The Development of It Functions Outsourcing

Once became popular, IT outsourcing remains a solid economic player with the huge amount of revenue generated. Statista research highlights that information technology outsourcing generated $52. 6 bln in 2016. While trend displayed a stable revenue increase till 2012, encountering for $62. 6 bln, the expiration of huge contracts signed previously and their termination primarily due to quality concerns (Deloitte, 2012) resulted into a drastic decrease in 2013 ($55. 2 bln).

In a year numbers went in a different direction ($76. 1 bln), however, concerns of businesses towards outsourcing, as well as regulatory and legislative changes imposed on outsourcing (Deloitte, 2014) shifted the trend downwards again. Disregarding previous fluctuations in the amount of revenue generated by the sector, the year of 2017 reveals the increased enthusiasm in IT functions outsourcing.

As for software applications development outsourcing (which is the biggest revenue-generating subdomain), for example, the increase in the number of respondents, who decided to transfer this activity to third-party vendors, is 12%, shifting from 52% in 2016 to 64% in 2017 (Statista, 2017). Overall delta for the equal periods in 2016 and 2017 now remains +13%, forecasting positive move in revenue generated. Apart from the absence of the stable trend in terms of revenue generated, outsourcers’ rationale is also transforming. Before 2013, cost reduction was the primary motivation factor for the vast majority of Deloitte respondents, encountering for 62%, who considered this factor ‘very important’ and additional 25% claimed that this motivation is ‘important’ (Deloitte, 2012). Nevertheless, poor quality of solutions provided, as well as overall dissatisfaction with the outcomes, resulted into extensive number of contracts terminated and activities moved in house. For 2016, situation has changed dramatically. Although cost reduction remains the critical motivator for companies, which decide to move towards outsourcing (overall 59% consider this motivator either ‘very important’ or ‘important’), non-financial factors have begun to gain popularity.

For example, 31% of respondents started to believe that outsourcing is aimed at increasing service quality, 28% found crucial to receive access to intellectual capital and exclusive expertise, and 17% even claimed that outsourcing drives transformational change for an organization (Deloitte, 2016). 35% of customers seek innovation from transferring the work to another company, declaring a highly positive attitude towards development activities outsourcing. Still, the extensive list of issues is being reported by the outsourcers. And here paradigm shift can also be detected. Whereas in the 2012’s research, 81% of dissatisfied respondents declared project management-related failures (52% were dissatisfied with scope/effort underestimations and 29% blamed vendors about schedule failures, which had a lot to do with both inability to deliver products/services on time and slow reaction on customers’ requests) (Deloitte, 2012), situation in 2016 showed different attitudes. 46% of dissatisfied buyers claim that vendors lack proactive approach and only address issues reactively, 33% are unhappy with the rate of innovation (as the expectations in this regard are getting higher) and 25% tackle deficiency of leading practices (Deloitte, 2016). Quality issue remained solid in the list of outsourcing drawbacks, encompassing 20% of overall claims reported (Deloitte 2012, 2016).

The development trend of IT outsourcing can be characterized as positive. However, to ensure that it remains as such, vendors shall acknowledge the strategic component of getting more value when it comes to transferring activities to the third-party. As highlighted by the above-mentioned statistics, buyers are seeking more innovation, independence and creativity from their counterparts, as well as set higher standards for vendors, paying less attention to cost-cutting component comparing against fulfilling strategic objectives. Having that in mind, project managers shall seek best practices in achieving the above-mentioned goals and addressing customers’ issues and incorporate the knowledge received in project methodologies and frameworks used. The whole range of practices and skills is affected and shall be strengthened so as to address the requests of the market. In order to successfully attain customers’ demands, project managers shall understand the peculiarities and trends in software outsourcing, evaluate the existing stack of capabilities and technologies and integrate best practices into their daily work to make sure that customer satisfaction monitoring goes beyond managing scope, time and budget.

In the scope of this research, the list of factors to be analyzed further is triggered by outsourcers’ motivations and issues addressed and includes the following items:

1. Increase the quality of products and services
2. Drive organizational change
3. Incorporate innovation and continuous products and services improvemen
4. Accelerate proactive attitude towards issues addressing
5. Execute projects’ scope on time and within budget.