Large corporate companies in North America have continued to spend a considerable sum of money on outsourcing their IT functions, but demand for application development services is declining, according to the annual survey by IT research firm Computer Economics.
Large organizations with IT budgets of $20 million or greater are spending 7.8 percent of their IT budgets on outsourcing, the study showed. The research firm surveyed 132 IT organizations in the U.S. and Canada for the report.
The report found that companies are increasingly feeling certain that they can reduce costs considerably by outsourcing disaster recovery and application hosting. To improve operational performance, they choose to outsource web/e-commerce operations and IT security, the study found.
In the survey, many organizations said they want to increase the amount of work they outsource. “Outsourcing enables an organization to augment in-house capabilities without making long-term commitments or large capital investments,” SC Magazine noted in an article on the report.
This means that despite the advent of new technologies such as cloud and automation, outsourcers are less likely to see demand decrease for their service, which in the past decade has helped a number of US corporations reduce cost and improve operational flexibility.
But there are areas of concern. Although there is an increase in outsourcing application hosting services, fewer organizations are outsourcing help desk, desktop support, and application maintenance functions. In addition, demand for data centers and database administration services is decreasing.
Thanks to increasing adoption of cloud, demand for application development is also declining steadily. The application development service seems to have been hit hard as more companies are ditching their own data centers for cloud storage and replacing custom-made software with off-the-shelf cloud versions.
According to IT World Canada, customers just aren’t that happy with the service from application outsourcing providers. A third of those who outsource application development found the service worse than doing it in-house.
In its latest report, released last week, Everest Group reported that in 2014 the number of new, large application outsourcing (AO) deals in capital markets dropped 58 percent, while the average total contract value (TCV) dropped 28 percent.