European IT Outsourcing Intelligence Report 2010: Western and Northern Europe

European IT
Outsourcing
Intelligence Report
2010.
Part 2: Western and
Northern Europe
IT Sourcing
Europe Limited
Coventry, West Midlands
The United Kingdom
2010
Nearshore IT Outsourcing
Market Research &
Consultancy

Table of Contents
Executive Summary.......................................................................................................................................................................................................................... 3
Study Goals and Objectives.......................................................................................................................................................................................................... 4
Study Methodology...................................................................................................................................................................................................................... 4
Study Sample ............................................................................................................................................................................................................................... 5
Outsourcing Activity & Categories Surveyed............................................................................................................................................................................... 6
Key Study Findings ....................................................................................................................................................................................................................... 7
Part I: Software Development Outsourcing Trends & Challenges in Western and Northern Europe........................................................................................... 11
Trends Analysis .......................................................................................................................................................................................................................... 11
Analysis of Challenges & Solutions ............................................................................................................................................................................................ 21
Part II: Findings’ Discussion............................................................................................................................................................................................................ 22
Part III: Forecast on the Future Adoption of the Outsourced Software Development by Western European & Nordic Companies........................................... 27
Findings’ Discussion ................................................................................................................................................................................................................... 29
Part IV: Conclusions and Recommendations................................................................................................................................................................................. 32

Executive Summary
The recent economic crisis has proven to be the major force driving
Western European and Nordic countries to look for ‘survival strategies’.
Since in-house software/web development, deployment and
maintenance involve tremendous costs, more European companies have
turned to IT Outsourcing (ITO) as a way to reduce operating costs. While
being considered as the strategy most frequently adopted by large
companies in the pre-crisis times, today’s ITO practices find more and
more supporters among the mid-sized and small companies, for whom
cost efficiency is as important as an opportunity to have access to skills
and services that can generally improve their online presence and
business performance.
However, engagement in ITO relationships has proven to be the most
impactful and culture-changing experience that does not always result in
success. For some companies the outsourced software development can
be a ruining rather than an improving practice. It mainly happens because
companies begin to adopt ITO as a reaction to short-term economic
pressures and are not focused on the benefits they may gain in a longer-
term perspective. Other reasons of the failure of the ITO relationships
include, but are not limited to the wrong choice of an outsourcing
destination, partnering with a wrong ITO services supplier,
underestimation of the outsourced project scope etc.
However, as the global economies slowly stabilize, more European
companies begin to realize the true value they can gain from the right ITO
engagement and start transforming their business plans to source new
avenues for generating revenue, and increase productivity and
effectiveness of their outsourcing endeavors. This is how the Western
European and global ITO landscapes look like today.
IT Sourcing Europe has surveyed 5 Western European countries (United
Kingdom, Germany, Austria, Netherlands and Switzerland) and 3
Scandinavian countries (Sweden, Denmark and Norway) between April
and October 2010 in order to identify the most obvious similarities and
differences in behaviors, trends and challenges among the two types of
companies – those that outsource their software development to a 3d
party nearshore, offshore or within own country and those that develop
corporate software projects within own house using domestic IT
resources.
The study is comprised of 4 Parts:
Part I: Software Development Outsourcing Trends & Challenges
in Western and Northern Europe
This Part provides a detailed analysis of the key trends and challenges
among software development outsourcers identified in the course of the
country-specific ITO surveys 2010. The trends and challenges are
compared and contrasted by countries surveyed.
Part II: Findings’ Discussion
This Part discusses the major findings of IT Sourcing Europe’s ITO research
2010.

European IT Outsourcing Intelligence Report. Part 2: Western & Northern Europe
Copyright IT Sourcing Europe Ltd. 2010. All Rights Reserved.
4
Part III: Forecast on the Future Adoption of the Outsourced
Software Development by Western European and Nordic
Companies
This Part provides some forecasts on the future adoption of software
development outsourcing practices in Europe based on the results of IT
Sourcing Europe’s In-House Software Development Survey 2010. The Part
benchmarks future destinations for the outsourced software
development, factors that will most likely drive today’s non-outsourcers
to adopt the outsourced development, future vendor selection criteria
etc.
Part IV: Conclusions and Recommendations
This Part provides a general summary of the major trends and challenges
identified and predictions made in the course of the All-European ITO and
In-House Software Development Research 2010. Additionally, this Part
contains some recommendations on how to improve current ITO
partnerships and make the right outsourcing decisions in the future.
Study Goals and Objectives
IT Sourcing Europe’s ITO and In-House Software Development Research
2010 aims to:
Explore factors that drive companies to outsource their software
development function, challenges associated with
offshore/nearshore outsourcing and problem solving strategies;
Find out which practice works best with the outsourced software
development and how;
Explore the major trends, challenges and problem solving
strategies related to the in-house software/web development;
Explore key factors that keep companies away from outsourcing
their software development to the 3d party;
Find out in what circumstances today’s non-outsourcing
companies will consider outsourcing their software development
and how
The Study has the following objectives:
Help Western European and Nordic companies increase
awareness of how their market competitors act with regards to
software development costs optimization and reduction;
Help companies determine the best practices used to overcome
challenges of the outsourced software development;
Benchmark prospective destinations for the future software
development outsourcing;
Identify the key criteria to be used by future outsourcers in
determining the most effective engagement models, selecting ITO
services providers and gaining the long-term benefits from the
outsourcing practices;
Protect future software development outsourcers from the
pitfalls and failures facing today’s outsourcers in Europe
Study Methodology
This study is based solely on the results of two online surveys conducted
by IT Sourcing Europe between April and October 2010:

5
1. Survey of companies with any type of software development
outsourcing experience, and
2. Survey of companies with no software development outsourcing
experience.
Both surveys were available online and were hosted by GoDaddy.Com,
the flagship company of The Go Daddy Group, Inc, one of the world’s
leading resellers of domain name and domain-related products and
services.
In order to reach as many companies as possible, IT Sourcing Europe used
its own database of business contacts in respective countries and sent out
a survey invitation letter to each company’s decision makers (C-level
executives, IT managers, directors, heads of software development etc).
Additionally, outbound marketing initiatives were launched in order to
attract more companies to participate in the respective surveys. In the
frames of this initiative the following steps were taken:
Online press release distribution;
Close interaction with social media such as survey
announcement and advertising in respective business and
country-specific groups on LinkedIn, XING, Facebook, Twitter,
Blogged.Com etc;
Survey invitation campaigns in event management systems such
as Amiando.Com;
Reaching companies using contact forms on such B2B and B2C
web portals as Europages.Com, Norge Online etc.
All data obtained were analyzed in the form of industry aggregates. The
answers to open-end questions received were organized by their
relativity to the study goals, treated as the option “other” at the graphic
level (charts and pictures) and cited and elaborated on at the findings’
discussion level.
Study Sample
The following number of companies took part in IT Sourcing Europe’s
surveys in each country surveyed:
Country # of outsourcers # of non-
outsourcers
Total # of
participants
United Kingdom 250 222 472
Germany 258 286 544
Switzerland 112 136 248
Austria 157 201 358
Netherlands 167 289 456
Denmark 331 225 556
Sweden 148 232 380
Norway 134 186 320
Overall, 3,334 Western European and Nordic companies provided an
input to IT Sourcing Europe’s research, of them 1,557 companies that

6
outsource their software development function and 1,777 companies
that develop applications within own house.
Industry verticals targeted were:
IT/Telecommunications/High-tech
Software/Web development
Insurance
Banking and Finance
Tourism/Hospitality/Travel
Media/Entertainment
However, IT Sourcing Europe did not make a respondents’ selection by
type of industry they represent, as such selection did not match the study
goals.
All participating companies were divided into 3 main categories by their
headcount:
1. Small – companies with less than 50 employees in all locations;
2. Mid-sized – companies with 50 to 499 employees in all locations;
3. Large – companies with 500 and more employees in all locations.
Outsourcing Activity & Categories Surveyed
In this year’s study we refer to the following ‘outsourcing activity’:
Software Development (SD) Outsourcing is the process of transferring
part of/entire software development function to the execution by
the external IT services provider
The following categories fall under this activity:
Application development and maintenance;
Website / ecommerce systems;
Data warehousing;
IT security;
Data / voice network operations
These categories further fall under the five key areas of expertise:
Web 2.0 (Web 2.0, Microsoft ASP.NET, Java, EpiServer, open
source etc);
Enterprise 2.0 (J2EE, J2SE, C#, MySQL etc);
Mobile development (J2ME etc);
Embedded development;
Software as a service (SaaS) and Cloud Computing

7
Key Study Findings
United Kingdom
• Although most of the UK companies still outsource their
software/web development offshore (at least 3 time zones away
from home country), the number of companies outsourcing
nearshore (maximum 2 time zones away from) is very close to
and is likely to double the number of offshore outsourcers by the
end of 2010.
• The Top three reasons why UK companies outsource their
software/web development are: to reduce operating costs, to
accelerate time to market via flexibility and scalability and to
free in-house resources for other business purposes.
• Web and Enterprise solutions remain the most outsourced ones
among the UK companies.
• Low costs remain the key factor impacting the UK companies’
choice of the outsourcing destination and vendor.
• Delays in delivery schedules is the most frequently cited
challenge facing the UK outsourcing companies, followed by poor
communication with vendor’s project management.
• The majority of the surveyed companies report 40%-59% actual
savings from the outsourced development.
Germany
• In Germany, companies that outsource their software/web
development nearshore are almost double the number of those
that transfer their software development function offshore by
almost twice.
• The Top Three reasons why German companies choose to
outsource their software/web development are: to reduce
operating costs; to accelerate time to market and difficulty
finding necessary resources within home country.
• Enterprise 2.0 and Web 2.0 solutions remain the most
outsourced ones among the German companies.
• Low costs, available IT talent pool and positive references are
the Top Three factors impacting the choice of the outsourcing
destination and vendor by the German companies.
• The Top Three challenges of the outsourced software/web
development among the German outsourcers are: delayed
delivery, poor project management quality from the vendor’s
side and hidden costs.
• The majority of the German companies report 10%-24% actual
Switzerland
• In Switzerland, companies that outsource their software/web
development nearshore are double the number of those that
transfer their software development function offshore by almost
twice.
• The Top Three reasons why Swiss companies choose to
operating costs; difficulty finding necessary resources within

8
home country and pressure from investors/executive
management to cut costs.
• Web 2.0 and Enterprise 2.0 solutions remain the most
outsourced ones among the Swiss companies.
The Top Three factors impacting the choice of the Outsourcing
destination and vendor by the Swiss companies.
development among the Swiss outsourcers are: delayed delivery,
poor project management quality from the vendor’s side and
cultural difference.
• The majority of the Swiss companies report 10%-24% actual
Austria
• In Austria, the number of nearshore software development
outsourcers is double the number of offshore outsourcers.
• The Top Three reasons why Austrian companies choose to
operating costs, to get access to qualified/specific IT talent and
resources and to respond to the pressure from
investors/executive management to cut down IT budgets.
• Most of the outsourced projects in Austria belong to Web 2.0
(Web 2.0, Microsoft ASP.NET, Java, EpiServer, open source etc)
and mobile development domains.
• The Top Three factors driving the choice of the outsourcing
destination in Austria are: geographical/cultural proximity,
available resource pool and low costs.
partner are: references and reputation, specific skills and
innovative business models.
development among the Austrian outsourcers are: poor
communication with vendor’s project management, delays in
delivery schedules and/or missed project milestones, and
• The majority of the Austrian companies report saving 10%-24% of
operating costs from the outsourced development.
Netherlands
• In the Netherlands, the number of companies that outsource
their software/web development offshore is slightly bigger than
the number of nearshore outsourcers.
• The Top Three reasons why Dutch companies choose to
• Most of the outsourced projects in the Netherlands belong to
Web 2.0 (Web 2.0, Microsoft ASP.NET, Java, EpiServer, open
source etc) and Enterprise 2.0 (J2EE, J2SE, C#, MySQL etc)
domains.
destination in Holland are: low costs, available IT talent pool and
geographical proximity.
• The Top Three factors driving the choice of the outsourcing are:
references and reputation, low rates, and specific skills.

9
development among the Dutch outsourcers are: poor
• The majority of the Dutch companies report saving 10%-24% of
operating costs from the outsourced development.
Sweden
• In Sweden, the number of companies that outsource their
software/web development nearshore is slightly bigger than the
number of offshore outsourcers.
• The Top Three reasons why Swedish companies choose to
outsourced ones among the Swedish companies.
the Top Three factors impacting the choice of the Outsourcing
destination and vendor by the Swedish companies.
development among the Swedish outsourcers are: delayed
delivery, poor communication with vendor’s project
management and cultural difference.
• The majority of the Swedish companies report 40%-59% actual
• The majority of the Swedish companies believe it is important to
have the supplier's team working within or close to the same
time zone.
Denmark
• In Denmark, companies that outsource their software/web
development nearshore outnumber those that transfer their
software development function offshore.
• The Top Three reasons why Danish companies choose to
operating costs; to accelerate time to market via flexibility and
scalability and difficulty finding necessary resources within
home country.
outsourced ones among the Danish companies.
• Most Danish outsourcing companies partner with only one IT
services provider.
• Low costs and vendor’s reputation remain the key factors
impacting the Danish companies’ choice of the Outsourcing
destination and vendor.
• Delays in delivery schedules is the most frequently cited
challenge facing the Danish outsourcers, followed by poor
communication with / poor quality of the vendor’s project
management.
• The majority of the surveyed companies report 40%-59% actual

10
Norway
• In Norway, the number of companies that outsource their
software/web development nearshore is greater than the
number of offshore outsourcers.
• The Top Three reasons why Norwegian companies choose to
outsource their software/web development are: difficulty finding
necessary resources within home country, to reduce operating
costs and to improve business development strategy.
• Most of the outsourced projects in Norway belong to Web 2.0
(Web 2.0, Microsoft ASP.NET, Java, EpiServer, open source etc)
and Enterprise 2.0 (J2EE, J2SE, C#, MySQL etc) domains.
destination in Norway are: low costs, available IT talent pool and
geographical/cultural proximity.
partner are: references and reputation, low rates and specific
skills.
development among the Norwegian outsourcers are: poor
• The majority of the Norwegian companies report saving 10%-24%
of operating costs from the outsourced development.
All Countries Surveyed
• The majority of the Western and Northern European companies
polled believe that outsourcing their software/web development
has been the right decision.
• Most of the Western and Northern European outsourcers do not
know the exact salaries of each of their team members on the
outsourced development team and, thus, do not have 100%
managerial control of project teams and costs associated with
outsourcing.

11
Part I: Software Development Outsourcing Trends and
Challenges in Western and Northern Europe
Trends Analysis
The following country-specific data are presented in the form of industry
aggregates.
Figure 1: Size of outsourcing companies
Figure 2: Revenue expectations of outsourcing companies in 2010
(in €)
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
35%
51%
72%
46% 53% 56%
50%
67%
42%
36%
19%
41% 36% 31%
32%
28%
23%
13% 9%
13% 11% 13%
18%
5%
small mid-sized large
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
28%
12%
51%
29%
38%
18%
37% 41%
45%
57%
42%
27%
40%
49%
38%
26%
11%
0
0
31%
9%
0
10%
16%
10%
31%
7%
10% 8%
33%
9%
7%
6%
0 0
3% 4% 0
6%
10%
less than 1M 1M-49M 50M-99M 100M-499M 500M+

12
Figure 3: Revenue growth expectations of outsourcing companies
in 2010
Figure 4: Overall software development outsourcing experience
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
4%
0 0
11%
10%
0
11% 16%
34%
59%
47%
35% 41%
43%
39%
44%
38%
22%
39%
27%
29%
24%
33%
21%
13%
0
0
22% 11%
0
8% 13%
11%
19% 14%
5%
8%
33%
9% 6%
0% or less 1%-9% 10%-19% 20%-49% 50%+
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
10%
3% 12%
51%
16%
27%
12% 13%
38%
29%
49%
37%
33%
22%
33%
48%
52%
68%
39%
12%
51% 51%
55%
39%
less than 12 months 1 to 3 years more than 3 years

13
Figure 5: Key outsourcing destinations in 2010 Figure 6: Number of ITO providers that companies partner with
Figure 7: Size of providers that companies outsource to
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
35%
23% 22%
16%
29%
25%
19% 27%
23%
37% 41%
32%
23%
27%
34%
32%
20% 17% 11%
5%
19% 20% 18% 5%
13%
8%
9%
13%
12% 7% 11%
19%
6%
5% 7%
11%
10%
11% 10%
5%
3%
10% 10%
17%
7% 10% 8%
11%
0 0 0
6% 1% 0 0 1%
offshore + nearshore + within own country
nearshore + within own country
offshore + within own country
nearshore + offshore
within own country
nearshore
offshore
0%
20%
40%
60%
80%
100%
60% 81%
72% 87%
52%
79%
52%
79%
40% 19% 28% 13%
48%
21%
48%
21%
single provider more than 1 providers
0%
20%
40%
60%
80%
100%
39%
75%
62% 57% 55% 65%
55% 65%
46%
19%
21% 31% 31% 30%
28% 29%
15% 6% 17% 12% 15% 5%
17% 4%
small mid-sized large

14
Figure 8: Key pressures that impact corporate decisions to
outsource software/web development
Figure 9: Most popular actions companies take prior to engaging
in ITO partnerships
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
30% 39%
32%
30% 29% 29% 29%
23%
16%
23%
0
0
14% 18%
16%
0
12%
0
0
0
0 0
0
0
0%
20%
27%
24%
14%
17%
13%
31%
0
0
26%
22%
0
0
0
0
0
0 0
0
0
0
0 15%
improve business strategy
pressure to cut down IT budgets
difficulty finding resources within homeland
free in-house resources
accelerate time to market
reduce operating costs
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
30% 33%
27% 31% 34% 34% 35%
28%
0%
24%
0
0
14%
0
20%
18%
22%
22%
29%
19%
25%
29%
23%
26%
0
0
21%
18%
0 19%
0
0
16%
0
0
0
0
0
0
0
do in-house assessment of IT needs hire/promote an ITO manager
ask others for references hire a consultancy
seek domestic providers

15
Figure 10: Volume of the outsourced software development Figure 11: Most outsourced areas of expertise
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
4% 7% 11%
2%
22%
2%
16%
6%
20%
24%
41%
26%
29%
19%
22%
21%
23%
21%
23%
28%
14%
21%
18% 39%
23%
37%
14%
25%
18%
27%
25%
20%
30%
11% 11%
19% 16%
31%
20%
14%
less than 10% 10%-39% 40%-59% 60%-89% 90%-100%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
32% 32%
26%
42% 43%
34% 35% 37%
30% 29%
25%
34%
26%
29% 25%
21%
16% 21%
19%
14%
14%
20%
16%
19%
11%
10%
17%
7%
8% 11%
10%
8%
11% 8%
13%
3%
9% 6%
10%
15%
Web 2.0 Enterprise 2.0 Mobile Embedded dev SaaS/Cloud

16
Figure 12: Key drivers of the choice of the outsourcing destination Figure 13: Key drivers of the choice of the outsourcing partner
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
28% 25%
14%
12% 8%
1% 5%
7%
0
38%
26%
18%
8%
2%
1%
3%
5%
0
29%
27% 19%
12% 4%
2% 2% 5%
0
18%
19%
3%
25%
6%
0
11%
11%
7%
23% 23%
16% 16%
6%
0
6%
7%
3%
21% 17%
15% 14%
9%
8%
5%
9%
2%
24% 23%
15% 15% 4%
2%
4%
9% 4%
27% 20% 15% 14%
7%
0
5%
10% 2%
United Kingdom Germany Switzerland Austria
Netherlands Sweden Denmark Norway
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
18%
13% 13% 12%
10%
10%
9%
7% 8%
0 0
16%
22% 20% 13%
19%
7%
2%
1%
0
0 0
9% 23% 13% 11% 19%
0
21%
2%
2%
0 0
17%
26%
12%
11%
13% 0
11% 5%
5%
0 0
15%
17%
15%
10% 7% 6%
13%
5%
4%
7%
1%
31%
21%
20%
10%
7%
6%
3%
1%
0
1%
0
16% 16% 15% 10%
15%
2%
14%
4%
5%
3%
0
17% 20% 16% 9% 13%
0
15% 3%
0
5%
2%

17
Figure 14: How actual incurred annual costs of the outsourced
development compare to the expected (contracted) ones
Figure 15: Actual savings from the outsourced software
development
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
about
the
same
up to
25%
higher
25% to
49%
higher
50% to
74%
higher
up to
25%
lower
25% to
49%
lower
50% to
74%
lower
75%+
lower
51%
28% 19%
1% 1%
0
0
0
19%
26%
20%
14%
10% 8%
0
2%
18%
25%
24% 13%
11%
8%
0
1%30% 32%
22%
10%
3%
2%
0
1%
26%
50%
10%
3%
5%
3%
0
1%
54%
28%
11% 0 7%
0
0
0
53%
26% 10%
1%
3% 4%
2%
028%
40% 19%
11%
2% 0 0 0
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
10%
21%
10%
5%
21%
2%
16%
9%
33%
38%
35%
33%
28%
20%
25%
37%
14%
22%
20%
29%
19%
21%
19%
17%
36%
11%
21% 17% 21%
49%
26% 25%
7% 8%
14% 16% 12% 8%
14% 12%
less than 10% 10%-24% 25%-39% 40%-59% 60%+

18
Figure 16: Companies’ assessment of their ITO providers on a 5-
point scale, where 1 is least satisfied and 5 is most satisfied with
the received services, project execution quality, attitude, prices etc
Figure 17: Do Western European & Nordic clients know exact
salary of each of the team members on the outsourced
development team?
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2% 9%
3% 5%
4% 4%
2% 11%
4%
41%
10%
31%
12% 13%
7%
13%
23%
28%
25%
30%
42%
26% 47%
46%
48%
12%
43%
26%
25%
40%
25%
21%
23%
10%
19%
8%
16% 18% 19%
9%
1 2 3 4 5
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
42%
32% 37%
21%
39%
29%
40%
29%
58%
68% 63%
75%
60%
71%
60%
57%
0 0 0
4% 1% 0 0
14%
yes no partially

19
Figure 18: Companies’ overall impressions of SD outsourcing
0%
5%
10%
15%
20%
25%
30%
costs are higher than expected
provider’s work is of higher quality compared to in-house capabilities
provider’s work is of lower quality compared to in-house capabilities
our IP is at risk
it's important to have the supplier's team located nearshore
providers have more disciplined methodologies, which can lower costs
further in a longer-term perspective
it's critical to have backup providers available in case the primary provider is
unable to meet deadlines and/or commitments
we are very dissatisfied with the decision to outsource our software
development
outsourcing our software development has been the right decision
providers are unreliable and not focused on mid- and long-term cooperation
outsourcing lowers operating costs, but increases PM costs
Norway
Denmark
Sweden
Netherlands
Austria
Switzerland
Germany
United Kingdom

Figure 19: Factors keeping companies away from SD outsourcing
0% 20% 40% 60% 80% 100% 120% 140% 160% 180%
we want to have 100% control of project
we're afraid of hidden agenda
we don't want to create shared environments
we're satisfied with in-house development
we're afraid of putting IP at risk
we don't want to cope with change management
we don’t get any pressure to cut costs
we don’t believe that low-cost countries are able to provide qualified
resources and skills
we believe that outsourced software development will result in poorer
quality, compared to in-house work
we think that outsourcing and vendor management will eventually cost
more money and “headaches”
we think we're too small and immature
we think outsourcing is unethical and work should be kept within own
house
we had negative outsourcing experience in the past
United Kingdom
Germany
Switzerland
Austria
Netherlands
Sweden
Denmark
Norway

Analysis of Challenges & Solutions
Figure 20: Challenges of the outsourced software development
Figure 21: Actions companies take to respond to challenges of the
outsourced development
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
20% 13%
7% 14% 20%
6% 7%
3% 1% 2%
7%
0
35% 18%
12% 9%
9%
7%
2%
3%
2% 3%
0
0
26%
14%
19%
16%
5% 7% 4%
4%
2%
2%
1%
0
15%
9%
13%
16% 14% 6% 5%
7% 5%
10%
0
0
13%
8% 8%
14% 16%
7% 4%
8%
2%
7%
0
5%
31%
19% 17%
12%
9%
2%
5%
2%
2%
1%
0
0
15%
11% 8%
14% 10%
10%
4%
13%
8%
0
0
7%
14% 10% 12% 19% 13% 8% 3%
9% 6% 6%
0 0
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
8%
31%
17% 23%
21%
16%
9%
25%
20%
23%
26%
31%
25%
15%
26%
20%
14%
19%
12%
12%
12%
27%
12%
15%
22%
16%
21%
20%
22%
14%
23%
18%
13%
0
0
0
8%
0 9% 0
14%
5%
11%
0 1%
9%
10%
0
6% 5%
8% 10% 4%
9%
7%
12%
3% 1%
5% 4%
7%
10% 4%
10%
revise ITO partnerships increase communication
extend deadlines dedicate more managerial resources
dedicate more IT resources redesign vendor management
bring in outside assistance do backsourcing

22
Part II: Findings’ Discussion
The European IT Outsourcing Survey 2010 allows us to observe certain trends
and challenges among the Western European and Nordic companies that
outsource their software/web development function to a 3d party offshore,
nearshore and/or within own countries.
The study results show obvious similarities and differences in the ways how
outsourcing companies from different countries behave in terms of software
development outsourcing management, maintenance and improvement, how
they respond to their most critical challenges and what best practices they use to
squeeze as much value from the outsourcing transactions as possible. These
results help better understand the level of ITO maturity and grasp of innovation
of every European country surveyed and predict to the future trends and
challenges that will most likely influence the further evolution of the ITO
practices in Western Europe and Scandinavia.
IT Sourcing Europe believes that the study sample generally shapes the actual
state of affairs at both country-specific and All-European ITO markets in 2010,
which makes the given research findings demonstrative of the actual trends and
challenges facing software development outsourcing companies in every country
surveyed.
To begin with, it is important to know the ratio of small, mid-sized and large
companies that act at each surveyed country’s ITO market. As seen from Fig. 1, in
2010 small companies appear to be the most active users of the outsourced
software development in the following countries: Germany, Switzerland, Austria,
Netherlands, Sweden, Denmark and Norway. United Kingdom is the only country
surveyed in which mid-sized companies remain the most active adopters of SD
outsourcing. This finding allows assuming that the overall outsourcers’ profile in
Europe began to change in the post-crisis years, bringing more small companies
(start-ups, early-stage, venture capital backed etc) to the foreground. It suggests
that in the upcoming years the stereotype that outsourcing is for large and
mature companies only will be absolutely busted and more small companies will
be sourcing IT resources and talents outside their own countries in order to grow
at a faster pace and with long-term benefits.
Regarding the annual revenue expectations among the outsourcing companies in
2010, most of Swiss and Norwegian companies anticipate to earn less than € 1
million, most of German, Dutch and Swedish outsourcers expect to earn € 1 to 49
million in annual revenue, while most of Austrian companies plan to gain € 50 to
99 million in annual revenue. Additionally, a rather high percentage of
Norwegian software development outsourcers (10%) claims they expect to earn
more than € 500 million in annual revenue in 2010 (Fig. 2). As seen from Fig. 3,
outsourcing helps most of German, Swiss, Austrian, Dutch, Swedish, Danish and
Norwegian companies increase their annual revenue by 1% to 9% and most of
the UK companies – by 10% to 19% in 2010.
These findings generally demonstrate that United Kingdom has the most mature
SD outsourcing market compared to other Western European and Nordic
countries surveyed in the course of this research. The UK companies, especially
the mid-sized ones, traditionally adopt the outsourced SD in order to leverage
operating costs and increase annual revenue via faster time to market and
sustainability while cutting down corporate IT budgets. In terms of maturity and
readiness to adopt SD outsourcing, the UK companies are followed by the
German outsourcers.
Regarding the overall SD outsourcing experience, the leading countries, most of
which companies have been outsourcing their SD function for more than 3 years
now, are again United Kingdom and Germany, followed by Netherlands, Sweden
and Denmark. Austria has the smallest number of companies outsourcing for
more than 3 years and the greatest number of companies who first outsourced
their development only less than 12 months ago. It suggests that Austria has the
“youngest” SD outsourcing market among the all countries surveyed (See Fig. 4).

23
Quite interesting findings were made with regards to the most popular
destinations for the outsourced SD in 2010. As seen from Fig. 5,, most of the
German, Swiss, Austrian, Dutch, Swedish, Danish and Norwegian companies
place their SD nearshore, while only the United Kingdom has the greatest
percentage of companies that outsource their SD offshore. It proves the thesis
that the UK companies still prefer offshore outsourcing because of their historic
close links with India and Pakistan. From this viewpoint, the UK appears to be the
most conservative country whose business development is driven by tradition
rather than common sense and strive for more effective client-vendor
communication and grasp of innovation which are easier to achieve in
geographically closer environments (this statement will be proven further in the
Report).
The following findings relate to the major factors driving corporate decisions to
outsource entire or part of SD function to execution by the 3d party in 2010. As
seen from Fig. 8, reduction of operating costs remains the most powerful driver
of outsourcing decisions in all 8 countries surveyed. Among the other most
frequently cited factors are: acceleration of time to market (UK, Germany,
Netherlands, Sweden and Denmark), difficulty finding required IT resources and
specific skills within own country (all surveyed countries except the UK), pressure
from investor(s) and/or executive management to cut down IT/SD budgets
(Switzerland and Austria) and business development strategy improvement by
focusing on company’s core competences (product/service marketing, customer
relationships management etc) (Norway) and freeing in-house resources for
other critical tasks (the UK). Thus, cost efficiency and optimization and time to
market acceleration are the top 2 pressures that pump up corporate decisions to
outsource SD in the UK, Germany and all Nordic countries surveyed; while cost
efficiency and optimization and willingness to get access to more expanded and
qualified IT resource and talent pools are the top 2 outsourcing drivers in
Switzerland and Austria.
Prior to engaging in ITO partnerships, most of companies in all countries
surveyed conduct an in-house assessment of the SD elements/areas to be
outsourced to the 3d party (Fig. 9). Swiss, Austrian and Swedish companies rely
on external assistance such as ITO consultancies in their decisions to outsource
more often than their fellow companies in the UK, Germany, Netherlands,
Denmark and Norway. On the other hand, UK is the country whose companies
seek domestic low-cost IT services providers to outsource their SD to more often
than companies in other countries surveyed. Another most popular action (after
in-house SD needs assessment) is asking other companies for positive vendor
references and sending corporate RFPs/RFQs straight to the suggested vendors.
As seen from Fig. 16,, besides the UK that demonstrates the highest level of
satisfaction with the quality of services and project deliverables received (71% of
respondents issued 4 and 5 points to their current ITO providers), Switzerland
and Sweden are two other countries whose companies are quite satisfied with
their current providers (62% of Swiss respondents issued 4 and 5 points to their
providers versus 58% of Swedish outsourcers). This tendency may be explained
by the fact that Swiss and Swedish companies proactively use professional
consultancy services to help define the highest priority areas/elements to be
outsourced as well as the entire short- and long-term corporate outsourcing
strategy. Companies that try to avoid using professional help are more likely to
overestimate own outsourcing needs assessment and, thus, establish the wrong
partnerships, use the wrong SD methodology or the wrong destination. All of
these factors inevitably lead to the outsourced projects’ failures and high levels
of dissatisfaction with the outsourcing outcomes (See Fig. 16).
Regarding the volume of the outsourced SD in each country surveyed, the
research comes up with the following findings: UK and Sweden are the two
countries whose companies outsource most of their SD function (90% to 100%).
On the contrary, Netherlands is the only country with the greatest number of
companies outsourcing less than 10% of their SD volume (Fig. 10). Additionally,
most of German and Danish companies outsource 60%-89%, most of Swiss and

24
Dutch companies outsource 10%-39%, while most of Austrian and Norwegian
companies – 40%-59% of their SD volume.
Regarding the most outsourced areas of SD expertise, all of the surveyed
countries have the same or nearly the same indicators: Web 2.0 is the most
demanded area, followed by Enterprise 2.0. Germany and Sweden demonstrate
the highest rates of mobile development outsourcing (21% and 20% of
respondents correspondently), while Switzerland shows the highest rate of the
outsourced embedded development (17% of respondents) and Norway shows
the highest rate of SaaS/Cloud computing outsourcing (15% of survey
participants) (See Fig. 11).
Fig. 12 demonstrates the key drivers of the choice of the outsourcing
destinations in Europe in 2010. Low costs of software development and
maintenance is the major factor helping determine where to locate the
outsourced development in all countries surveyed except Austria, where the
major factor is geographical and cultural proximity. According to Fig. 5, Austria
shows very high rates of outsourcing nearshore and nearshore and within own
country. Surprisingly, but, on the other hand, Austria (along with Norway) shows
the smallest percentage of companies outsourcing their SD within own country
(only 5% of respondents). Other most frequently cited factors (in all countries
surveyed) are: available IT resource and talent pool and positive references.
Factors such as political/economic stability, legal system maturity, IP security,
strong R&D base and proficient English language skills are considered by
companies in the lowest priority.
In order to select an ITO partner, most of the companies surveyed in the UK and
Sweden consider low services rates, while most of German, Swiss, Austrian,
Dutch and Norwegian outsourcers consider vendor references and positive track
record. Availability of specific skills that are hard to find within own country
appears to be important for the majority of the UK, German, Dutch, Swedish,
Danish and Norwegian companies, while innovative business model is a very
decisive factor for German, Swiss, Danish and Norwegian outsourcers.
Further, IT Sourcing Europe explored the way how actual annual incurred costs of
the outsourced SD compare to the expected (contracted) ones in each country
surveyed (Fig. 14). The study shows that the actual and the expected costs are
about the same for most of the UK, Swedish and Danish companies. For most of
German, Swiss, Austrian, Dutch and Norwegian companies the actual incurred
costs are up to 25% higher than expected. Denmark is the only country among
the surveyed ones whose outsourcers (2% of respondents) have actual costs to
be 50% to 75% lower than expected. Additionally, 2% of the German, 1% of the
Swiss, 1% of the Austrian and 1% of the Dutch respondents claim that their actual
incurred costs of outsourcing are more than 75% lower than expected.
Overall, as shown on Fig. 15,, the majority of the UK, Swedish and Danish
companies save 40%-59% of operating costs from the outsourced SD, while the
majority of German, Swiss, Austrian, Dutch and Norwegian outsourcers save
10%-24%. Less than 10% of costs are saved by relatively big numbers of
companies in Germany and Netherlands, while more than 60% of costs are saved
by a lot of Austrian companies.
As seen from Fig. 17, most of Western European and Nordic ITO services buyers
(cumulative 40.96%) still engage with their partners via “traditional” outsourcing
models such as dedicated development center (DDC) or captive centers etc,
which do not allow them to have as much control of the outsourced projects and
development team members as possible and have transparent pricing structures.
Only cumulative 21.52% of the European companies know exactly and
cumulative 1.52% know partially what they pay for and are fully/partially
involved in the process of HR hiring for their outsourced projects. This finding is
demonstrative of the growing number of Western European and Nordic
companies who enter the ITO relationships via some innovative business models,
able to provide them with better control of the outsourced projects and, thus,
better ROI.
Further, IT Sourcing Europe explored the key challenges and issues in the
outsourced SD and their most popular solutions. As shown on Fig. 20,, delayed

25
product deliveries and missed milestones are reported to be the most critical SD
outsourcing challenge by most of the UK, German, Swiss, Swedish and Danish
companies. Alternatively, a lot of the UK and Dutch companies point to time and
cultural difference as the most critical challenges of their SD outsourcing. IT
Sourcing Europe determined the top three challenges for each country surveyed
(in a descending way from most to least faced): UK – delayed delivery,
time/cultural difference and poor client-vendor relationships; Germany –
delayed delivery, poor PM from vendor’s side and hidden agenda (actual costs
far exceed the expected ones); Switzerland – delayed delivery, hidden agenda
and poor client-vendor communication; Austria - poor client-vendor
communication, hidden agenda and delayed delivery; Netherlands –
time/cultural difference, poor client-vendor communication and delayed
delivery; Sweden - delayed delivery, poor PM from vendor’s side and hidden
agenda; Denmark - delayed delivery, poor client-vendor communication and
poor quality of delivery; and Norway - poor client-vendor communication,
delayed delivery and time/cultural difference. The less critical challenges
identified are: excessive vendor’s bureaucracy, insufficient data safety, change of
management and inability to control and reduce vendor’s staff turnover. The lack
of appropriate resources from vendor’s side can be considered to be a somewhat
critical issue in the process of successful outsourced development.
To respond to the most critical challenges, most of companies from all of the
surveyed countries increase face to face communication, revise their ITO
engagements and dedicate more managerial resources. They do it by hiring
additional ITO and/or project managers, relocating them to work permanently on
vendor’s site, improving the training function for the outsourced teams, changing
SD methodology, process, interaction with team members and PMs, canceling
current ITO contracts and looking for new partners etc (see Fig. 21). Another big
ratio of companies extends project deadlines and brings in outside assistance
such as ITO consultancies etc.
The least popular actions include: dedication of more IT resources for the
improvement of client-vendor relationships, vendor management redesign and
SD outsourcing termination and back-sourcing (bringing development back to
house). It is interesting to note that Swedish and Norwegian outsourcers are
most active in cancelling ITO engagement and back-sourcing, while German ITO
buyers are most reluctant to cancel their outsourced development.
Overall, the above findings make an impression that in most of cases today’s SD
outsourcers are ready to sacrifice fast time to market for the benefit of retaining
their current ITO engagements. On the other hand, Western European and
Nordic outsourcers become more insistent in challenging their ITO partners to
improve value-added services, PM and product quality and to provide
transparent cost structures as well as a combination of speed, cost management
and growth supported by business agility and unprecedented technological
innovation.
Further, IT Sourcing Europe asked survey participants to share their general
impressions of the outsourced software development. As reflected on Fig. 18,
more outsourcers have rather positive than negative outsourcing experiences.
Thus, the majority of companies in all countries surveyed admitted the fact that
outsourcing their software development has been the right decision after all. The
statement that it is critical to have backup providers in case the primary provider
is unable to meet deadlines and/or commitments was supported by most of the
surveyed companies with dominance from Netherlands and Germany. The
statement that it is important to have the supplier’s team located within or close
to the same time zone (i.e. nearshore) was supported by most of the surveyed
companies with dominance from the UK and Denmark. The statement that
provider’s work is of higher quality compared to the in-house capabilities was
supported by most of the surveyed companies with dominance from Germany
and Switzerland, while the statement that provider’s work is of lower quality
compared to the in-house capabilities was mostly supported by Austrian, Dutch
and Swedish outsourcers. The statement that providers have more discipline,

26
which can lower down costs further in a longer-term perspective, was mostly
supported by the UK and Danish companies.
Further, the majority of the Swiss respondents, followed by the German ones,
claimed that costs were higher than expected. The majority of German, Austrian
and Danish outsourcers expressed concerns that their IP is at risk. Most of
German, Dutch and Norwegian outsourcers complained that ITO providers were
unreliable and not focused on mid- to long-term cooperation. The most
dissatisfied with the decision to outsource their SD are the German companies,
while the Norwegian outsourcers appear to be the least dissatisfied ones.
Additionally, most of Norwegian and Austrian outsourcers believe that although
the outsourced development lowers down the operating costs, it inevitably
increases the PM costs.
Further, IT Sourcing Europe explored reasons why companies in the countries
surveyed refuse to adopt SD outsourcing. As shown on Fig. 19, the most
frequently cited reason is that companies want to have 100% control of their SD
projects. Additionally, the majority of the UK, German, Swiss and Danish
companies do not outsource, because they are afraid of hidden
agenda/overheads; most of the UK, German, Austrian, Danish and Norwegian
companies do not get any pressure from investors and/or executive
management to reduce costs and/or cut down SD budgets. Most of the UK,
Dutch and Norwegian companies do not outsource, as they do not actually
believe in the high-tech potential of the low-cost countries, the qualification of
their IT resource and talent pools and quality of delivered products and services.
Most of the Austrian companies followed by the Norwegian ones do not
outsource, because they think they are yet too small, immature and/or have
underdeveloped infrastructures to be able to successfully adopt the outsourced
development. Most of the UK, Austrian, Dutch, Danish and Norwegian companies
also think that the outsourced SD will eventually cost them more money,
resources and other ‘headaches’, compared to the in-house capabilities and think
that the outsourced SD will eventually result in poorer quality and, as a result,
higher customer dissatisfaction rates.
It is interesting to note that very few companies in the countries surveyed do not
outsource, because they think that outsourcing is an unethical practice and work
should be kept within own house and own country and because they had
negative outsourcing experience in the past.
All of the above findings prove the overall efficiency of the outsourced SD, its
actual potential to leverage operating costs, optimize IT and human resources,
improve business development strategy, accelerate time to market and bring
both short- and long-term value to corporate growth and sustainability.

27
Part III: Forecast on the Future Adoption of the
Outsourced Software Development by Western
European & Nordic Companies
The following country-specific data are presented in the form of industry
aggregates.
Figure 22: Factors that will drive more companies to adopt the
outsourced software development in the years to come
Figure 23: Where will today’s non-outsourcers place their
outsourced development in the future?
0%
20%
40%
60%
80%
100%
13% 14%
0 14% 14% 13% 11% 16%
31% 18%
28% 22% 21% 22% 26% 19%
13%
15% 21% 17% 17% 16% 16% 18%
29%
29% 31% 28% 31% 28% 24% 23%
6%
10% 9% 6% 6% 6% 13% 9%
6% 11% 5% 12% 10% 10% 4% 13%
2% 3% 6% 1% 1% 5% 6% 2%
never
there's pressure to cut down SD budgets
need to handle 24/7 operations
difficulty finding resources within own country
free in-house resources
speed up time to market
reduce operating costs
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
19%
23% 15%
12% 12%
15%
1%
3%
10%
34%
10% 13% 12%
21%
0
0
6% 24%
19% 11% 9%
31% 0
0
12% 19%
15%
12% 13% 27%
0
2%
7% 25%
13%
14% 10% 15%
0
16%
7%
14%
14% 14% 11%
25%
0
15%
11%
14% 14% 11% 13% 25%
2%
10%
15% 26% 13% 13% 9% 21%
0
3%

28
Figure 24: Top Three destination selection criteria to be
considered in the future outsourcing decision making
Figure 25: Top Three vendor selection criteria to be considered in
the future outsourcing decision making
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
26%
27%
21%
20%
19% 18% 19%
19%
18%
21%
21%
15%
0 0 0
16%
18%
30%
39%
18%
22% 18% 18%
17%
0 0 0 0
0
16% 14%
0
0 0 0 0
17%
0 0 0
low costs geographical/cultural proximity
available IT resource pool legal system maturity
strong R&D base
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
14%
0 0 0 0 0 0
0
19%
35% 29%
15% 21% 18%
25% 20%
0%
26%
18%
0 0 0
24%
0
0
0
0
12%
0
12%
0
15%
13% 19%
21%
0
16%
0 0
0
0 0 0
13% 17% 12% 20%
16%
low rates references & reputation
specific skills successful pilot project
innovative business model sound experience in similar projects

29
Figure 26: Who will decide on the size and cost of the outsourced
development team(s) in future SD outsourcing?
Findings’ Discussion
IT Sourcing Europe has surveyed non-outsourcing companies in the selected
countries in order to be able to predict to possible scenarios of future adoption
of SD outsourcing in Western and Northern Europe. Based on the findings of IT
Sourcing Europe’s country-specific surveys of the in-house software
development, the following forecasts were made:
1) Surprisingly, but reduction of operating costs will not be the key driver
of future decisions to outsource part of/entire SD, unlike in 2010 (Fig.
22).
In the years to come, Western European and Nordic companies will source IT
resources outside of their home countries due to the significant shortages of
domestic IT resources and specific skills. It will be the number one reason for
most of German, Swiss, Austrian, Dutch, Swedish and Norwegian companies. In
the United Kingdom and Denmark, though, most of companies will most likely
choose to outsource in order to accelerate time to market. Overall, it is the
second most popular driver of future decisions to outsource SD. The third most
popular driver is the need to free in-house resources for more critical business
goals and core competencies. The less important factors cited are: need to
handle 24/7 operations (support functions outsourcing) and pressure from
investors/executive management to cut down the SD budgets.
This forecast is enhanced by the findings of the In-House SD survey 2010 with
regards to the most critical challenges facing today’s non-outsourcers in the
selected countries. According to the findings, slow time to market, high cost of
in-house development and maintenance and lack of domestic IT resources and
skills are the top three barriers in the way of successful SD within own house.
These challenges basically set the ground for the future profile of companies that
outsource their SD function to the 3d party offshore, nearshore and/or within
own countries. It suggests that in the near future Western European and Nordic
companies will be looking out to outsource their SD to accelerate time to
develop, implement and market the product/service and to have an opportunity
to win their own niche at the market before the competitors do so.
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
61%
54%
47% 49%
47%
46% 47%
46%
35%
36%
35% 36% 41% 42% 40% 42%
4%
10%
18% 15% 12% 12% 13% 12%
client vendor in collaboration

30
As most of today’s non-outsourcers refuse to outsource, because they want to
have 100% managerial control of the SD projects and teams involved (see Fig.
19), the future ITO engagement will inevitably shape this factor. A greater focus
will be placed on the long-term benefits from outsourcing as well as use of
outsourcing for strategic goals of business development improvement rather
than sole cost reduction achievement. The findings of the given study
demonstrate well that future outsourcers will have to establish specific
partnerships with their ITO services suppliers, in which the management role will
be assigned to the client, while the supplier will act as a resource and skills
supplier rather than a project executor. Companies will be looking for innovation
via agility and flexibility combined with payment transparency. The latter will
shape the overall state of affairs in the post-recession business world, where
companies tend to grow smart towards money spending and proper investments
allocation.
2) More Western European and Nordic companies will be sourcing
nearshore (Fig. 23).
Cumulative, only 6.96% of companies surveyed (from all countries selected)
admitted the likelihood of outsourcing offshore in the future, versus 14.4% of
those who plan to outsource nearshore. This finding proves the assumption that
nearshore SD outsourcing will be the key outsourcing destination in the years to
come. 2010 as well as the previous post-recession year have shown an
unprecedented trend towards SD quality, speed and sustainability. Managing an
SD project outsourced as closely to the home country as possible eliminates
extra hassle associated with development teams management, long and
expensive trips to vendor’s site, time and cultural difference etc. On the other
hand, nearshore outsourcing is able to increase project traceability, face-to-face
communication between the client and vendor and, in case of disappointment
with the outsourced development, shortens time to back-source.
Another future tendency observed is that companies will tend to try and
challenge several potential ITO vendors to decide whom to stay with for long-
term cooperation and benefits. Thus, outsourcing SD projects nearshore is able
to facilitate the task of disseminating the outsourced projects among two and
more vendors in different locations, including the homeland, and then to move
several pieces of project to the main provider.
3) Low costs will continue to map the future SD outsourcing destinations
(Fig. 24).
Although, as seen from Fig. 22, cost reduction will not be the main driver of the
corporate decisions to outsource SD in the near future, low costs will still be
considered among the primary criteria in the process of selecting the outsourcing
destination. Low costs are one of the top three future SD outsourcing location
selection criteria in all countries surveyed, with dominance in the UK,
Netherlands, Denmark and Norway. Another important criterion identified in the
course of the research is geographical and cultural proximity, cited among the
top three selection criteria in the UK, Germany, Switzerland, Austria and Norway.
Available IT resource pool is the third most frequently cited criterion in all
countries surveyed. As a shortage in domestic IT resource and talent pool is one
of the most critical challenges of the in-house SD in 2010, it is logical enough for
future outsourcers to focus on locations with high annual numbers of IT
graduates and IT workforce employed, strong R&D base/legacy and legal system
maturity.
4) Most of today’s non-outsourcers in Western and Northern Europe will
partner with ITO suppliers with positive references and strong track
record in the future (Fig. 25).
Positive references and reputation will be the main driver of the future choice of
the ITO provider, according to the given research findings. This factor was
marked by the majority of participating companies from all countries surveyed
(cumulative 14.5%). This tendency will eventually challenge ITO providers to
improve their client management and retention practices, expand the range of
add-on and value-added services such as consultancy, staff training etc and offer
innovative business models able to provide the clients with 100% control of the
outsourced projects, no hidden agenda and minimal errors fixing at the
production and post-release stages. ITO providers will also be challenged to find
the golden ratio between new client winning and existing client retention and to

31
make customer relations practices work side by side with the sales and
marketing efforts.
Access to specific skills which are hard to find within home country is named
among the top three vendor selection determinants by most of German, Swiss
and Danish companies. Innovative business models are named among the top
three vendor selection criteria by most of the UK, German, Swiss and Dutch
companies. A lot of Austrian, Swedish and Norwegian non-outsourcers named
successful pilot project completion by the potential vendor as one of the most
decisive drivers of their future choice of the ITO partner. Additionally, most of
Austrian, Dutch, Swedish, Danish and Norwegian companies pointed to vendor’s
sound experience in similar projects as one of the three factors influencing their
future outsourcing decisions. Surprisingly enough, but low service rates were
named among the top three future vendor selection criteria by most of the UK
companies only. In other countries surveyed, companies did not put low rates
among their top three vendor selection indicators.
5) In the future, more outsourcers will strive to control their outsourced
projects (Fig. 26).
Unlike current SD outsourcers, most of whom do not know the exact salaries of
each of the member on the outsourced team and are not involved in the process
of hiring the HR to be involved in the outsourced project(s) (see Fig. 17), the
future Western and Northern European outsourcers will tend to be more active
in the outsourced project management and monitoring of vendor’s staff turnover
(which is a very critical issue influencing success or failure of the outsourced
projects).
To conclude with, in the upcoming years more companies from Western and
Northern Europe will outsource their SD mainly for the purpose of getting access
to qualified IT resources and to speed up time to market. Future outsourcers will
be sourcing mostly nearshore and will demand from their ITO vendors the
following: strong track record as a credible and reliable IT services provider,
differentiation, outstanding technology expertise and projects portfolio,
transparent pricing structures, 24/7 support, involvement in HR hiring process
and team members’ compensation negotiation, strong ability to retain and grow
staff, the state-of-the-art quality and grasp of innovation and cultural proximity.
Low costs of SD as well as low IT salaries (compared to the domestic market) will
be the number one reason of the choice of the future outsourcing destination,
while references and reputation will be the major driver of the future choice of
the outsourcing partner. Western European and Scandinavian ITO services
buyers will be focused on establishing long-term relationships with their ITO
partners. It will no longer be enough for companies just to offload their SD to the
vendor and focus on core competencies; companies will tend to get as much
managerial control of their outsourced SD projects as possible and will need
more open and face-to-face communication with their vendor’s PM and
development teams.

32
Part IV: Conclusions and Recommendations
The All-European IT Outsourcing research 2010 shapes the highly unsettled
conditions in which most of today’s Western European and Scandinavian
outsourcers work. Companies basically use outsourcing to leverage operating
costs and increase in-house capacity by embracing on-demand strategies aimed
to achieve their global reach and fix market presence. Therefore, companies
prefer easily scalable, pay for use models to process-packaged, capital-intensive
and fixed-cost engagements. Outsourcing plays a vital role in margin protection
by providing an opportunity to quickly scale up and downsize SD budgets without
harming the end-product quality. In the past years, ITO services providers in
Central and Eastern Europe were hungry for new clients from Western and
Northern Europe and, thus, made aggressive actions towards winning the clients
and helping them optimize their IT costs, while upgrading and enhancing own
infrastructures in part at the client’s cost. Providers strived to make a fortune off
the immediate income and cared more about filling up their pipeline than
retaining the existing clients. As a result, most of providers became hardwired in
the traditional way of thinking and focused on short-term benefits, thus failing to
establish strong partnerships based on the concept of mutual trust, credibility
and permanent “bar raising”. This led to the failure of most of the outsourced
projects and rather high rates of customer dissatisfaction with services and
deliveries received. Modern companies no longer need process-packaged
relationships and excessive vendor’s bureaucracy. Instead, they need agility,
flexibility and speed, combined with access to vast IT resources and specific skills,
to solve their current challenges of the in-house development such as the lack of
domestic IT resources and man force, high costs of development and
maintenance, staff turnover etc. Today’s SD outsourcers need to create a core
capability of reinforced operating flexibility that will eventually contribute in
development of highly valued business partnerships rather than unavoidable
“overhead” that outsourcing is often associated with nowadays.
On the other hand, the research demonstrated well that SD outsourcing in 2010
is different from outsourcing of, say, ten years ago. It is no longer a risky
undertaking for the majority of companies, regardless of their size, annual
revenue and business goals; instead, it is a mainstream strategy that is being
proactively and widely adopted across the corporate universe all over Europe.
Today, a typical mid-sized organization in Western or Northern Europe transfers
10% to 59% of the corporate SD function to execution by the 3d party, while a
typical large company outsources 90% to 100% of their SD, meaning the entire
development lifecycle. It proves the assumption that companies do trust
outsourcing and gains one can get from it. When we asked our survey
participants to share their general impressions of the outsourced development,
the cumulative majority of companies (around 85%) ticked the option
“outsourcing our SD has been the right decision”. On the other hand, when we
asked participating companies to assess their current level of satisfaction with
the services, project delivery quality, prices and attitudes provided on a 5-point
scale (where 1 is least satisfied and 5 is most satisfied), the cumulative majority
issued their ITO partner(s) 3 points, meaning they are somewhat satisfied, but
not very much satisfied. These contrasting findings show the actual discrepancy
between clients’ business needs and the wrong engagement model through
which they partner with their providers. It is rather obvious that under the
current economic conditions many IT decision makers overestimate their own
role and/or believe that it is their duty to the organization to find an external
vendor and increase corporate savings. Relying on their own experience, which
may not be enough to make the right ITO decisions, they solely select the vendor
and location and then have to deal with increased PM costs, vendor’s
infrastructure improvement and hidden agenda, which prevent companies from
enjoying the maximum benefits from the outsourced development in a longer-
term perspective. If at least one tiny thing is missed in the process of planning
outsourcing strategies (e.g., cultural fit or time difference are not considered
from the beginning etc), then the whole project and ITO relationship are at a
great risk of going wrong. As a result, the ITO services buyers blame their
providers of inability to understand their business goals, using hard-to-manage

33
business models and/or not delivering on time, often ignoring the fact that they
are guilty too, as they couldn’t make the right outsourcing decisions and failed
developing a smart sourcing strategy. Client’s dissatisfaction with their ITO
providers can be partly explained by IT executives’ wrong understanding of why
they need outsourcing at all. This finding demonstrates a strong need of the new
thinking in outsourcing, from the partner selection to the project results’
measurement. It is high time to begin thinking about outsourcing as an
opportunity to add value to the corporate climate by implementing cultural
change, adding quickly mature capabilities, introducing new disciplines and
methodologies, developing differentiators and best practices and learning from
the errors of the past. When more companies begin to think of outsourcing in
this way, they will be able to partner based on personal relationship rather than
a structured process and, thus, enhance their SD processes and evolve further
out of the multicultural environments they create.
Below is a set of actions that IT Sourcing Europe would recommend to every
company thinking about the adoption and/or revision of its ITO engagements.
We believe that these few preparatory practices will help clients select vendors
able to bring innovation, optimize both costs and processes and fit culturally into
the organizational alignment.
1) Companies willing to outsource their SD should set clear vision!
Clarity of corporate vision, mission and goals is critical to success of any ITO
partnership. Prior to make any outsourcing decisions, companies should
understand their own priorities and drivers, rank their partner selection criteria
and, what is more importantly, open a dialogue with multiple stakeholders to
determine which areas/elements/processes should be outsourced and which –
retained within own house, how to integrate the outsourced and in-house
project outcomes at the production stage with as few mistakes and bugs as
possible, what SD methodology would best fit in this certain project and what
business model to use in the future ITO collaboration. When setting the vision, IT
managers on client’s side should not forget that outsourcing will inevitably bring
about organizational change that all-level stakeholders will have to cope with.
Actions should be planned proactively on how to facilitate different stakeholders’
adaptation to the change and how to manage it with minimum damage for
internal and external clients. When setting the vision, IT executives should not
forget that outsourcing is all about people rather than processes and technology.
Outsourcing obviously affects the daily operational activities of many employees
involved, so HR management strategy should also be planned in a strategic way
prior to entering any ITO relationship.
This research demonstrates that companies who bring in external assistance such
as consultancies at the outsourcing planning stage feel more comfortable with
their ITO relationships and more satisfied with the overall outcomes of their
outsourced development, compared to those that rely on their own experience
and expertise when planning an ITO strategy. So, we believe it is important for
any organization to hire a group of professional IT auditors to determine which
areas of the SD function should be outsourced and how. This investment,
although tried to be avoided by many today’s outsourcers, will provide the client
organization with a significant return in a longer run, because many extra tasks
such as bugs/errors fixing at the post-production stage, coverage of resources
spent on the project team member’s replacement etc will be eliminated or
minimized later as the project goes.
The use of professional external help can allow organizations to build internal
consensus on their business reasons for outsourcing, ensure that expectations
are set properly for both the vendor and the client and the stage is set for the
selection and negotiation process to follow.
2) Companies willing to outsource their SD must know own strengths and
weaknesses!
Firms must come to the negotiating table with an accurate assessment of IT
needs, current assets, talents and deficiencies. While external auditors can help
determine needs for outsourcing, only internal assessment can show actual weak

34
and strong points of every organization. For instance, many Western European
and Nordic companies wait for their vendors to perform due diligence, which is
one of the most crucial mistakes leading to high level of dissatisfaction with the
outsourced SD and failed projects. Due diligence performance may lead to
situations when the clients discover in the middle of the project that their vendor
has a much more disorganized infrastructure or unmanageable processes than
expected. Such discoveries usually create and enhance the tension within the ITO
relationship and set it on the wrong foot. Additionally, due diligence
performance may force vendors to use undocumented software and/or
processes, which will eventually make it hard to find all ends when the project
has been completed. In other words, due diligence performance withdraws
client’s locus of control and leads the project to become unmanageable and
unstructured.
It is a must for the client company to have realistic knowledge of the as-is state
of project and to enter a pragmatic outsourcing relationship, able to eliminate or
reduce delays in delivery and unforeseen expenses related to the wrong project
management on vendor’s side.
So, an internal audit of strengths and weaknesses is important to insure that the
most critical problem will not be thrown over the wall, while the less critical one
is paid too much attention to.
Later on, once determined, all of these weaknesses and strengths should be
reflected in the RFP/RFQ to be submitted to the potential vendor. Based on
them, the vendor should reflect in his response to the RFP/RFQ his ability to
meet the client’s expectations, not to dilute the ongoing vendor relationship with
ad hoc performance and contract expectations, to understand and plan risk
management and to be ready to support the entirety of the function that the
client chose to outsource. In other words, in their filled-in RFPs the potential
vendors should prove their ability to enhance client’s current strengths and turn
the weaknesses into new strengths. If the potential vendor fails to do so at the
pre-contract stage, the risk is high that he will fail to do so while the project is on
the go.
3) Intangible benefits should be a stronger driver of decisions to
outsource than mere cost reduction!
As the given research shows, although in 2010 most of Western European and
Nordic companies still choose to outsource to leverage operating costs and/or
cut down the SD budgets, a strong tendency is observed that in the years to
come more companies will focus on intangible benefits of outsourcing.
Outsourcing SD functions enables corporate IT decision makers to focus on
competitive differentiation and innovation rather than keeping the lights on for
routine SD functions. Contracting with an external IT services provider allows
companies to get access to better expertise and tools, more qualified
methodologies and disciplines and other features they would not get access to
otherwise.
In Western and Northern Europe it is a way too expensive for some type of
companies (startups, small, even mid-sized) to develop and implement own
robust applications or hire full-time IT specialists with specific skills (e.g.,
virtualization experts). Since outsourcing uses clear metrics and performance
incentives, it allows many companies, unable to develop own differentiated and
highly competitive products within own house, to surface the real cost of SD and
escape paying overheads associated with the in-house SD.
4) Companies willing to outsource their core development should search
for innovative business models!
By innovative business models IT Sourcing Europe means ITO engagements, able
to provide agility, scalability and 100% managerial control of the outsourced
project and development teams on the client’s side. By traditional business
models we mean engagements in which the vendor takes the client’s project and
executes it using in-house capabilities and available resources (e.g., DDC or staff

35
augmentation or project sourcing). The end results are then transferred back to
the client and the support/upgrade is retained within the vendor organization.
However, as the above findings suggest, today’s outsourcers should change their
way of thinking towards outsourcing and should tend to transform from mere
customers to sole project executors using external resources. That is where
innovative models are needed. Their major goal is to allow the client company to
retain as much control of the project to be outsourced as possible. This control
spreads from payment transactions to PM to staff retention and development.
One of such innovative models that IT Sourcing Europe recommends for
consideration during SD outsourcing decision making is the Own Development
Team model, in which IT employees fully belong to and are 100% managed by
the client. The key differentiator of this model from traditional remote team
model is that the client, not the vendor, makes the final decision on recruiting
development team members and has 100% managerial control of both the
outsourced project and each team member’s compensation. Such control is very
important, as it allows client s to retain their best employees and, thus, to keep
the project at a higher quality level from initiation to completion. This model is
perfect for the outsourced end-to-end software product development, as it is
transparent, agile, fully scalable and independent from the vendor’s technology
skill sets. It is equivalent to managing own in-house team, but for lower costs and
with no HR or administrative hassle, which is often associated with setting up
own SD operations in a lower-cost country.
Within this model, clients partner with vendors under the following conditions:
vendor agrees to act as a resource and office space provider rather than project
executor and client organization agrees to make a respective change in order to
allocate special roles to be in charge of the outsourced project management.
Thus, the vendor supplies candidates who best meet client’s requirements and
the client selects people that he wants to see in his outsourced development
team (depending on specification requirements) and negotiates a compensation
with each member on the outsourced team, without any interference from the
vendor. Every month the client receives a single bill comprised of the fixed
vendor’s service fee and each team member’s monthly salary plus benefits. The
client normally invests in the growth and development of his own outsourced
team as much as he wants and, what is more importantly, the client does not pay
any overheads and has a chance to retain his best IT people without relying on
vendor’s HR retention practices. In traditional models, clients have no control
over the vendor’s staff turnover and cannot influence hiring decisions. Vendors
try to literally squeeze as much from their staff as possible, that is why it is quite
a common practice in DDC when the same person is involved in two or more
different projects executed for different clients, faces a lot of occupation stress
and burnout and, as a result, either quits job and looks for a better employer, or
becomes demotivated, devastated and does not contribute all of his/her abilities,
skills and stamina to the project. In addition, it is usually the client company who
pays for new hires, role replacement etc. In Own Development Team model the
client selects people and can be sure that these people will work exclusively on
his project and it is up to him to motivate staff to work harder and more
productively (via material and non-material incentives, business trips, better
coaching etc). And if some team member still decides to leave the project, the
client will have to find a replacement and to make sure that this replacement is
the right fit and not just the “imposed necessity”.
IT Sourcing Europe’s continuous assessment of this model allows to conclude
that it is perfect for both large and small and mid-sized companies and for the
core end-to-end development. However, this model can only be successful as
long as it is employed within the nearshoring context. Since the model suggests
frequent face-to-face communication between the vendor and the client, it can
hardly be manageable within the offshoring context, when outsourced teams are
located 7 to 9 hours away from the home country. To ensure success within Own
Development Team model, it is a must to locate the development team within or
close to the same time zone.
The findings of the given study support the assumption that the Own
Development Team model is likely to become the most demanded one in the
years to come because of its agility, scalability and transparency. Today’s
outsourcers articulate their desire to have 100% managerial control of the
outsourced projects, more open communication with the vendor’s PM and
development teams and payment transparency. Cumulative 10% of all
companies surveyed (from all countries) (see Fig. 18) admitted the importance of
having the vendor’s development team located nearshore, which also supports

36
the statement that in the years to come Own Development Team model will be
the major engagement means in global outsourcing.
5) Companies must be able to manage their ITO relationship on a 24/7
basis!
Now when the company has signed the ITO contract with the most fitting ITO
vendor and has gained 100% managerial control of the outsourced project and
development team, it must adjust/revise its corporate management policies to
be able to properly manage the ongoing relationship. The ITO partner
management requires specialized skills, strategic understanding of business and
IT goals, strong negotiation and mediation capabilities.
Choosing to partner via an innovative business model means going beyond the
typical Service Level Agreement (SLA) scope and requires an entirely new set of
managerial skills. So, the client company should invest in hiring and developing
own outsourcing manager(s) with an extensive experience of successful
integration of the outsourced teams into the in-house IT team/department,
strong facilitation and conflict management skills etc. In general, a good ITO
manager is the one who is able to function equally well in four dimensions:
quality, finance, relationship and strategy. In terms of quality, the ITO manager
should monitor outsourced team’s compliance with contract and accuracy of
delivery. The specifically designed metrics should enable ITO clients to put their
expectations to the plate rather than just hope for such qualitative benefits as
process improvement or innovation and then turn those expectations into the
critical project success factors. In terms of finance, the ITO manager should make
sure that the actual incurred costs of outsourcing match the contracted ones and
the overall payment structures are transparent and not process-packaged. In
terms of relationship, the ITO manager should be able to plan the time and effort
needed to establish relationship of mutual trust and reliability and make
appropriate effort in reaching this goal. And in terms of strategy, the ITO
manager should be able to track how current ITO strategy matches the corporate
business goals and IT needs and make forecasts as to which direction the
outsourcing strategy will move in the next 6 to 12 months, 1 to 3 years etc. These
four dimensions both as a synergy and as separate units should aim to achieve
long-term benefits and help grow the company and differentiate the
product/service.
To conclude with, IT Sourcing Europe reminds that outsourcing is a people-
centric, rather than a process-centric business and cannot be treated as a simple
business transaction. The client company should clearly realize why it is going to
adopt the outsourced development and what benefits to expect from it. Without
clear vision and goals companies are nearly doomed to fail their ITO
engagements.
Although successful transition of the contracted responsibilities to the
outsourcing provider is essential, it is not sufficient, as the primary focus should
be placed on team morale improvement, combatting resistance to change and
achievement of multicultural evolution with strict adherence to the key
performance indicators and SLAs.
We believe that in the future the success of the ITO partnerships will be
measured not by the significance of savings achieved, but by the client’s ability to
outsource SD and insource knowledge, skills, innovation and the state-of-the-art
quality of development.

37
About IT Sourcing Europe
IT Sourcing Europe Ltd is a UK-based research and consultancy company
specializing in nearshore IT/software development Outsourcing. Our
services include:
• Independent IT Outsourcing market research and analysis
• Independent surveys of Western European outsourcers and
their ITO demand
• Independent surveys of Central and Eastern Europe's ITO
services providers and their factual capability to deliver top
quality products and services on time and on budget
• Consultancy and recommendations to companies planning
to change their current outsourcing strategies
• Consultancy and recommendations to companies planning
to outsource their IT function nearshore
• Custom market and competition research and surveys
Contact Details:
IT Sourcing Europe Ltd
The Meridian, 4 Copthall House,
Station Square, Coventry, West Midlands,
CV1 2FL United Kingdom
Email: info@itsourcing-europe.com
Tel.: +44(0)2476992505
Web: www.itsourcing-europe.com
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Prior to photocopying items for internal or personal use, please contact IT Sourcing
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any legal liability for the accuracy, completeness, or usefulness of any information
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European IT Outsourcing Intelligence Report 2010: Western and Northern Europe

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