swiss it outsourcing intelligence report 2011

IT Sourcing Europe

Nearshore IT Outsourcing

Market Research & Consultancy

May 2011

European IT Outsourcing

Intelligence Report 2011:

Switzerland

2| C o p y r i g h t I T S o u r c i n g E u r o p e 2 0 1 1 | A l l R i g h t s R e s e r v e d

European IT Outsourcing Intelligence Report 2011: Switzerland

Contents

Executive Summary .......................................................................................... 2

Survey Overview ............................................................................................... 3

Respondents’ Profile ........................................................................................ 5

Outsourcing Behaviors ................................................................................... 11

Outsourcing Drivers & Factors ....................................................................... 14

Outsourcing Challenges & Solutions .............................................................. 17

Client – Vendor Relationships ........................................................................ 19

Outsourcing Costs ........................................................................................... 22

SD/ITO Impressions ........................................................................................ 23

Future Outsourcing Plans ............................................................................... 24

In-House Software Development Trends & Challenges ................................. 25

Key Findings’ Highlights .................................................................................. 33

Conclusions ..................................................................................................... 36

Executive Summary

This Intelligence Report is based on the survey of the 603 Swiss companies

that either outsource their Software Development (SD) / Information

Technology (IT) function(s) to an external service provider onshore (within

Switzerland), nearshore (within/close to the same time zone) and/or offshore

(more than 2 time zones away), or develop their software/IT solutions in-

house.

The Report aims to help the Swiss outsourcing companies:

Get an in-depth understanding of the current Swiss IT Outsourcing (ITO)

demands and trends

See what challenges are facing their market peers and how they

respond to them

Revise / improve their current ITO engagements / business models

based on the industry best practices

The Report aims to help the Swiss non-outsourcing companies:

Better understand modern SD/IT costs optimization and/or reduction

strategies

See what challenges are facing the in-house software development and

how their market peers / competitors respond to them

Evaluate own readiness to adopt the outsourced / distributed

development

Find out what their market peers think about SD/ITO and how they are /

will be preparing for adoption of the outsourced development in the

future

European IT Outsourcing Intelligence Report 2011: The SWISS

3 | C o p y r i g h t I T S o u r c i n g E u r o p e 2 0 1 1 | A l l R i g h t s R e s e r v e d


Survey Overview

The Swiss ITO and In-House Software Development survey was conducted

between March 14 and April 29, 2011, in the frames of the All-European ITO

research.

Survey goals:

Explore factors that drive the Swiss companies to outsource their SD/IT

functions in 2011

Explore challenges associated with offshore/nearshore outsourcing

and the most effective problem solving techniques

Explore the use of different business models in ITO engagements and

find out which model works best for what type of companies and

industries

Explore factors that keep the Swiss companies away from

outsourcing their SD/IT function(s)

Compare and contrast the 2011 and future ITO demands in

Switzerland

The survey was available online and hosted by SurveyMonkey, the world’s

leading provider of web-based survey solutions. In order to reach as many

Swiss companies as possible, IT Sourcing Europe used its own database of

business contacts and sent out a survey invitation email to each company’s

decision maker(s) (C-level executives, IT Managers, Directors, Heads of

Software Development etc).

Additionally, inbound marketing initiatives were launched in order to attract

more companies to participate in the survey. In the frames of this initiative,

the following steps were taken:

Online press releases and survey announcements distribution;

Survey localization and optimization in social media such as LinkedIn,

XING, Facebook, Mobile Monday London, blogs ( Twitter, Word

Press, IT Sourcing Europe’s Blog), event management systems

(Amiando), and B2B web portals (Europages, Hoovers)

All data obtained were analyzed in the form of the industry aggregates. The

answers to the open-ended questions were organized by their relativity to

the study goals and displayed as the option “all other responses” in charts

and graphs further in the Report.

Outsourcing Activity & Categories Surveyed:

The following ‘outsourcing activity’ is referred to in the 2011 Swiss ITO

Report:

Software Development / Information Technology Outsourcing (SD/ITO) is

the process of transferring part of/entire software development function

and/or other Internet related work to the execution by the external IT

services provider(s)

The following categories fall under this activity:

Application (app) development and maintenance;

Website / ecommerce systems;

Data warehousing;

IT security;

Data / voice network operations;

Remote IT infrastructure management

These categories further fall under the five key areas of expertise:

http://www.surveymonkey.net




These categories further fall under the five key areas of expertise:

Web (Web 2.0, .NET, Java, PHP, open source etc);

Enterprise 2.0 (J2EE, J2SE, C#, MySQL etc);

Mobile development (J2ME etc);

Embedded development;

Software as a service (SaaS) and Cloud Computing

Key Takeaways From The Survey:

In Switzerland, most of outsourcing companies are small by

headcount (less than 50)

The greatest demand for the outsourcing services comes from

IT/software development sector, followed by professional and

financial services sectors

The majority of non-outsourcing companies anticipate 1% to

9% revenue growth in 2011, while most of outsourcing

companies expect to increase their annual revenue by 10% to

19%

Most of the Swiss companies have been outsourcing their SD/IT

for more than 37 months now

Small- and large-value projects are outsourced in equal

proportions in Switzerland

A Fixed-Price Project model remains the most popular

outsourcing model in Switzerland

Nearshore is the most preferred outsourcing destination in

Switzerland

Web is the most outsourced area of expertise in Switzerland,

followed by Enterprise development

Top Three Drivers of ITO decisions in Switzerland are: reduction

of operating costs, shortage of domestic IT skills and resources

and focus on core competence

Top Three Challenges facing Swiss outsourcers are: change

management, cultural difference and poor communication with

vendor’s project management




Respondents’ Profile

Primary Industry

All Other Responses include:

hospitality, tourism, and

mobile computing




Company Size (Headcount)

Do Companies Outsource Any Element of Their IT / SD

Function?




Size of Outsourcing Companies (Headcount)




Ratio of Outsourcing Companies per

Industry



Revenue Growth Expectations in 2011: Non-Outsourcers vs. Outsourcers

Non-Outsourcers

Outsourcers




Outsourcing Behaviors

Overall Outsourcing Experience Size of Project Team(s) on Vendor’s Side




Value of the Outsourced Project(s) (In €) Outsourced Areas of Expertise




Business Models Used To Partner With ITO Provider(s) Do Companies Multisource?




Current Outsourcing Destinations

Outsourcing Drivers & Factors

Drivers of Decisions to Outsource IT/SD




Factors’ Rating in Terms of Their

Importance in the Choice of the

Outsourcing Destination




Factors’ Rating in Terms of Their

Importance in the Choice of the

Outsourcing Partner




Outsourcing Challenges & Solutions

Main Challenges of the Outsourced Software

Development




How Companies Respond to their

Challenges




Client – Vendor Relationships

How Companies Found their ITO

Partners




Size of the ITO Partner* Who Selects IT Specialists to Be Involved in the Project?

*Companies with more than 1 partner referred to their major one




Do Companies Know Exact Salaries of Their Project Team

Members on the Vendor’s Side?

Levels of Satisfaction with ITO Services Provided




Outsourcing Costs

How Actual Annual Incurred Costs of SD/ITO Compare to the

Expected (Contracted) Costs

Actual Savings from the Outsourced SD/IT

European IT Outsourcing Intelligence Report 2011: The UK



Impressions of Outsourcing

outsourcing our software development has been the right

decision

outsourcing saves operating costs, but inevitably increases

management costs

costs are higher than expected

overall, provider’s work is of higher quality compared to in-house

capabilities

it is important to have the supplier's team working within or close

to the same time zone

providers have more disciplined methodologies, which can lower

costs further in a longer-term perspective

it is critical to have backup providers available in case the primary

provider is unable to meet deadlines and/or commitments

providers are unreliable and not focused on mid- and long-term

cooperation

overall, provider’s work is of lower quality compared to in-house

capabilities

Our IP is at risk

we are very dissatisfied with the decision to outsource our

software development




Future Outsourcing Plans

Do Companies Plan to Continue Outsourcing in the Future?

Future Outsourcing Destination




In-House Software Development Trends & Challenges

How Swiss Companies Develop / Manage Their Software

Part of Corporate Budget that the SWISS Companies Spend On

IT/SD




Level of Satisfaction with the In-House Development / IT Key Challenges of the In-House Software Development




How Companies Respond

to their Challenges




Factors Keeping the SWISS Companies Away From SD/ITO

we want to have 100% managerial control of our software

project(s)

we are too small and immature to outsource

we're afraid that outsourcing will eventually cost us more

money and ‘headaches’ than in-house development

we think that the outsourced development will result in poorer

software product quality

we do not want to create any shared environments

we're totally satisfied with our in-house development results

we don't want to put our intellectual property at risk

we don't get any pressure to cut costs from

customers/investors/executive management

we had some negative experience with the outsourced

development in the past




Circumstances in Which Companies

Would Consider Outsourcing Their

SD/IT in the Future




Where Companies Will Outsource If

They Make Such a Decision in the

Future




How Companies Will Rate Destination

Selection Criteria If They Decide to

Outsource in The Future




How Companies Will Rate Provider

Selection Criteria If They Decide to

Outsource in The Future




Key Findings’ Highlights

The 2011 Swiss IT Outsourcing and In-House Software Development Survey

allows better understanding of the general profile and demographics of the

outsourcing companies in Switzerland. According to the survey findings, 51%

of the outsourcing companies are less than 50 in headcount, 19% - 50-199,

almost 10% are mid-sized (200 to 999) and 19.5% are large (more than 1000

in headcount).

The vast majority of the Swiss outsourcers come from IT/SD sectors (almost

45%), followed by providers of professional services such as accounting,

consulting, legal etc (16%) and financial services (almost 14%).

More outsourcing companies expect their annual revenue to increase by 10%

- 19% in 2011, compared to the companies developing their solutions in-

house - 42% vs. 22.5%. Additionally, more outsourcers expect 20%-49%

revenue growth in 2011, compared to the in-house developers – 9% vs. 8%,

fewer outsourcers expect 0% or less in annual revenue growth– 4% vs. 10.5%

and the equal number of companies anticipate to increase their revenue by

50% and more – 8% in each segment.

Regarding the value of the outsourced projects, the following trends are

observed in 2011, compared to 2010: the number of the €0-49K projects

dropped by 12.6%, the number of the €50-199K projects dropped by 21.4%,

the number of the €200-499K projects dropped by 10.9% and the number of

the €500K+ projects increased by 19.6%. This finding proves 2011 to be the

year of both small and large ITO contracts.

In 2011, three most popular engagement models that the Swiss outsourcers

use to partner with their ITO providers are: a project –based model (fixed

price, time & material) – 48% of respondents, nearshore/offshore

development center - 40% of companies and Own/Dedicated/Managed

Team Model – 24% of all companies surveyed.

In 2011, the vast majority of companies in Switzerland outsource their

projects to a single external services provider – 51.6%, which is down 20.4%

from 2010, while almost 48.4% of companies multisource (i.e. distribute the

outsourced operations among 2 and/or more providers, usually the

geographically dispersed ones), which is up 20.4% from 2010. This finding

marks the evolving trend for multisourcing on the Swiss ITO market. This can

be explained by the Swiss companies’ urge to secure their outsourced

operations and have backup providers available in case the primary one fails

to deliver properly, on time and on budget. On the other hand, 50% of the

Swiss outsourcers partner with ITO providers who are less than 50 people in

size and are, therefore, unable to have sufficient expertise in several areas at

the same time. This leads outsourcers to distribute projects among several

providers based on their available Center(s) of Excellence (e.g., the entire

product development function is transferred to provider X, while QA and

testing or customization is transferred to provider Y. Such dissemination also

allows an additional external audit of the product(s) developed by provider

X). It is expected that in the years to come the number of multisourcers will

significantly exceed the number of singlesourcers both on the Swiss and

global outsourcing markets.




In 2011, web projects remain the most outsourced area of expertise (by 78%

of companies, which is up 52% from 2010). Enterprise development is

outsourced by 29.6% of all outsourcers, which is up 4.6% from 2010. Mobile

and embedded development projects are transferred by 18.5% each (down

0.5% and up 1.5% from 2010), while SaaS and Cloud remain the least

outsourced areas (by 11.1% of companies, which is down 1.9% from 2010).

In 2011, the outsourcing destinations of the Swiss companies have changed,

compared to 2010: 51.4% of companies outsource nearshore (up 10% from

2010), 20% - onshore, i.e. within Switzerland (up 9% from 2010), 17.1% -

nearshore and within Switzerland (up 7.1% from 2010), 11.4% - offshore

(down 10.6% from 2010), another 11.4% - both nearshore and offshore (up

2.4% from 2010), 8.7% - both offshore and within Switzerland (up 1.7% from

2010) and 5.7% of the survey respondents outsource nearshore, offshore and

onshore (up 1.2% from 2010).

In 2011, 63.3% of the Swiss companies outsource to reduce operating costs

(up 31.6% from 2010), 43.3% - to focus on their core competences (up 26.1%

from 2010), and another 43.3% - to find appropriate IT skills and resources

outside Switzerland where the qualified resources and specific skills are in a

very short supply (up 16.3% from 2010). The two other huge drivers of ITO

decisions in Switzerland are necessity to free in-house resources for other

business purposes (mentioned by 36.7% of respondents) and necessity to

accelerate time-to-market (mentioned by 30% of respondents).

In 2011, the Swiss companies consider the following three factors as the

most important ones when choosing their outsourcing geographies: available

IT talent pool (81% of respondents), appropriate English and German

language skills (65.5%) and cultural proximity (48.3%).

Regarding the highest rated criteria of the outsourcing partner selection in

2011, 65.5% of companies mention successful test/pilot project completion;

59.8% of companies consider innovative and flexible business / service

delivery models offered by vendor(s); and 58.6% consider vendor’s

experience in the similar projects.

This finding mirrors well the current situation on the global ITO market.

Traditional outsourcing models such as fixed price projects, Build-Operate-

Transfer (BOT) or Dedicated Development Center (DDC) prove to be unable

to meet today’s market demands for agility, scalability, speed of marketing

time and predictable ITO costs. Therefore, more Swiss companies begin to

realize the importance of having as much managerial control of their

outsourced projects and resources as possible and use outsourcing as a long-

term strategy to improve software/IT products’ quality and respond

proactively to pressing customers and rapidly changing market demands

rather than just a short-term tactic to reduce costs. Thus, they tend to

partner with those ITO service providers who are able to offer engagement

via innovative business models such as Client Own/Dedicated Team, Virtual

Operating Subsidiary, SCRUM Team and other likewise models allowing

transparent pricing and no hidden agenda, access to the resources and skills

that is not limited to a single geography, extensive knowledge sharing

beyond Service Level Agreements (SLAs) and easy / flexible contract exit

terms.

In 2011, the top three challenges of the outsourced SD/IT in Switzerland are:

change management (44%), cultural difference (40%) and poor

communication with vendor’s project teams/management (36%). In contrast,

the top three challenges in 2010 were: delayed delivery of / missed project

milestones, poor project management on vendor’s side and hidden agenda

(when the actual incurred costs of ITO exceed the contracted ones).




To respond to their most critical challenges, 62% of Swiss outsources tend to

increase face-to-face communication with their vendor’s project managers

and execution teams (up 36% from 2010), 41.4% of companies dedicate

more managerial resources (up 20.4% from 2010) and 24.1% revise and

update their vendor management processes (up 13.1% from 2010). Only 10%

of companies choose to back-source (i.e. bring operations back in-house),

which is up 5% from 2010.

Regarding the actual annual incurred costs of ITO, 65.4% of companies say

they match the contracted costs (up 47.4% from 2010), 23.1% say they are

up to 25% higher than expected (up 1.9 from 2010), 11.5% say they are 25%-

49% higher than expected (down 12.5% from 2010) and 3.8% point out that

their actual ITO costs are up to 25% lower than expected (down 7.2% from

2010).

Regarding the actual savings from the outsourced SD/IT in 2011, 37% of the

survey respondents admit saving less than 10% of their operating costs (up

27% from 2010), 22.2% save 10% to 24% (down 12.8% from 2010) and

another 22.2% save 40%-59% (up 1.2% from 2010). In addition, 7.4% of

companies report saving 25% to 39% of operating costs (down 12.6% from

2010) and 11.1% of companies save 60% and more, which is down 2.9% from

2010.

The fact that the vast majority of the Swiss outsourcers actually save less

than 10% of costs with help of outsourcing can be attributed to the fact that

50% of Swiss outsourcers partner with very small ITO service providers who,

unlike their mid-sized and large peers, do not have an appropriate access to

the qualified IT workforce, do not invest enough in the training and

professional advancement of their employees and do not have any best

practice in effective staff retention. Also, since only very few small ITO

providers are able to afford to pay competitive salaries (in terms of their

home countries’ market rates) to their employees, the risk is high that the

clients get insufficient and unqualified personnel involved in their outsourced

projects. In addition, many small nearshore ITO vendors practice outsourcing

some of their clients’ tasks to even lower-cost offshore destinations due to

the lack of domestic resources they have access to / financial inability to

outbid competitors’ staff / win the local headhunting. The mix of such

circumstances inevitably leads to the situations when the ITO buyers are

overcharged in order to cover new hires / employee replacement in case of

vendor’s staff turnover, “secret” re-outsourcing / outtasking practices as well

as fixing product’s bugs and errors at the post-release stages due to vendor’s

unqualified resources. These obstacles typically prevent most of the Swiss

outsourcers to save more from their ITO engagements.

In spite of the insignificant cost arbitrage achieved via the outsourced SD/IT

and insufficient vendor management processes, the grand majority of the

Swiss outsourcers – 48.1% - believe that outsourcing their IT/SD function(s)

has been the right decision. In contrast, only 3.7% of companies regret

having made a decision to transfer their IT/SD to the external services

provider(s).




Conclusions

The 2011 Swiss IT Outsourcing and In-House Software Development survey

demonstrates insignificant changes in the ways companies behave with

regards to the adoption / management of their outsourced development / IT

function(s). Overall, in 2011 outsourcing is reinforcing its position as a

commodity practice it has gained over the past [post-crisis] years, and the

majority of the Swiss companies continue to use it as a way to reduce

operating costs / lower down IT/SD budgets and get access to the lower cost

and better qualified IT resources outside Switzerland.

The positive trends of the Swiss ITO market observed in the course of the

research are as follows:

• The outsourced development / IT function(s) obviously help Swiss

companies increase their annual revenue by allowing acceleration of

the time-to-market and spending more on customer service

improvement and overall company growth

• Many Swiss organisations aim to use outsourcing as a strategic cost

saving and knowledge enhancement tool rather than a short-term

tactic to lower down IT/SD budgets and respond to pressing

customers

• Compared to 2010, in 2011 more Swiss outsourcers realize the

importance of securing their outsourced operations and, therefore,

distribute development among two and more external service

providers (usually the geographically dispersed ones) to reduce the

risk of project failures

• In 2011, a significantly bigger number of Swiss companies take part in

/ fully manage the hiring of IT specialists to be involved in the

execution of their outsourced project(s), which generally hallmarks

their urge to retain as much control of the outsourced project(s) as

possible.

• In general, Swiss outsourcers demonstrate rather high levels of

satisfaction with their outsourcing partners and think that

outsourcing their functions has been the right decision. As a result,

the vast majority of companies plan to continue outsourcing their

IT/SD in the next 12 months.

The negative trends of the Swiss ITO market observed in the course of the

research are as follows:

• The prevailing majority of Swiss outsourcers manage to save less

than 10% of operating costs through the outsourced development.

This can be explained by the fact that most of Swiss companies

engage with their external service providers via traditional models

such as project-based outsourcing and dedicated development

centers that do not allow significant cost savings due to hidden

agendas and high level of bureaucracy. Therefore, it is possible to

resume that many Swiss outsourcers are still missing sufficient

knowledge about the innovative business models such as Own Team

model and other likewise ones allowing elimination of overheads and

transparent pricing structures.

• Companies’ management and staff inability to properly interact with

their outsourcing vendors is the Number One challenge facing most

of the outsourcing relationships. It means that many Swiss

companies still do not plan their outsourcing strategies effectively

and need to bring in outside assistance to help redesign corporate

processes prior to outsourcing.




• Outsourcing is still underused by the Swiss innovative lucrative

niches such as digital media, gaming / iGambling and mobile

computing which are dominated by high-tech startups who believe

they are yet too small and immature to outsource. It proves once

again that the Swiss companies do not have enough knowledge on

the newest outsourcing engagement models that work perfectly well

with their segments.

Shortage of domestic IT resources is the second most frequently cited driver

of corporate decisions to outsource IT/SD in Switzerland. Fifty percent of

today’s non-outsourcers report the high likelihood of transferring IT /

development to external services providers if they are not able to find

appropriate resources within Switzerland in the near future. Based on these

findings, it is possible to assume that outsourcing will be playing a greater

role in the Swiss companies’ strategic business planning in the following years

and outsourcing services providers will be forced to redesign their processes

and delivery models as well as pricing structures to be able to satisfy the ever

growing demands of both well-established and mature and innovative start-

up organizations for the outsourced project control retention, cost

effectiveness, agility, speed, knowledge sharing, innovation and overall

sustainability.

European IT Outsourcing Intelligence Report 2011: The UK



About IT Sourcing Europe

IT Sourcing Europe is a UK company specialized in nearshore IT Outsourcing consultancy, market research and analysis.

IT Sourcing Europe provides:

• Top quality quantitative and qualitative ITO market research and fieldwork services

• Evaluation of Central and Eastern Europe's ITO services providers and their factual capabilities to deliver innovative technological solutions on time and on

budget

• Free consulting services for European companies planning to outsource IT / software development functions and / or change their current ITO strategy /

engagement

• Ad-Hoc ITO strategy development and full-cycle support

Our Contacts:

The Meridian, 4 Copthall House, Station Square

Coventry, West Midlands,

CV1 2FL United Kingdom

Email: info(at)itsourcing-europe.com

Tel.: +44(0)2476992505

Web: www.itsourcing-europe.com

Blog: http://itsourcingeurope.wordpress.com

Follow our tweets @ITSourcingEurop

Registration at the UK Companies House: 07217899

You are free to use, share and/or remix any part of this work as long as you attribute it to IT Sourcing Europe.

http://www.itsourcing-europe.com

http://www.itsourcing-europe.com

http://itsourcingeurope.wordpress.com/

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