IT sourcing: in or out?

Scott Stewart

Scott is an experienced CIO with over 20 years of ICT experience. He has held senior management and executive positions in both the private and public sectors. These roles spanned both business and ICT functions including CIO of the large industry superannuation fund Sunsuper, and CIO of a large ASX listed stockbroker. Scott has more recently moved into the research and industry analyst sector and is now the Research Director at ITNewcom, a benchmarking, research and consulting practice. Follow Scott on Twitter: @CIOMatters.

The question of whether there is a trend towards more organisations insourcing their IT seems to be popping up a bit recently but I can confidently respond that the research data continues to show the opposite is true.

Outsourcing continues to grow at a much faster rate with the majority of Australian firms already outsourcing some or all of their IT.

Research shows at least 40 per cent of firms intend to outsource more and interest in offshoring is on the increase even in the public sector.

High profile examples of insourcing will often snag the headline attention only to trigger discussion of this being evidence of an increasing trend.

Sometimes these discussions overlook the fact that trends can be vastly different in Australia when compared to other regions such as the US or Europe, where there may be more sustained drivers for on-shoring and insourcing due to ongoing economic and employment pressures.

According to research that closely tracks IT sourcing adoptions, behaviours and trends amongst the top 60 IT spenders in this country, the in-house discussion is losing the justification debate more often than it wins.

The ITNewcom Annual IT Market Study is sourced from face-to-face executive interviews and here is some data from the recently completed 2012 study:

  • 75% of organisations are already outsourcing some of their applications services and 85% outsourcing some of their infrastructure.
  • 43% of organisations intend to outsource more applications services and 40% of organisations intend to outsource more of their infrastructure.

While the overall trend is clearly leaning towards more outsourcing there are some private sector organisations that do have an intention to insource some of their IT services over the coming two years, however this is around half the rate of the organisations intending to increase outsourcing.

Only 21 per cent of private sector organisations intend to insource more of their applications services and 17 per cent intend to insource more of their IT infrastructure.

In the ITNewcom study the top driver for insourcing IT services was the belief that the firm can do a better job than the outsourcer, anecdotally this could be born out of a bad outsourcing experience.

Not only is the rate of outsourcing growing at a faster rate than the rate of insourcing there is an increased interest in offshoring, especially in the public sector.

The same ITNewcom studies from only a few years ago revealed offshoring was not an option being considered at all by the public sector.

However the need for cost efficiency is seeing this attitude change with the 2012 study revealing a sizeable 39 per cent of the public sector decision makers interviewed now considering offshoring application services.

The study of the big IT spenders reveals that the IT sourcing for most of these organisations is a constantly changing dynamic as the majority of organisations intend to change the sourcing mix for infrastructure and applications services one way or another in the next two years.

Follow Scott Stewart on Twitter at @CIOmatters. Scott is Research Director and Industry Analyst at ITNewcom.

Tags: offshoring, Scott Stewart

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