European IT Outsourcing Intelligence Report 2011: Switzerland

European IT Outsourcing Intelligence Report 2011: Switzerland
IT Sourcing Europe
Nearshore IT Outsourcing Market Research & Consultancy
May 2011
Contents Executive Summary

Executive Summary .......................................................................................... 2 Survey Overview ............................................................................................... 3 Respondents Profile ........................................................................................ 5 Outsourcing Behaviors ................................................................................... 11 Outsourcing Drivers & Factors ....................................................................... 14 Outsourcing Challenges & Solutions .............................................................. 17 Client Vendor Relationships ........................................................................ 19 Outsourcing Costs........................................................................................... 22 SD/ITO Impressions ........................................................................................ 23 Future Outsourcing Plans ............................................................................... 24 In-House Software Development Trends & Challenges ................................. 25 Key Findings Highlights .................................................................................. 33 Conclusions ..................................................................................................... 36 The Report aims to help the Swiss non-outsourcing companies: Better understand modern SD/IT costs optimization and/or reduction strategies See what challenges are facing the in-house software development and how their market peers / competitors respond to them Evaluate own readiness to adopt the outsourced / distributed development Find out what their market peers think about SD/ITO and how they are / will be preparing for adoption of the outsourced development in the future This Intelligence Report is based on the survey of the 603 Swiss companies that either outsource their Software Development (SD) / Information Technology (IT) function(s) to an external service provider onshore (within Switzerland), nearshore (within/close to the same time zone) and/or offshore (more than 2 time zones away), or develop their software/IT solutions inhouse. The Report aims to help the Swiss outsourcing companies: Get an in-depth understanding of the current Swiss IT Outsourcing (ITO) demands and trends See what challenges are facing their market peers and how they respond to them Revise / improve their current ITO engagements / business models based on the industry best practices
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European IT Outsourcing Intelligence Report 2011: The SWISS
Survey Overview
The Swiss ITO and In-House Software Development survey was conducted between March 14 and April 29, 2011, in the frames of the All-European ITO research. Survey goals: Explore factors that drive the Swiss companies to outsource their SD/IT functions in 2011 Explore challenges associated with offshore/nearshore outsourcing and the most effective problem solving techniques Explore the use of different business models in ITO engagements and find out which model works best for what type of companies and industries Explore factors that keep the Swiss companies away from outsourcing their SD/IT function(s) Compare and contrast the 2011 and future ITO demands in Switzerland The survey was available online and hosted by SurveyMonkey, the worlds leading provider of web-based survey solutions. In order to reach as many Swiss companies as possible, IT Sourcing Europe used its own database of business contacts and sent out a survey invitation email to each companys decision maker(s) (C-level executives, IT Managers, Directors, Heads of Software Development etc). Additionally, inbound marketing initiatives were launched in order to attract more companies to participate in the survey. In the frames of this initiative, the following steps were taken:
Online press releases and survey announcements distribution; Survey localization and optimization in social media such as LinkedIn, XING, Facebook, Mobile Monday London, blogs ( Twitter, Word Press, IT Sourcing Europes Blog), event management systems (Amiando), and B2B web portals (Europages, Hoovers) All data obtained were analyzed in the form of the industry aggregates. The answers to the open-ended questions were organized by their relativity to the study goals and displayed as the option all other responses in charts and graphs further in the Report. Outsourcing Activity & Categories Surveyed: The following outsourcing activity is referred to in the 2011 Swiss ITO Report: Software Development / Information Technology Outsourcing (SD/ITO) is the process of transferring part of/entire software development function and/or other Internet related work to the execution by the external IT services provider(s) The following categories fall under this activity: Application (app) development and maintenance; Website / ecommerce systems; Data warehousing; IT security; Data / voice network operations; Remote IT infrastructure management These categories further fall under the five key areas of expertise:
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European IT Outsourcing Intelligence Report 2011: The SWISS These categories further fall under the five key areas of expertise: Web (Web 2.0, .NET, Java, PHP, open source etc); Enterprise 2.0 (J2EE, J2SE, C#, MySQL etc); Mobile development (J2ME etc); Embedded development; Software as a service (SaaS) and Cloud Computing
Key Takeaways From The Survey: In Switzerland, most of outsourcing companies are small by headcount (less than 50) The greatest demand for the outsourcing services comes from IT/software development sector, followed by professional and financial services sectors The majority of non-outsourcing companies anticipate 1% to 9% revenue growth in 2011, while most of outsourcing companies expect to increase their annual revenue by 10% to 19% Most of the Swiss companies have been outsourcing their SD/IT for more than 37 months now Small- and large-value projects are outsourced in equal proportions in Switzerland A Fixed-Price Project model remains the most popular outsourcing model in Switzerland Nearshore is the most preferred outsourcing destination in Switzerland Web is the most outsourced area of expertise in Switzerland, followed by Enterprise development Top Three Drivers of ITO decisions in Switzerland are: reduction of operating costs, shortage of domestic IT skills and resources and focus on core competence Top Three Challenges facing Swiss outsourcers are: change management, cultural difference and poor communication with vendors project management
Respondents Profile
Primary Industry
All Other Responses include: hospitality, tourism, and mobile computing
Respondents Profile
Primary Industry
All Other Responses include: hospitality, tourism, and mobile computing
Company Size (Headcount)
Do Companies Outsource Any Element of Their IT / SD Function?
Size of Outsourcing Companies (Headcount)
Ratio of Outsourcing Companies per Industry
Revenue Growth Expectations in 2011: Non-Outsourcers vs. Outsourcers

Non-Outsourcers Outsourcers
Outsourcing Behaviors
Overall Outsourcing Experience Size of Project Team(s) on Vendors Side
Value of the Outsourced Project(s) (In )
Outsourced Areas of Expertise
Business Models Used To Partner With ITO Provider(s)
Do Companies Multisource?
Outsourcing Drivers & Factors

Current Outsourcing Destinations Drivers of Decisions to Outsource IT/SD
Factors Rating in Terms of Their Importance in the Choice of the Outsourcing Destination
Factors Rating in Terms of Their Importance in the Choice of the Outsourcing Partner
Outsourcing Challenges & Solutions

Main Challenges of the Outsourced Software Development
How Companies Respond to their Challenges
Client Vendor Relationships

How Companies Found their ITO Partners
Size of the ITO Partner*
Who Selects IT Specialists to Be Involved in the Project?
*Companies with more than 1 partner referred to their major one
Do Companies Know Exact Salaries of Their Project Team Members on the Vendors Side?
Levels of Satisfaction with ITO Services Provided
Outsourcing Costs
How Actual Annual Incurred Costs of SD/ITO Compare to the Expected (Contracted) Costs Actual Savings from the Outsourced SD/IT
European IT Outsourcing Intelligence Report 2011: The UK
Impressions of Outsourcing
outsourcing our software development has been the right decision outsourcing saves operating costs, but inevitably increases management costs costs are higher than expected
overall, providers work is of higher quality compared to in-house capabilities it is important to have the supplier's team working within or close to the same time zone providers have more disciplined methodologies, which can lower costs further in a longer-term perspective it is critical to have backup providers available in case the primary provider is unable to meet deadlines and/or commitments providers are unreliable and not focused on mid- and long-term cooperation overall, providers work is of lower quality compared to in-house capabilities Our IP is at risk we are very dissatisfied with the decision to outsource our software development
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Future Outsourcing Plans

Do Companies Plan to Continue Outsourcing in the Future?
Future Outsourcing Destination
In-House Software Development Trends & Challenges

How Swiss Companies Develop / Manage Their Software Part of Corporate Budget that the SWISS Companies Spend On IT/SD
Level of Satisfaction with the In-House Development / IT
Key Challenges of the In-House Software Development
How Companies Respond to their Challenges
Factors Keeping the SWISS Companies Away From SD/ITO
we want to have 100% managerial control of our software project(s) we are too small and immature to outsource we're afraid that outsourcing will eventually cost us more money and headaches than in-house development we think that the outsourced development will result in poorer software product quality we do not want to create any shared environments we're totally satisfied with our in-house development results we don't want to put our intellectual property at risk we don't get any pressure to cut costs from customers/investors/executive management we had some negative experience with the outsourced development in the past
Circumstances in Which Companies Would Consider Outsourcing Their SD/IT in the Future
Where Companies Will Outsource If They Make Such a Decision in the Future
How Companies Will Rate Destination Selection Criteria If They Decide to Outsource in The Future
How Companies Will Rate Provider Selection Criteria If They Decide to Outsource in The Future
Key Findings Highlights

The 2011 Swiss IT Outsourcing and In-House Software Development Survey allows better understanding of the general profile and demographics of the outsourcing companies in Switzerland. According to the survey findings, 51% of the outsourcing companies are less than 50 in headcount, 19% - 50-199, almost 10% are mid-sized (200 to 999) and 19.5% are large (more than 1000 in headcount). The vast majority of the Swiss outsourcers come from IT/SD sectors (almost 45%), followed by providers of professional services such as accounting, consulting, legal etc (16%) and financial services (almost 14%). More outsourcing companies expect their annual revenue to increase by 10% - 19% in 2011, compared to the companies developing their solutions inhouse - 42% vs. 22.5%. Additionally, more outsourcers expect 20%-49% revenue growth in 2011, compared to the in-house developers 9% vs. 8%, fewer outsourcers expect 0% or less in annual revenue growth 4% vs. 10.5% and the equal number of companies anticipate to increase their revenue by 50% and more 8% in each segment. Regarding the value of the outsourced projects, the following trends are observed in 2011, compared to 2010: the number of the 0-49K projects dropped by 12.6%, the number of the 50-199K projects dropped by 21.4%, the number of the 200-499K projects dropped by 10.9% and the number of the 500K+ projects increased by 19.6%. This finding proves 2011 to be the year of both small and large ITO contracts. In 2011, three most popular engagement models that the Swiss outsourcers use to partner with their ITO providers are: a project based model (fixed price, time & material) 48% of respondents, nearshore/offshore development center - 40% of companies and Own/Dedicated/Managed Team Model 24% of all companies surveyed. In 2011, the vast majority of companies in Switzerland outsource their projects to a single external services provider 51.6%, which is down 20.4% from 2010, while almost 48.4% of companies multisource (i.e. distribute the outsourced operations among 2 and/or more providers, usually the geographically dispersed ones), which is up 20.4% from 2010. This finding marks the evolving trend for multisourcing on the Swiss ITO market. This can be explained by the Swiss companies urge to secure their outsourced operations and have backup providers available in case the primary one fails to deliver properly, on time and on budget. On the other hand, 50% of the Swiss outsourcers partner with ITO providers who are less than 50 people in size and are, therefore, unable to have sufficient expertise in several areas at the same time. This leads outsourcers to distribute projects among several providers based on their available Center(s) of Excellence (e.g., the entire product development function is transferred to provider X, while QA and testing or customization is transferred to provider Y. Such dissemination also allows an additional external audit of the product(s) developed by provider X). It is expected that in the years to come the number of multisourcers will significantly exceed the number of singlesourcers both on the Swiss and global outsourcing markets.
European IT Outsourcing Intelligence Report 2011: The SWISS In 2011, web projects remain the most outsourced area of expertise (by 78% of companies, which is up 52% from 2010). Enterprise development is outsourced by 29.6% of all outsourcers, which is up 4.6% from 2010. Mobile and embedded development projects are transferred by 18.5% each (down 0.5% and up 1.5% from 2010), while SaaS and Cloud remain the least outsourced areas (by 11.1% of companies, which is down 1.9% from 2010). In 2011, the outsourcing destinations of the Swiss companies have changed, compared to 2010: 51.4% of companies outsource nearshore (up 10% from 2010), 20% - onshore, i.e. within Switzerland (up 9% from 2010), 17.1% nearshore and within Switzerland (up 7.1% from 2010), 11.4% - offshore (down 10.6% from 2010), another 11.4% - both nearshore and offshore (up 2.4% from 2010), 8.7% - both offshore and within Switzerland (up 1.7% from 2010) and 5.7% of the survey respondents outsource nearshore, offshore and onshore (up 1.2% from 2010). In 2011, 63.3% of the Swiss companies outsource to reduce operating costs (up 31.6% from 2010), 43.3% - to focus on their core competences (up 26.1% from 2010), and another 43.3% - to find appropriate IT skills and resources outside Switzerland where the qualified resources and specific skills are in a very short supply (up 16.3% from 2010). The two other huge drivers of ITO decisions in Switzerland are necessity to free in-house resources for other business purposes (mentioned by 36.7% of respondents) and necessity to accelerate time-to-market (mentioned by 30% of respondents). In 2011, the Swiss companies consider the following three factors as the most important ones when choosing their outsourcing geographies: available IT talent pool (81% of respondents), appropriate English and German language skills (65.5%) and cultural proximity (48.3%). Regarding the highest rated criteria of the outsourcing partner selection in 2011, 65.5% of companies mention successful test/pilot project completion; 59.8% of companies consider innovative and flexible business / service delivery models offered by vendor(s); and 58.6% consider vendors experience in the similar projects. This finding mirrors well the current situation on the global ITO market. Traditional outsourcing models such as fixed price projects, Build-OperateTransfer (BOT) or Dedicated Development Center (DDC) prove to be unable to meet todays market demands for agility, scalability, speed of marketing time and predictable ITO costs. Therefore, more Swiss companies begin to realize the importance of having as much managerial control of their outsourced projects and resources as possible and use outsourcing as a longterm strategy to improve software/IT products quality and respond proactively to pressing customers and rapidly changing market demands rather than just a short-term tactic to reduce costs. Thus, they tend to partner with those ITO service providers who are able to offer engagement via innovative business models such as Client Own/Dedicated Team, Virtual Operating Subsidiary, SCRUM Team and other likewise models allowing transparent pricing and no hidden agenda, access to the resources and skills that is not limited to a single geography, extensive knowledge sharing beyond Service Level Agreements (SLAs) and easy / flexible contract exit terms. In 2011, the top three challenges of the outsourced SD/IT in Switzerland are: change management (44%), cultural difference (40%) and poor communication with vendors project teams/management (36%). In contrast, the top three challenges in 2010 were: delayed delivery of / missed project milestones, poor project management on vendors side and hidden agenda (when the actual incurred costs of ITO exceed the contracted ones).
European IT Outsourcing Intelligence Report 2011: The SWISS To respond to their most critical challenges, 62% of Swiss outsources tend to increase face-to-face communication with their vendors project managers and execution teams (up 36% from 2010), 41.4% of companies dedicate more managerial resources (up 20.4% from 2010) and 24.1% revise and update their vendor management processes (up 13.1% from 2010). Only 10% of companies choose to back-source (i.e. bring operations back in-house), which is up 5% from 2010. Regarding the actual annual incurred costs of ITO, 65.4% of companies say they match the contracted costs (up 47.4% from 2010), 23.1% say they are up to 25% higher than expected (up 1.9 from 2010), 11.5% say they are 25%49% higher than expected (down 12.5% from 2010) and 3.8% point out that their actual ITO costs are up to 25% lower than expected (down 7.2% from 2010). Regarding the actual savings from the outsourced SD/IT in 2011, 37% of the survey respondents admit saving less than 10% of their operating costs (up 27% from 2010), 22.2% save 10% to 24% (down 12.8% from 2010) and another 22.2% save 40%-59% (up 1.2% from 2010). In addition, 7.4% of companies report saving 25% to 39% of operating costs (down 12.6% from 2010) and 11.1% of companies save 60% and more, which is down 2.9% from 2010. The fact that the vast majority of the Swiss outsourcers actually save less than 10% of costs with help of outsourcing can be attributed to the fact that 50% of Swiss outsourcers partner with very small ITO service providers who, unlike their mid-sized and large peers, do not have an appropriate access to the qualified IT workforce, do not invest enough in the training and professional advancement of their employees and do not have any best practice in effective staff retention. Also, since only very few small ITO providers are able to afford to pay competitive salaries (in terms of their 35| C o p y r i g h t I T S o u r c i n g E u r o p e 2 0 1 1 | A l l R i g h t s R e s e r v e d home countries market rates) to their employees, the risk is high that the clients get insufficient and unqualified personnel involved in their outsourced projects. In addition, many small nearshore ITO vendors practice outsourcing some of their clients tasks to even lower-cost offshore destinations due to the lack of domestic resources they have access to / financial inability to outbid competitors staff / win the local headhunting. The mix of such circumstances inevitably leads to the situations when the ITO buyers are overcharged in order to cover new hires / employee replacement in case of vendors staff turnover, secret re-outsourcing / outtasking practices as well as fixing products bugs and errors at the post-release stages due to vendors unqualified resources. These obstacles typically prevent most of the Swiss outsourcers to save more from their ITO engagements. In spite of the insignificant cost arbitrage achieved via the outsourced SD/IT and insufficient vendor management processes, the grand majority of the Swiss outsourcers 48.1% - believe that outsourcing their IT/SD function(s) has been the right decision. In contrast, only 3.7% of companies regret having made a decision to transfer their IT/SD to the external services provider(s).
Conclusions
The 2011 Swiss IT Outsourcing and In-House Software Development survey demonstrates insignificant changes in the ways companies behave with regards to the adoption / management of their outsourced development / IT function(s). Overall, in 2011 outsourcing is reinforcing its position as a commodity practice it has gained over the past [post-crisis] years, and the majority of the Swiss companies continue to use it as a way to reduce operating costs / lower down IT/SD budgets and get access to the lower cost and better qualified IT resources outside Switzerland. The positive trends of the Swiss ITO market observed in the course of the research are as follows:
In 2011, a significantly bigger number of Swiss companies take part in / fully manage the hiring of IT specialists to be involved in the execution of their outsourced project(s), which generally hallmarks their urge to retain as much control of the outsourced project(s) as possible. In general, Swiss outsourcers demonstrate rather high levels of satisfaction with their outsourcing partners and think that outsourcing their functions has been the right decision. As a result, the vast majority of companies plan to continue outsourcing their IT/SD in the next 12 months.
The negative trends of the Swiss ITO market observed in the course of the research are as follows:
The prevailing majority of Swiss outsourcers manage to save less The outsourced development / IT function(s) obviously help Swiss than 10% of operating costs through the outsourced development. companies increase their annual revenue by allowing acceleration of This can be explained by the fact that most of Swiss companies the time-to-market and spending more on customer service engage with their external service providers via traditional models improvement and overall company growth such as project-based outsourcing and dedicated development Many Swiss organisations aim to use outsourcing as a strategic cost centers that do not allow significant cost savings due to hidden saving and knowledge enhancement tool rather than a short-term agendas and high level of bureaucracy. Therefore, it is possible to tactic to lower down IT/SD budgets and respond to pressing resume that many Swiss outsourcers are still missing sufficient customers knowledge about the innovative business models such as Own Team Compared to 2010, in 2011 more Swiss outsourcers realize the model and other likewise ones allowing elimination of overheads and importance of securing their outsourced operations and, therefore, transparent pricing structures. distribute development among two and more external service Companies management and staff inability to properly interact with providers (usually the geographically dispersed ones) to reduce the their outsourcing vendors is the Number One challenge facing most risk of project failures of the outsourcing relationships. It means that many Swiss companies still do not plan their outsourcing strategies effectively and need to bring in outside assistance to help redesign corporate processes prior to outsourcing. 36| C o p y r i g h t I T S o u r c i n g E u r o p e 2 0 1 1 | A l l R i g h t s R e s e r v e d
European IT Outsourcing Intelligence Report 2011: The SWISS Outsourcing is still underused by the Swiss innovative lucrative niches such as digital media, gaming / iGambling and mobile computing which are dominated by high-tech startups who believe they are yet too small and immature to outsource. It proves once again that the Swiss companies do not have enough knowledge on the newest outsourcing engagement models that work perfectly well with their segments.
Shortage of domestic IT resources is the second most frequently cited driver of corporate decisions to outsource IT/SD in Switzerland. Fifty percent of todays non-outsourcers report the high likelihood of transferring IT / development to external services providers if they are not able to find appropriate resources within Switzerland in the near future. Based on these findings, it is possible to assume that outsourcing will be playing a greater role in the Swiss companies strategic business planning in the following years and outsourcing services providers will be forced to redesign their processes and delivery models as well as pricing structures to be able to satisfy the ever growing demands of both well-established and mature and innovative startup organizations for the outsourced project control retention, cost effectiveness, agility, speed, knowledge sharing, innovation and overall sustainability.
European IT Outsourcing Intelligence Report 2011: The UK
About IT Sourcing Europe
IT Sourcing Europe is a UK company specialized in nearshore IT Outsourcing consultancy, market research and analysis. IT Sourcing Europe provides:

Top quality quantitative and qualitative ITO market research and fieldwork services Evaluation of Central and Eastern Europe's ITO services providers and their factual capabilities to deliver innovative technological solutions on time and on budget Free consulting services for European companies planning to outsource IT / software development functions and / or change their current ITO strategy / engagement Ad-Hoc ITO strategy development and full-cycle support
Our Contacts: The Meridian, 4 Copthall House, Station Square Coventry, West Midlands, CV1 2FL United Kingdom Email: info(at)itsourcing-europe.com Tel.: +44(0)2476992505 Web: www.itsourcing-europe.com Blog: http://itsourcingeurope.wordpress.com Follow our tweets @ITSourcingEurop Registration at the UK Companies House: 07217899
You are free to use, share and/or remix any part of this work as long as you attribute it to IT Sourcing Europe.
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European IT Outsourcing Intelligence Report 2011: Switzerland

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European IT Outsourcing Intelligence Report 2011: Switzerland