Cyprus IT Outsourcing Intelligence Report 2011

IT Sourcing Europe
European IT Outsourcing European IT Outsourcing Market

Intelligence Report 2011: Intelligence

Cyprus

December 2011

European IT Outsourcing Intelligence Report 2011: Cyprus

European IT Outsourcing Intelligence Report 2011: The UK

Contents Executive Summary

This Intelligence Report is based on the survey of the 229 Cyprus-based
Contents .......................................................................................................... 2 companies that either outsource their Software Development / Information
Executive Summary ......................................................................................... 2 Technology function(s) to an external service provider onshore (within
Survey Overview ............................................................................................. 3
Cyprus), nearshore (within/close to the same time zone) and/or offshore
Profile of Outsourcers ..................................................................................... 4 (more than 2 time zones away), or develop their software/IT solutions in-
IT Outsourcing Drivers & Factors ..................................................................... 8 house.
IT Outsourcing Challenges & Problem Solving ............................................... 10
Client – Vendor Relationships ....................................................................... 11 The Report aims to help Cyprus-based outsourcing companies:
IT Outsourcing Costs...................................................................................... 13
Impressions of IT Outsourcing ....................................................................... 15 Get an in-depth understanding of the current IT Outsourcing demands
Trends & Challenges of the In-House Software Development ...................... 16 and trends
Future Adoption of IT Outsourcing Services in Cyprus .................................. 20 See what challenges are facing their market peers / competitors and
Key Findings at a Glance ................................................................................ 22 how they respond to them
Revise / improve their current IT Outsourcing engagements / business
Conclusions and Predictions .......................................................................... 23
models based on the industry best practices

The Report aims to help Cyprus-based non-outsourcing companies:

Better understand modern software development/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 software development /IT
Outsourcing and how they are / will be preparing for adoption of the
outsourced development in the future

2|Copyright IT Sourcing Eur ope | 2011 | All Rights res erved



Survey Overview Additionally, inbound marketing initiatives were launched in order to attract
more companies to participate in the survey. In the frames of this campaign,
The Cyprus IT Outsourcing (ITO) and In-House Software Development (SD) the following steps were taken:
survey was conducted between November 22 and December 5, 2011, in the
Online press releases and survey announcements distribution;
frames of the All-European ITO research 2011.
Survey localization and optimization in social media such as LinkedIn,
XING, Facebook, Twitter, Google Plus as well as in IT Sourcing
Survey goals:
Europe’s blog
Explore factors that drive Cypriot companies to outsource their SD/IT
All data obtained were analyzed in the form of industry aggregates. The
functions in 2011
answers to the open-ended questions were organized by their relativity to
Explore challenges associated with offshore/nearshore outsourcing
the study goals and displayed as the option “all other responses” in charts
and the most effective problem solving techniques
and graphs further in the Report.
Explore the use of different business models in ITO engagements and
find out which model works best for what type of companies and Outsourcing Activity Surveyed:
industries
The following ‘outsourcing activity’ is referred to in the 2011 Cypriot ITO
Explore factors that keep Cypriot companies away from outsourcing
Report:
their SD/IT function(s)
Compare and contrast the 2011 and future ITO demands across Software Development / Information Technology Outsourcing (SD/ITO) is
Cypriot industries the process of transferring part of/entire software development function
and/or other Internet related work to the execution by the external IT
The survey was available online and hosted by SurveyMonkey, the world’s
services provider(s)
leading provider of web-based survey solutions. In order to reach as many
Cyprus-based companies as possible, IT Sourcing Europe used its own
database of business contacts and sent out a survey invitation email to each
company’s decision maker(s) (C-level executives, IT / Outsourcing Managers,
Directors, Heads of Software Development etc).




Profile of Outsourcers

Do Companies Outsource Any Element of Their IT / Software Current Outsourcing Experience
Development?




Company Size (Headcount) Primary Industry




Size of Project Teams on Vendor’s Side (Headcount) Value of the Outsourced Project(s) (€)




The Outsourced Areas of Expertise Do Companies Multi-Source?




IT Outsourcing Drivers & Factors

Key IT Outsourcing Drivers
Outsourcing Destinations




Factors’ Rating In Terms of Their Importance in the Choice of the Factors’ Rating In Terms of Their Importance in the Choice of the
Outsourcing Destination Outsourcing Partner




IT Outsourcing Challenges & Problem Solving

Key Challenges of the Outsourced IT / Software Development
Key Responses to the ITO Challenges

10 | 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



Client – Vendor Relationships
Vendor’s Size*
How Companies Found Their ITO Vendor(s)

*Respondents were asked to refer to their primary vendor in case of
multisourcing




Service Delivery Models Used In the Outsourcing Engagements Who Makes Final HR Decision / Selects Specialists To Be Involved In
the Project?




IT Outsourcing Costs

Levels of Companies’ Satisfaction with Their Current Vendors and
Quality of Services Provided Do Companies Know Exact Salaries of Their Project Team Members
on Vendor’s Side?

*Other: partially




How Actual Annual Incurred Costs Compare to the Contracted Ones Actual Savings from the Outsourced IT / Development




Impressions of IT Outsourcing




Trends & Challenges of the In-House Software
Development

Do Companies Plan to Continue Outsourcing Their Projects In The
Next 12 To 24 Months? How Non-Outsourcing Companies Fulfill Their IT / Development
Tasks

*Other: “we haven’t decided yet”




Size of In-House IT Teams Part of Corporate Budget Spent on Software Development




Level of Satisfaction with the In-House Development Key Challenges of the In-House Software Development




How In-House Developers Respond To Challenges Reasons Keeping Companies Away From ITO




Future Adoption of IT Outsourcing Services in Cyprus

Where Current Non-Outsourcers Would Transfer Their IT /
Circumstances in Which Companies Would Consider Outsourcing IT / Development In the Future
Development in the Next 12 To 24 Months




Factors’ Importance In the Future Choice of the Outsourcing Factors’ Importance In the Future Choice of the Outsourcing Partner
Destination




Key Findings at a Glance This generally marks the pattern when companies tend to retain control of
own projects and selectively review candidate profiles to make sure they
really match project expectations and possess the appropriate skills level.
Over the past years Cyprus has gained recognition as a true “tax heaven” for
doing business and has therefore attracted many international companies  More than 70% of Cyprus ITO buyers report general satisfaction with
seeking substantial relief from domestic tax burdens and complicated their current vendors and overall quality of services provided
regulations. In particular, international companies move their operations to  More than 80% of companies plan to continue with their outsourced
Cyprus in order to enjoy the benefits of its double-tax treaties as well as development in the next 12 to 24 months
other offshore jurisdictions such as a 10% tax rate, 15% VAT, confidentiality,  Nearly 30% of today’s non-outsourcing companies in Cyprus already
well established infrastructure etc. However, being a European Union consider outsourcing their development / IT function in the next 12
member state (since 2004), Cyprus loses its cost advantage with regards to to 24 months, which suggests future expansion of the ITO buyers’
in-house IT function management. The present survey demonstrates that pool
high cost of domestic IT resources and personnel is the Number One barrier  More than 80% of companies multi-source, which generally marks
in the way of successful in-house software development / IT (reported by companies’ willingness to stay independent from a single vendor
almost 70% of the survey respondents). Additionally, cumulative 33% of the engagement and back up their outsourced operations in case of
respondents admitted scarce local IT resource pool and pressures from C- vendor’s failure to deliver on time, missing resources and/or unmet
suite / investors to lower down IT costs / reduce IT budgets. These and other deadlines. In addition, multisourcing allows companies to have
issues typical for the EU member states drive Cypriot companies to look different areas of their IT projects fulfilled by vendors with the best
beyond local resources in search of cost effective IT solutions and access to expertise in each certain domain.
innovation and diversification. As the survey shows, the prevailing majority of
However, some negative trends have also been observed in the course of the
Cyprus companies source IT / software development resources nearshore or
research. Among them are:
multi-source nearshore, offshore and onshore.
 Although a high number of companies report general satisfaction
In general, the survey allows identifying positive and negative trends in
with their vendor’s service quality, the same high number of
behaviors of Cypriot companies with regards to adoption of IT / software
companies consider changing their current vendor(s) as a response
development outsourcing services.
to their most critical challenges such as poor communication with
The positive trends observed are: vendor’s project management, vendor’s inability to understand their
business goals, mismatch in contracted and actually incurred costs
 More than 40% of Cyprus ITO buyers make final HR decisions / select and poor quality of project deliveries.
IT specialists to be involved in their outsourced project fulfillment




The readiness to change ITO service providers witnesses of the following Conclusions and Predictions
scenario on today’s Cyprus ITO market: driven by global business trends for
diversification, differentiation and innovation, ITO buyers currently “raise the Based on the results of the Cyprus ITO and In-House Software Development
bar” for their service providers and challenge them with more difficult and Survey, several obvious trends were identified:
sophisticated tasks, both technology and HR growth related. However, as
most of ITO buyers partner with small service providers (less than 50 by  The majority of the Cypriot outsourcers are very small by headcount
headcount), they’re less likely to get a sufficient feedback and have their (less than 5)
expectations met. As the practice shows, lots of small providers are only  Cyprus-based B2B focused IT companies have the greatest demand
focused on closing new deals and filling their pipelines by all means including for ITO services among other industries and verticals
provision of incomplete / untruthful information in their RFP responses,
 The prevailing majority of ITO projects fall under the web
intentional overestimation of own project execution capabilities, low bidding
development domain, require 1 to 5 IT specialists to complete and do
etc and are unable to hire /retain highly qualified specialists due to their high
not exceed € 49K in value
cost and career aspirations. As a result, they oftentimes fail to meet their
 Multi-sourcing is an obvious trend of 2011
clients’ increased technology demands, scale up project teams, ensure
 Most of the Cyprus outsourcers transfer their development / IT
project’s sustainability etc.
either nearshore alone or distribute them among multiple providers
 More than 85% of Cyprus ITO buyers engage with their providers via nearshore, offshore and within Cyprus
project-based models (fixed-price, T&M)  Reduction of operating costs is the core driver of corporate decisions
to outsource in Cyprus
This basically leads to the situations when the actual incurred costs are  Cypriot companies look for language skills availability, low costs and
higher than expected (up to 25% as well as 25% - 49%) and other issues such vast IT talent pool as far as ITO locales are concerned
as poor product quality and poor managerial control. Also, the use of this  When choosing their ITO partners, Cypriot companies pay most
model does not allow ITO buyers to have predictable costs and plan their attention to current experience in similar projects and low service
long-term use of outsourcing. As the survey shows, more than 70% of rates
companies do not know exact salaries of each and every IT specialist on their  The key challenges of the outsourced IT / software development in
vendor’s team(s), meaning they are not aware of the difference between Cyprus are poor communication with vendor’s project management
what the vendor charges them and what it actually pays their employees. and executive teams and vendor’s inability to understand their
Due to the additional fees most of ITO buyers have to pay on top of the clients’ business objectives
official service fees, they only save 10% to 24% of operating costs from their
ITO engagements.




 Key steps that Cypriot companies make to respond to their ITO Regarding the future outsourcing geography, it is not expected to alter much
challenges are ITO partner change, extension of deadlines and from 2011: most of companies will still focus on onshore and nearshore
dedication of additional managerial resources development, while only few will move offshore.
 Most of ITO buyers in Cyprus find their ITO partners via own online
research
 Most of Cypriot companies manage to save 10% to 24% of operating
costs from their ITO endeavors
 Sharing their impressions of ITO, the majority of companies believe
that outsourcing saves operating costs, but inevitably increases cost
of management

Overall, it is expected that more Cyprus-based companies will outsource
their IT solutions in the following months. This conclusion is particularly
based on the following findings of the survey of non-outsourcing companies:

 Nearly 43% of in-house development companies say they are not
quite satisfied with the outcomes of their in-house development / IT
 More than 66% of non-outsourcing companies complain about the
high cost of domestic IT resources and personnel and more than 33%
complain about the scarce local IT resource pool
 Around 30% of companies already consider outsourcing as an option
to leverage costs and access broader resource pools in the future
 More than 80% of today’s in-house developers admit the high
likelihood to adopt outsourcing in the next 12 to 24 months to
accelerate time to market, while 100% of respondents admit their
readiness to outsource in the near future to respond to pressures
from investors and share risks




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Cyprus IT Outsourcing Intelligence Report 2011

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Cyprus IT Outsourcing Intelligence Report 2011