Survey: IT outsourcing to intensify

Information technology is the most outsourced corporate function and more companies are looking to farm out more work.

PriceWaterhouseCoopers interviewed 226 customers and 66 outsourcing service providers. The survey focused on outsourcing across industries and functions, but there were some interesting kernels that are likely to apply to technology management.

Among PwC’s findings:

• 57 percent of respondents said they are outsourcing information technology services and 39 percent said they outsource IT to “a significant extent.” And there’s room for expansion as 55 percent of customers said they will expand IT outsourcing.
• Customers that outsource various functions say they face barriers to making outsourcing deals work. The following responses aren’t specific to IT, but do apply:

45 percent say company values favor using in-house employees;

37 percent say they lack the skills to manage outsourcing pacts;

37 percent say they need to clean up operations before outsourcing them.

• Not surprisingly there’s a bit of a disconnect between suppliers and customers. For instance, 66 percent of customers say near-shoring works best in the real world. Among suppliers, only 24 percent favored near-shoring. Twenty percent of customers say offshore outsourcing works best while 52 percent of suppliers favor offshore work. Given the labor costs that’s not too surprising.

• That disconnect continues when it comes to profit margins. Customers say service providers should expect an after tax profit margin of 5 percent to 12 percent. But more than half of the suppliers wanted a range of 15 percent to 25 percent for profit margins.

Among some notable charts:

This one shows where IT stands in the outsourcing pecking order:

This one addresses what customers say are the most important things to their businesses about outsourcing deals (includes IT and other functions).