Archive for February, 2021

DACH IT Outsourcing Markets – Industry Tendencies For 2007

February 10th, 2021

Throughout 2007, the information technology and telecommunication market in EU-countries is expected to demonstrate 2,9 % increase (668 billion Euro value) as compared to the previous year. This data is verified by BITKOM (German Association for Information Technology,

Telecommunications and New Media e.V.) and recent research by European Information Technology Observatory (EITO). Dr. Bernhard Rohleder, CEO for BITKOM forecasts positive market dynamics for 2008 at the same growth margins. The guiding industry segments encompass Software (6,5% per cent growth) and IT Services (5,5% growth).

When supply meets demand: the case of IT outsourcing

Nearly two thirds of the interviewed firms declared their intent to employ extra personnel in 2007. In this sense, the shortage of the highly qualified IT resources is being considered as a substantial challenge to the long-continued development of the information technology industry. As far back as in 2004, Gartner consultants estimated that before 2010 up to 25% of the traditional IT jobs in the Europe will be outsourced to more cost-effective locations. However, taking into consideration the current outsourcing growth rates, the quantitative dimension of this trend will be even more impressive.

According to BITKOM research, 43 per cent of German IT-firms experience problems with staffing. During the coming years this trend will become even more visible due to demographic decline, shortage of highly qualified personnel and yet good IT market opportunities. Approximately 20,000 job positions in German IT sector are currently unoccupied. Most popular job offerings include well-trained software developers, IT project managers and IT consultants.

At the same time, the growing demand in the IT personnel market brings about corresponding proposition from the foreign outsourcing vendors and consequently toughens the competition among the IT providers from abroad. Approximately 58% of the Schwartz Public Relations interviews have expressed their willingness to outsource the activities associated with IT Services domain to nearshore and offshore locations like CEE, China and India. Unlike the nearshore competitors, Indian IT-specialists are unwilling neither to work on onshore contracts nor apply for German Green Card.

IT outsourcing: attractions and concerns

As outlined in recent publication in CIO magazine, the main driving force behind outsourcing remains cost reduction, this aspect gains additional significance for larger enterprises. Additional reasons for outsourcing encompass betterment of services, achieving flexibility and conformity to industry standards.

Judging from the outcomes of CIO-Online Survey, 77 per cent of the interviewees outline loss of know-how as the major risk of outsourcing. It has demonstrated visible opinion shift as compared to 2005 poll: professional know-how loss constituted significant concern “only” to 36 per cent of surveyed professionals, while inappropriate quality caused substantial problems to 48 % of the interviewees. Additional arguments against outsourcing included overwhelming dependence from the provider, loss of primary competence, security issues and lack of adaptable processes. overhead, non-transparent business models and failing to meet deadlines.

Wolfgang Janko, Austrian IT industry expert mentions that the first and foremost rule of outsourcing is: “never to outsource the IT services, which constitute the core competence of the enterprise. It is the mistake that has been executed by nearly 60% of the surveyed companies”.

However, effective risk mitigation strategies along with carefully examined and mutually agreed partnership conditions are capable of minimizing the unwanted outcomes of outsourcing.

Swiss outsourcing times: mega-deals left behind

The analysts from Active Sourcing estimate the overall Swiss IT outsourcing market volume in nearly 12,9 billion Euro. The market analysis by German-French corporation PAC supposes that during 2006 – 2010 Swiss IT outsourcing market will grow at 7,5 %. The leading IT outsourcing-consumers among industry verticals include Retailing, Public Sector, Transport/Tourism, Telecommunications and Insurance. In relation to “big deals”, Finance sector continues to occupy prominent positions: 84% of the IT outsourcing agreements with more than CHF 10 million total cost of contract were concluded during the last twelve months in Finance/Banking industry. The leading position at the Swiss outsourcers ranking list occupies IBM; its close competitors include Swisscom IT Services, T-Systems, EDS, HP, Accenture and CSC.

Judging from the statistical data for the beginning of 2007, the total cost of the contracts is decreasing, with the era of mega-deals switching to multitude of middle-size contracts in private sector. Over the years, SME segment is gaining increasing popularity among IT service providers. Other trend that is obviously taking place is multisourcing, selective distribution of IT tasks among diversified providers; it capacitates the minimization of client’s dependence from single source of outsourced software development and occupies prominent niche within the fastest growing trends. The outsourcing clients are getting more and more equipped to manage multiple vendors simultaneously.

The IT market experiences the second wave of outsourcing, with contract renewals and greater acknowledgement of strategic partnerships being on the top of the agenda. Outsourcing providers are modifying their offerings in sense of increased client expectations and emerging new technologies. Broadly speaking, the price and service offerings of the outsourcing providers in most cases do not have tangible difference. The most important aspect remains, particularly for German-speaking market, individually tailored client approaches and working towards satisfying the needs of customer’s business. As for the Swiss IT outsourcing market, nearly three fourth of all contracts with IT service providers are renewed. However, according to data publicized by Active Sourcing, during the third quarter of 2006 the newly signed contracts dominated on the market.

German outsourcing landscape: even more benefits for larger enterprises?

Throughout 2004 – 2006, the German outsourcing market has grown by 8 per cent, totalling EUR 12 billion. Starting from 2006, the market dynamics has accelerated, amounting for 11 per cent annually; the figures for 2007 are expected to reach more than 15 billion Euro. According to recent IDC investigations, its market share comprises 38%. German top IT outsourcing providers encompass IBM, Fujitsu, Hewlett-Packard, Siemens, EDS, Info AG and TDS. IT outsourcing acquires paramount importance for German enterprises: as mentioned in Meta Group market investigation, 37 % of the companies are willing to execute partial or complete outsourcing of their IT activities. Another survey by CIO.de, conducted at the end of 2006, provides clear evidences that 51% of the interviewees plan to outsource their IT activities and 15% are still undecided.

The 30 largest IT providers in Germany occupy approximately 60% of total market volume, with the rest of the numerous smaller market players: regional providers and IT branch establishments. The IT service landscape in Germany is also characterised by increasing number of mergers and acquisitions; notes of transactions interest exists both from foreign providers and German IT companies.

According to A.T. Kearney consultancy, IT providers operating in Germany could be classified as follows:

- Global Players (extensive service portfolio, min. EUR 10 billion turnover);

- Major Regionals ( broad service portfolio, regional or country-specific focus, EUR 1 – 10 mln turnover, approx. 40% foreign capital involvement);

- Indian Firms ( major focus on software services, mid-ranged service portfolio, EUR 500 mln. – 2 billion turnover);

- Captives ( branch establishments with delivery models oriented to associated company, EUR 50 mln. – 1 billion turnover, overwhelming regional course);

- Second-Tier ( regional firms, up to EUR 500 mln. Turnover, specific service focus).

The ‘big deals’ pattern on the German market much resembles the Swiss one: multi-million contracts are becoming a rare case, with the projection of turning into exception in the nearest future. Selective outsourcing is gaining more and more popularity, involving partial infrastructure components or certain business processes. The substantial number of industry players from Finance, Telecommunication, Media and Insurance verticals outsource their IT processes to external vendors. Another interesting note: the bigger the company, the greater emphasis is laid upon outsourcing: Meta Group survey results for companies that employ more than 5,000 staff members testify that 46% of the corporations take advantage of complete or partial outsourcing.

In outsourcing of applications the lead take ERP programs (especially SAP), another 12 per cent occupy CRM-applications and branch-specific solutions. The prominent role in German IT market plays offshore outsourcing, besides Indian subcontractors, the significant market share retain CEE and SEE outsourcing providers, working within well-established and cost-attractive niches. The recent years have given birth to brand new models of both ITO and BPO: “Software as a Service”, “On Demand Sourcing”, “Dynamic Infrastructure” and “Shared Services”.

Outsourcing in Austria: growth fueled by SMEs

As publicized by IDC Study, until 2010 Austrian market for information technology services will grow by 3,9 per cent. In 2006, the Austrian IT market volume has increased by 2,9 %, keeping step with EU average indicator. When evaluating rankings, the major IT service players, the lead takes Siemens Business Service, followed by Raiffeisen Informatik, iT-Austria and IBM. The most dramatic development is being demonstrated by open source and IT security services. Since 2004, the most significant IT business domain remains outsourcing (36% of market share). Siemens Study adduces new arguments for increased dynamics for IT outsourcing market in Austria. While international analysts measure the market development at 12 %, Siemens experts forecast even more rapid IT outsourcing growth. The most important IT business domain in Austria remains outsourcing with market share of 36%. While the complete outsourcing of the IT infrastructure experiences stagnation, such segments as application management along with network- and desktop-outsourcing demonstrate visible growth from 11,8 to 13,8 %.

The outsourcing clients are willing to invest in the issues with a long-term effect: service-oriented architecture, enterprise application integration and web services. Much emphasize in outsourcing services is placed upon innovation in other to beat the competition. The powerful incentive is given to industry-specific solutions. According to IT branch analyst Christiane Pütter, Austrian SMEs are making their choice in favour of ERP and CRM solutions. The efforts of IT outsourcing providers are focused on Austrian small and medium enterprises. Joachim Seidler, Branch Manager at IDC Austria notes that “nearly 60% of IT outsourcing services in Austria is delivered to SME segment”. The subcontracting of IT and Telecommunication infrastructure to external providers proves to be of utmost interest to Austrian SMEs. Carlo Wolf, CEO of Cisco-Austria estimate the SME segment growth at 20% margin (overall market potential approx. 300 mln.), although this market share seems to be relatively small.

Currently, partial outsourcing is a popular trend among Austrian IT companies. Albert Felbauer, CEO for Siemens Business Services Austria, shares his industry look-out: “Nowadays Austrian enterprises, which are engaged in outsourcing relations, subcontract approx. 20 – 30% of their IT activities”.

DACH outsourcing market: a look beyond

To conclude with, the IT outsourcing market in DACH-region is going through impactful transformations: mega-deals becoming a rare occasion and nearshoring and multisourcing gaining more prominent positions. The outsourcing agreements are being concluded for shorter periods, with selective outtasking becoming a viable trend.

While the IT budgets within the companies are not substantially pushed up, the IT analysts anticipate stable outsourcing market growth (7 – 10 %) in the years to come. Branch-specific services are winning dominant market share, with Finance/Banking solutions taking the lead. The new outsourcing era will be marked by the powerful wave of merges and acquisitions, especially among CEE outsourcing providers and DACH IT corporations. SME market, including start-ups, would also generate constantly growing demand for outsourcing services, toughening competition between outsourcing multinationals and nearshore providers.

About Intellias Ltd.

Intellias is an ISO-certified software development company with its Development Office in Lviv (Western Ukraine) and Sales & Marketing division in Zürich (Switzerland). The company specializes in Internet/Intranet Applications, Distributed Systems, MS Windows Applications as well as Embedded Systems. From the outset of its market presence, Intellias has completed more than 200 projects worldwide, featured with excellence of technical expertise and reliability of partnership m

IT Outsourcing Reasons For SMBs

February 10th, 2021

TABLE OF CONTENTS

· What drives SMBs to IT outsourcing?

· What holds them back?

· Specific benefits for SMBs

· Outsourcing myths among SMBs

· Challenges SMBs face in Outsourcing

· Conclusion

SUMMARY

Small businesses have always confronted with addressing their IT necessities. The lack of resources – be it staff, budgets or managing resources – have determined SMBs to start exploring the offshore outsourcing option. But start ups and small enterprises have specific needs that few outsourcers can address correctly. Affordable IT solutions that are easily to install and configure, service/support requirements and, most of all, integrated ready-to-use methodologies and tools are the most critical demands of an SMB willing to outsource its IT department.

What drives SMBs to IT outsourcing?

The SMB market is to eager to find affordable IT solutions that are easy to use. Just as important, however, is are the requirement that address SMB deployment issues, operational challenges and service/support requirements. SMBs want IT solutions that are easy to install and configure, and require minimal customization and integration. More importantly, they demand responsive and reliable after-sales service and support. SMBs don’t take customer service and technical support for granted. For many small companies, a solution provider’s technical support isn’t merely a convenience; it’s a business-critical IT service, because of their resourceconstrained IT staffs.

SMB business specific challenges and “pain points” determine specific needs for small enterprises. Most outsourcing providers are specialized on the early adopters of outsourced software services – large companies multinationals. Therefore there are few specialized providers for SMBs and able to adapt to their business model and needs. Yet small-sized, SMBs are still technology-intensive businesses that require great attention from outsourcing providers. Small businesses should choose outsourcing their IT to those providers with

experience in managing SMB projects.

What holds them back?

At first glance, this key issue can seem redundant with the ones in the previous paragraph. However, we often see a contradiction between SMB IT requirements and how SMBs buy technology. For example, SMBs cite tight IT budgets as an inhibitor for adopting technology, but yet they choose not to use vehicles such as “leasing” to work around limited IT budgets. Creating the right IT solution for SMBs requires a clear understanding of their technology and business needs.

REASONS SMBs CITE FOR

OUTSOURCING

· Cost Reduction

· Access to better skill sets, depth of experience

· Access to the best / most current technologies

· Minimizing downtown

· Increasing user productivity

· Reallocating personnel to more strategic activities

· Convenience

SMBs prefer IT solutions that have simple and straightforward pricing (the requirement), but they need the flexibility to consume technology in modular components that can be extended when required (the behavior).

It is also important to understand SMB preferences including, but not limited to, brand loyalty, bundling and packaging, and service delivery options, such as outsourcing and software as a service, as SMBs upgrade and expand their IT environments. Yet, there are still issues that have prevented SMBs to start outsourcing their IT department until recently. And these are:

Affordability: Recent market figures point out that still 40% of SMBs state cost as still the strongest reason preventing them from outsourcing. But offshoring proved that in most cases the outsourcing option will be significantly cheaper than hiring in-house staff – since manpower or infrastructure costs are lower at the vendor’s location.

Trust: Lack of clearly defined methodologies and contracts, quality certifications, security assurance and even cultural issues can contribute to low trust levels among SMBs when engaging in an outsourcing relationship. The vendor must be able to place confidence, expect with assurance, agree to the contract, and act predictably and fairly in order to obtain trust from their clients.

Intellectual Property and Data Security: One of the major drawbacks for outsourcing adoption among SMBs is related to protection of intellectual property and information in general. Especially for technology-intensive start ups that rely on innovation, these are business-critical issues, and not all providers have yet in place the procedures for ensuring all these.

COMMON REASONS FOR SMB OUTSOURCING

· Network Connectivity:

Monitoring and Management of WAN, Routers,

Internet Connections, VPN

· Security:

Monitoring and Management of Firewall, Virus

Protection, Spam Prevention, IDS / IPS

· Data Backup / Archiving:

Offsite Storage, Shared SAN, Data Centers,

Archiving Services

· Messaging and Collaboration:

Email, Web Conferencing

· Software Applications:

Licensing Management, ASP

· Desktop Management:

Helpdesk, Break/Fix

· Server Management:

Monitoring Health and Performance Thresholds,

Break/Fix, Administration

· Web Development / E-Commerce

· Database Administration

Understanding: A clear understanding about the outsourcing process and benefits is minimal among small companies. Offshore software services vendors are more interested in adding Fortune 500 names to their client lists and hence have failed to educate small businesses about the benefits of outsourcing.

Volume of work: Large service providers would rather work with large corporations that can outsource large volumes of work. The volume of work outsourced by SMBs may not be feasible for large vendors. This trend seems to be reversing, but slowly.

Management experience: Small and medium businesses do not have the “management experience” required to work with an outsourcing project. Large corporations, for instance, have dedicated specialized resources to manage vendors.

Benefits of IT Outsourcing for SMBs

Process Maturity

Perhaps the main reason companies want to outsource is to engage a mature team for its development tasks.

Types of processes, the investments being made in services, the infrastructure and the level of communication, trust and understanding that exists between the vendor and client’s company all influence the quality, results and outcomes of the process. The maturity process should be adapted and flexible not static, developing in scale, scope and framework as the relationship evolves and business results need to be maximized. Process maturity is effective when it improves costs, efficiency and productivity in a total quality control approach.

Cost Savings

Lower cost is one of the primary reasons for outsourcing. The cost savings are commonly based on the wage difference between the Western world and offshore destinations. Other factors such as economies of scale and specialization could also have a considerable impact.

Knowledge & Expertise

Outsourcing gives you access to knowledge pools that you might not have inside your own company. Outsourcing also enables you to focus on your company’s core business and competences.

Risk & Quality Control

Outsourcing agreements can be structured in a way that the responsibility to produce a certain quantity/quality of output is placed at the outsourcing provider, thereby giving you a better way of managing risk. The responsibility of the provider can be defined in so-called Service Level Agreements

(SLAs).

Capacity Management

Outsourcing gives you a tool to manage your output or production capacity in a flexible way.

Staffing

By using external resources, you can overcome possible shortages on the job market. This is especially the case for highly specialized roles in, such as the information technology industry.

Despite the proven benefits of outsourcing – shown below – SMB managers still seem to be reluctant when it comes to IT outsourcing. Many of them share so-called “myth” beliefs which we would like to address as follows.

Outsourcing Myths among SMBs

Some of the deterrents mentioned before are only misconceptions. Some of the most common things an SMB manager will say when approached for offering offshore software services are:

“WE ARE TOO SMALL TO OUTSOURCE”

The real thing: It is very difficult to define the size of an organization that is ready to outsource. There are “virtual companies” that outsource all their development requirements and handle only marketing and branding.

In short, if you can see a need for software development, you can outsource.

“WE CANNOT OUTSOURCE OUR CORE PRODUCT DEVELOPMENT”

The real thing: Core product development can be outsourced and there are several success stories. However, it is absolutely essential to do a thorough background check on the vendor and ensure that the vendor has a good track record in protecting IP before outsourcing core product development.

“WE DON’T AFFORD OUTSOURCING”

The real thing: The underlying meaning of this statement again reflects the perceived difference in outsourcing core and non-core areas. You don’t have to outsource for the sake of outsourcing! Engaging an offshore partner is usually cheaper by 30 to 40%, as manpower, infrastructure costs are far lower at the vendor’s location.

“THE ROI OF OUTSOURCING HASN’T BEEN PROVED”

The real thing: On the contrary, the ROI component of outsourcing has been shown time and time again. In fact, the greatest arbiter, the marketplace, seems to give outsourcing a resounding thumbs up. Beyond reducing head count and employee overhead, additional benefits such as faster time to market and improved quality of the finished product can achieve an ROI of over 400% in some cases. Today, the question is not if you will outsource, but when and how.

“OUTSOURCING MEANS MORE TIME SPENT MANAGING OUTSIDE VENDORS WHO ARE UNLIKELY TO

BE FAMILIAR WITH MY BUSINESS”

Like most services related to IT, choosing the right provider can make all the difference. In addition to SLAs, SMBs considering outsourcing IT tasks should look for providers with specific and proven experience in

appropriate industries. Outside providers can also offer solutions that are vertically aligned.

Challenges SMBs face in outsourcing

SMBs that have identified vendors for outsourcing development / maintenance or looking for a vendor, should consider certain aspects that can easily ground the outsourcing initiative. Some of the factors that SMBs should consider before signing on the dotted line are as follows.

Alignment of focus: Vendors too come in different sizes with different priorities! Some of them are large

operators and some of them are small. SMBs should choose a vendor most aligned to the company’s needs.

Some of the vendors have of late spread too thin by getting into non-development outsourcing services resulting in lack of focus. In determining the ideal fit, alignment of focus is a key parameter apart from several other factors like culture, competence etc.

Lack of well-defined processes: In most of the small companies, a bunch of motivated tech team manages software development. Small companies and start-ups do not always have defined processes for managing outsourced software development. Many of the vendors find it difficult to deal with such a setup. Vendors are more comfortable dealing with companies with clearly defined processes. Companies looking to outsource should spend time in defining the roles and responsibilities of their internal team and the vendors’ team. Most of the vendors have mature development processes in place and companies can adopt them.

Commitment to a relationship: All major vendors work with multinational companies and a small client may not be considered as important as a fortune 500 client. In other words, a large vendor would most likely focus on serving large clients with large business volumes rather than serving small clients. Small companies should choose a vendor who values the relationship and hence has a stake in the success of the engagement.

Track record and experience: Companies should look at the vendor’s track record and experience in working with small companies. Vendors are comfortable working with large companies may not understand the nuances of working with smaller companies. Small companies may not have proper documentation or hardware/software infrastructure for testing, version control etc. A vendor with a track record of dealing with small companies should be in a position to expect such situations.

Risk Management: SMBs should seriously evaluate risk management processes adopted by the vendor. The recent trend among offshore software services vendors is the adoption of a business continuity plan (BCP). Vendors with a clear BCP stand a better chance of providing uninterrupted services in the face of contingencies.

Conclusion

Offshore outsourcing has been discovered for quite some time by large corporations but has barely attracted the attention of SMBs. Still, there are many proven benefits that should encourage SMBs to outsource their IT function. And, more important, there are providers of outsourcing services that accommodate on a small business’ model and already have experience in dealing with this kind of projects. As we mentioned before, it’s not a question of whether to outsource but mo