We’ve recently completed our 3d Annual UK IT Outsourcing (ITO) vs In-House Software Development Research and compiled some of its most interesting and thought-provoking results in the 2012 UK ITO Intelligence Report.

About the Survey:

The UK IT Outsourcing and In-House Software Development Survey 2012 was conducted between March 19 and May 3, 2012, in the frames of the 3d Annual All-European IT Outsourcing research.

Survey goals:

  • Explore factors that drive UK-based 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 the UK
  • 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 UK companies away from adopting IT Outsourcing
  • Explore the key challenges and problem solving best practices adopted by the UK companies that develop / manage their software solutions in-house

Number of survey participants – 801 UK companies, of which 416 were IT / software development outsourcing companies and 385 – companies developing their IT solutions within own house.

Executive Summary:

This year we see an increased adoption of the outsourced IT / software development within the UK business community and a deeper penetration of IT Outsourcing (ITO) into the financial services market and a B2C focused IT industry. A trend for smaller ITO deals continues to drag from 2011; however, in 2012 a prevailing majority of the outsourced projects fall into a mobile computing domain. This comes pretty much in line with an extremely rapidly growing global mobile apps market and demands for mobile solutions. Cloudsourcing is being used more extensively this year, up 8 percent from 2011, while embedded development remains the least outsourced domain.

In 2012 we see a higher number of UK companies that outsource their solutions to more than just one partner and the most popular destinations’ mix for multisourcing is onshore (within the UK), nearshore (within the same / up to 2 time zones away from the UK)  and offshore (more than 2 time zones away). In general, nearshore remains the most popular ITO destination, followed by offshore.

In 2012, the top three ITO drivers are reduction of operating costs, focus on core competences and necessity to free in-house IT staff for other business tasks. The top three most decisive factors in the choice of ITO destination among the UK companies are the available vast IT talent pool, proficient English language skills and economic stability, while the top three factors in the choice of an ITO partner are positive references from peers, realistic HR scalability and innovative and flexible business model.

Poor communication between ITO buyers and providers is the number one challenge facing outsourcing companies in the United Kingdom this year, followed by change management and insufficient project management on vendor’s side.

A majority of UK outsourcing companies say they greatly rely on peer references when searching for potential ITO partners. On the other hand, just slightly more than 10 percent of companies polled admitted finding their partner(s) via a publicly released RFP/RFI/RFQ.

In 2012 more than 50 percent of the survey respondents say they outsource their IT / software development solutions via an Own Development Team model. The reason for this may underlie in current concerns about the poor client-vendor communication in most of ITO deals and the increase in face-to-face communication as the most frequently used problem solving practice.

Regarding the economy of outsourcing, almost 45 percent of the survey respondents admit actually paying 25 percent more than expected in their contracts and save no more than 25 percent of operating costs. This does not prevent 50 percent of companies from having a positive opinion about their ITO engagement(s).  Nor does it prevent almost 80 percent of respondents from continuing to outsource their innovative solutions in the next 12 to 24 months.

Analyzing behavior patterns of companies that do not outsource their solutions and fulfill their IT / software development functions within own house, we can conclude that the top three drivers of ITIO decisions within the UK business community in the following months will be a slow time to market (TTM), high cost of domestic IT talent and a shortage of domestic IT resources. Fifty percent of companies developing their IT solutions in-house report plans to start outsourcing their IT / development this year. Asked where they would outsource their development if they made such a decision in the future (hypothetically speaking), almost 60 percent answered with “nearshore” and only less than 15 percent answered with “offshore”.

Overall, the results of the UK ITO versus In-House Development Survey 2012 suggest that ITO is yet to be discovered by more small to mid-sized UK organisations in the near future and is here to stay for a while.

A more detailed analysis of the 2012 trends, challenges and behaviors as well as their comparison to the last year’s practices will be presented in the 3d Annual Pan-European IT Outsourcing Intelligence Report to be published in Q4 2012 after all of the major European ITO markets have been explored.

  1. Seems like a lot of small jobs/projects and no long term large contracts. Nearshore seems to also be a trend, which I suppose for the UK that means Eastern Europe. I think the Indians, with their prices creeping up, are going to have a tough time in the future.

  2. Gerry Outlaw says:

    Despite these results, outsourcing is still evident within UK’s business model.

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