IT Outsourcing at a Five-Year High

Almost 34% of companies now outsource at least some of their network operations.
Lauren MuskettAugust 6, 2019

Companies are outsourcing more of their total information technology budgets, after a drop last year, according to a study from Computer Economics.

The study found the percentage of the total IT budget being spent on outsourcing increased from 9.4% in 2018 to 12.7% in 2019, hitting a five-year high.

“Small companies are really driving this increase,” said David Wagner, vice president of research for Computer Economics. “Midsize and large companies saw smaller increases in average outsourcing.”

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Companies tend to outsource fewer functions during strong economies and outsource more when the economy is performing poorly, but the economy grew steadily during the survey period (January through April 2019). This suggests companies were becoming more comfortable shifting functions as the transformation to cloud technologies continued.

Computer Economics said the economy isn’t likely to be the primary reason for the increase in outsourcing, but the fears of recession could be playing a role. Some companies are being proactive for when the looming recession hits.

The study found 34% of companies now outsource at least some of their network operations, up from 30% last year. Thirty-three percent of companies outsourced some application maintenance, down from 36% last year. This falls in line with Computer Economics’ general prediction that reducing the network infrastructure burden and concentrating on serving the business is the goal for most IT organizations.

Application development was the most frequently outsourced function at about 56%.

Large companies increased the proportion of their budgets spent on outsourcing to 8.7% from 6.3% this year. Medium size companies increased their outsourcing spending 6.5% from 4.7% of the budget.

Almost half (48%) of the more than 200 respondents said they planned to increase the amount of IT security work they outsource, though the actual percentage of companies that outsourced IT security this year fell.

Wagner said small companies have adopted cloud technology faster than larger companies. “So, if there is any increase in outsourcing because of the economy or because of comfort with putting critical workloads in the hands of providers, small companies are likely to show it first,” he said.

Computer Economics’ study looks at IT outsourcing in the following areas: application development, application maintenance, data center operations, database administration, desktop support, disaster recovery services, help desk services, IT security, network operations, system implementation/integration, and web operations.