Norway's IT Outsourcing Intelligence Report 2011

IT Sourcing Europe
European IT Outsourcing European IT Outsourcing Market

Intelligence Report 2011: Intelligence

Norway

November 2011

European IT Outsourcing Intelligence Report 2011: Norway

European IT Outsourcing Intelligence Report 2011: The UK

Contents Executive Summary

This Intelligence Report is based on the survey of the 491 Norwegian
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 Norway), nearshore (within/close to the same time zone) and/or offshore
(more than 2 time zones away), or develop their software/IT solutions in-
Key Takeaways from the Survey ...................................................................... 4
house.
Profile of Outsourcers ..................................................................................... 5
IT Outsourcing Drivers & Factors ................................................................... 10 The Report aims to help Norwegian outsourcing companies:

IT Outsourcing Challenges & Problem Solving ............................................... 12 Get an in-depth understanding of the current IT Outsourcing demands
Client – Vendor Relationships ....................................................................... 13 and trends
See what challenges are facing their market peers / competitors and
IT Outsourcing Costs...................................................................................... 15 how they respond to them
Impressions of IT Outsourcing ....................................................................... 17 Revise / improve their current IT Outsourcing engagements / business
models based on the industry best practices
Trends & Challenges of the In-House Software Development .................... 188
Future Adoption of IT Outsourcing Services in Norway............................... 222 The Report aims to help Norwegian non-outsourcing companies:

Key Findings at a Glance .............................................................................. 244 Better understand modern software development/IT costs optimization
Conclusions and Predictions ........................................................................ 266 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 Norwegian IT Outsourcing (ITO) and In-House Software Development the following steps were taken:
(SD) survey was conducted between October 31 and November 25, 2011, in
Online press releases and survey announcements distribution;
the frames of the All-European ITO research.
Survey localization and optimization in social media such as LinkedIn,
XING, Facebook, blogs ( Twitter, Word Press, IT Sourcing Europe’s
Survey goals:
Blog), event management systems (Amiando), and B2B web portals
Explore factors that drive Norwegian companies to outsource their (Europages, Hoovers)
SD/IT functions in 2011
All data obtained were analyzed in the form of industry aggregates. The
Explore challenges associated with offshore/nearshore outsourcing
answers to the open-ended questions were organized by their relativity to
and the most effective problem solving techniques
the study goals and displayed as the option “all other responses” in charts
Explore the use of different business models in ITO engagements and and graphs further in the Report.
find out which model works best for what type of companies and
industries Outsourcing Activity & Categories Surveyed:
Explore factors that keep Norwegian companies away from
The following ‘outsourcing activity’ is referred to in the 2011 Norwegian ITO
outsourcing their SD/IT function(s)
Report:
Compare and contrast the 2011 and future ITO demands across
Norwegian industries Software Development / Information Technology Outsourcing (SD/ITO) is
the process of transferring part of/entire software development function
The survey was available online and hosted by SurveyMonkey, the world’s
and/or other Internet related work to the execution by the external IT
leading provider of web-based survey solutions. In order to reach as many
services provider(s)
Norway-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).




The following categories fall under this activity: Key Takeaways from the Survey
Application (app) development and maintenance
Website / ecommerce systems The greatest demand for ITO services in Norway comes
Data warehousing
from B2B software development companies
IT security
Data / voice network operations
Most of ITO projects take 3 to 5 and 10 to 19 IT specialists
Remote IT infrastructure management to complete and are valued at € 0-199K
Web solutions are most outsourced, while Cloud
These categories further fall under the five key areas of expertise:
computing is least outsourced in Norway
Web (Web 2.0, .NET, Java, PHP, open source etc) Most of the Norwegian companies single-source offshore
Enterprise 2.0 (J2EE, J2SE, C#, MySQL etc) or onshore
Mobile development (J2ME etc)
Most of the Norwegian companies outsource to reduce
Embedded development
operating costs, accelerate time to market, access IT staff
Software as a service (SaaS) and Cloud Computing
outside Norway and release in-house staff for other
business purposes
The key issues in the Norwegian ITO are delayed project
delivery, poor project management on vendor’s side and
cultural difference
Own Development Team is the most widely used
engagement model in Norway
In the future, more Norwegian ITO buyers will go
nearshore
Maximum project control retention is the key barrier that
prevents many Norway’s companies from adopting ITO
services




Profile of Outsourcers

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




Company Size (Headcount) Primary Industry




Revenue Growth Expectations

Outsourcers In-House Development Companies




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

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



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




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?




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




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 Norway

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




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 Regarding the outsourcing destinations that the Norwegian companies
choose to offload their IT processes to, the survey comes up with some
interesting yet unexpected findings: the equal numbers of companies
Since the 2011 survey has been expanded and modified, only some of the outsource offshore, onshore or multisource nearshore and offshore and
findings will be compared to the results of the 2010 survey, while the rest nearshore and onshore, while only slightly more than 11% of Norwegian ITO
will be analyzed ad-hoc. buyers source nearshore (down 20.9% from 2010).

As the 2011 survey shows, the greatest demand for the outsourcing services Regarding the factors that the Norwegian companies consider as very
in Norway comes from the B2B-focused IT sector. In general, ITO is used important when deciding on their outsourcing geography, 100% of survey
across diverse verticals, including some lucrative innovative niches such as respondents believe that foreign language skills availability is the most
mobile development and digital media. However, it is not this extensively important factor, more than 71% look for low costs (up 44.4% from 2010),
used by construction, education, financial, manufacturing, entertainment around 57% look for available IT talent pool (up 43.1% from 2010) and
sectors and government. another 57% rely on positive references from peer companies (up 37.1&
from 2010).
Most of the Norwegian ITO engagements are valued at €0-199K, which is
down 21.6% from 2010. In 2011, the volume of the €200-499K contracts Analyzing the top three drivers boosting corporate decisions to outsource in
dropped by 24.3% and the volume of the €500K+ contracts increased by 2.7% 2011, almost 63% of the Norwegian ITO buyers outsource in order to reduce
from 2010. This finding shows a significant shift from large to smaller ITO operating costs (up 39.5% from 2010), the same number of companies
contracts and can be attributed to the increased number of web outsources to speed up their time to market (TTM) – up 36% from 2010, 50%
development projects (up 63% from 2010), mobile projects (up 31% from outsource to access IT resources outside Norway (i.e. as a response to the
2010) and SaaS/Cloud computing projects (up 10% from 2010). shortage of domestic IT skills and resources) – up 19% from 2010, and
another 50% outsource to free in-house resources for other business tasks –
Although more Norwegian ITO buyers started to multisource their solutions
up 39% from 2010.
(i.e. distribute the outsourced operations among 2 and more service
providers) in 2011 – up 21.9% from 2010 - the prevailing majority of This finding suggests that although the majority of Norwegian outsourcers
companies still outsource their IT solutions to a single ITO provider. In are still seeking cost reduction and lower-cost resources in their ITO
general, this finding marks an emerging trend for multisourcing when more engagements, they also realize outsourcing’s ability to accelerate time to
companies in Norway outtask their projects to several different vendors product and time to market and release internal resources for other IT
based on their technological expertise, available resource pool, business and/or business related tasks.
models used etc.




Regarding the client – vendor relationships, more than 57% of the survey In order to fix their current ITO issues, more than 62% of companies increase
participants admitted selecting their ITO partner(s) based on positive face-to-face communication with their vendor’s project management and
references from peer companies, another 57% - based on own online teams (up 42.5% from 2010), 50% dedicate more management resources (up
research, almost 30% - on RFP responses and cumulative 14.3% - thanks to 32% from 2010) and almost 38% dedicate more IT resources to their
the outsourcing consultancy and ITO vendor’s online marketing campaigns. outsourcing operations. In 2011, as many as 25% of ITO buyers consider
Regarding the factors that the Norwegian outsourcers consider as the most changing their primary ITO partner to improve the outsourced operations,
important ones in their choice of the ITO partner, more than 70% pointed to which is up 13% from 2010.
positive peer references (up 51.4% from 2010), more than 62% - successful
pilot/test project completion (up 53.5% from 2010), 50% - sound experience The finding that almost 43% of the Norwegian companies surveyed consider
in the similar projects (up 35% from 2010) and another 50% - low service their current ITO partners as unreliable and not focused on mid- to term-long
cooperation suggests that in 2011 Norwegian ITO buyers “raise the bar” for
rates (up 33% from 2010).
their providers and challenge them with more difficult and sophisticated
Regarding the vendor’s size, almost 43% of the Norwegian ITO buyers engage tasks. As a result, only mature and well-prepared providers with realistic HR
with small vendors (less than 50), while less than 15% engage with large growth capabilities and access to complex innovative technologies are able
service providers (1,000+). This finding is explained by the actual size of the to overcome these challenges and retain clients. Providers who are only
outsourcing companies surveyed: almost 60% were small (down 8.2% from focused on winning more new clients and, thus, provide incomplete /
2010), while almost 24% were large. Since many large ITO service providers untruthful information in their RFP responses, intentionally overestimate
are usually quite process-packaged, hierarchical and bureaucratic, it takes a own project fulfillment capabilities and bid very low, often fail to meet their
while to come into a mutually beneficial agreement with them regarding clients’ increased demands. This finding generally suggests that ITO service
terms of payment, pricing structure etc. Additionally, many small ITO buyers providers will have to modify their engagement models and focus more on
feel more comfortable when cooperating with small providers and have a client retention in the upcoming months.
stereotypical belief that small providers are more customer-oriented,
compared to the large ones. Regarding the ITO engagement models used by the Norwegian outsourcers,
the survey shows that the Own Development Team (when ITO buyers use
What challenges are facing the Norwegian ITO buyers in 2011 versus 2010? their partners as space and resources providers, but retain maximum project
According to the survey results, the top two issues are the delayed delivery management and control, i.e. literally extend their in-house IT teams to the
and/or unmet project milestones (up 43.1% from 2010) and poor project lower-cost and resource-abundant locales) is the most popular one in
management on vendor’s side (up 32.9% from 2010). Norway, followed by the project-based models. However, the fact that the
prevailing majority of Norwegian companies point to delays in delivery
In 2010, besides the delayed delivery, two other most critical issues were schedules and poor project management on vendor’s side as their biggest
time difference and poor client-vendor communication. ITO challenges proves that the companies either do not use the Own



Development Team model correctly, or simply fail to manage their impressions of the ITO engagements: cumulative 43% believe that providers
outsourced projects in the right way. The following findings support this have more disciplined methodologies that can lower costs down in a longer-
suggestion: only less than 15% of Norway’s ITO buyers are fully involved in term perspective, outsourcing their software development has been the right
HR selection process / make the final IT staff hiring decisions (with no decision and it is important to have the vendor’s team located onshore or
interference from ITO partners) and less than 30% know exact salaries of nearshore.
each and every member on the outsourced project team and the actual
service fee they pay on top of the salaries (down 0.4% from 2010). It The fact that almost 86% of the Norwegian companies plan to continue with
generally means that most of the Norwegian IT outsourcers still face the their outsourcing engagements in the next 12 to 24 months proves IT
hidden agenda / non-transparent pricing in their engagements. On the other outsourcing to be an effective cost reduction, TTM acceleration and overall
hand, when asked to compare the actual annual incurred costs to the business development strategy improvement solution.
expected (contracted) ones, 57% admitted the actually incurred and
Conclusions and Predictions
contracted costs to be about the same (up 29.1% from 2010), 14.3% said
their actual incurred costs were up to 25% higher than expected (down
Based on the results of the Norwegian ITO and In-House Software
25.7% from 2010), 14.3% said their actual incurred costs were 50%-75%
Development Survey, several obvious trends were identified:
higher than expected (down 4.7% from 2010) and another 14.3% said their
actual incurred costs were 50%-75% lower than expected (up 25% from
 More small and mid-market actors start using ITO services in search
2010).
of innovation and differentiation
Regarding the actual cost saving in 2011, the equal numbers of companies –  There is a growing demand for ITO services from innovative lucrative
28.6% each – save less than 10%, 10%-24% and 60%+ from their outsourced niches such as mobile computing and digital media
operations, while only slightly more than 14% save 25%-39% of operating  Compared to the in-house development companies, more IT
costs. In 2010, most of Norwegian outsourcers managed to save 10%-24% of outsourcing companies manage to increase their annual revenue by
operating costs from ITO (down 22.7% in 2011), while only 12% saved more 1%-9% and 50%+ in 2011
than 60% (up 16.6% in 2010). This finding marks a significant increase in  Norwegian ITO contracts become smaller in value and so do project
overall savings from ITO in 2011. teams
 Most of the Norwegian ITO buyers outsource their projects to a
When asked to assess their level of satisfaction with the current ITO partners,
single service provider, so multi-sourcing is not yet a megatrend in
their work quality, ability to meet deadlines and general attitudes, more than
Norway
85% said they were very satisfied, somewhat satisfied or just satisfied (up
9.8% from 2010) and only around 15% said they were very dissatisfied (up
3.3% from 2010). This finding generally reflects the Norwegian companies’



 Cost advantage is no longer the major factor considered in the choice generation outsourcing mindsets when it no longer suffices to just
of the ITO locale. What is most considered, however, is the offload the project to the 3d party and wait for the turn-key delivery.
availability of the appropriate foreign (English) language skills Now companies strive to have a greater control of their outsourced
 When choosing their ITO partners, companies are still over- operations
influenced by the references from their market peers and  On the other hand, the grand majority of the Norwegian ITO buyers
underestimate such important criteria as vendor’s realistic HR scaling are still unaware of the actual salaries their members on the vendor’s
capability and flexible and innovative business models allowing project team(s) are paid, which marks a negative trend and suggests
companies to have predictable costs and plan their ITO engagements that companies do not know their vendor’s price formation and are,
as a long-term corporate IT strategy thus, incapable to avoid extra costs and have predictable costs for
 The prevailing majority of the ITO buyers partner with small service future ITO planning
providers. This trend explains why some companies are missing
The analysis of the above findings as well as the findings of the non-
resources on vendor’s side, facing the hidden agenda, poor project
outsourcing companies’ survey allows making some forecasts for the future
management and poor quality of deliveries. Small providers are, as a
development of the Norwegian ITO market:
rule, not mature and structured enough to properly manage ITO
relationships, innovate and put all of the critical processes in place.  The fact that the grand majority of current outsourcers plan to
Nor are they able to hire and retain the most highly-qualified IT continue with their outsourced operations in the next 12 to 24
personnel that prefer to work in stable companies with a well- months suggests that the level of ITO adoption across the Norwegian
established track record and able to meet high salary expectations. In industries will not decrease in the near future
order to “keep head above the water” and withstand tough  In addition, the fact that there is an obvious demand for ITO services
competition on local IT headhunting markets, small and mid-sized from SMEs and innovative niche players suggests that the level of ITO
ITO service providers should consider the option of cooperating with adoption is likely to increase in the future. This prediction is
the local higher education institutions and universities and creating supported by the finding that more than 33% of today’s in-house
in-house tech labs to incubate own IT talent pools from students and development companies in Norway openly indicated considering
graduates. However, such initiatives will inevitably lead to the extra outsourcing as a response to their current IT challenges in the future
investments and, as a result, will lead to the service fee increase  Considering that high cost / occupancy of domestic IT personnel and
(today, low fees are the only advantage that small providers have pressing customers are some of the main barriers in the way of
over their larger competitors) successful and efficient in-house development / IT management,
 Compared to 2010, this year more Norwegian ITO buyers make final more companies are expected to be forced to adopt ITO in the
HR decisions and select IT specialists on vendor’s side to be involved months to come
in their outsourced projects. It hallmarks the origination of the next-



 The fact that cumulative 58.3% of the non-outsourcing survey
participants admitted their reluctance to outsource due to the fear of
losing own project control and stereotypical belief they are yet too
small and immature for such an undertaking suggests that more ITO
service providers will have to innovate their engagement models to
allow more benefits to SMEs as well as maximum project control
retention.
 The future drivers of ITO decisions in Norway may slightly change
with more companies beginning to outsource in order to share risks,
respond to the internal and external pressures to reduce IT budgets
and speed up TTM. This trend will result in more ITO buyers focusing
on establishing long-term strategic and shared-service partnerships
with their service providers
 Geographic preferences of the Norwegian ITO buyers are likely to
alter in the forthcoming months, as the majority of today’s non-
outsourcing companies indicated their intentions to focus on
nearshoring rather than offshoring if they make such a decision in
the future
 Choosing their ITO locale, Norwegian companies will look at legal
system / intellectual property law maturity, geographic proximity,
foreign language skills’ availability and vast IT resource pool. Thus,
intellectual property protection in ITO engagements is likely to
become a hot topic in the future outsourcing debate
 Regarding the choice of the ITO partner, the future criteria will most
probably remain the same as in 2011: most of Norwegian ITO buyers
will still rely on the market peers’ vendor references and ignore the
availability of formal quality and process maturity certifications such
as ISO/CMM or likewise




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Norway's IT Outsourcing Intelligence Report 2011

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Norway's IT Outsourcing Intelligence Report 2011