Danish IT Outsourcing Intelligence Report 2012

European IT Outsourcing Market IntelligenceEuropean ITOutsourcingIntelligence 2012Report: DenmarkPrepared by IT Sourcing Europe Limited based on the results of the 3dAnnual Danish IT Outsourcing versus In-House Software DevelopmentResearch 2012

European IT Outsourcing Intelligence Report: Denmark 2012CONTENTSEXECUTIVE SUMMARY ....................................................................................................................... 3ABOUT THE SURVEY .......................................................................................................................... 6RESPONDENT PROFILE ....................................................................................................................... 7DANISH IT OUTSOURCING 2012: DESTINATIONS, TRENDS, CHALLENGES, PROBLEM SOLVING .......... 10FUTURE DANISH IT OUTSOURCING: FORECASTS & EXPECTATIONS ................................................... 20 IT Sourcing Europe 2012 | All Rights Reserved Page | 2

European IT Outsourcing Intelligence Report: Denmark 2012EXECUTIVE SUMMARYThe myth that outsourcing can only be effective and beneficial for large companies has finally beendispelled in Denmark this year, with cumulative 21% of all IT outsourcing (ITO) buyers being less than100 people and only less than 5% of companies being more than 1,000 people in size (up 5% anddown 14% from 2011 respectively).B2B focused IT services companies continue to be the biggest outsourcing cluster in Denmark,followed by B2C focused IT / software companies and digital media companies. Regarding the latter,in 2012 the number of digital media houses that outsource their software development to a 3d partyhas more than doubled, compared to 2011. The lowest demand for ITO services comes fromcompanies working in education and financial services areas.Around 55% of all ITO buyers in Denmark surveyed said they had begun outsourcing their IT /software development function more than 37 months ago and only less than 4% of companiesadmitted having begun outsourcing less than 12 months ago. It comes pretty much in line with thelast year’s research findings and suggests outsourcing to have become a common and a well-established practice within a Danish business community.Most of today’s ITO projects require only 1-2 augmented IT specialists to complete (less than 40%)and are valued at € 0-49K. Web projects continue to be the most outsourced ones (up 3% from2011), followed by mobile projects (up 9% from 2011) and enterprise development projects (up 1%from 2011). The number of embedded development projects dropped by 3% this year, compared to2011, while the number of cloud projects stays the same as in 2011.This year multisourcing patterns have not changed much from 2011: the vast majority of companiesoutsource their solutions to a single service provider.Nearshore (close to / up to 2 time zones away from Denmark) remains the most popular outsourcingdestination (cited by 47% of survey respondents, which is up 10% from 2011). Offshore (2+ timezones away from Denmark) remains the second most popular outsourcing destination (cited byalmost 44% of companies, which is up 16% from last year).In 2012, the top three drivers pushing Danish companies into outsourcing engagements are needsto:  Reduce operating costs,  Focus on core competences and business development, and  Speed up time-to-market (TTM).In 2011, two first drivers were the same as this year, but the third one was different – companiesoutsourced due to the shortage of domestic IT resources and technologies. This year, a scarce localIT resources pool is a Number Four driver of corporate ITO decisions.The top three most decisive factors in the choice of an ITO destination among the Danish companiesare:  The available vast IT talent pool, IT Sourcing Europe 2012 | All Rights Reserved Page | 3

European IT Outsourcing Intelligence Report: Denmark 2012  Proficient English language skills, and  Low costs in general.The top three most decisive factors in the choice of an ITO partner in Denmark are:  Successful test project completion,  Flexible contract terms, and  Positive references from peer companiesPoor communication between ITO buyers and providers is the Number One challenge facingoutsourcing companies in Denmark this year, followed by cultural difference and lack of appropriateIT resources on vendor’s side. The latter was the Number One outsourcing challenge in 2011,followed by change management (i.e. company’s inability to “sell” the idea of outsourcing to all ofthe stakeholders and resistance to a change in operations and management culture from somedepartments / teams as a result of this) and vendor’s inability / unwillingness to understand clients’business goals pursued with the outsourced project(s).Just like in 2011, this year most of Danish companies dedicate more management resources andincrease face-to-face communication with their project teams on vendor’s side as the key issuesmanagement practices. However, in 2012 more companies consider changing their current ITOservices provider (up 12% from 2011) as a way to solve their outsourced project issues. On the otherhand, this year fewer companies do back-sourcing, i.e. bring their outsourced operations back in-house – down 6% from 2011. This generally marks companies’ overall satisfaction with theiroutsourcing endeavors and outcomes and possibly high costs of transferring software developmentback to home countries.A majority of Danish outsourcing companies (more than 45%, which is up 7% from 2011) say theygreatly rely on peer references when searching for potential ITO partners, while only 11% admittedhaving found an ITO partner via a publicly released RFI / RFP (down 4%). Almost 25% of companiesadmitted using The Danish Federation of Small and Medium-Sized Enterprises (Håndværksrådet) andword-of-mouth to find an ITO partner.A project-based model (fixed price, time and material) remains the most popular one among theDanish companies in 2012 (down 2% from 2011), followed by Own Development Team model (down5% from 2011).This year most of ITO buyers participate in HR selection and hiring process along with their serviceproviders, which is up 24% from 2011, but most of ITO engagements remain quite non-transparentas far as pricing is concerned. As the research shows, only less than 35% of Danish outsourcersadmitted knowing exact salary of each IT specialist involved in their project on vendor’s side, whichis up nearly 13% from last year.A positive change from 2011 observed is that this year a prevailing majority of survey participants(45%) say their actually incurred ITO costs fully or nearly match the contracted costs (up 26% from2011) and less than 30% admit their actually incurred costs are up to 25% higher than expected(down 31% from 2011). IT Sourcing Europe 2012 | All Rights Reserved Page | 4

European IT Outsourcing Intelligence Report: Denmark 2012One more positive change relates to the factual saving from outsourcing: this year cumulative 28%of ITO buyers report saving 10% to 39% of operating costs (up 5% from 2011), only 17% save lessthan 10% (down 12% from 2011). Regarding enormous savings (60% +), this year’s percentage ofsuch companies remains almost the same as it was in 2011 – 13.5%.In general, 50% of survey respondents do not regret their decision to outsource softwaredevelopment (no change from 2011), around 35% complain that ITO costs them more than theyexpected (down 9% from 2011) and slightly more than 30% say that although outsourcing does saveoperating costs, it inevitably increases the management costs (down around 10% from 2011). Only4.5% of Danish outsourcing companies polled regretted their decision to outsource theirtechnological solutions to a 3d party, which is down 1% from 2011.Asked whether they plan to continue outsourcing in the next 12 to 24 months, 100% of surveyrespondents replied with “yes”, which is up 35% from last year.Having analyzed behavior patterns of companies that do not outsource their solutions and fulfilltheir IT / software development functions in- house, we have concluded that the top three drivers ofITIO decisions within the Danish business community in the following months will be: 1) Lack of domestic IT resources able to unload internal IT departments, 2) High cost of domestic resources available, and 3) A slow time to market (TTM)Asked where they would outsource their development if they made such a decision in the future(hypothetically speaking), 50% of companies answered with “nearshore”. Twenty-three percent ofresearch participants admitted either being in the process of arranging an ITO partnership orconsidering outsourcing during 2012. It generally marks a high level of trust in success of ITOengagements with the Danish business community.A more detailed analysis of the 2012 trends, challenges and behaviors as well as their comparison tothe last year’s behavior patterns will be presented in the 3d Annual Pan-European IT OutsourcingIntelligence Report to be published in Q4 2012 after all of the major European ITO markets havebeen explored. IT Sourcing Europe 2012 | All Rights Reserved Page | 5

European IT Outsourcing Intelligence Report: Denmark 2012ABOUT THE SURVEYThe Danish IT Outsourcing versus In-House Software Development Survey 2012 was conductedbetween April 17 and May 31, 2012, in the frames of the 3d Annual All-European IT Outsourcingresearch.Survey goals:  Explore factors that drive Danish companies to outsource their software development / IT function(s) onshore, nearshore and/or offshore  Identify key challenges of the outsourced and in-house software / web development  Benchmark the current and future demands for IT outsourcing services across diverse industries  Benchmark the current and future demands for IT resources within Denmark  Find out which business model works best for the outsourced software development and why  Compare and contrast the actual incurred versus contracted costs of ITO services  Explore the current level of satisfaction with ITO service providers and quality of delivered software products/services  Explore factors keeping Danish companies away from adopting IT Outsourcing  Explore the key challenges and problem solving best practices adopted by Danish companies that develop / manage their software solutions in-house.The survey was available online and hosted by SurveyMonkey, the world’s leading provider of web-based survey solutions. In order to reach as many Danish companies as possible, IT Sourcing Europeused its own database of business contacts and sent out a survey invitation email to each company’sdecision maker(s) (C-level executives, IT Managers, Directors, Heads of Software Development etc).Additionally, inbound marketing initiatives were launched in order to attract more companies toparticipate in the survey. In the frames of this initiative, the following steps were taken:  Online press releases and survey announcements distribution;  Survey localization and optimization in social media such as LinkedIn, XING, Facebook, Mobile Monday Denmark, Twitter, Word PressNumber of survey participants – 695 Danish companies, of which 382 were IT / softwaredevelopment outsourcing companies and 313 – companies developing their IT solutions in-house. IT Sourcing Europe 2012 | All Rights Reserved Page | 6

European IT Outsourcing Intelligence Report: Denmark 2012About IT Sourcing EuropeIT Sourcing Europe is a UK-based market intelligence company specialized in the European ITOutsourcing market research and consultancy.IT Sourcing Europe provides:  Top quality quantitative and qualitative ITO market research and fieldwork services  Evaluation of Central and Eastern Europes ITO 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 ITO strategy / engagement  Ad-Hoc ITO strategy development and full-cycle supportOur Contacts:The Meridian, 4 Copthall House, Station SquareCoventry, West Midlands,CV1 2FL United KingdomEmail: info(at)itsourcing-europe.comTel.: +44(0)2476992505Web: www.itsourcing-europe.comRegistration at the UK Companies House: 07217899Follow Us:You are free to use, share and/or remix any part of this work as long as you attribute it to ITSourcing Europe.IT Sourcing Europe 2012 | All Rights Reserved Page | 23

Danish IT Outsourcing Intelligence Report 2012

by IT Sourcing Europe on Jun 20, 2012

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