Dive Brief:
- Outsourcing of IT functions jumped sharply this year, driven largely by smaller companies that have become used to putting operational functions on cloud platforms, a survey by Computer Economics found.
- Executives at smaller companies are increasingly comfortable with handing off critical IT functions to outside organizations, said David Wagner, vice president of research for Computer Economics, based in Irvine, California.
- "Small companies tend to be the 'canary in the coal mine' for the economy," Wagner said. "They also have adopted the cloud at a faster pace than their larger cousins. So if there is any increase in outsourcing because of the economy or because of comfort with putting critical workloads in the hands of providers, small companies are likely to show it first."
Dive Insight:
Outsourcing accounts for 12.7% of companies' IT budget this year, on average — a big jump from 9.4% in 2018.
"Not only is this a healthy increase, but it continues a five-year trend toward increased outsourcing," said a Computer Economics statement released with the report.
Small businesses may be more wary about the direction of the economy than they were last year. Companies tend to outsource these functions more often when the economy is weak. Although the economy is strong now, executives may be looking ahead to signs of a slowdown. Median outsourcing as a percentage of IT budget for small companies increased from 6% to 9.1%, and the average outsourcing went from 9.2% to 16%.
Midsize and large companies saw smaller increases in outsourcing, on average.
Among the top-level findings in the report:
- Network operations outsourcing has increased the most in terms of frequency. About 34% of companies now outsource at least some of their network operations, compared with 30% last year.
- Application maintenance has dropped the most in terms of the percentage of companies outsourcing this function. In 2018, 36% of companies outsourced at least some of their application maintenance, compared with 33% in 2019. In its statement, the company attributes some of the drop to the increased use of online subscription-based services, known as SaaS, which has pushed more of the maintenance function to SaaS vendors.
- Application development is the most frequently outsourced function in the study. Around 56% of organizations outsource some or all of this function.
- IT security outsourcing is showing the largest growth rate of all outsourced functions in terms of the percentage of work outsourced, with 48% of respondents reporting that they will increase the amount of security work they outsource.
