Austrian IT Outsourcing Intelligence Report 2011

IT Sourcing Europe
European IT Outsourcing European IT Outsourcing Market

Intelligence Report 2011: Intelligence

Austria

November 2011

European IT Outsourcing Intelligence Report 2011: Austria

European IT Outsourcing Intelligence Report 2011: The UK

Contents Executive Summary

This Intelligence Report is based on the survey of the 533 Austrian companies
Contents .......................................................................................................... 2 that either outsource their Software Development / Information Technology
Executive Summary ......................................................................................... 2 function(s) to an external service provider onshore (within Austria),
Survey Overview ............................................................................................. 3 nearshore (within/close to the same time zone) and/or offshore (more than 2
time zones away), or develop their software/IT solutions in-house.
Key Takeaways from the Survey ...................................................................... 4
Profile of Outsourcers ..................................................................................... 5 The Report aims to help Austrian outsourcing companies:
IT Outsourcing Drivers & Factors ................................................................... 10
Get an in-depth understanding of the current IT Outsourcing demands
IT Outsourcing Challenges & Problem Solving ............................................... 12 and trends
See what challenges are facing their market peers / competitors and
Client – Vendor Relationships ....................................................................... 13
how they respond to them
IT Outsourcing Costs...................................................................................... 15 Revise / improve their current IT Outsourcing engagements / business
models based on the industry best practices
Impressions of IT Outsourcing ....................................................................... 17
Trends & Challenges of the In-House Software Development ...................... 19 The Report aims to help Austrian non-outsourcing companies:
Future Adoption of IT Outsourcing Services in Austria .................................. 23
Better understand modern software development/IT costs optimization
Key Findings at a Glance ................................................................................ 25 and/or reduction strategies
Conclusions and Predictions .......................................................................... 28 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 software development /IT
Outsourcing and how they are / will be preparing for adoption of the
outsourced development in the future

2|Copyright IT Sourcing Eur ope | 2011 | All Rights res erved



Survey Overview Additionally, inbound marketing initiatives were launched in order to attract
more companies to participate in the survey. In the frames of this campaign,
The Austrian IT Outsourcing (ITO) and In-House Software Development (SD) the following steps were taken:
survey was conducted between October 11 and 28, 2011, in the frames of
Online press releases and survey announcements distribution;
the All-European ITO research.
Survey localization and optimization in social media such as LinkedIn,
XING, Facebook, blogs ( Twitter, Word Press, IT Sourcing Europe’s
Survey goals:
Blog), event management systems (Amiando), and B2B web portals
Explore factors that drive Austrian companies to outsource their (Europages, Hoovers)
SD/IT functions in 2011
All data obtained were analyzed in the form of industry aggregates. The
Explore challenges associated with offshore/nearshore outsourcing
answers to the open-ended questions were organized by their relativity to
and the most effective problem solving techniques
the study goals and displayed as the option “all other responses” in charts
Explore the use of different business models in ITO engagements and and graphs further in the Report.
find out which model works best for what type of companies and
industries Outsourcing Activity & Categories Surveyed:
Explore factors that keep Austrian companies away from outsourcing
The following ‘outsourcing activity’ is referred to in the 2011 Austrian ITO
their SD/IT function(s)
Report:
Compare and contrast the 2011 and future ITO demands across
Austrian industries Software Development / Information Technology Outsourcing (SD/ITO) is
the process of transferring part of/entire software development function
The survey was available online and hosted by SurveyMonkey, the world’s
and/or other Internet related work to the execution by the external IT
leading provider of web-based survey solutions. In order to reach as many
services provider(s)
Austria-based companies as possible, IT Sourcing Europe used its own
database of business contacts and sent out a survey invitation email to each
company’s decision maker(s) (C-level executives, IT / Outsourcing Managers,
Directors, Heads of Software Development etc).




The following categories fall under this activity: Key Takeaways from the Survey
Application (app) development and maintenance;
Website / ecommerce systems; The greatest demand for ITO services in Austria comes
Data warehousing;
from B2B software development companies
IT security;
Data / voice network operations;
Most of ITO projects take 3 to 5 IT specialists to complete
Remote IT infrastructure management and are valued at €0-49K
Web solutions are most outsourced, while embedded
These categories further fall under the five key areas of expertise:
development is least outsourced in Austria
Web (Web 2.0, .NET, Java, PHP, open source etc); Most of the Austrian companies outsource nearshore
Enterprise 2.0 (J2EE, J2SE, C#, MySQL etc); Most of the Austrian companies outsource to focus on
Mobile development (J2ME etc);
core competences, reduce operating costs and release in-
Embedded development;
house staff for other business purposes
Software as a service (SaaS) and Cloud Computing
The key issues in the Austrian ITO are poor
communication with vendor’s teams, shortage of skilled
resources on vendor’s side and cultural difference
Most of Austrian companies outsource their IT /
development to small providers via the fixed-price/time-
and-material (T&M) models
Most of companies refuse to outsource, because they
want to have 100% managerial control of their software /
IT projects




Profile of Outsourcers

Do Companies Outsource Any Element of Their IT / Software Current Outsourcing Experience
Development?




Company Size (Headcount) Primary Industry

*All other responses: digital printing, waste management, hospitality, tourism,
gambling




Revenue Growth Expectations

Outsourcers In-House Development Companies




Size of Project Teams on Vendor’s Side (Headcount) Value of the Outsourced Project(s) (€)




The Outsourced Areas of Expertise Do Companies Multi-Source?




Outsourcing Destinations IT Outsourcing Drivers & Factors

Key IT Outsourcing Drivers

10 | C o p y r i g h t I T S o u r c i n g E u r o p e | 2 0 1 1 | A l l R i g h t s r e s e r v e d



Factors’ Rating In Terms of Their Importance In the Choice of the Factors’ Rating In Terms of Their Importance In the Choice of the
Outsourcing Destination Outsourcing Partner




IT Outsourcing Challenges & Problem Solving
Key Responses to the ITO Challenges
Key Challenges of the Outsourced IT / Software Development

*All other responses: high staff turnover on vendor’s side




Client – Vendor Relationships
Vendor’s Size*
How Companies Found Their ITO Vendor(s)

*Other: personal networking, events *survey participants were asked to evaluate their primary ITO vendor in case of
engagement with multiple vendors




Service Delivery Models Used In the Outsourcing Engagements Who Makes Final HR Decision / Selects Specialists To Be Involved In
the Project?




IT Outsourcing Costs
Levels of Companies’ Satisfaction with Their Current Vendors and
Quality of Services Provided
Do Companies Know Exact Salaries of Their Project Team Members
on Vendor’s Side?




How Actual Annual Incurred Costs Compare To the Contracted Ones Actual Savings from the Outsourced IT / Development




Impressions of IT Outsourcing




Do Companies Plan to Continue Outsourcing Their Projects In The
Next 12 To 24 Months?




Trends & Challenges of the In-House Software
Development

Size of In-House IT Teams
How Non-Outsourcing Companies Satisfy Their IT / Development
Needs




Part of Corporate Budget Spent on Software Development Level of Satisfaction with the In-House Development




Key Challenges of the In-House Software Development How In-House Developers Respond To Challenges

*Other: insufficient product quality
*other: improve quality control




Reasons Keeping Companies Away From ITO




Future Adoption of IT Outsourcing Services in Austria

Circumstances in Which Companies Would Consider Outsourcing IT / Where Current Non-Outsourcers Would Transfer Their IT /
Development in the Next 12 To 24 Months Development In the Future




Factors’ Importance In the Future Choice of the Outsourcing Factors’ Importance In the Future Choice of the Outsourcing Partner
Destination




Key Findings at a Glance another survey finding that almost 30% of the companies multi-source (i.e.
outsource to more than 1 vendor) as a response to their current outsourcing
challenges such as the hidden agenda, poor quality of /delayed deliveries and
Since the 2011 survey has been expanded and modified, only some of the lack of resources. Additionally, when asked to share their overall impressions
findings will be compared to the results of the 2010 survey, while the rest of ITO, almost 20% of the survey participants said it was critical to have
will be analyzed ad-hoc. backup providers available in case the primary one fails to deliver on time
and/or with appropriate quality. These findings generally hallmark the
As the 2011 survey shows, the greatest demand for the outsourcing services
emerging area of multi-sourcing when buyers outsource different elements
comes from the Austrian B2B-focused IT sector. In general, ITO is used across
of their IT/development functions to different vendors based on their
diverse verticals, but has only started to penetrate into digital printing, waste
technological expertise, available resource pool, business models etc.
management, hospitality/tourism and gambling.
Regarding the outsourcing destinations that the Austrian companies choose
Most of the Austrian ITO engagements are valued at €0-49K, which is down
to offload their IT processes to, the survey comes up with some interesting
38.5% from 2010. The volume of the €50-199K contracts dropped by 16.2%,
yet unexpected findings: the majority of companies continue to outsource
the volume of the €200-499K contracts dropped by 14.8% and the volume of
nearshore (up 8% from 2010), a significantly greater number of companies
the €500K+ contracts dropped by 7.5% from 2010. This finding shows a
outsource onshore (i.e. within Austria) – up 27.3% from 2010, while not a
significant shift from large to small ITO contracts and can be attributed to the
single company admitted single-sourcing offshore (down 16% from 2010). As
increased number of web development projects (up 14% from 2010) and
seen from the survey results, offshoring is only used as part of the multi-
SaaS/cloud computing projects (up 7% from 2010). It also explains why most
sourcing strategy: offshore and nearshore (down 3% from 2010), offshore,
of the Austrian outsourcers have 3 to 5 IT specialists on their remote teams.
nearshore and onshore (up 0.7% from 2010), and offshore and onshore
On the other hand, the survey results demonstrate the growth of enterprise
(down 7.7% from 2010). Additionally, more than 33% of survey participants
and embedded development outsourcing projects: up 18% and up 5% from
agreed with the statement that it is very important to have the vendor’s
2010. Based on this finding, it is assumed that the value of the Austrian ITO
team working within/close to the same time zone as Austria.
projects will increase in the next 12 to 24 months and reach or even outrun
the volume of 2010. Regarding the factors that the Austrian companies consider as very
important when deciding on their outsourcing geography, more than 60%
Another interesting finding is that in 2011 more than 60% of the Austrian
pay attention to the available IT resources pool, almost 48% - to the
companies outsource their solutions to 2 and more external service
availability of profound language skills and almost 40% - low costs.
providers, which is up 50% from 2010. This finding shows that this year ITO
buyers are more focused on securing their outsourced operations and are Analyzing the top three drivers boosting corporate decisions to outsource in
reluctant to be dependent on a single provider. This thesis is supported by 2011, almost 55% of the Austrian ITO buyers need to focus on their core




competences such as business development, marketing and reputation (up into a mutually beneficial agreement with them regarding terms of payment,
47.2% from 2010), 50% seek reduction of their operating costs (up 20% from pricing structure etc. Additionally, many small ITO buyers feel more
2010) and almost 30% tend to free in-house IT staff for other business comfortable when cooperating with small providers subjected to fierce
purposes (e.g. business analysis, audit of IT needs, issues management etc) competition and, thus, having to better treat and service their clients in order
(up 34.5% from 2010). In 2010, the Austrian companies outsourced mainly to to retain them.
reduce costs, find highly qualified yet lower-cost IT personnel outside Austria
and lower down software development budgets. This finding suggests that What challenges are facing the Austrian ITO buyers in 2011 versus 2010?
the whole nature of outsourcing as a concept begins to change and more According to the survey results, the top four issues are poor communication
companies begin to utilize it as a long-term IT management strategy able to with vendor’s project management and executive teams (up 26.9% from
satisfy corporate demands for sustainability, innovation and thrift rather 2010), lack of appropriate resources on vendor’s side (up 36.9% from 2010),
cultural difference (up 19.3% from 2010) and change management.
than a short-term tactic to reduce expenses (which has been the case over
the past decade). In 2010, besides poor communication with the vendor and cultural
Regarding the client – vendor relationships, more than 56% of the survey difference, two other most critical issues were delays in project delivery
participants admitted selecting their ITO partner(s) based on successful schedules/missed project milestones (down 0.7% in 2011) and the hidden
pilot/test project demonstration, 54% relied on positive vendor references agenda (up 10.8% in 2011). In 2011, the hidden agenda has moved down
from top three to top six challenges, while delayed delivery has moved down
from their peers when evaluating prospective ITO partners and more than
52% based their ITO partner choice on the company’s experience in the from top three to top ten challenges. These shifts may be due to companies’
similar projects/technologies. Low service rates were considered as multi-sourcing strategies and revised vendor management processes (to be
extremely important by less than 46% of the survey participants. In contrast, discussed below).
in 2010 the Austrian outsourcers rated low rates (up 28.5% in 2011) and Regarding the most commonly used issue solutions, almost 60% of the
innovative business models (up 17.4% in 2011) as the two most important Austrian outsourcers increase face-to-face communication with vendor’s
criteria in their ITO partner choice besides positive references from peer project managers and teams (up 28.1% from 2010), more than 45% dedicate
companies (up 28.2% in 2011). more managerial resources (who are oftentimes relocated to the vendor’s
Regarding the vendor’s size, almost 60% of the Austrian ITO buyers engage site to monitor the project) (up 25.5% from 2010) and almost 32% revise and
modify their vendor management processes (up 14.8% from 2010).
with small vendors (less than 50), while less than 10% engage with large
service providers (1,000+). This finding is explained by the actual size of the In 2010, the top three solutions companies used to fix their ITO issues were
outsourcing companies surveyed: more than 50% are small and less than the same as in 2011. The survey shows that improvement of the face-to-face
10% are large. Since many large ITO service providers are usually quite communication remains the key goal most of the Austrian ITO buyers are
process-packaged, hierarchical and bureaucratic, it takes a while to come



trying to reach. In contrast, in 2010 only 6% of the companies polled companies. Dedicated development and captive centers rapidly lose their
considered partnering with a different vendor in order to fix issues with the popularity among the Austrian ITO buyers.
current one(s), while in 2011 this number has increased by 12.2%. This
finding suggests that more companies believe that re-sourcing a project to a Regarding the pricing transparency, around 39% of companies polled claim to
more experienced vendor will eventually cost them less money and efforts know exact salaries of each member on the vendor’s / own supervised
teams, which is up 17.1% from 2010, while the grand majority still does not
than trying to fix the issues with the failing ones. Alternatively, this finding
can be interpreted in the following way: Austrian ITO buyers constantly know what service fee is added to each team member’s salary (down 13.1%
“raise the bar” for their providers and challenge them with more difficult and from 2010). The finding suggests that most of the Austrian IT outsourcers still
sophisticated tasks. As a result, only mature and well-prepared providers face the hidden agenda in their engagements. On the other hand, when
with realistic HR growth capabilities and access to complex technologies are asked to compare the actual annual incurred costs to the expected
(contracted) ones, 55% admitted the actually incurred and contracted costs
able to overcome these challenges and retain clients. Providers who are only
focused on winning more new clients and, thus, provide incomplete / to be about the same (up 25% from 2010), 40% said their actually incurred
untruthful information in their RFP responses, intentionally overestimate costs were up to 25% higher than expected (up 8% from 2010), 5% pointed
own project completion capabilities and bid very low, often fail to meet their to the 50%-75% difference in the actually billed versus anticipated costs
clients’ increased demands. This finding generally suggests that ITO service (down 5% from 2010) and another 5% claimed their actual incurred costs
were up to 25% lower than expected (up 2% from 2010).
providers will have to modify their engagement models and focus more on
client retention in the upcoming months. Regarding the actual cost saving, in 2011 most of the Austrian outsourcers
Another finding suggests that many ITO buyers lose confidence in manage to save 10% to 24% of operating expenses (up 9.1% from 2010) and
professional consulting services and rarely bring in consultants to assist with only around 5% - 40% to 59% (the same as in 2010). Unfortunately, not a
single respondent claimed to save 60% and more from the outsourced
problematic outsourcing engagements. In 2011, the number of companies
hiring ITO consultants to help fix ITO issues has dropped by 5.5%, compared operations, while in 2010 16% of companies claimed to save 60% and more.
to 2010. This finding is most likely attributed to the above-discussed finding that many
Austrian outsourcing companies still face the hidden agenda that prevents
Regarding the ITO engagement models used by the Austrian outsourcers, the them to save more.
survey shows that the project-based models remain the most popular ones
When asked to assess their level of satisfaction with the current ITO partners,
(almost 70% of survey participants pointed to using them). The second
popular model is Own Development Team (when ITO buyers use their their work quality, ability to meet deadlines and general attitudes,
partners as space and resources providers, but retain maximum project cumulative 33.3% said they were satisfied or somewhat satisfied (down
management and control, i.e. literally extend their in-house IT teams to the 22.7% from 2010) and only around 15% said they were very satisfied (up 7%
lower-cost and resource-abundant locales) that is used by almost 24% of from 2010). However, almost 20% of companies admitted being somewhat




dissatisfied with their current providers (down 12% from 2010). A positive operating costs down in the grade of the top three outsourcing
finding is that this year not a single Austrian ITO buyer has expressed a very drivers
high dissatisfaction level, while in 2010 this level made 5%. It generally  Cost advantage is no longer the major factor considered in the choice
denotes the readiness of the Austrian companies to select and manage their of the ITO locales. Contrarily, Austrian ITO buyers look for the
ITO partners in a smarter way. available IT talent pools and appropriate English language skills
 When choosing their ITO partners, companies are still over-
Regarding the companies’ overall impressions of their ITO experiences, more
influenced by the references from their market peers and
than 50% claim their decision to outsource has been the right one (up 27.4%
underestimate such important criteria as vendor’s realistic scalability
from 2010), while around 10% of the survey participants regret having made
capability and flexible and innovative business models. This negative
such a decision at all (up 7.5% from 2010).
trend explains why “poor communication with vendor’s PMs and
project teams” and “lack of appropriate resources on vendor’s side”
Conclusions and Predictions
top the list of the most critical issues in the Austrian ITO
 The prevailing majority of the ITO buyers partner with small service
Based on the results of the Austrian ITO and In-House Software Development
providers. This not so positive trend explains why companies are
Survey, several obvious trends were identified:
missing resources, facing the hidden agenda, poor project
management and poor quality of deliveries. Small providers are, as a
 More small and mid-market actors start using ITO services in search
rule, not mature and structured enough to properly manage ITO
of innovation and differentiation
relationships, innovate and put all of the critical processes in place.
 There is a growing demand for ITO services from innovative lucrative
Nor are they able to hire and retain the most highly-qualified IT
niches such as mobile computing and digital media
personnel that prefer to work in stable companies with a well-
 Compared to the in-house development companies, more
established track record and able to meet high salary expectations. In
outsourcers anticipate increasing their annual revenue by 20%-49%
order to “keep head above the water” and withstand tough
and 50%+ in 2011. However, no clear link between ITO engagement
competition on local IT headhunting markets, small and mid-sized
and annual revenue growth is observed
ITO service providers should consider the option of cooperating with
 Austrian ITO contracts become small in value and so do project
the local higher education institutions and universities and creating
teams
in-house tech labs to incubate own IT talent pools from students and
 Many Austrian ITO buyers multi-source their solutions to reduce
graduates. However, such initiatives will inevitably lead to the extra
possible risks of the single-vendor dependence
investments and, as a result, will lead to the service fee increase
 Companies’ necessity to focus on core competences such as (today, low fees are the only advantage that small providers have
marketing and business development shifts necessity to reduce over their larger competitors)



 Compared to 2010, more Austrian ITO buyers make final HR efficient in-house development / IT management, more companies
decisions and select IT specialists on vendor’s side to be involved in are expected to start utilizing ITO in the months to come
their outsourced projects. It hallmarks the origination of the next-  The fact that cumulative 45.2% of the non-outsourcing survey
generation outsourcing mindsets when it no longer suffices to just participants admitted their reluctance to outsource due to the fear of
offload the project to the 3d party and wait for the turn-key delivery. losing own project control and stereotypical belief they are yet too
Now companies strive to have more control of their outsourced small and immature for such an undertaking suggests that more ITO
operations which marks a very positive trend service providers will have to innovate their engagement models to
 On the other hand, the grand majority of the Austrian ITO buyers are allow more benefits to SMEs as well as maximum project control
still unaware of the actual salaries of each member on their vendor’s retention. Some of such innovative models already in use by nearly
project team(s) which marks a negative trend and suggests that 30% of companies are Own Development (Agile, SCRUM etc) Team
companies do not know their vendor’s price formation and are, thus, and Virtual Operating Subsidiary. More similar models are expected
incapable to avoid extra costs and have predictable costs for future to come on stage in the upcoming months
ITO planning  The future drivers of ITO decisions in Austria may change with more
companies beginning to outsource in order to share risks, release
The analysis of the above findings as well as the findings of the non- capital funds and reduce IT budgets. This trend will result in more ITO
outsourcing companies’ survey allows making some forecasts for the future
buyers focusing on establishing long-term strategic and shared-
development of the Austrian ITO market: service partnerships with their service providers
 The fact that the grand majority of current outsourcers plan to  Geographic preferences of the Austrian ITO buyers are not likely to
continue with their outsourced operations in the next 12 to 24 alter much in the forthcoming months: the majority will still
months suggests that the level of ITO adoption across the Austrian outsource nearshore and onshore, while only few will transfer their
industries will not decrease in the near future IT / software development offshore
 In addition, the fact that there is an obvious demand for ITO services  Choosing their ITO locale, Austrian companies will look at language
from SMEs and innovative niche players suggests that the level of ITO skills’ availability, vast IT resource pool and legal system maturity.
adoption is likely to increase in the future. This prediction is Thus, intellectual property protection in ITO engagements is likely to
supported by the finding that more than 14% of today’s in-house become a hot topic in the future outsourcing debate
development companies in Austria openly indicated considering  Regarding the choice of the ITO partner, the future criteria will most
outsourcing as a response to their current IT challenges probably remain the same as in 2011: Austrian ITO buyers will still
 Given that pressing customers, high cost and shortage of domestic look at the vendor’s ability to successfully complete the pilot project,
resources are some of the main barriers in the way of successful and sound experience in the similar projects and will also rely on market
peers’ vendor references



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Austrian IT Outsourcing Intelligence Report 2011

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Austrian IT Outsourcing Intelligence Report 2011