Squeezing More Value Out of Outsourcing

By Tony Kontzer | Posted 2017-09-29

1 of

Squeezing More Value Out of Outsourcing

Organizations aren't seeking to outsource additional functions, but in areas where it's proven effective, they're farming out more work.
Spending More

The average percentage of total IT budget spent on outsourcing has risen from 10.6% in 2016 to 11.9% in 2017, reports Computer Economics.
Size Means Little

At the median, large organizations are spending 8.7% of their IT budgets on outsourcing, up from 6.3% the previous year. That median has risen from 6.7% to 7.8% among small organizations, and from 4.7% to 6.5% among midsize companies.
Security Outsourcing Grows Fastest

IT security outsourcing is increasing faster than other outsourced IT functions, with 47% of respondents reporting that they plan to increase the amount of security work they entrust to third parties.
AppDev Still King

53% of the IT organizations surveyed outsource some part of their application development—the same as last year and more than any other function—but down from 62% in 2015.
Fueling AppDev

Of those organizations that outsource some part of their AppDev function, 37% are increasing the portion of work they outsource, while just 13% are decreasing it.
Cost Not a Deterrent

56% of companies that outsource AppDev said that doing so costs more than doing it internally, while 12% think it costs less.
Service Impact

29% of companies that outsource AppDev said their service experience is better than if the same work were completed in house, but 21% said their outsourced service experience is worse.
Consistent Strategy

Smaller (53%) and larger (52%) companies are almost equally likely to outsource their AppDev work.
Not-So-Consistent Mix

Large companies outsource an average of 49% of their AppDev work, while smaller companies farm out only 35%.
Retail and Finance Lead Way

Retail and wholesale (68%) and financial services (65%) are the industries most likely to outsource AppDev, while the least likely sectors to do so are healthcare (28%) and government and nonprofits (34%).
View All Slideshows >

Businesses are doubling down on IT outsourcing, according to a recent Computer Economics study that polled 131 IT organizations of various sizes and in a cross-section of industries about their outsourcing trends. But a closer look shows a more textured trend: Organizations aren't looking for new functions to outsource, but instead are tending to outsource more work in the areas in which they've already become accustomed to relying on third parties. If they do decide to outsource new functions, the focus tends to be on areas that require specialized skills. "Not surprisingly, IT security was the fastest growing function being outsourced," said David Wagner, vice president of research for Computer Economics. "The variety of threats and the danger they pose increase yearly. Finding and maintaining the right skills to meet these threats can be a challenge. Turning to experts to supplement internal IT security skills is a wise choice for most organizations." Wagner noted that outsourcing of other specialized functions, such as disaster recovery and network operations, is also growing. Meanwhile, application development remains the most oft-outsourced function and is most reflective of the study's major takeaway: While the percentage of companies outsourcing AppDev is shrinking, those who are outsourcing this function are planning to do more of it.

Tony Kontzer has been writing about the intersection of technology and business for more than 20 years.