Technology outsourcing 'will continue to increase'

Australian organisations are set to continue outsourcing more of their technology infrastructure and software applications according to new research.

The annual study by benchmarking and sourcing consultants ITNewcom interviewed 60 executives at top IT spenders in Australia about their outsourcing intentions. It found 75 per cent of organisations already outsource some of their applications, while 85 per cent outsource some of their infrastructure.

"These totals are likely to increase as the study reveals that 43 per cent of organisations intend to outsource more applications services and 40 per cent intend to outsource more of their infrastructure," ITNewcom research director Scott Stewart told IT Pro.

The majority of organisations also expect to make some changes to their outsourcing provider arrangement within the next two years, with only 22 per cent of public sector organisations and 29 per cent of private sector organisations not intending to change their current sourcing mix, Mr Stewart said.

"Notably the public sector agencies have greater intention to outsource more across all service lines than their private sector counterparts. So much so that offshoring is now being considered."

While offshoring is seen as a viable and regular part of IT operations by many in the industry, it generates fierce public reaction.

ITNewcom's study found that 39 per cent of public sector agencies are now seriously considering offshoring some of their application needs.

Australia has long been considered a mature information and communication technology market for outsourcing, with the main reasons chief information officers and business leaders decide on this path including: being able to access resources not otherwise available, reducing costs and being able to increase output on demand.

Gartner analyst Rolf Jester agreed outsourcing was growing at a rate far greater than insourcing - in other words bringing responsibility for IT back into the company. General Motors' decision to bring its IT capabilities in house is a rare example of a company reversing the outsourcing trend. In Australia, there have been few large-scale moves to bring things back in house.

"The reality is that insourcing gets more share of noise and interest, than it really can justify," said Phil Hassey founder of IT research firm CapioIT.

"It is certainly not an overwhelming strategy. It does work for some organisations, of course. It does prove that there is no one definitive model for the delivery of core business requirements. IT is no different to HR, or Finance in that regard.

"Typically it is driven by either a change in organisational philosophy away from outsourcing, eg as a result of leadership change, or straight out bad experience with a traditional outsourcing contract. It is typically a costly and disruptive step ... so the decision is not taken lightly, particularly in a Capex-shy business environment."

ITNewcom's study found while the outsourcing intent was strongest, some organisations did intend to insource some of their IT services over the next two years. Twenty-one per cent of private sector organisations intend to insource more of their applications service.