Irish firms show greater appetite for outsourcing
Just over a quarter of Irish CIOs plan to increase outsourcing spend over the next 12 months despite more than three-quarters having had their budgets reduced or frozen in 2009.
The Harvey Nash CIO Survey 2010, sponsored locally by Accenture, includes responses from 180 Irish IT leaders. It found software application development is the most popular task for outsourcing (62pc), followed by IT infrastructure (46pc).
High-profile outsourcing deals like Bank of Ireland’s handover of IT operations to HP have the exception rather than the rule in the Irish market. The economic crisis and its impact on business has forced companies to examine their cost base and outsourcing speaks to that need.
“From an Irish perspective, outsourcing has shifted considerably up the agenda. We would see people looking at areas of significant manpower requirements and seeing them better served (through outsourcing),” said David Tyrrell, director of IT outsourcing with Accenture.
While telecoms and financial services firms tend to be at the forefront of outsourcing in Ireland, public-sector agencies and SMEs are also adopting outsourced models.
“In the past, when people were short of skills, they would go to the market for contractors or on a more structured basis. That was an appropriate response when you were adding capability to meet the needs of the business. Now, people are looking at more formal outsourcing arrangements,” he said.
“Adding in staff just doesn’t address the quality issue. We need to look at what is the service that needs to be delivered and how can it be delivered to the business, and that’s when you look at outsourcing as it was originally intended,” Tyrrell continued.
Budgeting for outsourcing
Although the survey found budget cuts are looming for 75pc of CIOs, more than 30pc of respondents said they are increasing what they spend on outsourcing. “It’s becoming a bigger chunk of a smaller budget. People need to free up funds to get more work done – it’s about minimising the ‘business as usual’ running costs to maintain the business innovation agenda and free up capability to do what the business needs,” said Tyrrell.
Compared to their European and global counterparts, Irish CIOs strike a closer balance between an onshore, Irish-based outsourcing model and offshore activity. India remains the top offshore outsourcing destination for Ireland at 52pc, compared with a global average of 66pc. Eastern Europe and the UK are the other main offshore destinations of preference for Irish respondents.
Tasks normally performed onshore include services management, business analysis, change management and acceptance testing, according to Tyrrell. Problem resolution, development and testing typically take place offshore and popular locations for this work include the Philippines, India and China.
Application development and maintenance are becoming very attractive to outsource because of the cost of retraining staff. “When people are starting to do new things, there’s a much higher acceptance of outsourcing than with taking an existing capability and switching it,” said Tyrrell. A good example of this is Bord Gais’ entry into the consumer electricity market last year. Rather than increase headcount in its own business, it outsourced many parts of its Big Switch campaign to external providers.
Onshore outsourcing remains the No 1 preference for 15pc of Irish CIOs, compared with 8pc in the US and none in Belgium. The relatively small scale of the Irish market, in global terms, means that the numbers of people involved in outsourcing certain tasks tends to be fewer. “In an Irish context, it can be 10 people onshore and 20 people offshore,” said Tyrrell.
This could be because it allows the service provider to keep enough people close to the business in order to react quickly to any customer issues. “Having a strong onshore presence allows you to maintain the business peer-to-peer relationship,” said Tyrrell.