Swiss IT Outsourcing Intelligence Reprot 2010

IT Sourcing
European IT Outsourcing Europe Ltd
Intelligence Report
2010.
Part 2: trends and
Nearshore IT Outsourcing
challenges among Swiss Market Research &
Consultancy
outsourcing and non-
outsourcing companies
(reduced version)
Coventry, West Midlands
The United Kingdom
2010

Table of Contents

I. Executive Summary p.3

II. Swiss IT Sourcing Survey 2010 p.4

II.I. Key Survey Findings p.4

II.II. Trends Analysis p.4

II.III. Findings Discussion p.6

III. Swiss Software Development Best Practices Survey p.7
2010

III.I. Key Survey Findings p.7

III.II. Trends Analysis p.7

III.III. Findings Discussion p.8

IV. Conclusions and Recommendations p.9

3
European IT Outsourcing Intelligence Report. Part 2: Trends & Challenges Among Swiss Outsourcing and Non-Outsourcing Companies

I. Executive Summary In summer 2010 IT Sourcing Europe initiated the Swiss IT Sourcing and In-House
Software Development Survey as part of its ongoing All-European ITO Research
The recent economic crisis has proven to be the major force driving Western 2010. We reached our vast network of Swiss business contacts and invited
European and Nordic countries to look for ‘survival strategies’. Since in-house corporate IT decision makers to complete our online Survey and share their
software/web development, deployment and maintenance involve tremendous outsourced software/web development experiences with a broader business
costs, more European companies have turned to IT Outsourcing (ITO) as a way community both within and outside of Switzerland. As a result, 112 companies
to reduce operating costs. While being considered as the strategy most kindly responded to our invitation and filled out the online questionnaire.
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 Further on, in order to compare and contrast the outsourced software/web
development with the best practices of the in-house development and
companies, for whom cost efficiency is as important as an opportunity to have
understand why some Swiss companies refuse to outsource their software
access to skills and services that can generally improve their online presence and project(s) to a 3d party nearshore, offshore or within own country, we have
business performance. conducted another Survey of Swiss non-outsourcing companies. As a result, 136
companies with no ITO experience completed the Survey and allowed us to
However, engagement in ITO relationships has proven to be the most impactful assess the key factors keeping Swiss businesses away from the outsourced
and culture-changing experience that does not always result in success. For development.
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.

Copyright IT Sourcing Europe Ltd. 2010. All Rights Reserved.

4

II. Swiss IT Sourcing Survey 2010 The values of the outsourced software/web projects make 17% - EUR 0-49K; 51% - EUR
make:
50-199K; 22% - EUR 200-499K and 10% - EUR 500K and more.
Of the 112 Swiss companies who kindly agreed to complete our online questionnaire,
72% are small (less than 50 employees), 19% are mid-sized (50 to 500 employees) and II.I. Key Survey Findings
9% are large in headcount (500+ employees). In 2010, 42% of the surveyed Swiss
%
companies expect to gain EUR 1M to 49M in annual revenue; 51% expect to have
%
revenue less than EUR 1M and 7% of companies anticipate EUR 100M – 499M annual
revenue. Available in the Full Version of the Report

Regarding the revenue growth, 47% of companies expect 1% - 9% growth, 39% - 10%-
19% growth and only 14% of Swiss companies report expecting 50%+ re
revenue growth.

Thirty-nine percent of the surveyed companies have more than 3 years of general II.II. Trends Analysis
software development outsourcing experience, 49% have 1 to 3 years of experience and
e
12% have less than 12 months of ITO experience. Cost Reduction Remains the Major Driver of the Decision to Outsource
Outsource!

Forty-one percent of the Swiss participant companies currently outsource their Figure 1. Top Three Pressures that drive corporate decisions to outsource
software/web development nearshore (maximum 2 time zones away from home
maximum software/web development.
country), 22% outsource offshore (at least 3 time zones away from home country), 11%
at
outsource within own country, 10% outsource nearshore and within Switzerland, 9%
outsource both nearshore and offshore and 7% outsource offshore and within own
country. 32%
reduce operating costs
Seventy-two percent of the surveyed Swiss companies outsource their software/web
development to a single IT services provider, while 28% distribute their development
% difficulty finding IT resources in 27%
among 2 and more providers. Sixty-two percent of respondents partner with small ITO Switzerland
providers (less than 50 in headcount), 21% partner with mid-sized (50 to 499 in
sized
headcount) and only 17% partner with large providers (500+ in headcount).
0+
pressure from investors/executives 26%
The following percentage of Swiss companies that do staff augmentation (i.e. t the
process of hiring a dedicated team of additional staff to bring better efficiency in the
work process) have the following number of team members on the outsourced
)
software/web development teams: 27% - 1-3; 28% - 4-8; 11% - 9- -10; 11% - 11-20; 6% -
21-30 and 17% - more than 30 team members.


5

Positive References Come First! The Biggest ITO Demand Comes From Web 2.0 and Enterprise 2.0!
rom

Figure 2. Actions that Swiss companies take prior to signing an Outsourcing contract. Figure 4. Most outsourced areas of expertise in the Swiss ITO.

Web 2.0 26%
ask others for references 29%

Enterprise 2.0 25%
conduct in-house assessment of areas 27%
to be outsourced Mobile 19%

hire a consultancy 21% Embedded Dev. 17%

SaaS/Cloud 13%

Low Costs and Available Talent Pool Are the Key Drivers of the Choice of
Most Swiss Companies Outsource No More Than 40% of Their
the Outsourcing Destination!
Software/Web Projects!
Figure 5. Key drivers of the choice of the Outsourcing destination.
Figure 3. Volume of the outsourced software development.

11% 11% low costs 29%
less than 10%
14%
10%-39%
available IT talent pool 27%
41% 40%-59%
23%
60%-89%
geographical/cultural proximity 19%
90%-100%


6

and cultural proximity. Factors such as positive references, political and economical
stability, maturity of legal system and Intellectual Property (IP) security and strong
A More Detailed Trends Analysis is Available in the Full R&D base are considered to be less important by most of the Swiss companies in
their choice of the outsourcing destination.
Version of the Report
2) To select an ITO supplier, the Swiss companies consider positive references and
supplier’s reputation, sound experience in similar projects, innovative business
models and specific skills (most of which are hard to find within own country) and
II.III. Findings Discussion
successful pilot project completion in the first priority. The focus on the innovative
The Swiss IT Sourcing Survey 2010 allows us to observe certain trends among the business models demonstrates the willingness of the Swiss companies to get more
companies that outsource their software/web development function to a 3d party flexibility, sustainability and managerial control through their ITO engagement.
either offshore or nearshore or within Switzerland. Thus, cost reduction remains the key Such criteria as available level of quality certification (ISO, CMMI etc) and supplier
factor driving most of Swiss companies to adopt the outsourced development. Other presence in home country are less important for the Swiss companies’ choice of
most cited factors include: difficulty finding necessary resources within Switzerland, their outsourcing partner.
pressure from investors / executive management to cut operating costs, acceleration of
Overall, the Swiss clients challenge their ITO partners to be able to provide
time to market, freeing in-house resources for other business purposes and
transparent cost structures as well as a combination of speed, cost management
improvement of business development strategy.
and growth supported by business agility and unprecedented technological
Prior to looking for the ITO partnerships, most of Swiss companies (77%) ask others for innovation.
references, do in-house assessment of the IT areas to be outsourced and hire a
Regarding current challenges facing the Swiss outsourcers, 75% pointed to: delays in
consultancy to assist with the outsourcing process. A somewhat smaller fraction of the
project delivery schedules / inability to meet the most crucial milestones, poor
sample (23%) reported hiring and/or promoting a manager to lead the outsourcing
project management from the vendor’s side and unexpected overheads. Twenty
process and seeking domestic low-cost IT services providers to offload their
percent pointed to: poor communication with the vendor’s project
software/web development function to.
management/development teams, time/cultural difference, the lack of appropriate
Most Swiss companies outsource their software/web development to a single ITO resources from vendor’s side and excessive vendor's bureaucracy and/or
supplier of 1 to 200 or 500+ employees in size. Analysis of the survey responses suggests organizational hierarchy. Five percent of Swiss companies cited the following critical
that the bigger the company, the bigger supplier it tends to partner with, and vice versa. challenges: poor quality of the delivered product, insufficient IP security and
vendor’s inability/unwillingness to understand their business needs.
The research presents the following findings with regards to the outsourcing destination
and vendor selection criteria among the Swiss companies:

1) To select an outsourcing destination, companies pay attention to low costs of An In-Depth Findings Discussion is Available in the Full
software development and IT resources, available IT talent pool, and geographical

7

III. Swiss Software Development Best Practices Survey III.II. Trends Analysis
2010
Of the 136 Swiss non-outsourcing companies who completed our Softw
Software
More than 50% of Swiss Corporate Budgets Go To Software
Development Best Practices Survey, 62% are small (less than 50 employees) 31% are
% employees),
Development!
mid-sized (50 to 499 employees) and 7% are large (500+ employees). Thirty-nine percent
500+
of companies expect EUR 1M-49M and 22% expect less than EUR 1M in annual revenue
% Figure 15. Portions of corporate IT budgets that go to software development.
in 2010. Only 4% of Swiss companies expect more than EUR 500M in annual revenue.
nies
Forty-two percent of companies anticipate 10%-19%, 33% - 1%-9% and 27 – 20%-49%
9%
0%-4% 5%-9% 10%-19%
10% 20%-49% 50%+
revenue growth for 2010. Only 9% of Swiss non-outsourcers expect annual revenue of
outsourcers
0% or less in 2010. 4% 12%
Fifty-eight percent of Swiss non-outsourcing companies develop, implement and 31%
maintain their software through internal IT departments, 21% - through local IT 26%
partners, 15% - through freelance software/web developers and 6% purchase pre-built
27%
customizable applications instead of developing their own ones.

Fifty-two percent of Swiss companies that develop software/web applications in in-house
have 1 to 3 IT specialists on their internal IT teams, 27% - 4 to 8 team members 12% -
members,
11-20 team members and 9% have more than 60 staff members in their IT departments.
rs
Slow Time To Market and High Costs Are the Hugest Barriers To
We asked our survey participants whether they believe their software is being currently Successful In-House Software Development
House Development!
developed at the highest possible quality level or not. As a result, only 19% believe so
ty
versus 81% of those who think their software leaves much to be desired.
% Figure 16. The top three challenges of the in
in-house software development.

III.I. Key Survey Findings slow time to market 31%

high cost of development 30%

Available in the Full Version of the Report
ersion scarce local IT resources 26%


8

Methodology Improvement Is The Solution! house resources for more critical business needs 5% would outsource if their revenues
needs;
fall dramatically and they need to cut costs; 9% - if they decide to launch 24/7
Figure 17. Top 3 strategies that Swiss companies use to respond to challenges
challenges. operations and 6% said they would never consider outsourcing their software
development function.

Just like the Swiss outsourcers, the non-outsourcers express willingness and readiness to
outsourcers
outsource nearshore and/or within own country rather than offshore. Thirty-nine
improve SD methodology 31%
percent of Swiss companies pointed to available IT resource pool as the major
determinant of their choice of the ITO destin
destination; 21% pointed to low costs of
27% development and maintenance and 21% - to geographical and/or cultural proximity.
hire foreign IT specialists
Additionally, 8% mentioned legal and Intellectual Property protection maturity, 6% -
strong research and development base and 6% - political and economical stability as the
encourage staff to work overtime 25% key factor likely to impact their future choice of the ITO destination.

Regarding the possible future choice of the ITO supplier, 29% of Swiss non-outsourcers
pointed to positive references and reputation, 21% - innovative business model, 18% -
specific skills, 14% - low prices, 10% - sound experience in the similar projects, 4% - level
A More Detailed Trends Analysis is Available in the Full
etailed of quality certification (ISO, CMMI etc) and 4% - flexible contract terms as the key factor
likely to impact their future choice of the ITO partner.
According to our Research, the major challenges of the successful inin-house software
development among the Swiss companies are: slow time to market (31% of
respondents), high costs of software development, implementation and maintenance
III.III. Findings Discussion (30%), scarce local IT resources (26%), extra costs associated with the software
bug/error fixing (10%), and staff turnover (3%)
(3%).
The Swiss In-House Software / Web Development Survey 2010 allows us to obobserve
certain trends among the Swiss companies that develop their software solutions
internally and stay away from ITO.

Unlike their outsourcing fellow companies, the Swiss non-outsourcers do not view
outsourcers
An In-Depth Findings Discussion is Available in the Full
Depth
reduction of operating costs as the major driver of their possible future outsourcing Version of the Report
decision. Most companies (31%) admitted the likelihood to outsource software/web
development, if they can’t find appropriate IT resources/specific skills within
Switzerland. Further, 28% of companies said they would outsource if they needed faster
time to market via flexibility and scalability; 21% would outsource if they had to free in
lity in-


9

IV. Conclusions and Recommendations About IT Sourcing Europe
The Swiss IT Sourcing Research 2010 arrives at some important conclusions which help
IT Sourcing Europe Ltd is a UK-based research and consultancy company
better understand current trends, challenges and problem solving techniques related to
specializing in nearshore IT/software development Outsourcing. Our services
the outsourced software/web development. The key findings are that in 2010 more
include:
small to mid-sized Swiss companies start outsourcing their software development
function to a 3d party either within own country, or nearshore, or offshore. Small
companies prefer partnering with small ITO suppliers, while large companies partner • Independent IT Outsourcing market research and analysis
with one or several large ITO suppliers. Unlike other European countries, in Switzerland • Independent surveys of Western European outsourcers and their
cost reduction is not the major factor driving companies to outsource their software ITO demand
development. The major factor is shortage of the local IT resources and specific skills • Independent surveys of Central and Eastern Europe's ITO services
needed to create state-of-the-art applications and drive the Swiss businesses to the providers and their factual capability to deliver top quality
higher levels of global maturity. Besides, the Swiss clients are looking for innovation, products and services on time and on budget
faster time to market and flexibility in their outsourcing relationships. • Consultancy and recommendations to companies planning to
change their current outsourcing strategies
Currently, Swiss companies outsource mostly nearshore and within own country, and
• Consultancy and recommendations to companies planning to
the number of companies that transfer their software/web development offshore is
outsource their IT function nearshore
significantly shrinking in 2010, compared to the past years.
• Custom market and competition research and surveys

Our Contact Details:
More Conclusions and Recommendations are Available in the
IT Sourcing Europe Ltd
Full Version of the Report
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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