European IT Outsourcing Intelligence Report 2011: The SWISS Market

IT Sourcing Europe
European IT Outsourcing
Nearshore IT Outsourcing
Intelligence Report 2011: Market Research & Consultancy

Switzerland

May 2011

European IT Outsourcing Intelligence Report 2011: Switzerland

Contents
Executive Summary
Executive Summary .......................................................................................... 2 This Intelligence Report is based on the survey of the 603 Swiss companies
Survey Overview ............................................................................................... 3 that either outsource their Software Development (SD) / Information
Respondents’ Profile ........................................................................................ 5 Technology (IT) function(s) to an external service provider onshore (within
Switzerland), nearshore (within/close to the same time zone) and/or offshore
Outsourcing Behaviors ................................................................................... 11
(more than 2 time zones away), or develop their software/IT solutions in-
Outsourcing Drivers & Factors ....................................................................... 14 house.
Outsourcing Challenges & Solutions .............................................................. 17 The Report aims to help the Swiss outsourcing companies:

Client – Vendor Relationships ........................................................................ 19 Get an in-depth understanding of the current Swiss IT Outsourcing (ITO)
Outsourcing Costs........................................................................................... 22 demands and trends
See what challenges are facing their market peers and how they
SD/ITO Impressions ........................................................................................ 23 respond to them
Future Outsourcing Plans ............................................................................... 24 Revise / improve their current ITO engagements / business models
based on the industry best practices
In-House Software Development Trends & Challenges ................................. 25
Key Findings’ Highlights .................................................................................. 33 The Report aims to help the Swiss non-outsourcing companies:

Conclusions ..................................................................................................... 36 Better understand modern SD/IT costs optimization and/or reduction
strategies
See what challenges are facing the in-house software development and
how their market peers / competitors respond to them
Evaluate own readiness to adopt the outsourced / distributed
development
Find out what their market peers think about SD/ITO and how they are /
will be preparing for adoption of the outsourced development in the
future
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European IT Outsourcing Intelligence Report 2011: The SWISS

Survey Overview Online press releases and survey announcements distribution;
Survey localization and optimization in social media such as LinkedIn,
The Swiss ITO and In-House Software Development survey was conducted XING, Facebook, Mobile Monday London, blogs ( Twitter, Word
between March 14 and April 29, 2011, in the frames of the All-European ITO Press, IT Sourcing Europe’s Blog), event management systems
research. (Amiando), and B2B web portals (Europages, Hoovers)

All data obtained were analyzed in the form of the industry aggregates. The
Survey goals:
answers to the open-ended questions were organized by their relativity to
Explore factors that drive the Swiss companies to outsource their SD/IT the study goals and displayed as the option “all other responses” in charts
functions in 2011 and graphs further in the Report.

Explore challenges associated with offshore/nearshore outsourcing Outsourcing Activity & Categories Surveyed:
and the most effective problem solving techniques
The following ‘outsourcing activity’ is referred to in the 2011 Swiss ITO
Explore the use of different business models in ITO engagements and
Report:
find out which model works best for what type of companies and
industries Software Development / Information Technology Outsourcing (SD/ITO) is
Explore factors that keep the Swiss companies away from the process of transferring part of/entire software development function
outsourcing their SD/IT function(s) and/or other Internet related work to the execution by the external IT
Compare and contrast the 2011 and future ITO demands in services provider(s)
Switzerland
The following categories fall under this activity:
The survey was available online and hosted by SurveyMonkey, the world’s
Application (app) development and maintenance;
leading provider of web-based survey solutions. In order to reach as many
Swiss companies as possible, IT Sourcing Europe used its own database of Website / ecommerce systems;
business contacts and sent out a survey invitation email to each company’s Data warehousing;
decision maker(s) (C-level executives, IT Managers, Directors, Heads of IT security;
Software Development etc). Data / voice network operations;
Remote IT infrastructure management
Additionally, inbound marketing initiatives were launched in order to attract
more companies to participate in the survey. In the frames of this initiative, These categories further fall under the five key areas of expertise:
the following steps were taken:
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These categories further fall under the five key areas of expertise: Key Takeaways From The Survey:

Web (Web 2.0, .NET, Java, PHP, open source etc); In Switzerland, most of outsourcing companies are small by
Enterprise 2.0 (J2EE, J2SE, C#, MySQL etc); headcount (less than 50)
Mobile development (J2ME etc); The greatest demand for the outsourcing services comes from
Embedded development; IT/software development sector, followed by professional and
Software as a service (SaaS) and Cloud Computing
financial services sectors
The majority of non-outsourcing companies anticipate 1% to
9% revenue growth in 2011, while most of outsourcing
companies expect to increase their annual revenue by 10% to
19%
Most of the Swiss companies have been outsourcing their SD/IT
for more than 37 months now
Small- and large-value projects are outsourced in equal
proportions in Switzerland
A Fixed-Price Project model remains the most popular
outsourcing model in Switzerland
Nearshore is the most preferred outsourcing destination in
Switzerland
Web is the most outsourced area of expertise in Switzerland,
followed by Enterprise development
Top Three Drivers of ITO decisions in Switzerland are: reduction
of operating costs, shortage of domestic IT skills and resources
and focus on core competence
Top Three Challenges facing Swiss outsourcers are: change
management, cultural difference and poor communication with
vendor’s project management




Respondents’ Profile

Primary Industry

All Other Responses include:
hospitality, tourism, and
mobile computing




Company Size (Headcount) Do Companies Outsource Any Element of Their IT / SD
Function?




Size of Outsourcing Companies (Headcount)




Ratio of Outsourcing Companies per
Industry



Revenue Growth Expectations in 2011: Non-Outsourcers vs. Outsourcers

Non-Outsourcers Outsourcers




Outsourcing Behaviors

Overall Outsourcing Experience Size of Project Team(s) on Vendor’s Side




Value of the Outsourced Project(s) (In €) Outsourced Areas of Expertise




Business Models Used To Partner With ITO Provider(s) Do Companies Multisource?




Outsourcing Drivers & Factors
Drivers of Decisions to Outsource IT/SD
Current Outsourcing Destinations




Factors’ Rating in Terms of Their
Importance in the Choice of the
Outsourcing Destination




Factors’ Rating in Terms of Their
Importance in the Choice of the
Outsourcing Partner




Outsourcing Challenges & Solutions

Main Challenges of the Outsourced Software
Development




How Companies Respond to their
Challenges




Client – Vendor Relationships

How Companies Found their ITO
Partners




Size of the ITO Partner* Who Selects IT Specialists to Be Involved in the Project?

*Companies with more than 1 partner referred to their major one




Do Companies Know Exact Salaries of Their Project Team Levels of Satisfaction with ITO Services Provided
Members on the Vendor’s Side?




Outsourcing Costs

How Actual Annual Incurred Costs of SD/ITO Compare to the Actual Savings from the Outsourced SD/IT
Expected (Contracted) Costs



European IT Outsourcing Intelligence Report 2011: The UK

Impressions of Outsourcing

outsourcing our software development has been the right
decision
outsourcing saves operating costs, but inevitably increases
management costs
costs are higher than expected

overall, provider’s work is of higher quality compared to in-house
capabilities
it is important to have the supplier's team working within or close
to the same time zone
providers have more disciplined methodologies, which can lower
costs further in a longer-term perspective
it is critical to have backup providers available in case the primary
provider is unable to meet deadlines and/or commitments
providers are unreliable and not focused on mid- and long-term
cooperation
overall, provider’s work is of lower quality compared to in-house
capabilities
Our IP is at risk

we are very dissatisfied with the decision to outsource our
software development

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Future Outsourcing Plans

Do Companies Plan to Continue Outsourcing in the Future?
Future Outsourcing Destination




In-House Software Development Trends & Challenges
Part of Corporate Budget that the SWISS Companies Spend On
How Swiss Companies Develop / Manage Their Software IT/SD




Level of Satisfaction with the In-House Development / IT Key Challenges of the In-House Software Development




How Companies Respond
to their Challenges




Factors Keeping the SWISS Companies Away From SD/ITO

we want to have 100% managerial control of our software
project(s)
we are too small and immature to outsource

we're afraid that outsourcing will eventually cost us more
money and ‘headaches’ than in-house development

we think that the outsourced development will result in poorer
software product quality
we do not want to create any shared environments

we're totally satisfied with our in-house development results

we don't want to put our intellectual property at risk

we don't get any pressure to cut costs from
customers/investors/executive management
we had some negative experience with the outsourced
development in the past




Circumstances in Which Companies
Would Consider Outsourcing Their
SD/IT in the Future




Where Companies Will Outsource If
They Make Such a Decision in the
Future




How Companies Will Rate Destination
Selection Criteria If They Decide to
Outsource in The Future




How Companies Will Rate Provider
Selection Criteria If They Decide to
Outsource in The Future




Key Findings’ Highlights
In 2011, three most popular engagement models that the Swiss outsourcers
The 2011 Swiss IT Outsourcing and In-House Software Development Survey use to partner with their ITO providers are: a project –based model (fixed
allows better understanding of the general profile and demographics of the price, time & material) – 48% of respondents, nearshore/offshore
outsourcing companies in Switzerland. According to the survey findings, 51% development center - 40% of companies and Own/Dedicated/Managed
of the outsourcing companies are less than 50 in headcount, 19% - 50-199, Team Model – 24% of all companies surveyed.
almost 10% are mid-sized (200 to 999) and 19.5% are large (more than 1000
In 2011, the vast majority of companies in Switzerland outsource their
in headcount).
projects to a single external services provider – 51.6%, which is down 20.4%
The vast majority of the Swiss outsourcers come from IT/SD sectors (almost from 2010, while almost 48.4% of companies multisource (i.e. distribute the
45%), followed by providers of professional services such as accounting, outsourced operations among 2 and/or more providers, usually the
consulting, legal etc (16%) and financial services (almost 14%). geographically dispersed ones), which is up 20.4% from 2010. This finding
marks the evolving trend for multisourcing on the Swiss ITO market. This can
More outsourcing companies expect their annual revenue to increase by 10% be explained by the Swiss companies’ urge to secure their outsourced
- 19% in 2011, compared to the companies developing their solutions in- operations and have backup providers available in case the primary one fails
house - 42% vs. 22.5%. Additionally, more outsourcers expect 20%-49% to deliver properly, on time and on budget. On the other hand, 50% of the
revenue growth in 2011, compared to the in-house developers – 9% vs. 8%, Swiss outsourcers partner with ITO providers who are less than 50 people in
fewer outsourcers expect 0% or less in annual revenue growth– 4% vs. 10.5% size and are, therefore, unable to have sufficient expertise in several areas at
and the equal number of companies anticipate to increase their revenue by the same time. This leads outsourcers to distribute projects among several
50% and more – 8% in each segment. providers based on their available Center(s) of Excellence (e.g., the entire
product development function is transferred to provider X, while QA and
Regarding the value of the outsourced projects, the following trends are
testing or customization is transferred to provider Y. Such dissemination also
observed in 2011, compared to 2010: the number of the €0-49K projects
allows an additional external audit of the product(s) developed by provider
dropped by 12.6%, the number of the €50-199K projects dropped by 21.4%,
X). It is expected that in the years to come the number of multisourcers will
the number of the €200-499K projects dropped by 10.9% and the number of
significantly exceed the number of singlesourcers both on the Swiss and
the €500K+ projects increased by 19.6%. This finding proves 2011 to be the
global outsourcing markets.
year of both small and large ITO contracts.




In 2011, web projects remain the most outsourced area of expertise (by 78% Regarding the highest rated criteria of the outsourcing partner selection in
of companies, which is up 52% from 2010). Enterprise development is 2011, 65.5% of companies mention successful test/pilot project completion;
outsourced by 29.6% of all outsourcers, which is up 4.6% from 2010. Mobile 59.8% of companies consider innovative and flexible business / service
and embedded development projects are transferred by 18.5% each (down delivery models offered by vendor(s); and 58.6% consider vendor’s
0.5% and up 1.5% from 2010), while SaaS and Cloud remain the least experience in the similar projects.
outsourced areas (by 11.1% of companies, which is down 1.9% from 2010).
This finding mirrors well the current situation on the global ITO market.
In 2011, the outsourcing destinations of the Swiss companies have changed, Traditional outsourcing models such as fixed price projects, Build-Operate-
compared to 2010: 51.4% of companies outsource nearshore (up 10% from Transfer (BOT) or Dedicated Development Center (DDC) prove to be unable
2010), 20% - onshore, i.e. within Switzerland (up 9% from 2010), 17.1% - to meet today’s market demands for agility, scalability, speed of marketing
nearshore and within Switzerland (up 7.1% from 2010), 11.4% - offshore time and predictable ITO costs. Therefore, more Swiss companies begin to
(down 10.6% from 2010), another 11.4% - both nearshore and offshore (up realize the importance of having as much managerial control of their
2.4% from 2010), 8.7% - both offshore and within Switzerland (up 1.7% from outsourced projects and resources as possible and use outsourcing as a long-
2010) and 5.7% of the survey respondents outsource nearshore, offshore and term strategy to improve software/IT products’ quality and respond
onshore (up 1.2% from 2010). proactively to pressing customers and rapidly changing market demands
rather than just a short-term tactic to reduce costs. Thus, they tend to
In 2011, 63.3% of the Swiss companies outsource to reduce operating costs
partner with those ITO service providers who are able to offer engagement
(up 31.6% from 2010), 43.3% - to focus on their core competences (up 26.1% via innovative business models such as Client Own/Dedicated Team, Virtual
from 2010), and another 43.3% - to find appropriate IT skills and resources Operating Subsidiary, SCRUM Team and other likewise models allowing
outside Switzerland where the qualified resources and specific skills are in a
transparent pricing and no hidden agenda, access to the resources and skills
very short supply (up 16.3% from 2010). The two other huge drivers of ITO
that is not limited to a single geography, extensive knowledge sharing
decisions in Switzerland are necessity to free in-house resources for other beyond Service Level Agreements (SLAs) and easy / flexible contract exit
business purposes (mentioned by 36.7% of respondents) and necessity to
terms.
accelerate time-to-market (mentioned by 30% of respondents).
In 2011, the top three challenges of the outsourced SD/IT in Switzerland are:
In 2011, the Swiss companies consider the following three factors as the
change management (44%), cultural difference (40%) and poor
most important ones when choosing their outsourcing geographies: available communication with vendor’s project teams/management (36%). In contrast,
IT talent pool (81% of respondents), appropriate English and German the top three challenges in 2010 were: delayed delivery of / missed project
language skills (65.5%) and cultural proximity (48.3%). milestones, poor project management on vendor’s side and hidden agenda
(when the actual incurred costs of ITO exceed the contracted ones).




To respond to their most critical challenges, 62% of Swiss outsources tend to home countries’ market rates) to their employees, the risk is high that the
increase face-to-face communication with their vendor’s project managers clients get insufficient and unqualified personnel involved in their outsourced
and execution teams (up 36% from 2010), 41.4% of companies dedicate projects. In addition, many small nearshore ITO vendors practice outsourcing
more managerial resources (up 20.4% from 2010) and 24.1% revise and some of their clients’ tasks to even lower-cost offshore destinations due to
update their vendor management processes (up 13.1% from 2010). Only 10% the lack of domestic resources they have access to / financial inability to
of companies choose to back-source (i.e. bring operations back in-house), outbid competitors’ staff / win the local headhunting. The mix of such
which is up 5% from 2010. circumstances inevitably leads to the situations when the ITO buyers are
overcharged in order to cover new hires / employee replacement in case of
Regarding the actual annual incurred costs of ITO, 65.4% of companies say
vendor’s staff turnover, “secret” re-outsourcing / outtasking practices as well
they match the contracted costs (up 47.4% from 2010), 23.1% say they are as fixing product’s bugs and errors at the post-release stages due to vendor’s
up to 25% higher than expected (up 1.9 from 2010), 11.5% say they are 25%- unqualified resources. These obstacles typically prevent most of the Swiss
49% higher than expected (down 12.5% from 2010) and 3.8% point out that
outsourcers to save more from their ITO engagements.
their actual ITO costs are up to 25% lower than expected (down 7.2% from
2010). In spite of the insignificant cost arbitrage achieved via the outsourced SD/IT
and insufficient vendor management processes, the grand majority of the
Regarding the actual savings from the outsourced SD/IT in 2011, 37% of the Swiss outsourcers – 48.1% - believe that outsourcing their IT/SD function(s)
survey respondents admit saving less than 10% of their operating costs (up
has been the right decision. In contrast, only 3.7% of companies regret
27% from 2010), 22.2% save 10% to 24% (down 12.8% from 2010) and having made a decision to transfer their IT/SD to the external services
another 22.2% save 40%-59% (up 1.2% from 2010). In addition, 7.4% of
provider(s).
companies report saving 25% to 39% of operating costs (down 12.6% from
2010) and 11.1% of companies save 60% and more, which is down 2.9% from
2010.

The fact that the vast majority of the Swiss outsourcers actually save less
than 10% of costs with help of outsourcing can be attributed to the fact that
50% of Swiss outsourcers partner with very small ITO service providers who,
unlike their mid-sized and large peers, do not have an appropriate access to
the qualified IT workforce, do not invest enough in the training and
professional advancement of their employees and do not have any best
practice in effective staff retention. Also, since only very few small ITO
providers are able to afford to pay competitive salaries (in terms of their




Conclusions • In 2011, a significantly bigger number of Swiss companies take part in
/ fully manage the hiring of IT specialists to be involved in the
execution of their outsourced project(s), which generally hallmarks
The 2011 Swiss IT Outsourcing and In-House Software Development survey their urge to retain as much control of the outsourced project(s) as
demonstrates insignificant changes in the ways companies behave with possible.
regards to the adoption / management of their outsourced development / IT • In general, Swiss outsourcers demonstrate rather high levels of
function(s). Overall, in 2011 outsourcing is reinforcing its position as a satisfaction with their outsourcing partners and think that
commodity practice it has gained over the past [post-crisis] years, and the outsourcing their functions has been the right decision. As a result,
majority of the Swiss companies continue to use it as a way to reduce the vast majority of companies plan to continue outsourcing their
operating costs / lower down IT/SD budgets and get access to the lower cost IT/SD in the next 12 months.
and better qualified IT resources outside Switzerland.
The negative trends of the Swiss ITO market observed in the course of the
The positive trends of the Swiss ITO market observed in the course of the research are as follows:
research are as follows:
The prevailing majority of Swiss outsourcers manage to save less
•
• The outsourced development / IT function(s) obviously help Swiss than 10% of operating costs through the outsourced development.
companies increase their annual revenue by allowing acceleration of This can be explained by the fact that most of Swiss companies
the time-to-market and spending more on customer service engage with their external service providers via traditional models
improvement and overall company growth such as project-based outsourcing and dedicated development
• Many Swiss organisations aim to use outsourcing as a strategic cost centers that do not allow significant cost savings due to hidden
saving and knowledge enhancement tool rather than a short-term agendas and high level of bureaucracy. Therefore, it is possible to
tactic to lower down IT/SD budgets and respond to pressing resume that many Swiss outsourcers are still missing sufficient
customers knowledge about the innovative business models such as Own Team
• Compared to 2010, in 2011 more Swiss outsourcers realize the model and other likewise ones allowing elimination of overheads and
importance of securing their outsourced operations and, therefore, transparent pricing structures.
distribute development among two and more external service • Companies’ management and staff inability to properly interact with
providers (usually the geographically dispersed ones) to reduce the their outsourcing vendors is the Number One challenge facing most
risk of project failures of the outsourcing relationships. It means that many Swiss
companies still do not plan their outsourcing strategies effectively
and need to bring in outside assistance to help redesign corporate
processes prior to outsourcing.



• Outsourcing is still underused by the Swiss innovative lucrative
niches such as digital media, gaming / iGambling and mobile
computing which are dominated by high-tech startups who believe
they are yet too small and immature to outsource. It proves once
again that the Swiss companies do not have enough knowledge on
the newest outsourcing engagement models that work perfectly well
with their segments.

Shortage of domestic IT resources is the second most frequently cited driver
of corporate decisions to outsource IT/SD in Switzerland. Fifty percent of
today’s non-outsourcers report the high likelihood of transferring IT /
development to external services providers if they are not able to find
appropriate resources within Switzerland in the near future. Based on these
findings, it is possible to assume that outsourcing will be playing a greater
role in the Swiss companies’ strategic business planning in the following years
and outsourcing services providers will be forced to redesign their processes
and delivery models as well as pricing structures to be able to satisfy the ever
growing demands of both well-established and mature and innovative start-
up organizations for the outsourced project control retention, cost
effectiveness, agility, speed, knowledge sharing, innovation and overall
sustainability.



European IT Outsourcing Intelligence Report 2011: The UK

About IT Sourcing Europe

IT Sourcing Europe is a UK company specialized in nearshore IT Outsourcing consultancy, market research and analysis.

IT Sourcing Europe provides:

• Top quality quantitative and qualitative ITO market research and fieldwork services
• Evaluation of Central and Eastern Europe's ITO services providers and their factual capabilities to deliver innovative technological solutions on time and on
budget
• Free consulting services for European companies planning to outsource IT / software development functions and / or change their current ITO strategy /
engagement
• Ad-Hoc ITO strategy development and full-cycle support

Our Contacts:

The Meridian, 4 Copthall House, Station Square
Coventry, West Midlands,
CV1 2FL United Kingdom
Email: info(at)itsourcing-europe.com
Tel.: +44(0)2476992505
Web: www.itsourcing-europe.com
Blog: http://itsourcingeurope.wordpress.com
Follow our tweets @ITSourcingEurop

Registration at the UK Companies House: 07217899

You are free to use, share and/or remix any part of this work as long as you attribute it to IT Sourcing Europe.

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