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The IT Outsourcing Journey 2011:                A Year In Review                                   INDUSTRY REPORT        ...
CONTENTS                                                                                 EXECUTIVE SUMMARY                ...
INTRODUCTION                                                                  Europe and the USA in terms of ITO deals 3. ...
more viable choices (such as nearshoring versus             KEY OBSERVATIONS ON THE EUROPEAN IT         traditional offsho...
Suite or top-tier investors, European companies became more                                    In 2011, the UK‟s IT and Te...
Cloud-sourcing Not Yet a Mega Trend                                                       “transformational” in nature (to...
“Combo Menu”                                                                   IT outsourcers engaged with their service p...
Figure 3: Proportion of nearshore to offshore outsourcers in Europe in 2011                                               ...
LIST OF REFERENCESOverby, Stephanie. (2010). “11 Outsourcing Trends to Watch in      Nearshore Outsourcing Blog. (2011). I...
ABOUT CIKLUM                                                       CONTACT DETAILSCiklum (www.ciklum.net) is a Danish IT o...
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The IT Outsourcing Journey 2011: A Year In Review

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This Industry Report is based on the 2010 – 2011 findings of different market research organizations and “think tanks” such as Gartner, IT Sourcing Europe, CIO.com and others specialized in IT Outsourcing industry research and trendwatching.

The Report’s key goal is to review some of the major changes, trends and challenges that ruled the IT Outsourcing services market both within and outside the European Union in 2011.

Understanding of these changes will help industry practitioners to better identify factors that are likely to fuel demand for IT Outsourcing services and influence corporate sourcing decisions in Europe during 2012

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Transcript of "The IT Outsourcing Journey 2011: A Year In Review"

  1. 1. The IT Outsourcing Journey 2011: A Year In Review INDUSTRY REPORT CIKLUM JANUARY 2012
  2. 2. CONTENTS EXECUTIVE SUMMARY This Industry Report is based on the 2010 – 2011 findings ofEXECUTIVE SUMMARY.......................................................... 2 different market research organizations and “think tanks” such as Gartner, IT Sourcing Europe, CIO.com and othersINTRODUCTION ..................................................................... 3 specialized in IT Outsourcing industry research and trendwatching.GLOBAL IT OUTSOURCING DRIVERS IN 2011 ..................... 3KEY OBSERVATIONS ON THE EUROPEAN IT The Report‟s key goal is to review some of the major changes,OUTSOURCING LANDSCAPE IN 2011 .................................. 4 trends and challenges that ruled the IT Outsourcing servicesCONCLUSION ......................................................................... 8 market both within and outside the European Union in 2011.LIST OF REFERENCES .......................................................... 9 Understanding of these changes will help industry practitioners to better identify factors that are likely to fuel demand for IT Outsourcing services and influence corporate sourcing decisions in Europe during 2012.CIKLUM HQ12 Amosova St. T/F: +38 044 545 77 4503680, Kiev, Ukraine E: ciklum@ciklum.com www.ciklum.com Page 2| of 10
  3. 3. INTRODUCTION Europe and the USA in terms of ITO deals 3. However, according to IT Sourcing Europe, a European ITO marketBack in 2010 CIO.com, one of the world‟s leading online intelligence company, 2011 demonstrated a substantial declineplatforms for IT leaders, presented some of its forecasts for the in the EU‟s ITO and Business Process Outsourcing (BPO)2011 state of affairs on the global IT Outsourcing (ITO) market. transaction volumes. The slowdown in the EuropeanIn general, the year 2011 was to be marked largely by an outsourcing activity occurred to a certain extend as a result ofoverall upheaval of the outsourcing activity, smaller contracts, the EU currency crisis and the economic recession in itsextensive yet somewhat chaotic implementation of Cloud- second-tier member states.related solutions and a decreased quality of IT projects1. GLOBAL IT OUTSOURCING DRIVERS IN 2011Some IT gurus believed that 2011 was to be the end game ofthe IT as an in-house owned asset with only some degree of At the onset of 2011 Gartner, the world‟s leading IT researchoutsourcing and the start of most businesses‟ transitioning and advisory company, anticipated an accelerating change ontowards having every aspect of their IT operation fully the global ITO landscape driven by three key factors4:dependent on external providers and their expertise2.  Hypercompetition reflected in extreme cost-based ITOBecause the European Union outran the United States by the decision-making as a result of previously shrunken ITtotal value of the ITO contracts in 2010, many experts predicted budgets, high levels of renegotiated ITO contracts and2011 to be the year of a much tougher competition between 3 “IT Outsourcing Market in Central and Eastern Europe: Trends, Figures, Predictions,”1 Stephanie Overby. “11 Outsourcing Trends to Watch in 2011,” CIO.Com, 2010 Nearshore Outsourcing Blog, 20112 4 “Outsourcing is the first step towards IT services,” IT News Africa, 2011 “IT Outsourcing Trends: Tips to Shape Your Strategy,” Gartner, 2010CIKLUM HQ12 Amosova St. T/F: +38 044 545 77 4503680, Kiev, Ukraine E: ciklum@ciklum.com www.ciklum.com Page 3| of 10
  4. 4. more viable choices (such as nearshoring versus KEY OBSERVATIONS ON THE EUROPEAN IT traditional offshoring, multi-sourcing to niche providers OUTSOURCING LANDSCAPE IN 2011 versus stand-alone single-sourcing, etc. ) Reviewing the actual state of affairs on the European ITO market, the following trends and corporate behavior patterns  Consolidation reflected in accelerated acquisitions have been observed over 2011: (e.g., HP - EDS, Xerox – ACS, Dell – Perot, Deloitte - BearingPoint) and enhanced Cloud engagements Small IT Outsourcing Deals  Innovation reflected in ITO service providers‟ rapid responses to systemic changes in high-tech sector as According to IT Sourcing Europe‟s „Pan-European IT well as increasing usage rates for Software as a Service Outsourcing Intelligence Report 2011‟, the prevailing majority of (SaaS), Infrastructure as a Service (IaaS), Platform as a the EU‟s ITO contracts did not exceed EUR 49K in value in Service (PaaS), and Cloud and Utility models exceeding 2011. those for traditional project-based services Diving for Dollars and Resources In 2011, cost reduction remained the Number 1 reason pushing the EU companies to “pull the trigger” on the sourcing activity5. Pressed to cut IT budgets and/or reduce operating costs by C- 5 “Pan-European IT Outsourcing Intelligence Report,” IT Sourcing Europe, 2011CIKLUM HQ12 Amosova St. T/F: +38 044 545 77 4503680, Kiev, Ukraine E: ciklum@ciklum.com www.ciklum.com Page 4| of 10
  5. 5. Suite or top-tier investors, European companies became more In 2011, the UK‟s IT and Telecom sectors lacked 110,000 neweager to reconcile their original ITO contracts to avoid further entrants to keep up with the demand 9. In comparison, Germanyover-payment and hidden agenda. Additionally, they became lacked 117,000 ICT specialists in 201110.more eager to replace their current vendors with those able toprovide more transparent delivery models and pricing Overall, according to IT Sourcing Europe‟s “Pan-European ITstructures6. Outsourcing Intelligence Report 2011”, the demand for external IT talents was rather high within the EU in 2011 (see Fig. 1).Another big driver of ITO decisions in Europe was the shortage Figure 1: Percentage of companies driven to outsource IT / softwareand/or high cost of domestic IT resources. For instance, development solutions in 2011 as a response to the experienced skills shortageaccording to the latest research conducted by e-Skills UK, theSector Skills Council for Business and Information Technology,in UK the proportion of IT professionals under 30 has declinedfrom 33% in 2001 to 19% in 20107. At the same time, the 60% 50% 40%proportion of those over 50 has almost doubled to 17% in 2010, 30% 20%compared to 20018. 10% 0%6 Ibid.7 “New e-skills UK research shows technology workforce needs 110,000 new recruits this year,” 9e-Skills.com, 2011 Ibid.8 10 Ibid. “Plugging the skills gap,” Businesseurope, 2011CIKLUM HQ12 Amosova St. T/F: +38 044 545 77 4503680, Kiev, Ukraine E: ciklum@ciklum.com www.ciklum.com Page 5| of 10
  6. 6. Cloud-sourcing Not Yet a Mega Trend “transformational” in nature (to date, most of them have only been “experimental”)In 2011, Cloud-sourcing remained just another buzz word and  Companies still lacked substantial knowledge on how todid not become a hot trend in Europe despite numerous accurately assess and mitigate risks in Cloud-relatedpredictions11. Although Cloud and SaaS solutions were the operationsleast outsourced areas in 2011, the number of Cloud-sourcing Figure 2: Percentage of companies engaged in Cloud-sourcing in 2011companies increased significantly in most of the EU countries, versus 2010compared to 201012 (see Fig. 2).The underlying reasons why cloud computing did not yet 25%become a mainstream IT delivery platform in 2011 are as 20%follows: 15% 10% 2010  There was very little evidence in the marketplace able to 5% 2011 convince most of IT decision makers that Cloud-related investments and deployments are really 0%11 Stephanie Overby. “11 Outsourcing Trends to Watch in 2011,” CIO.Com, 2010“Greater political backing for outsourcing expected for 2011,” TCWorld, 201112 “Pan-European IT Outsourcing Intelligence Report,” IT Sourcing Europe, 2011 “IT Outsourcing Intelligence Report 2010: Western and Northern Europe,” IT Sourcing Europe,2010CIKLUM HQ12 Amosova St. T/F: +38 044 545 77 4503680, Kiev, Ukraine E: ciklum@ciklum.com www.ciklum.com Page 6| of 10
  7. 7. “Combo Menu” IT outsourcers engaged with their service providers via innovative business models such as Own Development CenterIn 2011, more European ITO service buyers began to move allowing maximum IT project management control, timelyaway from outsourcing single functions or processes on a delivery and economy of scale. In addition, more European ITOstand-alone basis to combining multiple processes and buyers were fully or partially involved in IT talent selection andfunctions in their outsourcing engagements and developing salary negotiations in 2011, compared to 2010 14. Suchinnovative ways of managing multi-vendor environments. practices generally help ITO buyers to build own loyal remote ITAdditionally, multi-sourcing became the preferable outsourcing teams in full compliance with their corporate culture, missionmodel due to the higher bargaining power that ITO buyers have and business goals which is proven to lead to the improvedover their niche providers. team work efficiency and IT project quality. Strive for Independence from Vendor’s Project Mass Migration Nearshore Management During 2011 most of the European IT companies transferred their IT / software development functions nearshore versusBack in 2010, the vast majority of European companies offshore15 (see Fig. 3).reported their fear to lose managerial control of own IT projectsamong the key barriers in ITO adoption13. Thus, in 2011 more 14 “Pan-European IT Outsourcing Intelligence Report,” IT Sourcing Europe, 201113 “IT Outsourcing Intelligence Report 2010: Western and Northern Europe,” IT Sourcing Europe, “IT Outsourcing Intelligence Report 2010: Western and Northern Europe,” IT Sourcing 2010Europe, 2010 15 “Pan-European IT Outsourcing Intelligence Report,” IT Sourcing Europe, 2011CIKLUM HQ12 Amosova St. T/F: +38 044 545 77 4503680, Kiev, Ukraine E: ciklum@ciklum.com www.ciklum.com Page 7| of 10
  8. 8. Figure 3: Proportion of nearshore to offshore outsourcers in Europe in 2011 CONCLUSION 70% 60% 2011 was the year of big changes in the European IT 50% outsourcing journey. Many corporate IT decision makers 40% stopped perceiving outsourcing as an immediate cost reduction 30% tactic and started plugging it into business processes and long- Nearshore 20% Offshore term IT strategies ensuring access to cutting-edge technology 10% and in-house knowledge building. Blended with the focus on 0% highly competitive emerging markets in Central and Eastern Europe and increasing need of resources, innovation and faster time to market, the strategic use of outsourcing will soon determine new dimensions that the organisations will need to develop additional competencies and derive maximum valueAs seen from Fig. 3, even the United Kingdom that has along the outsourcing value chain in the near future.traditionally outsourced to India shifted its sourcing focus toCentral and Eastern Europe. Offshore delivery capabilitiesproved to result in decreased product quality andcommunication problems16.16 Stephanie Overby. “11 Outsourcing Trends to Watch in 2011,” CIO.Com, 2010CIKLUM HQ12 Amosova St. T/F: +38 044 545 77 4503680, Kiev, Ukraine E: ciklum@ciklum.com www.ciklum.com Page 8| of 10
  9. 9. LIST OF REFERENCESOverby, Stephanie. (2010). “11 Outsourcing Trends to Watch in Nearshore Outsourcing Blog. (2011). IT Outsourcing market in 2011.” CIO.com. Retrieved from Central and Eastern Europe: Trends, Figures, http://www.cio.com/article/647965/11_Outsourcing_Tren Predictions. Retrieved from ds_to_Watch_in_2011?page=1&taxonomyId=3195 http://nearshoreoutsourcing.blogspot.com/2010/12/ov erview-of-cee-it-outsourcing-review.html#Trend5Businesseurope. (2011). Plugging the skills gap. The clock is ticking. Retrieved from IT Sourcing Europe. (2010). IT Outsourcing Intelligence Report http://www.businesseurope.eu/Content/Default.asp?page 2010: Western and Northern Europe. Retrieved from id=568&docid=28659 http://www.itsourcing- europe.com/IT_Outsourcing_Reports.htmle-Skills.uk. (2011, January 18). New e-skills UK research shows technology workforce needs 110,000 new recruits IT Sourcing Europe. (2011). Pan-European IT Outsourcing this year. Retrieved from http://www.e-skills.com/News- Intelligence Report 2011. Retrieved from and-Events/January-2011/New-e-skills-UK-research- http://www.itsourcing- shows-technology-workforce-needs-110000-new- europe.com/IT_Outsourcing_Reports.html#Pan- recruits-this-year-/ European_ITO_Report_2011Gartner. (2010). IT Outsourcing Trends: Tips to Shape Your TCWorld. (2011, January). Greater political backing for Strategy. Retrieved from outsourcing expected for 2011. Retrieved from http://www.gartner.com/it/content/1428400/1428414/octo http://82.165.192.89/initial/index.php?id=225 ber_7_it_outcourcing_trends_bpring.pdfIT News Africa. (2011). Outsourcing is the first step towards IT services. Retrieved from http://www.itnewsafrica.com/2011/08/outsourcing-is-the- first-step-towards-it-services/CIKLUM HQ12 Amosova St. T/F: +38 044 545 77 4503680, Kiev, Ukraine E: ciklum@ciklum.com www.ciklum.com Page 9| of 10
  10. 10. ABOUT CIKLUM CONTACT DETAILSCiklum (www.ciklum.net) is a Danish IT outsourcing company Ciklum HQspecializing in nearshore software development by establishing 12 Amosova St. 03680, Kyiv, Ukraineand servicing clients‟ own development teams and/or centres in Tel.: +38 044 545 77 45, +45 46 92 77 00 Email: ciklum@ciklum.comEastern Europe, in Ukraine and Belarus. The environment of Web: www.ciklum.comservices and knowledge sharing within the company helpsclients to market quickly and with less risk and minimalinvestment. Established in 2002, Ciklum employs more than FOLLOW CIKLUM1,700 IT specialists with more than 160 global clients‟ ownsoftware development teams. Ciklum has six developmentoffices in Ukraine, one in Belarus, and two in Pakistan, as wellas representative offices in Denmark, Sweden, UnitedKingdom, Switzerland, Germany and the Netherlands. Ciklum isa winner of Red Herring 100 Europe 2009, recognized asCeBIT 2010 Top 20 innovative company deliveringservices/products for small and medium sized companies, andnamed the 2010 and 2011 Top 100 global services provider.Ciklum is rated best Ukrainian IT Employer 2010 and 2011 byDOU, the Ukrainian Community of Software Developers.CIKLUM HQ12 Amosova St. T/F: +38 044 545 77 4503680, Kiev, Ukraine E: ciklum@ciklum.com www.ciklum.com Page 10| of 10
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