According to AMR in the 7 categories tested for outsourcing -application development, hardware maintenance and support, data center operations, web hosting, application implementation, application management, and security-every single one showed a 1% to 3% increase in how much more of the function will likely be outsourced in 2007 by manufacturers and distributors. Application development, hardware maintenance and management, application management, and security showed a 3% to 5% increase in how much will be sent offshore. Excerpts from the article are below:

Breakdown of spending:

• Application development dominates, both in terms of how much is outsourced and what percentage of that is offshored. Currently respondents outsource 24% of their application development work, with plans to outsource 27% next year. Today a quarter of this work is offshored, and next year nearly 30% will be.
• Infrastructure management is also on a growth trajectory, with 23% of hardware maintenance and support outsourced this year, and 26% slated to go to outsource providers in 2007. While a lower percentage of this work-just 7% today-is conducted offshore, companies have plans to push it to 10% next year.
• Application management is the big offshore story here. While a lower overall percentage of application management is outsourced-15%, with 16% planned for next year-a high percentage of what is outsourced is taken offshore. Respondents said they presently conduct 17% of outsourced application management offshore, but plan to push that ratio up to 22% next year.

Application implementation is clearly something that clients either want to own or work with a third-party consultant on an as-needed basis to support.

Data center is often a candidate for outsourcing-20% of this activity is outsourced, with 22% planned for next year-but much less frequently for offshoring.

Lean principles also apply to the IT organization most of all, leading to an increased uptake of outsourcing and offshoring.

Third-party services and internal head count account for 11% and 24% of the total, respectively. Over a third of respondents plan to increase their spending in both categories next year. For respondents that plan to decrease spending in these areas, 25% said they'd reduce internal head count, while only 19% said they'd reduce the use of third-party services.

Even though budgets for 2007 are growing by 3% on average, doing more with less is a fact of life for enterprise IT departments.

Save for the 5% increase in the amount of application management that will migrate offshore next year, there are no startling wholesale jumps-simply a continued, inexorable shift toward third-party and offshore support.

Source: 1

Prashanth Rai