The Cloud

IT Outsourcing Rates Decline

A favorable economy and cloud-based services allow companies to scale back their IT outsourcing budgets.
William SprouseSeptember 4, 2018
IT Outsourcing Rates Decline

Information technology organizations cut the percentage of their budgets allocated for outsourcing to the lowest levels in five years, according to a study from IT management research firm Computer Economics.

The study found the total IT budget being spent on outsourcing declined from 11.9% in 2017 to 9.4% in 2018. Before 2017, the figure for total IT budget spend on outsourcing had hovered between 10.2% and 10.6% since 2014.

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Favorable economic conditions are allowing IT leaders to invest in selectively bringing outsourced services back in-house, the authors of the Outsourcing Statistics 2018/2019 study said. They said the increased use of cloud-based services also cuts down on the need to outsource support of an organization’s internal IT infrastructure.

Company size appears to be the biggest factor determining outsourcing decisions.

“Large companies are actually increasing their outsourcing this year, while small and midsize companies are cutting back,” David Wagner, vice president of research at Computer Economics, said.

IT oustourcing map“Our research shows that smaller companies are making better use of the cloud and have fewer legacy systems,” Wagner added. “By shedding some of their infrastructure burden, companies don’t need to reach out to as many service providers for specialized help. Right now, in regards to both the cloud and outsourcing, large companies and smaller companies are on different journeys.”

Data-center operations and IT security saw the biggest drops in outsourcing rates. Thirty-five percent of companies outsourced at least some of their data-center operations in 2018, down from 41% the year before, the study found. Thirty-seven percent outsourced some IT security in 2018, down from 43% the year before.

The study found that 48% of respondents reported that they would increase the amount of security work that they outsource, the fastest projected increase of outsourced functions.

“With the constant coverage of high-profile security and privacy breaches and rising variety of threats, it is no surprise that IT organizations are using security service providers to bolster their defenses,” according to the study.

Application development was the most frequently outsourced function, with 56% of organizations outsourcing all or part of their development.

The study is based on a Computer Economics survey of IT organizations in the United States and Canada. It analyzes outsourcing statistics for 10 IT functions. And research a list of all outsourcing companies for custom software development.