the association offers

free presentation services and moderates open groups on social / business networks.

The association has established interest groups - councils - that act as knowledge

networks to single topics such as Shared Services or as representation of markets /

outsourcing destinations Goal is to represent the interests of the respective market

segments, topics, branches or locations in an independent, collaborative manner. Usual

tasks are for instance: representation within our markets, publishing respective

information, reviewing information, establishing partnerships, building networks and

supporting the knowledge transfer by organising workshops, seminars, webinars and

webcasts. The membership with the councils is for professionals free of charge,

organizations can support the work of the councils with a sustaining membership.

The Outsourcing Journal

The Outsourcing Journal is THE independent news and information services about BPO,

ITO and Shared Services in Germany, Austria and Switzerland. It provides exclusive

information, company news, professional articles, interviews, best practices, studies,

market data, reports and much more for outsourcing professionals in Germany, Austria,

Switzerland and beyond. > www.outsourcing-journal.org

Public Relations

Market attendees can take advantage of the network and communication channels of the

association and get support in their public relations and communication efforts. The

association offers via its PR agency professional and market fit services.

> www.outsourcing-marketing.org

Partner Program

The partner program opens professionals and corporates the opportunity to support the

market and to gain access to first-hand information and an independent network. Further

the program supports corporate partners and members actively in their marketing and

public relations efforts in the DACH region.

For further information please visit www.outsourcing-verband.org/en or contact Mr.

Stephan Fricke at [email protected]

http://www.outsourcing-journal.org/

http://www.outsourcing-marketing.org/

http://www.outsourcing-verband.org/en

mailto:[email protected]



Part III: Cyprus, Malta, Netherlands & United Kingdom

Figure 1: Top 3 Industries That Most Actively Use ITO Services In 2011

Figure 2: Top 3 Outsourced Project Areas



Figure 3: Multi-sourcing vs Single-sourcing

Figure 4: IT Outsourcing Projects Value (€)



Figure 5: Top 3 IT Outsourcing Geographies

Figure 6: Top 3 IT Outsourcing Drivers












Figure 12: Top 3 IT Outsourcing engagement models



Figure 13: ITO Buyers’ Involvement In HR Selection On Vendor’s Side

Figure 14: ITO Buyers’ Involvement In Salary Negotiations With Project Team Members On Vendor’s Side



Figure 15: ITO buyers’ general satisfaction with their service providers

Figure 16: Top 3 impressions of IT Outsourcing



Figure 17: Top 3 Factors Preventing Companies From IT Outsourcing

Figure 18: Top 3 Factors Likely To Influence Companies’ IT Outsourcing Decisions In The Future



Ngi, the Dutch Computer Society, represents 2,500 ICT

professionals. Ngi is a non-profit organisation seeking to improve

and promote high standards among Informatics Professionals in

recognition of the impact that Informatics has on employment,

business and society.

Ngi is a member of IFIP (International Federation for Information

Processing) and CEPIS (Council of European Professional

Informatics Societies).

Contact Details:

Postbus 1058

3860 BB Nijkerk

Netherlands

Web: https://www.ngi.nl

Email: [email protected]

Tel.: 033 247 3427

mailto:[email protected]



The following IT outsourcing behavior patterns common for all European

regions surveyed have been observed in the course of the 2011 All-

European IT Outsourcing and In-House Software Development Research:

1. IT (software) industry demonstrates the highest demand for IT

outsourcing services

2. Web development is the most outsourced area of expertise

3. Nearshoring is the most popular geography of outsourcing in

Europe

4. 2011 has been the year of small ITO projects (up to €50K)

5. Cost reduction remains the major driver of corporate decisions to

outsource IT /development in Europe

6. When choosing their ITO hubs, European companies make sure

they have a vast pool of IT talent with an excellent command in

foreign languages (e.g. English)

7. When searching for potential ITO service providers, European

companies rely most on own online research and vendor

references from their market peers

8. The project-based and Managed / Own Development (Agile,

SCRUM etc) Team models are the most popular engagement

models in Europe

9. The majority of ITO buyers in Europe are not involved in salary

negotiations with their project team staff on vendor’s side, which

marks a high level of hidden agenda in ITO transactions

10. The majority of ITO buyers in Europe are either somewhat

satisfied, or just satisfied with their service providers

The following IT outsourcing concerns common for all European regions

surveyed have been identified in the course of the 2011 All-European IT

Outsourcing and In-House Software Development Research:

1. Poor communication with project teams and/or management on

vendor’s side

2. Actual incurred costs exceed or far exceed the expected

(contracted) costs

3. Loss of managerial control of corporate IT / development projects

in case of outsourcing

To keep their current and future customers satisfied with their ITO

outcomes, ITO service providers should revise and update their models of

engagement to allow a better project scrutiny and control on client’s side

and more transparent pricing structures to ensure more predictable

longer-term ITO budgets. Additionally, it is highly recommended that ITO

service providers look beyond their Service Level Agreements and

develop a set of value-added services to proactively meet their clients’

business needs in today’s hectic and rapidly changing business

environment.

Conclusions & Recommendations





About IT Sourcing Europe

IT Sourcing Europe is a UK-based market intelligence company specialized

in European IT Outsourcing research and advisory.

IT Sourcing Europe provides:

Top quality quantitative and qualitative IT Outsourcing market research and fieldwork services

Evaluation of Central and Eastern Europe's IT Outsourcing services providers and their factual capabilities to deliver innovative technological solutions on time and on budget

Free consulting services for European companies planning to outsource IT / software development functions and / or change their current IT Outsourcing strategy / engagement

Ad-Hoc IT Outsourcing strategy development and full-cycle support

IT Sourcing Europe cooperates with several European ICT and Outsourcing organisations in terms of free analytics / information exchange. Amongst its major information partners are Outsourcing Verband, Das Outsourcing Journal, Outsourcing Portal, NGI and others.

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