austrian it outsourcing intelligence report 2011

IT Sourcing Europe European IT Outsourcing Market

Intelligence

November 2011

European IT Outsourcing Intelligence Report 2011: Austria

European IT Outsourcing Intelligence Report 2011: The UK

2 | 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


Contents

Contents .......................................................................................................... 2

Executive Summary ......................................................................................... 2

Survey Overview ............................................................................................. 3

Key Takeaways from the Survey ...................................................................... 4

Profile of Outsourcers ..................................................................................... 5

IT Outsourcing Drivers & Factors ................................................................... 10

IT Outsourcing Challenges & Problem Solving ............................................... 12

Client – Vendor Relationships ....................................................................... 13

IT Outsourcing Costs...................................................................................... 15

Impressions of IT Outsourcing ....................................................................... 17

Trends & Challenges of the In-House Software Development ...................... 19

Future Adoption of IT Outsourcing Services in Austria .................................. 23

Key Findings at a Glance ................................................................................ 25

Conclusions and Predictions .......................................................................... 28

Executive Summary

This Intelligence Report is based on the survey of the 533 Austrian companies

that either outsource their Software Development / Information Technology

function(s) to an external service provider onshore (within Austria),

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.

The Report aims to help Austrian outsourcing companies:

Get an in-depth understanding of the current IT Outsourcing demands and trends

See what challenges are facing their market peers / competitors and how they respond to them

Revise / improve their current IT Outsourcing engagements / business models based on the industry best practices

The Report aims to help Austrian non-outsourcing companies:

Better understand modern software development/IT costs optimization

and/or reduction strategies

See what challenges are facing the in-house software development and how their market peers / competitors respond to them

Evaluate own readiness to adopt the outsourced / distributed

development

Find out what their market peers think about software development /IT

Outsourcing and how they are / will be preparing for adoption of the

outsourced development in the future




Survey Overview

The Austrian IT Outsourcing (ITO) and In-House Software Development (SD)

survey was conducted between October 11 and 28, 2011, in the frames of

the All-European ITO research.

Survey goals:

Explore factors that drive Austrian companies to outsource their

SD/IT functions in 2011

Explore challenges associated with offshore/nearshore outsourcing

and the most effective problem solving techniques

Explore the use of different business models in ITO engagements and

find out which model works best for what type of companies and

industries

Explore factors that keep Austrian companies away from outsourcing

their SD/IT function(s)

Compare and contrast the 2011 and future ITO demands across

Austrian industries

The survey was available online and hosted by SurveyMonkey, the world’s

leading provider of web-based survey solutions. In order to reach as many

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).

Additionally, inbound marketing initiatives were launched in order to attract

more companies to participate in the survey. In the frames of this campaign,

the following steps were taken:

Online press releases and survey announcements distribution;

Survey localization and optimization in social media such as LinkedIn,

XING, Facebook, blogs ( Twitter, Word Press, IT Sourcing Europe’s

Blog), event management systems (Amiando), and B2B web portals

(Europages, Hoovers)

All data obtained were analyzed in the form of industry aggregates. The

answers to the open-ended questions were organized by their relativity to

the study goals and displayed as the option “all other responses” in charts

and graphs further in the Report.

Outsourcing Activity & Categories Surveyed:

The following ‘outsourcing activity’ is referred to in the 2011 Austrian ITO

Report:

Software Development / Information Technology Outsourcing (SD/ITO) is

the process of transferring part of/entire software development function

and/or other Internet related work to the execution by the external IT

services provider(s)

http://www.surveymonkey.com/




The following categories fall under this activity:

Application (app) development and maintenance;

Website / ecommerce systems;

Data warehousing;

IT security;

Data / voice network operations;

Remote IT infrastructure management

These categories further fall under the five key areas of expertise:

Web (Web 2.0, .NET, Java, PHP, 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

Key Takeaways from the Survey

The greatest demand for ITO services in Austria comes

from B2B software development companies

Most of ITO projects take 3 to 5 IT specialists to complete

and are valued at €0-49K

Web solutions are most outsourced, while embedded

development is least outsourced in Austria

Most of the Austrian companies outsource nearshore

Most of the Austrian companies outsource to focus on

core competences, reduce operating costs and release in-

house staff for other business purposes

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

Development?

Current Outsourcing Experience




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




Factors’ Rating In Terms of Their Importance In the Choice of the

Outsourcing Destination

Factors’ Rating In Terms of Their Importance In the Choice of the

Outsourcing Partner




IT Outsourcing Challenges & Problem Solving

Key Challenges of the Outsourced IT / Software Development

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

Key Responses to the ITO Challenges




Client – Vendor Relationships

How Companies Found Their ITO Vendor(s)

*Other: personal networking, events

Vendor’s Size*

*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?




Levels of Companies’ Satisfaction with Their Current Vendors and

Quality of Services Provided

IT Outsourcing Costs

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

How Non-Outsourcing Companies Satisfy Their IT / Development

Needs

Size of In-House IT Teams




Part of Corporate Budget Spent on Software Development

Level of Satisfaction with the In-House Development




Key Challenges of the In-House Software Development

*Other: insufficient product quality

How In-House Developers Respond To Challenges

*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 /

Development in the Next 12 To 24 Months

Where Current Non-Outsourcers Would Transfer Their IT /

Development In the Future




Factors’ Importance In the Future Choice of the Outsourcing

Destination

Factors’ Importance In the Future Choice of the Outsourcing Partner




Key Findings at a Glance

Since the 2011 survey has been expanded and modified, only some of the

findings will be compared to the results of the 2010 survey, while the rest

will be analyzed ad-hoc.

As the 2011 survey shows, the greatest demand for the outsourcing services

comes from the Austrian B2B-focused IT sector. In general, ITO is used across

diverse verticals, but has only started to penetrate into digital printing, waste

management, hospitality/tourism and gambling.

Most of the Austrian ITO engagements are valued at €0-49K, which is down

38.5% from 2010. The volume of the €50-199K contracts dropped by 16.2%,

the volume of the €200-499K contracts dropped by 14.8% and the volume of

the €500K+ contracts dropped by 7.5% from 2010. This finding shows a

significant shift from large to small ITO contracts and can be attributed to the

increased number of web development projects (up 14% from 2010) and

SaaS/cloud computing projects (up 7% from 2010). It also explains why most

of the Austrian outsourcers have 3 to 5 IT specialists on their remote teams.

On the other hand, the survey results demonstrate the growth of enterprise

and embedded development outsourcing projects: up 18% and up 5% from

2010. Based on this finding, it is assumed that the value of the Austrian ITO

projects will increase in the next 12 to 24 months and reach or even outrun

the volume of 2010.

Another interesting finding is that in 2011 more than 60% of the Austrian

companies outsource their solutions to 2 and more external service

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

reluctant to be dependent on a single provider. This thesis is supported by

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

lack of resources. Additionally, when asked to share their overall impressions

of ITO, almost 20% of the survey participants said it was critical to have

backup providers available in case the primary one fails to deliver on time

and/or with appropriate quality. These findings generally hallmark the

emerging area of multi-sourcing when buyers outsource different elements

of their IT/development functions to different vendors based on their

technological expertise, available resource pool, business models etc.

Regarding the outsourcing destinations that the Austrian companies choose

to offload their IT processes to, the survey comes up with some interesting

yet unexpected findings: the majority of companies continue to outsource

nearshore (up 8% from 2010), a significantly greater number of companies

outsource onshore (i.e. within Austria) – up 27.3% from 2010, while not a

single company admitted single-sourcing offshore (down 16% from 2010). As

seen from the survey results, offshoring is only used as part of the multi-

sourcing strategy: offshore and nearshore (down 3% from 2010), offshore,

nearshore and onshore (up 0.7% from 2010), and offshore and onshore

(down 7.7% from 2010). Additionally, more than 33% of survey participants

agreed with the statement that it is very important to have the vendor’s

team working within/close to the same time zone as Austria.

Regarding the factors that the Austrian companies consider as very

important when deciding on their outsourcing geography, more than 60%

pay attention to the available IT resources pool, almost 48% - to the

availability of profound language skills and almost 40% - low costs.

Analyzing the top three drivers boosting corporate decisions to outsource in

2011, almost 55% of the Austrian ITO buyers need to focus on their core




competences such as business development, marketing and reputation (up

47.2% from 2010), 50% seek reduction of their operating costs (up 20% from

2010) and almost 30% tend to free in-house IT staff for other business

purposes (e.g. business analysis, audit of IT needs, issues management etc)

(up 34.5% from 2010). In 2010, the Austrian companies outsourced mainly to

reduce costs, find highly qualified yet lower-cost IT personnel outside Austria

and lower down software development budgets. This finding suggests that

the whole nature of outsourcing as a concept begins to change and more

companies begin to utilize it as a long-term IT management strategy able to

satisfy corporate demands for sustainability, innovation and thrift rather

than a short-term tactic to reduce expenses (which has been the case over

the past decade).

Regarding the client – vendor relationships, more than 56% of the survey

participants admitted selecting their ITO partner(s) based on successful

pilot/test project demonstration, 54% relied on positive vendor references

from their peers when evaluating prospective ITO partners and more than

52% based their ITO partner choice on the company’s experience in the

similar projects/technologies. Low service rates were considered as

extremely important by less than 46% of the survey participants. In contrast,

in 2010 the Austrian outsourcers rated low rates (up 28.5% in 2011) and

innovative business models (up 17.4% in 2011) as the two most important

criteria in their ITO partner choice besides positive references from peer

companies (up 28.2% in 2011).

Regarding the vendor’s size, almost 60% of the Austrian ITO buyers engage

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

outsourcing companies surveyed: more than 50% are small and less than

10% are large. Since many large ITO service providers are usually quite

process-packaged, hierarchical and bureaucratic, it takes a while to come

into a mutually beneficial agreement with them regarding terms of payment,

pricing structure etc. Additionally, many small ITO buyers feel more

comfortable when cooperating with small providers subjected to fierce

competition and, thus, having to better treat and service their clients in order

to retain them.

What challenges are facing the Austrian ITO buyers in 2011 versus 2010?

According to the survey results, the top four issues are poor communication

with vendor’s project management and executive teams (up 26.9% from

2010), lack of appropriate resources on vendor’s side (up 36.9% from 2010),

cultural difference (up 19.3% from 2010) and change management.

In 2010, besides poor communication with the vendor and cultural

difference, two other most critical issues were delays in project delivery

schedules/missed project milestones (down 0.7% in 2011) and the hidden

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 top three to top ten challenges. These shifts may be due to companies’

multi-sourcing strategies and revised vendor management processes (to be

discussed below).

Regarding the most commonly used issue solutions, almost 60% of the

Austrian outsourcers increase face-to-face communication with vendor’s

project managers and teams (up 28.1% from 2010), more than 45% dedicate

more managerial resources (who are oftentimes relocated to the vendor’s

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).

In 2010, the top three solutions companies used to fix their ITO issues were

the same as in 2011. The survey shows that improvement of the face-to-face

communication remains the key goal most of the Austrian ITO buyers are




trying to reach. In contrast, in 2010 only 6% of the companies polled

considered partnering with a different vendor in order to fix issues with the

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

more experienced vendor will eventually cost them less money and efforts

than trying to fix the issues with the failing ones. Alternatively, this finding

can be interpreted in the following way: Austrian ITO buyers constantly

“raise the bar” for their providers and challenge them with more difficult and

sophisticated tasks. As a result, only mature and well-prepared providers

with realistic HR growth capabilities and access to complex technologies are

able to overcome these challenges and retain clients. Providers who are only

focused on winning more new clients and, thus, provide incomplete /

untruthful information in their RFP responses, intentionally overestimate

own project completion capabilities and bid very low, often fail to meet their

clients’ increased demands. This finding generally suggests that ITO service

providers will have to modify their engagement models and focus more on

client retention in the upcoming months.

Another finding suggests that many ITO buyers lose confidence in

professional consulting services and rarely bring in consultants to assist with

problematic outsourcing engagements. In 2011, the number of companies

hiring ITO consultants to help fix ITO issues has dropped by 5.5%, compared

to 2010.

Regarding the ITO engagement models used by the Austrian outsourcers, the

survey shows that the project-based models remain the most popular ones

(almost 70% of survey participants pointed to using them). The second

popular model is Own Development Team (when ITO buyers use their

partners as space and resources providers, but retain maximum project

management and control, i.e. literally extend their in-house IT teams to the

lower-cost and resource-abundant locales) that is used by almost 24% of

companies. Dedicated development and captive centers rapidly lose their

popularity among the Austrian ITO buyers.

Regarding the pricing transparency, around 39% of companies polled claim to

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

know what service fee is added to each team member’s salary (down 13.1%

from 2010). The finding suggests that most of the Austrian IT outsourcers still

face the hidden agenda in their engagements. On the other hand, when

asked to compare the actual annual incurred costs to the expected

(contracted) ones, 55% admitted the actually incurred and contracted costs

to be about the same (up 25% from 2010), 40% said their actually incurred

costs were up to 25% higher than expected (up 8% from 2010), 5% pointed

to the 50%-75% difference in the actually billed versus anticipated costs

(down 5% from 2010) and another 5% claimed their actual incurred costs

were up to 25% lower than expected (up 2% from 2010).

Regarding the actual cost saving, in 2011 most of the Austrian outsourcers

manage to save 10% to 24% of operating expenses (up 9.1% from 2010) and

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

operations, while in 2010 16% of companies claimed to save 60% and more.

This finding is most likely attributed to the above-discussed finding that many

Austrian outsourcing companies still face the hidden agenda that prevents

them to save more.

When asked to assess their level of satisfaction with the current ITO partners,

their work quality, ability to meet deadlines and general attitudes,

cumulative 33.3% said they were satisfied or somewhat satisfied (down

22.7% from 2010) and only around 15% said they were very satisfied (up 7%

from 2010). However, almost 20% of companies admitted being somewhat




dissatisfied with their current providers (down 12% from 2010). A positive

finding is that this year not a single Austrian ITO buyer has expressed a very

high dissatisfaction level, while in 2010 this level made 5%. It generally

denotes the readiness of the Austrian companies to select and manage their

ITO partners in a smarter way.

Regarding the companies’ overall impressions of their ITO experiences, more

than 50% claim their decision to outsource has been the right one (up 27.4%

from 2010), while around 10% of the survey participants regret having made

such a decision at all (up 7.5% from 2010).

Conclusions and Predictions

Based on the results of the Austrian ITO and In-House Software Development

Survey, several obvious trends were identified:

More small and mid-market actors start using ITO services in search

of innovation and differentiation

There is a growing demand for ITO services from innovative lucrative

niches such as mobile computing and digital media

Compared to the in-house development companies, more

outsourcers anticipate increasing their annual revenue by 20%-49%

and 50%+ in 2011. However, no clear link between ITO engagement

and annual revenue growth is observed

Austrian ITO contracts become small in value and so do project

teams

Many Austrian ITO buyers multi-source their solutions to reduce

possible risks of the single-vendor dependence

Companies’ necessity to focus on core competences such as

marketing and business development shifts necessity to reduce

operating costs down in the grade of the top three outsourcing

drivers

Cost advantage is no longer the major factor considered in the choice

of the ITO locales. Contrarily, Austrian ITO buyers look for the

available IT talent pools and appropriate English language skills

When choosing their ITO partners, companies are still over-

influenced by the references from their market peers and

underestimate such important criteria as vendor’s realistic scalability

capability and flexible and innovative business models. This negative

trend explains why “poor communication with vendor’s PMs and

project teams” and “lack of appropriate resources on vendor’s side”

top the list of the most critical issues in the Austrian ITO

The prevailing majority of the ITO buyers partner with small service

providers. This not so positive trend explains why companies are

missing resources, facing the hidden agenda, poor project

management and poor quality of deliveries. Small providers are, as a

rule, not mature and structured enough to properly manage ITO

relationships, innovate and put all of the critical processes in place.

Nor are they able to hire and retain the most highly-qualified IT

personnel that prefer to work in stable companies with a well-

established track record and able to meet high salary expectations. In

order to “keep head above the water” and withstand tough

competition on local IT headhunting markets, small and mid-sized

ITO service providers should consider the option of cooperating with

the local higher education institutions and universities and creating

in-house tech labs to incubate own IT talent pools from students and

graduates. However, such initiatives will inevitably lead to the extra

investments and, as a result, will lead to the service fee increase

(today, low fees are the only advantage that small providers have

over their larger competitors)




Compared to 2010, more Austrian ITO buyers make final HR

decisions and select IT specialists on vendor’s side to be involved in

their outsourced projects. It hallmarks the origination of the next-

generation outsourcing mindsets when it no longer suffices to just

offload the project to the 3d party and wait for the turn-key delivery.

Now companies strive to have more control of their outsourced

operations which marks a very positive trend

On the other hand, the grand majority of the Austrian ITO buyers are

still unaware of the actual salaries of each member on their vendor’s

project team(s) which marks a negative trend and suggests that

companies do not know their vendor’s price formation and are, thus,

incapable to avoid extra costs and have predictable costs for future

ITO planning

The analysis of the above findings as well as the findings of the non-

outsourcing companies’ survey allows making some forecasts for the future

development of the Austrian ITO market:

The fact that the grand majority of current outsourcers plan to

continue with their outsourced operations in the next 12 to 24

months suggests that the level of ITO adoption across the Austrian

industries will not decrease in the near future

In addition, the fact that there is an obvious demand for ITO services

from SMEs and innovative niche players suggests that the level of ITO

adoption is likely to increase in the future. This prediction is

supported by the finding that more than 14% of today’s in-house

development companies in Austria openly indicated considering

outsourcing as a response to their current IT challenges

Given that pressing customers, high cost and shortage of domestic

resources are some of the main barriers in the way of successful and

efficient in-house development / IT management, more companies

are expected to start utilizing ITO in the months to come

The fact that cumulative 45.2% of the non-outsourcing survey

participants admitted their reluctance to outsource due to the fear of

losing own project control and stereotypical belief they are yet too

small and immature for such an undertaking suggests that more ITO

service providers will have to innovate their engagement models to

allow more benefits to SMEs as well as maximum project control

retention. Some of such innovative models already in use by nearly

30% of companies are Own Development (Agile, SCRUM etc) Team

and Virtual Operating Subsidiary. More similar models are expected

to come on stage in the upcoming months

The future drivers of ITO decisions in Austria may change with more

companies beginning to outsource in order to share risks, release

capital funds and reduce IT budgets. This trend will result in more ITO

buyers focusing on establishing long-term strategic and shared-

service partnerships with their service providers

Geographic preferences of the Austrian ITO buyers are not likely to

alter much in the forthcoming months: the majority will still

outsource nearshore and onshore, while only few will transfer their

IT / software development offshore

Choosing their ITO locale, Austrian companies will look at language

skills’ availability, vast IT resource pool and legal system maturity.

Thus, intellectual property protection in ITO engagements is likely to

become a hot topic in the future outsourcing debate

Regarding the choice of the ITO partner, the future criteria will most

probably remain the same as in 2011: Austrian ITO buyers will still

look at the vendor’s ability to successfully complete the pilot project,

sound experience in the similar projects and will also rely on market

peers’ vendor references




About IT Sourcing Europe

IT Sourcing Europe is a UK-based market intelligence company specialized in European IT Outsourcing research and advisory. IT Sourcing Europe provides:

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Evaluation of Central and Eastern Europe's IT Outsourcing services providers and their factual capabilities to deliver innovative technological solutions on time and on budget

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IT Sourcing Europe cooperates with several European ICT and Outsourcing organisations in terms of free analytics / information exchange. Amongst its major information partners are Outsourcing Verband, Das Outsourcing Journal, Outsourcing Portal, Ngi and others.

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