IT Spending on Outsourcing Flattens Out

During the recession, spending on outsourcing as a percentage of total IT spending rose as IT executives wrestled with hiring freezes and the need for flexibility. This year, the data suggests the rise in outsourcing is taking a break as IT budgets regain their equilibrium.

The Computer Economics IT Outsourcing Statistics 2011/2012 study found that among organizations that outsource IT work, the percentage of their total IT spending going to service providers rose from 6.1% in 2009 to 7.1% in 2010 and then leveled out, showing no year-over-year growth in 2011 (Figure 1).

While a robust recovery might prompt organizations to seek outside help, at least on a temporary basis, the recovery in IT spending is not yet strong enough to accelerate spending on outsourcing services. It is also no longer weak enough to prompt companies to slash internal expenses in favor of external service providers.

In short, IT executives are maintaining the status quo, awaiting evidence that the tenuous economic recovery will progress before engaging in more strategic outsourcing initiatives.

In the full study, we examine the outsourcing of 11 IT functions. For each function, we assess the adoption trend. We look at how many organizations are outsourcing work and how much of their workload is being outsourced. We also measure the success IT organizations are having with each of these services. We look at not only the success rate for reducing costs, but also for improving service. Finally, we examine the frequency and amount of offshore outsourcing for each function.

Other key findings in the study:

• The use of software-as-a-service continues to gain strength, making application hosting one of the fastest-growing areas for outsourcing. While the amount of the typical portfolio being hosted by outside parties remains low, application hosting is the most frequently outsourced service in the study.
   
• The three most strongly adopted outsourcing services are web/e-commerce systems, application development, and application maintenance. These functions rank high in both the number of organizations that outsource them and the amount of work typically outsourced.
   
• The IT function with the greatest potential for reducing costs through outsourcing is help desk. Fifty-one percent of organizations that outsource this function find that they have lower costs than when they performed the function in-house.
   
• The function that holds the greatest potential for improving service through outsourcing is IT security, followed by disaster recovery. Only 6% and 8% of IT organizations, respectively, find outsourcing these functions makes service worse.
   
• When considering the potential for successful service and cost experiences with outsourcing, four IT functions stand out: application maintenance, application hosting, data center operations, and network operations.

These and other important trends are discussed in more detail in the full study.

This Research Byte is a brief overview of our report on this subject, IT Outsourcing Statistics 2011/2012. The full report is available at no charge for Computer Economics clients, or it may be purchased by non-clients directly from our website (click for pricing).