VAR Report: More Enterprises Looking To Outsource IT Functions12:00 PM EST Fri. Aug. 17, 2012
More and more end users are seeking to leverage a mixed sourcing model for their IT needs, driven by a talent gap and the need to adopt more services more quickly as needs change, according to a new IT outsourcing study conducted by Bluewolf, a New York-based solution provider. Here's a look at some of the findings, which should help end users make more informed IT decisions, according to Corinne Sklar, vice president of marketing at Bluewolf. Bluewolf also conducted a cloud salary study that was published earlier this year.
"In a nutshell, we're seeing a new outsourcing model coming to fruition. We see it as an 'elastic workforce,'" Sklar said. Pictured here, Bluewolf defines an elastic workforce as "the dynamic community of highly skilled, independent experts and external service providers that ebb and flow with the resource needs of rapid enterprise initiatives." In other words, more companies are looking to utilize different amounts of IT staff at different times, but don't want to rely on just internal or third-party resources, according to the company.
There are three primary drivers to more companies seeking a mixed model of IT outsourcing, Sklar said. First, there's a talent gap facing many companies today. "We don't see it as an employment problem. Instead, the types of resources and technologies coming about today is happening so fast that the talent pool is lagging behind," Sklar said. "Organizations need access to experts that are hard to find. That's a top driver for outsourcing."
The second driver for outsourcing is the flexibility needed to turn IT resources on and off as needed. The third driver is a pronounced need for more productivity and profitability, Sklar said. "Outsourcing is not about cost-cutting anymore. It's about creating a competitive differentiator with your ability to drive change in your business," she said.
Companies that still view outsourcing as a cost-cutting measure are missing the boat, she said. "People are looking to access resources to deliver innovation and a way to drive growth. We believe that's a new trend in outsourcing," she said.
Bluewolf feels outsourcing has been given a bad name, especially in this election year, because people assume it means taking jobs away. Outsourcing IT is not the same as offshoring, Sklar said.
While offshore providers might give companies access to a lower-cost workforce, Bluewolf explains to customers that outsourcing means turning over specific IT operations to an expert in that area to help improve productivity and profitability, Sklar said.
Two of the biggest outsourcing areas are application services and infrastructure services, which combine to account for 83 cents of every outsourcing dollar, according to the study.
Half of the IT outsourcing budget for small businesses, defined as under 300 employees, goes toward infrastructure services, while 51 percent of midsize companies spend their money on application services, according to the study.
Meanwhile, nearly half of CIOs surveyed said outsourcing accounts for between 10 percent and 25 percent of their annual IT budget.
"One of the big things also is 32 percent of companies are increasing their IT outsourcing investment in the next 12 to 18 months," Sklar said.
Within application services, application development is the most popular service to outsource, while the breakdown within IT infrastructure services is more evenly distributed with data center operations garnering 23 percent share, according to Bluewolf.
"We also see that a lot of organizations are moving data center operations into the cloud," Sklar said. "Application development is the biggest one because there are so many platforms to be leveraged today," Sklar said. "These platforms come out and people need access and skilled resources that are hard to find. They have to go outside their walls. They also don't want to keep it in-house necessarily."
According to Bluewolf, application development is the most frequently outsourced IT function in both scope and variety of sourcing strategies used.
Meanwhile, the solution provider also identified an emerging class of employee that doesn't want a full-time job, but instead wants to work on a succession of short projects, according to Sklar.
"This is a huge trend that continues to open. In the old days, you worked at the same company for 10 years. We have a little bit of an ADD society. The next-gen worker wants the variety. They want to manifest their own destiny and manage their own career," she said.
While 26 percent of companies turn to offshore help for application development, only 4 percent look to offshore for web and mobile app development. In this slide, the explosion of web and mobile technologies remade entire industries, according to Bluewolf.
"As organizations continue to integrate web and mobile strategies into their marketing and eCommerce efforts, CEOs and CIOs are reevaluating the best ways to manage demand. Some choose to keep web and mobile development within IT and leverage an elastic workforce mix; others reorganize these functions under marketing or sales because of revenue potential," according to the company.
More than one-third of CIO respondents expect to outsource more application hosting in the next 12 to 18 months, according to the survey.
Many companies also are spending more time trying to find the right sourcing model for different functions, Sklar said.
"It's not just finding a right resource for the right time but it's also the right mix. Sometimes you want a contractor; sometimes a managed service provider makes more sense, especially if it's from someone that knows your business but is not inside in your wall," she said.
Speed to market can be a competitive differentiator for why CIOs look to outsource, especially as applications grow more complex, Sklar said. Then, application maintenance becomes more important as time goes on, she added. If an end user outsources the development of an application, they might look to outsource its maintenance too.
"You just don't develop an app and say, 'See you later.' It really is about an elastic sourcing model. CIOs need to be looking at how they are mixing their sourcing," she said.
According to Bluewolf, small, midsize and large companies look to outsource, though they look at different functions (such as data center operations, pictured here). Meanwhile, startups typically outsource more than existing companies because they don't want to invest in infrastructure, Sklar said.
It's up to solution providers to show customers the value they can provide in taking over certain IT functions for their customers, she said. "Outsourcing is your friend. It sounds silly and a lot of organizations get that, but I think it goes back to this election year, that's not what's being talked about. It's really defining a new outsourcing. Education helps CIOs understand new outsourcing and mixed sourcing because of all the issues with [offshoring] the last 15 to 20 years. Show the value, that it's not just about cost-cutting."
It can be a challenging task just to get CIOs to shift their way of thinking of outsourcing as cost-cutting, but solution providers also need to work to overcome customers' mental roadblocks around sharing their data and security to increase their services and outsourcing businesses, according to Bluewolf.
"As organizations move to the cloud, and the more you build trust in new models around accessing data, that becomes less of a concern. It depends on the outsourcing strategy and the sourcing mix that you choose. There are different levels of cost and business impact and control," Sklar said.