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Cost-cutting drives outsourcing growth

Companies are focused increasingly on outsourcing as a way to cut costs rather than find specific expertise, survey says.

Matt Hines Staff Writer, CNET News.com
Matt Hines
covers business software, with a particular focus on enterprise applications.
Matt Hines
2 min read
New research indicates that companies providing IT products and services will continue to increase their use of outsourcing agreements in order to lower overhead expenses.

According to a report published Monday by Evans Data, which culls information from developers at tech companies, 33 percent of businesses surveyed intend to increase their use of outsourcing during the next year, while only 6 percent said they are planning to decrease their number of outsourcing pacts.

Outsourcing involves the process of transferring work to an outside company rather than keeping it in-house.

In terms of overall workload, 45 percent of respondents to the Evans survey said they outsource less than a quarter of their development operations, with only 7 percent reporting that they farm out better than 50 percent of that sort of work.

According to the study, companies are focused increasingly on outsourcing as a way to cut costs rather than find specific expertise, reversing a trend of years past. Some 28 percent of the companies participating in the survey said that saving money was their primary goal in adopting outsourcing pacts, while only 19 percent listed a demand for specialized expertise as their objective.

By contrast, only 15 percent of the companies surveyed in 2000 listed cost cutting as a main driver for outsourcing, while 44 percent said they used the arrangements specifically to garner skilled talent.

Researchers at Evans said that they expect the trend toward budget-related outsourcing to continue to grow.

"Outsourcing once made use of high-level experts to bring particular expertise to a development project, but now we're seeing that outsourcing is much more likely to be used to save development costs," John Andrews, chief operating officer at Evans, said in the report. "Most companies outsource lower-level programming tasks that are more cost-effective to (farm out), rather than devoting an in-house programmer to such jobs."

According to the study, which included input from more than 400 individuals, 61 percent of companies surveyed plan to increase their IT-related investments over the next year, compared with 53 percent one year ago. Only 10 percent of survey respondents said they plan to reduce technology spending during the next year.