German IT Outsourcing and Software Development Intelligence Report 2010
This is a promo version of the German 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 Germany
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IT Sourcing European IT Outsourcing Europe Ltd Intelligence Report 2010. Part 2: trends and Nearshore IT Outsourcing challenges among Market Research & Consultancy german 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 German Outsourcing and Non-Outsourcing Companies Table of Contents I. Executive Summary p.3 II. German 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. German 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.9 IV. Conclusions and Recommendations p.9 Copyright IT Sourcing Europe Ltd. 2010. All Rights Reserved. 3 European IT Outsourcing Intelligence Report. Part 2: Trends & Challenges Among German Outsourcing and Non-Outsourcing Companies I. Executive Summary In summer 2010 IT Sourcing Europe initiated the German 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 German 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 Germany. As a result, 258 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 development with the best practices of the in-house development and access to skills and services that can generally improve their online presence and understand why some German companies refuse to outsource their software business performance. project(s) to a 3d party nearshore, offshore or within Germany, we have conducted another Survey of German non-outsourcing companies. As a result, However, engagement in ITO relationships has proven to be the most impactful 286 companies with no ITO experience completed the Survey and allowed us to and culture-changing experience that does not always result in success. For assess the key factors keeping German businesses away from the outsourced some companies the outsourced software development can be a ruining rather 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 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 European IT Outsourcing Intelligence Report. Part 2: Trends & Challenges Among German Outsourcing and Non-Outsourcing Companies II. German IT Sourcing Survey 2010 II.I. Key Survey Findings Of the 258 German companies who completed our online questionnaire, 51% are small • In Germany, companies that outsource their software/web (less than 50 employees), 36% are mid-sized (50 to 500 employees) and 13% are large in development nearshore outnumber those that transfer their software headcount (500+ employees). In 2010, 57% of the surveyed German companies expect development function offshore by almost twice. to gain EUR 1M to 49M in annual revenue; 12% expect to have revenue less than EUR • The Top Three reasons why German companies choose to outsource 1M and 31% of companies anticipate EUR 100M – 499M in annual revenue. their software/web development are: to reduce operating costs; to Regarding the revenue growth, 59% of companies expect 1% - 9% growth, 22% - 10%- accelerate time to market and difficulty finding necessary resources 19% growth and 19% - 50%+ revenue growth. within home country. • Enterprise 2.0 and Web 2.0 solutions remain the most outsourced ones Sixty-eight percent of the surveyed companies have more than 3 years of outsourced among the German companies. software development experience, 29% have 1 to 3 years of experience and 3% have less than 12 months of ITO experience. Thirty-seven percent of the German surveyed companies currently outsource their software/web development nearshore (maximum 2 time zones away from home country), 23% outsource offshore (at least 3 time zones away from home country), 17% More Findings Are Available in the Full Version of the Report outsource within own country, 10% outsource nearshore and within Germany, 8% outsource both nearshore and offshore and 5% outsource offshore and within Germany. More Information Is Available in the Full Version of the Report Copyright IT Sourcing Europe Ltd. 2010. All Rights Reserved. 5 European IT Outsourcing Intelligence Report. Part 2: Trends & Challenges Among German Outsourcing and Non-Outsourcing Companies II.II. Trends Analysis Most German Companies Outsource 60%-89% of Their Software/Web Development Function! Outsource! 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 German corporate decisions to outsource software/web development. less than 10% 10%-39% 40%-59% 60%-89% 90%-100% 7% 11% reduce operating costs 39% 21% 37% speed up time to market 23% 24% difficulty finding IT resources in Germany 20% rom The Biggest ITO Demand Comes From Enterprise 2.0! In-House Assessment Come First! Figure 4. Most outsourced areas of expertise in the German ITO. Figure 2. Actions that German companies take prior to signing an Outsourcing contract. Enterprise 2.0 32% conduct in-house assessment of areas to 33% Web 2.0 29% be outsourced hired/promoted a manager to lead ITO 24% Mobile 21% process Embedded Dev. 10% asked for references 22% SaaS/Cloud 8% Copyright IT Sourcing Europe Ltd. 2010. All Rights Reserved. 6 European IT Outsourcing Intelligence Report. Part 2: Trends & Challenges Among German Outsourcing and Non-Outsourcing Companies Low Costs and Available Talent Pool Are the Key Drivers of the Choice of II.III. Findings Discussion the Outsourcing Destination! The German IT Sourcing Survey 2010 allows us to observe certain trends among the Figure 5. Key drivers of the choice of the Outsourcing destination. companies that outsource their software/web development function to a 3d party Germany. either offshore or nearshore or within Germany Thus, cost reduction remains the key factor driving most of German companies to adopt the outsourced development. Other most cited factors include: acceleration of time to market, difficulty finding necessary 38% resources within Germany, pressure from investors / executive management t cut to low costs ces operating costs, freeing in-house resources for other business purposes and strategy. improvement of business development strategy available IT talent pool 26% ing Prior to looking for the ITO partnerships, most of German companies (33%) do in-house assessment of the software development areas to be outsourced, 24% hire or promote a positive references 18% manager to lead the outsourcing process, 22% ask others for references, 14% hire a low-cost consultancy to assist with the outsourcing process and only 7% seek domestic low their software development vendors to offload thei software/web development function to. two Eighty-two percent of the surveyed German companies outsource their software/web development to a single ITO supplier of 1 to 200 or 500+ employees in size versus 18% In-Depth Trends Analysis is Available in the Full Version of the Report of those who distribute their outsourced software development among two and/or more providers. The research presents the following findings with regards to the o g outsourcing destination and vendor selection criteria among the German companies: utsourcing 1) To select an outsourcing destination, 38% of German companies pay attention resources, to low costs of software development and IT resources 26% - available IT talent pool, 18% - positive references from the fellow companies/local business l community, 8% - geographical and cultural proximity and 10% - such as political and economical stability, maturity of legal system and Intellectual Property (IP) security and strong R&D base. 2) To select an ITO supplier, 22% of German companies consider positive , references and supplier’s reputation, 20% - specific skills (most of which are hard to find within own country), 19% - innovative business models, 16% - low service Copyright IT Sourcing Europe Ltd. 2010. All Rights Reserved. 7 European IT Outsourcing Intelligence Report. Part 2: Trends & Challenges Among German Outsourcing and Non-Outsourcing Companies rates, 13% - successful pilot project completion and sound experience in similar III. German Software Development Best Practices Survey projects and 7% - flexible contract terms. The focus on the innovative business models demonstrates the willingness of the German companies to get more 2010 flexibility, sustainability and managerial control through their ITO engagement. Of the 286 German non-outsourcing companies who completed our Software Such criteria as available level of quality certification (ISO, CMMI etc) and supplier Development Best Practices Survey, 42% are small (less than 50 employees), 37% are presence in home country are considered to be primary in the choice of the ITO mid-sized (50 to 499 employees) and 21% are large (500+ employees). Forty-four partner by only 3% of German companies. percent of companies expect EUR 1M-49M and 19% expect less than EUR 1M in annual revenues in 2010. Only 11% of German companies expect more than EUR 500M in More Findings Are Discussed in the Full Version of the Report annual revenue. Forty-seven percent of companies anticipate 10%-19%, 40% - 1%-9% and 9% – 20%-49% revenue growth for 2010. Only 4% of German non-outsourcers expect annual revenue of 0% or less in 2010. Sixty-three percent of German non-outsourcing companies develop, implement and maintain their software through internal IT departments, 15% - through freelance software/web developers, 13% - through local IT partners, and 7% purchase pre-built customizable applications instead of developing their own ones. More Information Is Available in the Full Version of the Report III.I. Key Survey Findings • The majority of the German non-outsourcing companies do not think their software/web is being developed at the highest possible quality level. • Time it takes to complete a software development project, high cost of development and implementation and software bugs/errors fixing are the Top Three obstacles to successful in-house development in Germany. More Findings Are Available in the Full Version of the Report Copyright IT Sourcing Europe Ltd. 2010. All Rights Reserved. 8 European IT Outsourcing Intelligence Report. Part 2: Trends & Challenges Among German Outsourcing and Non-Outsourcing Companies III.II. Trends Analysis German Companies Do Not Outsource, Because They Want To Have 100% Managerial Control of Their IT! Barriers Slow Time To Market and High Costs Are the Hugest Barrier To Successful In-House Software Development! Figure 17. Top Three reasons keeping German companies away from the outsourced software development. house Figure 15. Top Three challenges of the in-house software development. want to have 100% managerial control of 31% slow time to market 31% IT high cost of development 30% think that outsourcing will cost more 22% money and 'headaches' bugs/errors fixing 15% are satisfied with in-house SD house 17% Methodology Improvement Is The Solution! challenges. Figure 16. Top Three strategies that German companies use to respond to challenges improve SD methodology 33% In-Depth Trends Analysis is Available in the Full Version of the Report encourage staff to work overtime 29% implement distributed development 19% Copyright IT Sourcing Europe Ltd. 2010. All Rights Reserved. 9 European IT Outsourcing Intelligence Report. Part 2: Trends & Challenges Among German Outsourcing and Non-Outsourcing Companies III.III. Findings Discussion According to our Research, the major challenges of the successful in-house software development among the German companies are: slow time to market (31% of The German In-House Software / Web Development Survey 2010 allows us to observe respondents), high costs of software development, implementation and maintenance certain trends, challenges and problem solving strategies among the German companies (30%), bug/error fixing (15%), scarce local IT resources (14%), staff turnover (5%) and that develop their software solutions internally and stay away from ITO. extra costs associated with the software maintenance (5%). Unlike their outsourcing fellow companies, the German non-outsourcers do not view To respond to these and other challenges, 33% of German non-outsourcers try to reduction of operating costs as the major driver of their possible future outsourcing improve their software development methodology, 29% encourage staff to work decision. Twenty-nine percent of the surveyed companies admitted the likelihood to overtime, 19% implement distributed development (e.g., in-house IT department + outsource software/web development, if they can’t find appropriate IT freelancers etc), 12% hire foreign IT specialists to complete internal IT projects, 5% resources/specific skills within Germany; 18% of companies said they would outsource if launch/improve their corporate training function and 2% of companies outbid they needed faster time to market via flexibility and scalability; 15% would outsource if competitors’ staff. they had to free in-house resources for more critical business needs; 14% would outsource to leverage operating costs, 11% would outsource if their revenues fall dramatically and they need to cut costs; and 10% - if they decide to launch 24/7 operations. Only 3% of German said they would never ever outsource their software More Findings Are Discussed in the Full Version of the Report development function. Just like the German outsourcers, the non-outsourcers express willingness and readiness to outsource nearshore and/or within own country rather than offshore. Thirty percent IV. Conclusions and Recommendations of German companies pointed to available IT resource pool as the major determinant of The German IT Sourcing Research 2010 arrives at some important conclusions which their choice of the ITO destination; 27% pointed to low costs of development and help better understand current trends, challenges and problem solving techniques maintenance and 21% - to geographical and/or cultural proximity. Additionally, 9% related to the outsourced software/web development. The key findings are that in 2010 mentioned legal and Intellectual Property protection maturity, 8% - political and more small to mid-sized German companies (including start-ups) start outsourcing their economical stability and 5% - strong research and development base as the key factor software development function to a 3d party either within own country, or nearshore, likely to impact their future choice of the ITO destination. or offshore. Small companies prefer partnering with small ITO suppliers, while large Regarding the possible future choice of the ITO supplier, 35% of German non- companies partner with one or several large ITO suppliers. Unlike other European outsourcers pointed to vendor’s positive references and reputation, 26% - specific skills countries, in Germany cost reduction is not the major factor driving companies to which are hard to find within homeland, 19% - innovative business model, 12% - low outsource their software development. The major factor is shortage of the local IT service prices, 4% - sound experience in the similar projects, 3% - level of quality resources and specific skills needed to create state-of-the-art applications and drive the certification (ISO, CMMI etc) and 1% - flexible contract terms as the key factor likely to German businesses to the higher levels of global maturity. Besides, the German clients impact their future choice of the ITO partner. are looking for innovation, faster time to market and flexibility in their outsourcing relationships. Copyright IT Sourcing Europe Ltd. 2010. All Rights Reserved. 10 European IT Outsourcing Intelligence Report. Part 2: Trends & Challenges Among German Outsourcing and Non-Outsourcing Companies Currently, German companies outsource mostly nearshore, and the number of About IT Sourcing Europe companies that transfer their software/web development offshore is significantly shrinking in 2010, compared to the past years. IT Sourcing Europe Ltd is a UK-based research and consultancy company specializing in nearshore IT/software development Outsourcing. Our services include: More Conclusions and Recommendations Are Available in the Full Version of the Report • 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: firstname.lastname@example.org Tel.: +44(0)2476992505 Web: www.itsourcing-europe.com Copyright IT Sourcing Europe Ltd. 2010. All Rights Reserved.