Outsourcing to increase as IT cost-cutting continues

Outsourcing and offshoring among European businesses is set to increase as boardrooms continue to pressure their CIOs for more IT cost savings, according to a new report.

The survey of 161 CIOs and IT executives in European organisations by Capgemini found that 58 per cent of the respondents are considering outsourcing and 39 per cent are considering offshoring in the next two years.

The report said: "The cost chase is far from over and CIOs remain under heavy pressure, facing challenges from increasingly common, low-cost delivery options such as offshoring and distributed delivery."

But offshore outsourcing remains the preserve of big global companies and the survey found that 80 per cent of those who are currently using offshore IT services have an IT budget of more than €40m per year.

The report said: "This may change in the future as the offshore market matures, enabling mid-size[d] companies to use offshore delivery models."

By 2008 almost half (47 per cent) of European companies will be outsourcing or offshoring IT services, according to Capgemini.

With IT budgets flat, CIOs say they are looking to fund new investment by making savings on the amount spent maintaining and supporting the IT operations. An average of 60 per cent of the total IT budget is currently spent on operations, maintenance and support, with just five per cent devoted to strategy and planning.

The survey also points to a "clear correlation" between profitability and how well IT is aligned with the business; those companies that innovate using IT instead of just focusing on costs have 10 per cent or higher operating margins.