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Swedish IT Outsourcing and Software Development Intelligence Report 2010

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Swedish IT Outsourcing and Software Development Intelligence Report 2010 Powered By Docstoc
					                            IT Sourcing
European IT Outsourcing     Europe Ltd
Intelligence Report
2010.
Part 2: trends and
                          Nearshore IT Outsourcing
challenges among             Market Research &
                                Consultancy
Swedish outsourcing
and non-outsourcing
companies
(reduced version)
                              Coventry, West Midlands
                               The United Kingdom
                                       2010
                                                                                                                                                                                                      2
                                                                   European IT Outsourcing Intelligence Report. Part 2: Trends & Challenges Among Swedish Outsourcing and Non-Outsourcing Companies




                                                                                      Table of Contents

                                               I.         Executive Summary                                                                  p.3

                                               II.        Swedish IT Sourcing Survey 2010                                                    p.4

                                                    II.I. Key Survey Findings                                                                p.4

                                                      II.II. Trends Analysis                                                                 p.5

                                                       II.III. Findings Discussion                                                           p.6

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


                                                    III.I. Key Survey Findings                                                               p.7

                                                      III.II. Trends Analysis                                                                p.8

                                                       III.III. Findings Discussion                                                          p.8

                                               IV.        Conclusions and Recommendations                                                    p.9

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




 I.        Executive Summary                                                                        In summer 2010 IT Sourcing Europe initiated the Swedish IT Sourcing and In-
                                                                                                    House Software Development Survey as part of its ongoing All-European ITO
The recent economic crisis has proven to be the major force driving Western
                                                                                                    Research 2010. We reached our vast network of Swedish business contacts and
European and Nordic countries to look for ‘survival strategies’. Since in-house
                                                                                                    invited corporate IT decision makers to complete our online Survey and share
software/web development, deployment and maintenance involve tremendous
                                                                                                    their outsourced software/web development experiences with a broader
costs, more European companies have turned to IT Outsourcing (ITO) as a way
                                                                                                    business community both within and outside of Sweden. As a result, 148
to reduce operating costs. While being considered as the strategy most
                                                                                                    companies kindly responded to our invitation and filled out the online
frequently adopted by large companies in the pre-crisis times, today’s ITO
                                                                                                    questionnaire.
practices find more and more supporters among the mid-sized and small
companies, for whom cost efficiency is as important as an opportunity to have                       Further on, in order to compare and contrast the outsourced software/web
access to skills and services that can generally improve their online presence and                  development with the best practices of the in-house development and
business performance.                                                                               understand why some Swedish companies refuse to outsource their software
                                                                                                    project(s) to a 3d party nearshore, offshore or within Sweden, we have
 However, engagement in ITO relationships has proven to be the most impactful                       conducted another Survey of Swedish non-outsourcing companies. As a result,
and culture-changing experience that does not always result in success. For                         232 companies with no ITO experience completed the Survey and allowed us to
some companies the outsourced software development can be a ruining rather                          assess the key factors keeping Swedish businesses away from the outsourced
                                                                                                    development.
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                        All participating companies comprise a survey sample representing all of the
on the benefits they may gain in a longer-term perspective. Other reasons of the                    major vertical markets such as ICT and telecommunications, software
failure of the ITO relationships include, but are not limited to the wrong choice                   development, travel and hospitality, banking and finance, insurance and
of an Outsourcing destination, partnering with a wrong ITO services supplier,                       healthcare etc.
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.


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




Swedish IT Sourcing Survey 2010                                                                     Regarding the velue of the outsourced projects, 9% of Swedish outsourcers value their
                                                                                                    project(s) at EUR 0-49K; 53% - EUR 50-199K; 21% - EUR 200-499K and 17% - EUR 500K
Of the 148 Swedish companies that completed our online questionnaire, 56% are small                 and more.
and start-up (less than 50 employees), 31% are mid-sized (50 to 500 employees) and
13% are large in headcount (500+ employees). In 2010, 49% of the surveyed Swedish                                                  II.I. Key Survey Findings
companies expect to earn EUR 1M to 49M in annual revenue; 33% of companies
anticipate EUR 100M – 499M in annual revenue and 18% expect to gain less than EUR
                                                                                                         •   In Swedish, the number of companies that outsource their
1M in annual revenue.                                                                                        software/web development nearshore is slightly bigger than the
                                                                                                             number of offshore outsourcers.
Regarding the revenue growth, 43% of companies expect 1% - 9% growth, 24% - 10%-                         •   The Top Three reasons why Swedish companies choose to outsource
19% growth and 33% - 50%+ revenue growth.                                                                    their software/web development are: to reduce operating costs; to
Fifty-one percent of the surveyed companies have more than 3 years of outsourced                             accelerate time to market and difficulty finding necessary resources
software development experience, 22% have 1 to 3 years of experience and 27% have                            within home country.
less than 12 months of ITO experience.                                                                   •   Web 2.0 and Enterprise 2.0 solutions remain the most outsourced ones
                                                                                                             among the Swedish companies.
Twenty-seven percent of the Swedish surveyed companies currently outsource their
software/web development nearshore (maximum 2 time zones away from home
country), 25% outsource offshore (at least 3 time zones away from home country), 20%
outsource within own country, 11% outsource offshore and within Sweden, 10%
outsource nearshore and within Sweden and 7% outsource both offshore and                                       More Survey Findings are Available in the Full Version
nearshore.                                                                                                                        of the Report
Seventy-nine percent of the surveyed companies outsource their software/web
development to a single IT services provider, while 21% distribute their development
among 2 and more providers. Sixty-five percent of respondents partner with small ITO
providers (less than 50 in headcount), 30% partner with mid-sized (50 to 499 in
headcount) and only 5% partner with large providers (500+ in headcount).

The following percentage of Swedish companies that do staff augmentation (i.e. 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: 12% - 1-3; 15% - 4-8; 31% - 9-10; 16% - 11-20; 10% -
21-30 and 16% - more than 30 team members.


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




                                      II.II. Trends Analysis                                        Most Swedish Companies Outsource Their Software/Web Development
                                                                                                    Function As a Whole!
Cost Reduction Remains the Major Driver of the Decision to Outsource!
                                                                                                    Figure 3. Volume of the outsourced software development.
Figure 1. Top Three Pressures that drive Swedish corporate decisions to outsource
software/web development.
                                                                                                              less than 10%       10%-39%        40%-59%        60%-89%       90%-100%

                                                                                                                                                  2%

                                                                                     29%                                             31%                 19%
                     reduce operating costs

                                                                                                                                                                 21%
                   speed up time to market                            18%
                                                                                                                                           27%

  difficulty finding IT resources in Sweden                          17%




In-House Assessment Come First!                                                                     The Biggest ITO Demand Comes From Web 2.0!

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


                                                                                                               Web 2.0                                                                    34%
   conduct in-house assessment of areas to                                             34%
               be outsourced                                                                             Enterprise 2.0                                                          29%

                         asked for references                                    29%                                                                             20%
                                                                                                                Mobile

                            hire a consultancy                        19%                              Embedded Dev.                             11%

                                                                                                            SaaS/Cloud                 6%




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




Low Costs and Available Talent Pool Are the Key Drivers of the Choice of                            Prior to looking for the ITO partnerships, most of Swedish companies (34%) do in-house
the Outsourcing Destination!                                                                        assessment of the software development areas to be outsourced, 29% ask others for
                                                                                                    references, 19% hire a consultancy to assist with their ITO decisions, 11% hire or
Figure 5. Key drivers of the choice of the Outsourcing destination.                                 promote a manager to lead the outsourcing process, only 7% seek domestic low-cost
                                                                                                    software development vendors to offload their software/web development function to.

                                                                                                    Seventy-four percent of the surveyed Swedish companies outsource their software/web
                                                                            21%                     development to a single ITO supplier of 1 to 200 or 500+ employees in size versus 26%
                  low costs
                                                                                                    of those who distribute their outsourced software development among two and/or
                                                                                                    more providers.
   available IT talent pool                                        17%
                                                                                                    The research presents the following findings with regards to the outsourcing destination
                                                                                                    and vendor selection criteria among the Swedish companies:
       positive references                                     15%
                                                                                                         1) To select an outsourcing destination, 21% of Swedish companies pay attention
                                                                                                          to low costs of software development and IT resources, 17% - available IT talent
                                                                                                          pool, 15% - positive references from the fellow companies/local business
An In-Depth Trends Analysis is Available in the Full Version of                                           community, 14% - geographical and cultural proximity and 9% - political and
                                                                                                          economic stability, 9% - strong R&D base and 15% - maturity of legal system and
                        the Report                                                                        Intellectual Property (IP) security.

                                II.III. Findings Discussion                                              2) To select an ITO supplier, 31% of Swedish companies consider low rates, 21% -
                                                                                                          positive references and supplier’s reputation, 20% - specific skills (most of which
The Swedish IT Sourcing Survey 2010 allows us to observe certain trends among the
                                                                                                          are hard to find within own country), 10% - successful pilot project completion and
companies that outsource their software/web development function to a 3d party
                                                                                                          sound experience in similar projects, 7% - innovative business models, and 6% -
either offshore or nearshore or within Sweden. Thus, cost reduction remains the key
                                                                                                          flexible contract terms. Such criteria as available level of quality certification (ISO,
factor driving most of Swedish companies to adopt the outsourced development. Thirty-
                                                                                                          CMMI etc) and supplier presence in home country are considered to be primary in
nine percent of companies admitted outsourcing their software development for the
                                                                                                          the choice of the ITO partner by 13% of Swedish companies.
purpose of cost reduction. Other most cited factors include: acceleration of time to
market (18%), difficulty finding necessary resources within Sweden (17%), freeing in-               Overall, the Swedish clients challenge their ITO partners to be able to provide
house resources for other business purposes (14%) and improvement of business                       transparent cost structures as well as a combination of speed, cost management and
development strategy (12%). Additionally, 31% of respondents expect to get a better                 growth supported by business agility and unprecedented technological innovation.
product quality from their outsourced development.
                                                                                                    Regarding current challenges facing the Swedish outsourcers, 31% pointed to delays in
                                                                                                    project delivery schedules / inability to meet the most crucial milestones; 19% - poor
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                                                               European IT Outsourcing Intelligence Report. Part 2: Trends & Challenges Among Swedish Outsourcing and Non-Outsourcing Companies




project management from the vendor’s side and 17% - hidden costs/overheads                          9% - 9-10 team members, 12% - 11-20 team members, 15% - 21-40 members and 9% -
associated with their outsourced development. Additionally, 12% of companies cited                  more than 60 IT specialists.
poor communication with the vendor’s project management/development teams, 12% -
the lack of appropriate resources from vendor’s side, 9% - time/cultural difference, 5%             We asked our survey participants whether they believe their software is being currently
pointed to excessive vendor's bureaucracy and/or organizational hierarchy and 5% -                  developed at the highest possible quality level or not. As a result, 51% believe so, 37% of
poor quality of the delivered product, insufficient IP security and vendor’s                        companies think there is room for improvement and 12% say it depends on the software
inability/unwillingness to understand their business needs.                                         project.

                                                                                                    Overall, 29% of the surveyed companies spend 20% to 49% of their corporate budgets
  More Thought-Provoking Findings are Discussed in the Full                                         on software/web development, 22% - 10%-19%, 17% - 5%-9%, 18% - 50%+ and 14% - 0-
                  Version of the Report                                                             4%.




 II.     Swedish Software Development Best Practices Survey
         2010                                                                                                                      III.I. Key Survey Findings
Of the 232 Swedish non-outsourcing companies who completed our Software                                  •   The majority of the Swedish non-outsourcing companies do not think their
Development Best Practices Survey, 44% are mid-sized (50 to 499 employees) small (less                       software/web is being developed at the highest possible quality level.
than 50 employees), 40% are small and 16% are large (500+ employees). Fifty-six                          •    Time it takes to complete a software development project, high cost of
percent of companies expect EUR 1M-49M in annual revenue in 2010; 28% - less than                            development and implementation and software bugs/errors fixing are the Top
EUR 1M, 7% - EUR 50-99M; 5% - EUR and 3% - EUR 500M and more.                                                Three obstacles to successful in-house development in Sweden.
                                                                                                         •   Most of the Swedish companies do not outsource, because they think that
Eleven percent of companies anticipate 0% or less in annual revenue growth; 34% - 1%-
                                                                                                             Outsourcing and vendor management will eventually cost them more money,
9% growth; 34% - 10%-19% growth; 15% - 20%-49% growth and 5% - 50%+ in annual
                                                                                                             efforts and other “headaches”.
revenue growth.
                                                                                                         •   Most of the surveyed Swedish companies will start considering outsourcing
Sixty-six percent of Swedish non-outsourcing companies develop, implement and                                their software/web development, if they can’t find required skills/resources
maintain their software through internal IT departments, 16% - through freelance                             within home country.
software/web developers, 13% - through local IT partners, and 5% purchase pre-built
customizable applications instead of developing their own ones.

Thirty-five percent of Swedish companies that develop software/web applications in-
house have 1 to 3 IT specialists on their internal IT teams, 21% - 4 to 8 team members,


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




                                   III.II. Trends Analysis
                                                                                                      Swedish Companies Do Not Outsource, Because They’re Afraid of
High Costs and Slow Time To Market Are the Hugest Barriers To                                         Hidden Costs!
Successful In-House Software Development!
                                                                                                      Figure 17. Top Three reasons keeping Swedish companies away from the outsourced
Figure 15. Top Three challenges of the in-house software development.                                 software development.




   high cost of development                                                            23%                   think that outsourcing will cost more                                            19%
                                                                                                                    money and 'headaches'

         slow time to market                                          22%
                                                                                                        want to have 100% managerial control of                                17%
                                                                                                                          IT
            bugs/errors fixing                         21%
                                                                                                                    are satisfied with in-house SD                      16%



Methodology Improvement Is The Solution!
                                                                                                       An In-Depth Trends Analysis is Available in the Full Version of
Figure 16. Top Three strategies that Swedish companies use to respond to challenges.
                                                                                                                               the Report
                                                                                                                                    III.III. Findings Discussion

              improve SD methodology                                             42%                  The Swedish In-House Software / Web Development Survey 2010 allows us to observe
                                                                                                      certain trends, challenges and problem solving strategies among the Swedish companies
                                                                                                      that develop their software solutions internally and stay away from ITO.
     encourage staff to work overtime                           20%
                                                                                                      Unlike their outsourcing fellow companies, the Swedish non-outsourcers do not view
                                                                                                      reduction of operating costs as the major driver of their possible future outsourcing
  implement distributed development                            18%                                    decision. Twenty-eight percent of the surveyed companies admitted the likelihood to
                                                                                                      outsource software/web development, if they can’t find appropriate IT
                                                                                                      resources/specific skills within Sweden; 22% of companies said they would outsource if
                                                                                                      they needed faster time to market via flexibility and scalability; 16% would outsource if
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                                                                European IT Outsourcing Intelligence Report. Part 2: Trends & Challenges Among Swedish Outsourcing and Non-Outsourcing Companies




they had to free in-house resources for more critical business needs; 13% would                                      III.     Conclusions and Recommendations
outsource to leverage operating costs, 10% would outsource if their revenues fall
dramatically and they need to cut costs; and 6% - if they decide to launch 24/7                      The Swedish IT Sourcing Research 2010 arrives at some important conclusions which
operations. Only 5% of Swedish said they would never ever outsource their software                   help better understand current trends, challenges and problem solving techniques
development function.                                                                                related to the outsourced software/web development. The key findings are that in 2010
                                                                                                     more small to mid-sized Swedish companies (including start-ups) start outsourcing their
Just like the Swedish outsourcers, the non-outsourcers express willingness and readiness
                                                                                                     software development function to a 3d party either within own country, or nearshore,
to outsource nearshore and/or within own country rather than offshore. Eighteen
                                                                                                     or offshore. Small companies prefer partnering with small ITO suppliers, while large
percent of Swedish companies pointed to low costs of development and maintenance,
                                                                                                     companies partner with one or several large ITO suppliers. Cost reduction remains the
18% - to available IT resource pool and 16% - legal system and Intellectual Property (IP)
                                                                                                     major factor driving Swedish companies to outsource their software development.
maturity as the major determinants of their future choice of the ITO destination.
                                                                                                     Other frequently cited factors are acceleration of time to market and a shortage of the
Additionally, 15% of companies mentioned geographical and cultural proximity; 14% -
                                                                                                     local IT resources and specific skills needed to create state-of-the-art applications and
political and economic stability; 13% - strong research and development base and 24% -
                                                                                                     drive the Swedish businesses to the higher levels of global maturity. Besides, the
all of the above among the major factors influencing their future choice of the
                                                                                                     Swedish clients are looking for innovation, sustainability and flexibility in their
outsourcing destination.
                                                                                                     outsourcing relationships.
Regarding the future choice of the ITO supplier, 18% of Swedish non-outsourcers
                                                                                                     Currently, Swedish companies outsource mostly nearshore, and the number of
pointed to vendor’s positive references and reputation, 12% - sound experience in the
                                                                                                     companies that transfer their software/web development offshore is significantly
similar projects, 12% - successful pilot project completion, 11% - innovative business
                                                                                                     shrinking in 2010, compared to the past years.
model; 10% - low service rates; 9% - level of quality certification (ISO, CMMI etc), 9% -
specific skills which are hard to find in Sweden, 8% - flexible contract terms and 11% - all         As seen from the survey of non-outsourcers, more Swedish companies who plan to
of the above as the key factors likely to impact their future choice of the ITO partner.             outsource their software/web development in the future, plan to locate their projects
                                                                                                     nearshore and/or nearshore and within Sweden. It supports the previous finding that
  More Thought-Provoking Findings are Discussed in the Full                                          Nearshoring would be the destination of the future IT Outsourcing for most of today’s
                  Version of the Report                                                              Swedish non-outsourcers.



                                                                                                      More Conclusions and Recommendations are Available in the
                                                                                                                      Full Version of the Report




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                                                                                                                                                                                                  10
                                                               European IT Outsourcing Intelligence Report. Part 2: Trends & Challenges Among Swedish Outsourcing and Non-Outsourcing Companies




                             About IT Sourcing Europe

IT Sourcing Europe Ltd is a UK-based research and consultancy company
specializing in nearshore IT/software development Outsourcing. Our services
include:

    •    Independent IT Outsourcing market research and analysis
    •    Independent surveys of Western European outsourcers and their
         ITO demand
    •    Independent surveys of Central and Eastern Europe's ITO services
         providers and their factual capability to deliver top quality
         products and services on time and on budget
    •    Consultancy and recommendations to companies planning to
         change their current outsourcing strategies
    •    Consultancy and recommendations to companies planning to
         outsource their IT function nearshore
    •    Custom market and competition research and surveys

                                    Our Contact Details:

                                  IT Sourcing Europe Ltd

                          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




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

				
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Description: This is a promo version of the Swedish IT Outsourcing and In-House Software Development Intelligence Report 2010, a comprehensive study of major trends and challenges among the IT outsourcing and non-outsourcing companies in Sweden