Application Development Outsourcing Starting to Decline

February, 2014

Approximately three of every five organizations engage in application development outsourcing, which has been on a sharp rebound since the bottom of the recession. But now that recovery is leveling off and may even be starting to decline as IT organizations gain authorization to fill positions, embrace software as a service, reduce capital spending, or bring work back in-house because of poor customer experience.

The percentage of companies that outsource at least some of their application development rose from 39% in 2009 to 66% in 2012, as shown in Figure 2 from our study, Application Development Outsourcing Trends and Customer Experience. The frequency rate then declined to 60% in 2013.

AppDevOutsourcing Fig21 - Application Development Outsourcing Starting to Decline

It remains to be seen whether this trend will continue or merely mark a leveling off after the post-recession bounce. Whatever the cause, some companies did not renew expiring application development outsourcing agreements and fewer companies signed new application development outsourcing agreements.

Although it is one of the more frequently outsourced IT functions, our findings also show that the customer experience has been less than spectacular. Every application development project carries risk, but outsourcing, especially if done offshore, can increase that risk in the absence of proper management controls.

In light of current trends, the full study will help IT executives compare their outsourcing activity and experience with other IT organizations. The study uses three metrics to measure application development outsourcing activity: it determines how many organizations outsource application development (frequency), how much of the workload is typically outsourced (level), and the change in the amount of work being outsourced (trend). We also measure the cost experience and service experience of companies that outsource this function, and determine how outsourcing activity and experience vary by organization size and sector.

This Research Byte is a brief overview of our report on this subject, Application Development Outsourcing and Customer Experience. 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).