Issues and Challenges of Scandinavian Software Development Outsourcing in 2010

Issues and Challenges of Scandinavian Software Development Outsourcing in 2010

IT Sourcing Europe, a UK-based nearshore IT outsourcing (ITO) research and advisory company, has surveyed 697 companies from Sweden, Denmark and Norway between June and October 2010 in order to identify this year's key trends and challenges in Scandinavian software development (SD) outsourcing. The companies polled represent all of the major verticals from IT and telecom to travel and hospitality to banking and finance.

According to the survey findings, the following challenges are considered to be the most critical ones by Scandinavian software development outsourcers: delayed project delivery and/or missed project milestones (reported by 65% of companies surveyed) and poor client-vendor communication (reported by 52% of survey participants). The latter includes poor project management from vendor's side, lack of appropriate resources from vendor's side, and vendor's inability to understand client's business goals. Additionally, 23% of Danish and Norwegian companies pointed to time and cultural difference and 17% of Swedish companies pointed to actual annual incurred costs of the outsourced development far exceeding the expected (contracted) ones as their greatest challenges in 2010.

The following challenges were marked as less critical by the survey participants: insufficient intellectual property (IP) and data safety (18% of respondents), excessive vendor's bureaucracy and/or organizational hierarchy (13% of respondents) and poor quality of delivered product/services (11% of respondents).

In order to respond to these challenges, 61% of Scandinavian companies polled try in increase face to face communication with their vendor's project management and development teams, 41% of Norwegian and Danish outsourcers dedicate more managerial resources (e.g., place own project manager to work permanently on vendor's side, hire or promote a manager to lead the outsourcing process, bring in consultancy etc), 54% of companies surveyed extend project deadlines and 37% of companies consider new ITO engagements. Overall, 22% of Swedish, Danish and Norwegian companies cancel their current ITO partnerships and either do back-sourcing (i.e. bring software development back to house) or improve their corporate outsourcing strategy prior to looking for new engagements.

These findings suggest that not too many Scandinavian companies are quite happy with the way they handle their ITO partnerships, nor are they happy with the quality of cooperation and deliverables they get from their vendors. IT Sourcing Europe believes that such situation will eventually challenge ITO suppliers, willing to win and retain Scandinavian clients, to improve their customer servicing and to learn how to provide a better mix of IT talent, technology solutions and innovation to help Nordic companies to both save operating costs and receive the highest quality software/web product, able to beat the competitors. Redesign of existing business models and switch to transparent pricing structures are two essential ways needed to allow Scandinavian clients to increase return on investment (ROI) and, what is more importantly, to improve the quality of their outsourced development projects.

More though-provoking findings will be available in the European IT Outsourcing Intelligence Report 2010 to be released in November - December 2010.

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