IT Value

IT Budgets Move Away from Outsourcing

No longer reticent to hire permanent staff, organizations are keeping more of their IT operations in-house.
September 10, 2014
IT Budgets Move Away from Outsourcing

Organizations are continuing to keep more of their IT operations in-house as the economic recovery “reaches a more mature and sustainable phase,” according to a new survey by IT research firm Computer Economics.

IT-outsourcingIT outsourcing budgets averaged 10.2% of total IT spending so far this year, a slight decline from 10.6% in 2013 and a more significant drop from the 11.9% peak in 2012, the study found.

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In addition, fewer organizations are outsourcing help desk, desktop support, and application maintenance. Other IT functions — including data center, application development, database administration, network operations and disaster recovery outsourcing — are in a holding pattern.

“From a broad perspective, the most likely explanation for the downward tilt in outsourcing as a percentage of the total IT spending is the ongoing economic recovery,” says John Longwell, vice president of research for Computer Economics.

IT budgets are increasing, but organizations are investing in internal operations “at a pace that is greater than their spending with IT service providers,” Computer Economics says.

In the early stages of the recovery, the study notes, organizations turned to IT service providers because they were reluctant to hire permanent staff. Now as the recovery matures, “they are turning their attention to long-delayed system improvements and unfilled positions.”

The study also shows that some IT functions are bucking the overall trend away from outsourcing, with more organizations outsourcing security work and web operations.

In other findings from the survey, large organizations have re-emerged as the leaders in outsourcing this year, spending 7.4% of their IT budgets on outsourcing at the median, compared to 6.1% for small organizations and 4.6% for midsize organizations.

Application hosting is the most frequently outsourced function and the fastest-growing type of outsourcing. As far as bang for the IT outsourcing buck, disaster recovery, web/e-commerce, data center operations and network operations provide the best value.

Source: IT Outsourcing Statistics 2014/2015