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September 7, 2010

Outsourcing spend on the up: Gartner

Is interest turning into adoption?

By Steve Evans

European organisations are expected to increase their involvement in outsourcing during 2010 with overall spending on external IT services also expected to rise, according to a new report from Gartner.

The report claimed that 53% of European organisations said they will outsource more in 2010 with 40% of organisations planning to increase their external IT services spending.

The survey also revealed the types of organisations embracing outsourcing is changing; 14.7% of companies with IT budgets of less than €1m expressed interest in outsourcing, which compares to only 6.1% of organisations in 2009.

While the number of companies spending 50% or more of their IT budget on external service providers is increasing the pressure on capital and IT operating expenditure is still very strong, according to Claudio Da Rold, vice president and distinguished analyst at Gartner. Da Rold added that organisations expect providers to deliver further cost reductions

"Although 40% of respondents said that they will increase the external share of their budget, only 24% said that they will increase the budget for providers, and almost a quarter of organisations still expect that their IT services budget will continue to decrease in 2010," he said.

After a few years of rising interest in what Gartner calls "industrialised services" based on alternative delivery models, such as software as a service (SaaS), cloud computing and infrastructure utility (IU), interest among European organisations has peaked, the analyst house said. This interest is turning into adoption, with SaaS and IUs’ implementations up 6.1% and 5.1% in 2010, respectively.

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"It’s no surprise that organisations are looking to spend more of their budgets with service providers. They can see that managed services and cloud computing financial models allow them to achieve their goals whilst reducing capital expenditure. As Gartner suggests, normally you see a period of recession and cost cutting followed by investment and growth," said Nathan Marke, CTO of 2e2.

"We are seeing organisations starting to think about growth but the cautious attitude that Gartner highlights is leading many to look to managed services and, as Gartner puts it, more industrialised IT models," Marke continued. "For example, in the area of application integration, whether on premise or through a software as a service aggregator, organisations are seeking to breathe life into existing systems, allowing them to sweat their assets for longer."

A word of warning comes from Valueshore co-founder Daniel Naoum who says that companies must be aware of the quality of the service they receive when outsourcing. "Organisations must be careful not focus solely on day-rates at the expense of quality. Recent figures from Vanson Bourne found that 75% of UK companies are in fact ‘disappointed’ with the quality of work provided by offshore outsourcers. Clearly, businesses and outsourcers need to make some major changes to the way they work together to ensure that businesses are getting the most out of their outsourcing contracts."

"Traditional offshore destinations, such as India, don’t always offer continued cost savings and overall business management efficiency. These regions are generally far away from European business hubs and, as such, the time and money spent managing operations can negate the initially attractive cost savings," Naoum added.

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