IT Sourcing Strategies 2015 Irish Trend Report. Published: June 2015 Version 1 All Rights Reserved
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1 Report: IT Sourcing Strategies 2015 Irish Trend Report Published: June 2015 Version 1 All Rights Reserved
2 Table of Contents Introduction... 2 Background to Report... 2 Report in Context... 2 Current Trends in IT Sourcing... 3 Conclusion... 6
3 Introduction Background to Report Version 1 recently conducted an IT Sourcing Survey of C-level executives representing public and private sector companies ranging in size from medium (500+ employees) to large (2,000+ employees). The survey was conducted to give insight into current and future IT sourcing strategies and the trends, associated benefits and challenges that Irish organisations face. Some of the organisations participating in the survey included: The Office of the Revenue Commissioners ESB CIE Group Canada Life Ireland Bord na Mona Doosan IPB Insurance Department of Agriculture, Food & the Marine Report in Context Ireland s economic situation and prospects continue to brighten in 2015, with the European Commission reporting that Ireland is set to remain the fastest-growing economy in the European Union with growth of 3.5 per cent predicted this year. Given the positive economic climate, organisations have turned their attention from cost-cutting to growth impacting IT Sourcing strategies and trends. Version 1 conducted a similar survey in 2010 when Ireland was in the midst of an economic downturn. The report found that Irish organisations had mostly increased their levels of IT Outsourcing during that period driven by pressure to reduce operating costs. Multi-sourcing was the dominant sourcing strategy adopted with organisations partnering with one or more geographically dispersed service providers. Tangible cost savings in the region of 25-39% were reported as well as high levels of satisfaction with service providers. Data Security, Vendor Management and Vendor Lock-In were the main barriers to greater levels of IT Outsourcing in Irish organisations. This report takes a look at several of the biggest factors in IT Sourcing in 2015 and compares the results against the 2010 trends. June 2015 Page 2
4 Current Trends in IT Sourcing IT Sourcing Strategies Application Development Application Management Database Management Infrastruture Projects Infrastruture Management Service Desk Insourced Local Outsource Offshore Nearshore Graph 1: IT Sourcing Strategy Insourcing (maintaining internal control of a function) stands out as the most dominant IT sourcing strategy across all IT tiers. The Service Desk tier was top ranked for internal control. Nearshoring was the least utilised strategy with a small number of respondents outsourcing Application Development to service providers in nearby locations. Local Outsourcing and Offshoring to a lesser extent were indicated as complimentary strategies utilised in conjunction with Insourcing. Roughly 60% of respondents were utilising mixed sourcing models across their IT operations. The results were largely on par with the 2010 survey results where the majority of respondents indicated that they had adopted a multi-sourcing strategy; typically outsourcing development and/or management of Applications, Databases and/or Infrastructure to a Local and/or Offshore provider. We have moved from individual contract recruitment to recruitment of managed teams. Top factors driving sourcing strategy The need to reduce operating costs was the top ranked driver influencing IT sourcing strategy. Other drivers that featured heavily included improving service quality, freeing in-house resources to focus on other business activities, flexibility in resourcing and difficulty finding the right expertise. The top drivers influencing IT Sourcing strategy are largely unchanged from the 2010 survey with the exception of flexibility in resourcing and difficulty finding the right expertise which both moved up the ranking; a likely indication of the global (and local) IT skills shortage. Fifty percent of respondents reported no change in their IT sourcing models over the last 18 months, while the remainder indicated changes driven by regulatory and contractual changes and business decisions (e.g. exploring other sourcing models, contract reorganisation). June 2015 Page 3
5 To reduce operating costs Improved quality of service To free in-house resources to focus on core business Flexibility of resourcing Difficulty finding necessary expertise Speed to market To improve efficiency To accommodate 24/7/365 operations Graph 2: Top factors driving sourcing strategy We hire in experienced external resources who have key skills/knowledge that we do not have in-house. Major criteria utilised in selecting sourcing partner(s) Availability of specific skills and capability was highlighted as the top criterion used by executives to select a sourcing partner; a departure from the 2010 survey which ranked references and reputation as the top factor. This is likely driven by the IT talent shortage and the associated difficulty sourcing, hiring and retaining particular skillsets. Sound experience in similar projects and industries, references and reputation and people excellence (i.e. suppliers focused on employee retention and development) also ranked above both cost and quality certifications. Specific skills and capability Sound experience in similar projects or industruies References and reputation People Excellence (Retention, Development etc ) Flexible contract terms Low prices Level of quality certfication (ITIL, ISO etc..) Innovative and flexible business model Proximity Successful proof of concept completed Graph 3: Major criteria utilised in supplier selection June 2015 Page 4
6 Ensuring optimum value from partners The most common measures utilised to ensure optimum value from sourcing partners were Regular Performance Reviews, KPIs and Reporting, Service Level Agreements and Supplier Relationship Management. Continuous Service Level Improvement, Multi-sourcing (i.e. competition among suppliers) and Consolidation of Suppliers and Contracts were being utilised to a lesser extent. We currently have a multi-vendor framework in place and this is working extremely well. Regular Perfromance Reviews KPIs and Reporting Service Level Agreements Supplier Relationship Management Continous Service Level Improvements Multi-sourcing Consolidating Suppliers and Contracts Graph 4: Delivering value from suppliers Major challenges faced with sourcing providers Lack of responsiveness and poor quality service ranked equally as the top challenges faced with service providers. Staff turnover and lack of supplier resources and/or expertise ranked as secondary challenges commonly encountered. These two secondary challenges were new entrants in the ranking compared to the 2010 survey and could be interpreted as a symptom of a buoyant hiring market and the associated impact on retention and skills availability. Fifty percent of respondents reported no change in their IT sourcing models expected in the coming 18 months. The remainder indicated they would seek to outsource operational activities or business applications. A major challenge with our service providers is that they are not familiar with the older technologies we utilise. Lack of responsiveness Poor quality of delivered services Staff turnover in supplier company Lack of appropriate resources/expertise on provider's side Lack of understanding of your business Actual costs far exceed the contracted ones Poor communication Graph 5: Challenges faced with suppliers June 2015 Page 5
7 Conclusion We are moving toward a more managed service approach to IT Sourcing focused around Application Development and Maintenance. Irish organisations have mainly adopted a multi-sourcing approach to manage their IT operations, partnering with one or more Local and/or Offshore providers for the development and/or management of Applications, Databases and/or Infrastructure while maintaining some portion of internal control across all IT tiers. The economy is in a growth phase and this combined with the associated competition for IT talent has had a knock-on effect on the dominant factors influencing IT Sourcing strategy (flexibility in resourcing, difficulty finding necessary expertise) and supplier selection (accessing specific skills and capability). Delivering maximum value from sourcing partners is ensured in the main through Regular Performance Reviews, KPIs and Reporting and Service Level Agreements. The impact of a competitive hiring market and the negative effect on employee retention and skills availability are proving challenging from a supplier management perspective. Organisations anticipate maintenance of their current IT sourcing models in the near future with alternations focused on outsourcing IT operational activities or business applications. June 2015 Page 6
8 Version 1 Ireland Head Office Millennium House Millennium Walkway Dublin 1, Ireland June 2015 Version 1 UK Head Office 45 Moorfields Moorgate London EC2Y 9AE Page 7
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