IT Outsourcing Slowdown Suggests Internal IT Investment

The trend suggests that organizations are investing in internal IT operations as the recovery reaches a more mature and sustainable phase.

IT management and outsourcing

IT outsourcing budgets as a percentage of the total IT budget dropped slightly this year, continuing the downward move for the second year in a row, according to a survey from Computer Economics.

Spending on outsourcing is averaging 10.2 percent of total IT spending this year, which is a slight decline from 10.6 percent in 2013 and a more significant drop from the 11.9 percent peak in 2012.

The trend suggests that organizations are investing in internal IT operations as the recovery reaches a more mature and sustainable phase, the report noted.

The study also found that fewer organizations this year are outsourcing help desk, desktop support and application maintenance functions.

Other functions have flat year-over-year trend lines, including data center, application development, database administration, network operations and disaster recovery outsourcing, which are all are being outsourced at about the same frequency this year as the prior year.

"There may be a number of reasons why there is a downward trend in the number of organizations outsourcing the help desk function. The most important is going to be poor customer experience," John Longwell, vice president of research for Computer Economics, told eWEEK. "You can save money by outsourcing help desk, but it may not be worth it if it creates dissatisfaction among your users. Another factor is that as more organizations adopt an IT service management approach, the help desk becomes the main way the IT organizations connect with users, and a service organization would not want to give up that function."

Application hosting was the most frequently outsourced function in the study, and the fastest-growing type of outsourcing, reflecting the growing strength of software as a service (SaaS).

Large organizations have re-emerged as the leaders in outsourcing this year, spending 7.4 percent of their IT budgets on outsourcing at the median, compared with 6.1 percent for small organizations and 4.6 percent for midsize organizations.

Larger organizations tend to do the most outsourcing because they have the larger budgets and greater needs, Longwell said, but he added that he doesn't think there is anything preventing smaller organizations from turning to outsourcing other than they have less incentive to outsource.

"As you get very small, of course, many organizations outsource nearly their entire IT operations, but midsize organizations tend to run their own operations while larger organization engage more frequently in partial outsourcing of various functions," he said. "That is a very general observation. As we move forward, that could change. We should begin to see more companies embracing cloud services for applications and infrastructure, and that is a form of outsourcing that should grow across all customer sizes."