Are any companies doing all of their own application development these days?
Last month we highlighted two surveys, one from Harvey Nash and one from Bluewolf, that showed app development was one of the most frequently outsourced IT activities. Now a new report from Computer Economics shows a similar trend.
With 66 percent of IT organizations it surveyed outsourcing all or part of their app development, it ranked as the most popular form of outsourcing in the Computer Economics study. Organizations typically outsource a quarter of their app development work, and a third of survey respondents are increasing that amount.
Not So Satisfied
Despite this popularity, satisfaction with application development outsourcing is low. The study found 77 percent of organizations experienced the same or better service quality for outsourced app development vs. internal development. While this sounds like a high number, it ranks 10th out of the 11 outsourced IT functions included in the study.
Worse, outsourced app development actually costs more than internal development for 46 percent of IT organizations.
John Longwell, vice president of Research for Computer Economics, says many companies consider outsourced app development a kind of necessary evil.
“With application development, cost overruns are common and the outcome often falls short of expectations,” he said. “It’s kind of like getting your teeth cleaned. You may not want to visit the dentist, but you can’t avoid it. With application development the satisfaction is low, but if organizations could actually do it better and cheaper in-house, then that is what they would do. Often they cannot find the right skill set or need to get work done quickly, so they turn to outside help.”
Net growth in app development outsourcing is low when compared to the 10 other functions in the study, Computer Economics found. This is surprising, given a seemingly healthy appetite for mobile apps. But Longwell believes interest in mobile app development may still outpace actual projects.
“What organizations are planning to do and what they actually do, is not always in alignment. There is still a great deal of uncertainty in the economy, and visibility into the future is low. So organizations have been cautious about hiring and committing to large, long-term projects that lack immediate payback,” he said. “We are seeing some pent-up demand for application development work, but we also know that capital projects could come to a halt if necessary.”
Doesn’t that uncertainty and still-unproven ROI make mobile app development work a perfect candidate for outsourcing? “It may also be that IT organizations will start bringing some mobile application work in-house, which means they are planning to hire,” Longwell says.
Overall, Computer Economics found organizations increasing their outsourcing spend as a percentage of total IT budgets. Outsourcing accounted for 8.6 percent of IT budgets in 2012, a bump from 6 percent in 2009.
Tech Companies Finding Hiring Tough
In a worrisome economic trend, Labor Department data shows the number of job openings in the U.S. dropping to 3.66 million in July, down from 3.72 million in June.
With job openings on the decline, you’d think employers would have their pick of qualified applicants. While that may be true in some industries, it doesn’t seem to be the case for companies in the IT industry. According to a recent survey by the Society for Human Resource Management, 71 percent of companies in the tech sector are having a tough time recruiting for specific jobs in their organizations.
Much of the difficulty seems to arise from the desire to fill IT jobs demanding new skills. When asked about open positions, just 23 percent of survey respondents said they demanded the same types of skills as in prior years. Sixty-four percent said the jobs required a mix of new and old skills, while 13 percent said completely new and different skills were needed.
Seventy-three percent of the surveyed companies found recruiting for open positions a difficult task in 2011, up from 47 percent.
Out with the Old Skills, In with the New
As companies focus on growth, they are looking at areas like mobile application development, to feed consumers’ hunger for mobile apps, and Big Data analysis, to glean insights for product development and marketing. The problem, of course, is that skills associated with these still-emerging technologies are scarce.
A blog post about Hadoop, a popular framework for working with Big Data, clearly illustrates the problem, quoting MWD Advisors analyst Helena Schwenk, who says developers working with Hadoop must be familiar with a variety of technologies, data components and architectures. On Schwenk’s not-so-short list: large-scale distributed systems; programming languages such as Java, C++, Pig Latin and HiveQL; predictive modeling, natural language processing and text analysis; data management; integration of structured and unstructured data; and architectural support for scalability and high-speed processing.
Schwenk mentions training existing employees. That is one option being pursued by 53 percent of companies that participated in a survey about Big Data administered by non-profit IT industry association CompTIA. Thirty-two percent planned to hire folks with Big Data skills, while 28 percent said they would work with third-party providers or contractors to fill skill gaps.
Seeking Service Options
Those results mirror what seems to be a broader trend. In a post-recession world, employers want to be able to react quickly to ever-changing market conditions. They are seeking options outside the traditional full-time work force, not just contractors and service providers, but new variants of cloud computing and managed services. Michael Kirven, CEO of IT consulting and staffing firm Bluewolf, got it right when he described companies’ desire for an Elastic Workforce.
While traditional outsourcing will be one way of meeting these staffing needs, so will managed services, cloud services, consultants and other options. Even “traditional” outsourcing is becoming less so, as companies modify contracts to satisfy their desire for more flexibility. Clients are increasingly asking for shorter outsourcing agreements, for example.
IT Execs Feel Confident about Companies – Less So about Economy
Although IT industry executives based in the United States are feeling fairly positive about their own companies’ prospects, they are less optimistic about the overall economy.
An IT Industry Business Confidence Index produced by the CompTIA trade association held steady for the third quarter, with a rating of 57.9 on a 100-point scale, virtually unchanged from the 58 rating in the prior quarter. CompTIA has produced the measurement of IT business sentiment — based on respondents’ opinions of the U.S. economy, opinions of the IT industry and opinions of their own companies – for the past five years.
Of the index’s three components, respondents’ assessment of the overall U.S. economy continues to significantly lag the other two factors: 48.3 vs. 62 for the overall IT industry and 62.7 for respondents’ own companies.
“While the ratings for the IT industry have held up well, the index’s economy component continues to be hampered by stubbornly high unemployment, softness in certain industry sectors, overseas volatility and the unknown effects of Federal Reserve monetary policy,” said Tim Herbert, CompTIA’s vice president for research and market intelligence.
The forward-looking component of the Index showed a gain of 2.7 percentage points over the next two quarters.
The smallest IT companies (fewer than 10 employees) expressed the most concern about their business prospects. Forty percent of those firms reported lagging revenue during the first half of the 2013, vs. 17 percent reporting revenue tracking ahead of goals.
Across technology companies of all sizes, 23 percent are tracking revenue ahead of goals for 2013, the CompTIA found.
Firms in the 10-99 employee range were the most optimistic about future business (30 percent). Medium companies and large businesses expressed similar levels of confidence, 21 percent and 20 percent, respectively.
The biggest concern, cited by 48 percent of respondents, is price sensitive customers who may be reluctant to spend in the coming months.
“CompTIA research consistently shows strong demand in many areas of IT hardware, software and services, so customer interest is there, but the confidence to make the investment may not always follow,” Herbert said.
Other issues of concern: downward margin pressure, mentioned by 32 percent of respondents; unexpected shocks, such as a natural disaster or spike in oil prices (32 percent); and government regulation (31 percent).
New IT Investment
Given these concerns, in which areas will IT companies increase their investments in the next six months? Respondents tapped two key areas: new products or business lines and staffing in technical positions, such as network engineers and app developers.
Not surprising, Herbert said. “These two areas of investment often go hand-in-hand. Expanding into a new product category, such as Big Data, typically requires an investment in human capital as well, which may occur through new hires or training for existing staff.”
To produce the index, CompTIA conducted an online survey of 308 IT companies. It makes the full reports available at no cost to its members.