Enterprises Plan to Outsource Application Development and Maintenance

Enterprises Plan to Outsource Application Development and Maintenance

Enterprises Plan to Outsource Application Development and Maintenance Claire Michelle De Castro

A survey, “State of the Outsourcing Industry 2013”, conducted by Big Four accounting firm KPMG, and HfS Research, a leading analyst authority on global business operations strategies, revealed that roughly half of major enterprises intend to increase the volume of application development outsourcing and outsourced application maintenance during 2013, while about forty percent of companies plan to increase finance and accounting outsourcing.

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The study which was released last month, found that client expectations of outsourcing are evolving to be more value focused, with IT, Finance and Accounting administrative processes dominating future outsourcing plans.

In terms of outsourcing plans by industry, application development outsourcing and outsourced application maintenance are included in the top three priority for the following industries: insurance, consumer packaged goods, entertainment, retail, software, hi-tech and telecoms.

Application Outsourcing Plans by Industry

Moreover, according to the study, the total market size for IT services is estimated at $648B and is expected to grow at 3.5% this year and 4.7 CAGR to 2017. Outsourcing of application development and application maintenance is expected to accelerate to 5.6 CAGR as market continutes to grow in EMEA.

Achieving operation effectiveness remains to be the primary motivation behind IT and business operations outsourcing for more than three-quarters of the survey respondents. Specifically, 87 percent seek to reduce operating costs, 81 percent seek greater flexibility and scale, and 74 percent seek to standardize processes.

“It’s abundantly clear that the vast majority of enterprises are looking to expand strategic outsourcing relationships in the medium term as economic conditions improve,” said Cliff Justice, KPMG’s U.S. leader for shared services and outsourcing advisory, in a statement. “While many held back from radical transformation strategies during the recession, we’re now seeing real action from many enterprise operations leaders who are ratcheting up their sourcing plans—especially with their administrative business processes.”

Other key findings include:

  • Core areas of strategic focus when outsourcing, include accessing better talent (70%), gaining access to better technology (62%) and improving analytical capabilities (62%)

 

“The most interesting here though is the fact that cost reduction is no longer the dominant mission-critical factor behind outsourcing for American firms. Business measures such as processes standardization and re-engineering, and high value capabilities such as improving analytics, accessing new technology and talent, better product offering that are much proven and mature in the market – these are mentioned as real mission critical by nearly a quarter of American firms,” said Phil Ferscht, Founder and CEO of HfS.

“This is happening because we think that many organization leaders today are waking up to the realization that they are running out of ideas in terms of finding cost savings simply from wage arbitrage. And the only long term measure, the only way that they can get threshold and productivity is to start process design and standardization. A more analytical workforce can help the firm make faster and smarter decisions and a more flexible operations can help them scale efficiently.”

  • Mid-market enterprises ($1 billion to $5 billion in revenues) are much more motivated by strategic needs than high-end enterprises (more than $5 billion in revenues).
  • Outsourcing customers (88 percent) are satisfied with cost reduction and standard delivery from service providers, but they indicate service providers are falling short in strategic areas, such as improving analytical capabilities, accessing talent, and achieving innovation.
  • BPO engagements are notably outperforming IT outsourcing engagements for cost reduction and effectiveness as well as process standardization, process transformation, and improving analytical capabilities.
  • Outsourcing customers do not expect innovation form suppliers, they want stability, industry understanding and delivery excellence
  • Close to one-third of high-end enterprises view global business services as a mission-critical framework for their future operating model.

“The study clearly shows operations executives are seeking to take more advantage of global sourcing models rather than traditional outsourcing models,” said Fersht. “In addition to broadening service provider relationships, this involved enterprises evolving into global business services operating models that focus on greater control, customer alignment, and accountability over business operations.”

About the survey

The State of the Outsourcing Industry 2013 survey is the largest-ever quantitative industry study covering both IT and business process outsourcing. It was conducted earlier this year (from December 2012 to February 2013) by KPMG LLP and HfS Research which included 1,355 respondents from major global enterprises, outsourcing services providers, management consultant firms, sourcing advisory firms, and other key industry influencers. The aim of the survey was to understand their views, observations, and intentions for 2013 and beyond when it comes to ITO and BPO.