According to this year’s Nordic IT Sourcing Study from Whitelane Research in collaboration with PA Consulting, fewer Danish companies will outsource in the next few years. This is mainly due to more mature customers choosing a more balanced approach rather than simply outsourcing everything to a single supplier. "Customers are more focused on what needs to be outsourced," PA Consulting’s sourcing expert, Henrik Ringgaard, says.
In recent years, Danish companies have been hit by an outsourcing fever that has transferred large parts of the IT landscape into the hands of both Danish and foreign IT suppliers. But the fever seems to be subsiding with a fifth of Danish companies expecting to outsource less in the next two years. That figure was just 13 percent in 2019.
The trend towards lower levels of outsourcing is mainly due to the fact that Danish companies have become far more mature in assessing what the IT department has to move externally.
"Across the Nordic region and in Denmark, we are now seeing a more balanced approach to outsourcing. Customers are more focused on what to outsource to what types of suppliers and they are more focused on what competences they need to have in house. It's a great pleasure to see that maturity," Henrik points out.
"Some years ago, customers outsourced more to a single supplier – who provided a floor to ceiling and wall to wall service, and a 'bat phone' to call them if something went wrong. From there, many customers jumped towards multi sourcing, where they outsourced in a ferocious and fragmented way. Now we are experiencing a more nuanced and balanced approach to outsourcing," he says.
According to Henrik, the increased outsourcing maturity of customers come in the wake of a longer outsourcing adventure, where customers have learned from experience that it is not always easy to put large parts of an IT service into the hands of an external supplier.
"Customers have previously got their fingers burnt from putting too much effort into outsourcing and then lacking the necessary skills in-house," he says, continuing:
"Costs have been outsourced typically to international and Indian suppliers with a good business case. But customers have faced challenges in making these successful because they may not have used the right partners for the right tasks."
This year's study shows that the most compelling reasons for outsourcing more today are both about reducing costs, but also about ensuring scalability in IT that can support business needs.
The coronavirus situation may turn the picture upside down and Henrik believes it may well lead to more companies re-evaluating their outsourcing plans.
"I expect that in some of the industries that are particularly affected by the corona crisis, we will see an increased degree of outsourcing focusing on cost reduction on the back of this. There are some industries where companies need to save more," he continued.
"We also have reason to believe that the corona crisis, where some customers have experienced IT vendor challenges from one provider, is likely to lead to more balanced outsourcing between global, nearshore and local deliveries, including taking some services back in house.”
Henrik Ringgaard believes that the maturity of the companies is demonstrated by the fact that they no longer only have a view on the need to reduce costs but also on not putting all their eggs in one basket.
This is also true of customers' public cloud plans, with the survey pointing to the fact that more and more companies are now beginning to consider more carefully what they need to use cloud for.
“It has emerged that for several customers not all their existing applications are necessarily suitable for the cloud. We have seen both performance and cost challenges in the cloud if you do not use cloud for what it is designed for," Henrik said, going on to point out that: "Cloud is not only a 'cost driver' and it is not as easy as one would have thought, especially in the regulated industries, where there are still challenges to be solved and skills that need to be acquired."
According to the study, companies are still moving towards more use of the cloud. But the majority of Nordic customers (30 per cent) report that only between 10 and 30 per cent of the IT portfolio is expected to be in the cloud in the next two years.
"Expectations have increased of the cloud. But customers have already worked a lot with cloud options, and they have also become more realistic. Only one in five customers in Denmark expects the majority of their applications to be in the cloud over the next two years," Henrik concludes.