IT Budgets Rise, but Businesses Cut Back on IT Outsourcing
Application hosting has become the most frequently outsourced function, displacing application development, a Computer Economics report found.IT outsourcing as a percentage of the IT budget dropped this year, reversing a four-year trend and marking the first time since the start of the recession that IT organizations have begun shifting spending plans on a percentage basis toward developing internal operations and capabilities and away from outsourcing partners, according to a report by research and advisory services specialist Computer Economics. Survey results suggested organizations are starting to "back-source" their IT services, bringing them back in-house after a period of growth in the use of service providers. The decline in IT outsourcing was reported as significant, down from an average 11.9 percent in 2012 to 10.6 percent in 2013. Meanwhile, IT operating budgets are rising 2.5 percent this year at the median, and IT capital budgets are up 4 percent. "With the tentative improvement in the economic outlook, IT organizations are putting newfound resources into internal operations and capital investments at a pace that is greater than their spending with IT service providers," the report noted. "IT outsourcing budgets are not necessarily shrinking so much as IT budgets are rising. The denominator is rising faster than the numerator." The report found the IT functions with the greatest potential for successfully reducing costs through outsourcing are desktop support and disaster recovery, and the functions with the greatest potential for improving service through outsourcing are Web and e-commerce operations and IT security.
Application hosting has become the most frequently outsourced function, displacing application development. Application hosting also continues to be the fastest-growing outsourcing function in the study, a reflection of the growing popularity and strength of software as a service (SaaS).