Forty-Five Percent of Danish Companies Outsource Their Software Development Nearshore

July 9, 2012 - PRLog -- The European IT Outsourcing (ITO) research is currently being underway for the 3d year in a row providing everyone involved / planning to get involved with the outsourced software development with insights into how the European ITO market changes from year to year. Two countries have been surveyed by IT Sourcing Europe so far – the United Kingdom and Denmark. A couple of months ago I already summed up some of the most interesting findings of the 2012 UK ITO survey and compared them to the results of the 2011 survey. Now it’s time to recap the findings of the Danish survey and see how the market of IT / software development outsourcing services has altered since last year, where the current demands come from and what factors will be driving the ITO industry evolution in the following months.

According to IT Sourcing Europe, the 3d Annual IT Outsourcing vs In-House Software Development survey was completed by the 695 Danish companies, of which 382 were IT / software development outsourcing companies and 313 – companies developing their software solutions in-house. In 2012, the highest demand for ITO services comes from:

•   B2B software companies (almost 55%)
•   B2C software companies (around 16%), and
•   Digital media houses (around 14%)

In 2011, the top 3 most active users of ITO services in Denmark were B2B/B2C software companies, government and professional services providers. The number of mobile development outsourcing companies increased from 3% in 2011 to 11% in 2012. This marks a rapidly growing demand for the outsourced mobile development services from mobile niche players.

As the research shows, this year top 3 drivers of outsourcing decisions within a Danish business community are:

1.   Reduction of operating costs (reported by almost 75% of survey respondents, which is up 13% from 2011)
2.   Focus on core business competences (44% of survey participants, which is down 14% from last year)
3.   Faster time to market (TTM) (44% of respondents, which is up 12% from 2011)
Last year, shortage of domestic IT skills and resources was a #3 ITO driver cited by 40% of participants. This year, it’s a #4 factor cited by 43% of survey respondents.

According to the survey, the top 3 challenges of the outsourced development in Denmark are:

1.   Poor communication with service provider’s project management (PM) and executive teams (reported by almost 55% of companies, which is up 18% from 2011)
2.   Cultural difference (35% of respondents, which is up 15% from 2011), and
3.   Lack of sufficient resources on vendor’s side (35% of participants, which is down 4% from last year)

Last year, lack of resources on vendor’s side was a #1 challenge facing outsourcing companies in Denmark.

Other interesting findings include:

•   Web, mobile and enterprise solutions are most outsourced
•   The volume of SaaS / Cloud-sourcing has increased, while the volume of embedded development outsourcing has decreased (see Fig)
•   Almost 40% of all ITO projects in Denmark require only 1-2 software engineers to complete
•   More than 45% of all ITO projects in Denmark are valued at € 0-49K
•   Nearshore is the most popular destination cited by more than 45% of Danish companies
•   Available IT talent pool is considered to be the most important factor in the choice of an ITO hub (reported by more than 90% of survey respondents)
•   Successful pilot project completion is reported to be the most decisive factor in the choice of an ITO partner among Danish businesses (50% of respondents)
•   45% of Danish outsourcers polled said they had found their ITO partner via a referral from a peer company and only 11% - via a publicly submitted RFP / RFQ
•   More than 40% of companies engage with their ITO partners via a fixed-price or time-and-material projects and 30% of Danish outsourcers admitted having their own software development setup nearshore, onshore or offshore
•   Cumulative 35% of survey respondents make their HR decisions on their outsourced projects either on their one, or together with their service providers
•   62% of Danish outsourcing companies still do not know exact salaries of each of their team member involved in the outsourced project
•   Cumulative 26% of Danish companies report saving 10% - 24% and 25% - 39% of the operating expenses

The survey of in-house software development companies suggests that the following three factors will be driving more Danish companies to adopt the outsourced development in the near future:

•   Lack of domestic IT resources to focus solely on development (reported by almost 35% of companies)
•   High cost of domestic  IT resources (almost 32% of respondents)
•   Slow TTM (almost 32% of respondents)

Overall, the Danish ITO survey demonstrates some significant shifts in behavior patterns and perceptions of companies that outsource their solutions for execution by 3d parties:

•   From “throwing software work over the fence ” and fully entrusting delivery to ITO partners to organically extending in-house software teams to nearby locales able to offer high quality yet lower cost IT talent
•   From fully relying on ITO partner’s grasp of innovation and expertise to retaining and empowering own IT expertise via outsourcing
•   From mere cost reduction to improvement / optimization of own software development / HR processes and focus on long-term benefits