0 | P a g e
IT Sourcing Europe: Nearshore IT Outsourcing
Market Intelligence
Pan-European IT
Outsourcing
Intelligence
Report 2011
Coventry, UK December 2011
Pan-European IT Outsourcing Intelligence Report 2011
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Executive Summary
The Pan-European IT Outsourcing Intelligence Report 2011 presents the
summary of the All-European IT Outsourcing and In-House Software
Development research conducted between February and December
2011. In the course of the research the following European countries
were surveyed (in alphabetical order): Austria, Cyprus, Denmark, Finland,
Malta, Norway, Sweden, Switzerland, Netherlands and United Kingdom.
The key goal of the Report is to identify the differences and similarities in
the ways how companies from the above listed countries behave in terms
of:
Overall adoption of IT / software development outsourcing
services
Choosing their IT outsourcing destinations
Choosing their IT outsourcing service providers
Responding to the most critical outsourcing challenges
Managing their vendor relationships
Cost saving
Planning their future adoption of IT / software development
outsourcing services
All countries to be analyzed in the present Report have been divided into
three groups: 1) Nordic Region (Denmark, Finland, Norway and Sweden),
2) DACH, or German speaking region (Germany, Austria and Switzerland)
and 3) United Kingdom, Netherlands, Malta and Cyprus.
Within each group the countries will be compared and contrasted in
terms of:
Top three industries that most actively adopt outsourced
IT/software development
Top three IT outsourcing drivers
Top three IT outsourcing geographies
Top three IT outsourcing challenges
Top three IT outsourcing problem solving practices
Top three IT outsourcing partner search tactics
Most outsourced areas of expertise
Most popular IT outsourcing business / engagement models
Top three IT outsourcing impressions
Top three reasons keeping companies away from IT outsourcing
Future IT outsourcing factors and drivers
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Acknowledgement
Herewith IT Sourcing Europe expresses a heartily gratefulness to its
information partners – Ngi (Dutch platform for ICT professionals),
Outsourcing Verband (Austrian/German/Swiss Outsourcing Association),
and Outsourcing Portal (Polish web portal focused on IT Outsourcing
(ITO), business process Outsourcing (BPO), knowledge process
Outsourcing (KPO), HR Outsourcing (HRO), shared services etc) – for their
assistance in the localization and distribution of the 2011 European IT
Outsourcing and In-House Software Development surveys’
announcements, conditions and web links.
Without their gratuitous help IT Sourcing Europe would not have been
able to get the sufficient research sample of participants in each certain
region polled which would have had a negative impact on the surveys’
results and overall quality of trendwatching.
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Contents
Introduction ............................................................................................... 5
All-European IT Outsourcing Research 2011 .............................................. 6
Research Goals ....................................................................................... 6
Research Objectives ............................................................................... 7
All-European In-House Software Development Research 2011 ................. 7
Research Goals ....................................................................................... 7
Research Objectives ............................................................................... 7
Research Methodology .............................................................................. 7
Study Sample ....................................................................................... 10
Part I: Nordic Region ................................................................................ 11
Part II: DACH ............................................................................................ 20
Part III: Cyprus, Malta, Netherlands & United Kingdom .......................... 30
Conclusions & Recommendations ........................................................... 40
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Introduction
Despite the last year’s predictions that the European Union is likely to
catch up with the United States by the total IT outsourcing (ITO) contracts
value in 2011, the factual state of affairs demonstrates a substantial
decline in the European outsourcing transaction volumes (both in ITO and
business process outsourcing (BPO)). The last Global Services Industry
Quarterly Report by Everest Group, one of the world’s leading
outsourcing consultancies, determines this decline to make 7% from Q2
20111. On the other hand, IT Sourcing Europe’s country-specific surveys
show that the number of the low-value and less asset-intensive
outsourced IT/development projects has increased in Europe in 2011,
compared to 20102.
The current economic uncertainty generally leads to the transformation
of the entire ITO landscape in Western and Northern Europe. The
following distinct shifts have been identified:
From single-supplier megadeals to small multi-supplier contracts
1 Everest Group, “Market Vista: Global Services Industry Quarterly Report, Q3 2011,” <
http://bit.ly/vb4TRf>
2 IT Sourcing Europe, “European IT Outsourcing Intelligence Reports: Austria, Cyprus, Denmark,
Finland, Germany, Malta, Netherlands, Norway, Sweden, Switzerland, United Kingdom” 2011,
<http://www.itsourcing-europe.com/IT_Outsourcing_Reports.html>
From ITO buyers’ reluctance to willingness to change their service
providers who fail to meet their business goals and project
milestones
From dedicated development center and project-based models to
more innovative business / engagement models able to provide
maximum managerial control of the outsourced projects and
transparent pricing
From short-term cost saving goals to longer-term IT management
strategic partnerships and cross-border knowledge exchange
From offshoring to nearshoring
With the double dip effect (or second economic downturn) expected to
reach its peak in 2012, IT Sourcing Europe remains cautiously optimistic
about the future development of the European ITO market. Given that
many corporate IT leaders plan to lay off some of the in-house staff and
increase ITO spending while decreasing overall IT spending, a future
increase in the European ITO transactions becomes almost undisputable.
Companies may simply have no other choice but to seek external
assistance outside their home countries if the financial situation
continues to worsen in the following months. Besides all, outsourcing will
be considered as the only option to gear companies’ productivity gains in
the future.
Geography wise, United Kingdom remains the European leader in terms
of ITO adoption: according to the recent research by Oxford
Economics/Business Services Association3, the UK outsourcing market is
3 Oxford Economics/Business Services Association, “The size of the UK outsourcing market - across
the private and public sectors,” 2011,
< http://www.bsa-org.com/documents/70 >
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All-European IT Outsourcing Research 2011
currently assessed at £207bn, contributing £115bn to the UK economy
each year through supplies, goods and services procured by outsourcing
firms. However, effective since January 2011, the VAT rate on all services,
including outsourcing, has gone up to 20% in the UK, which increased the
cost of most of ITO contracts. As a result of this, more UK companies
move their operations to the so-called “tax heavens” such as Malta,
Gibraltar and Cyprus and continue / start outsourcing within / from these
locations.
Additionally, the Nordic region has mobilized significantly over 2011 in
terms of ITO adoption. Currently, the Nordic outsourcing market is valued
at over €5bn of which around 50% belongs in Sweden and the rest is
equally distributed across Denmark, Norway and Finland4.
Research Goals
Identify the general profile of ITO buyers in each respective
country surveyed (company size, industry, annual revenue
4 Burnt Oak Partners, “Nordic outsourcing market heats up,” 2011, <http://www.burntoak-
partners.com/2011/09/01/nordic-outsourcing-market-heats-up/>
growth expectations, length of outsourcing engagement, single
or multi-vendor management)
Determine size of augmented IT teams and value of ITO projects
Determine the most and least outsourced IT / software
development areas
Benchmark the most and least preferred ITO locales
Identify the key factors driving ITO decisions in each country
polled
Rate different factors in terms of their importance in the choice
of ITO destination and service provider
Identify the key ITO issues and problem solving best practices
Find out how ITO buyers search for their ITO partners
Determine the general profile of ITO service providers
Determine the most and least popular ITO business /
engagement models in each country polled
Benchmark ITO buyers’ dependence / independence from service
providers with regards to personnel selection and salaries’
negotiation
Measure the level of satisfaction with ITO service providers as
well as overall impressions of ITO engagements
Compare and contrast the actually incurred versus contracted
costs of ITO engagements
Assess the overall savings from ITO engagements
Determine future ITO plans of current ITO buyers
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All-European In-House Software Development
Research 2011
Research Objectives
Get an in-depth understanding of the current ITO demands and trends in each country surveyed
Help current ITO buyers compare own ITO strategy and problems against those of their industry peers
Help current ITO buyers revise and/or improve their current ITO engagements / business models based on the industry best practices
Research Goals
Determine current level of satisfaction with the outcomes of the
in-house software development / IT function management
Identify major challenges of the in-house development that may
lead companies to adopt outsourcing in the future
Identify the major factors that currently prevent companies from
adopting the outsourced development / IT
Identify circumstances that are likely to drive companies to adopt
ITO in the future
Identify ITO locales that seem to be most and least attractive for
today’s non-outsourcers
Rate different factors by their importance in the future choice of
ITO hubs and partners
Research Objectives
Help today’s non-outsourcing companies compare own in-house development / IT issues and problem solving techniques with those of their industry peers
Determine key concerns and fears that prevent today’s non-outsourcing companies from adopting ITO services and make ITO service providers aware of these concerns
Research Methodology
Both IT Outsourcing and In-House Software Development surveys were
designed and hosted by SurveyMonkey, the world’s leading provider of
web-based survey solutions.
The IT Outsourcing survey was comprised of 25 questions divided into 8
question blocks. The In-House Software Development survey was
comprised of 13 questions divided into 4 question blocks. The following
types of questions were used in both surveys: M-C - multiple-choice (only
one answer), multiple-choice (multiple answers) and M/C - matrix of
choices. Some multiple-choice questions contained an open-ended
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response option that was included as the answer “other” in the actual
analysis of responses (see Table 1).
Table 1. Question blocks & types
Block Question Type
IT Outsourcing Survey
Respondents’ profile
What is your company size (headcount)?
M-C (1 answer)
What is your primary industry?
M-C (multiple answers)
What revenue growth are you expecting in 2011?
M-C (1 answer)
Do you currently outsource any element of your corporate IT function /software development?
M-C (1 answer)
Outsourcing Behavior
What is your overall IT outsourcing experience?
M-C (1 answer)
If you do staff augmentation, what is the size of your current outsourced team(s)?
M-C (1 answer)
If you do project outsourcing, what is the value of your project(s) (in €)?
M-C (1 answer)
What area of expertise does your outsourced software development fall into?
M-C (multiple answers)
Do you multi-source? M-C (1 answer)
Where do you outsource your software work?
M-C (multiple answers)
Outsourcing Drivers & Factors
What are the TOP THREE factors that drove your company's decision to outsource IT?
M-C (multiple answers)
Rate the following factors in terms of their importance in your choice of the outsourcing destination
M/C (1 answer per row)
Rate the following factors in terms of their importance in your choice of the outsourcing partner
M/C (1 answer per row)
Outsourcing Challenges
What are the TOP THREE challenges of your outsourced IT/development?
M-C (multiple answers)
How do you respond to your current challenges?
M-C (multiple answers)
Vendor Relations
How did you find your current ITO partner(s)?
M-C (multiple answers)
What size is your major ITO partner (headcount)?
M-C (1 answer)
What business model do you use for your outsourced development?
M-C (multiple answers)
Who decides on your outsourced development team's structure
M-C (multiple answers)
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and members?
Do you know the exact salaries of each of your employee on the outsourced development team?
M-C (multiple answers)
Evaluate your current level of satisfaction with the outsourced services provided
M-C (1 answer)
Outsourcing Costs
How do actual incurred annual costs of the outsourced development compare to the expected (contracted) costs?
M-C (1 answer)
What are your actual savings from the outsourced software development versus the in-house development?
M-C (1 answer)
Impressions of ITO
What are your general impressions of the outsourced software development?
M-C (multiple answers)
Future Outsourcing Plans
Do you plan to continue outsourcing your software development?
M-C (1 answer)
In the future, where would you outsource your software development?
M-C (multiple answers)
In-House Software Development Survey
How do you currently develop/manage your
M-C (multiple answers)
In-House Software Development Behavior
IT/software products?
If you have an in-house IT team, what size is it (headcount)?
M-C (1 answer)
What part of your corporate budget is spent on IT/software development?
M-C (1 answer)
Are you satisfied with your in-house development outcomes?
M-C (1 answer)
Challenges of In-House Development
What are the TOP THREE challenges of your in-house software development?
M-C (multiple answers)
How do you respond to current challenges?
M-C (multiple answers)
Factors Keeping Away from Outsourcing
What are the TOP THREE factors that keep your company away from ITO?
M-C (multiple answers)
Future Adoption of Outsourcing
Rate each circumstance below in terms of your company's likelihood to begin outsourcing IT/development in the future
M/C (1 answer per row)
Where would you outsource your software development / IT in the future?
M-C (multiple answers)
Rate the following factors in terms of their importance in your future choice of ITO destination
M/C (1 answer per row)
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Rate the following factors in terms of their importance in your future choice of the ITO partner
M/C (1 answer per row)
If you decide to outsource IT / software development in the future, how would you search for your outsourcing partner?
M-C (multiple answers)
Do you plan to outsource any part of your IT function / software development in 2011?
M-C (1 answer)
Study Sample
The following number of companies took part in IT Sourcing Europe’s
surveys in each country surveyed:
Country # of outsourcers # of non-outsourcers
Total # of participants
Austria 320 213 533 Cyprus 129 100 229
Denmark 434 240 674 Germany 140 164 304
Malta 78 76 154 Netherlands 216 240 456
Norway 285 206 491 Switzerland 422 181 603
Sweden 192 287 479 United Kingdom 387 342 729
Grand Total 2603 2049 4652
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Part I: Nordic Region
Figure 1: Top 3 industries that most actively use ITO services in 2011
Figure 2: Top 3 outsourced project areas
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Figure 3: Multi-sourcing vs single-sourcing
Figure 4: Top 3 IT outsourcing geographies
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Figure 5: IT Outsourcing projects value (€)
Figure 6: Top 3 IT Outsourcing drivers
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Figure 7: Top 3 IT Outsourcing Challenges
Figure 8: Top 3 Responses to Challenges
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Figure 9: Top 3 IT Outsourcing Destination Selection Criteria
Figure 10: Top 3 IT Outsourcing Partner Selection Criteria
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Figure 11: Top 3 IT Outsourcing Partner Search Tactics
Figure 12: Top 3 IT Outsourcing Engagement Models
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Figure 13: ITO Buyers’ Involvement in HR Selection on Vendor’s Side
Figure 14: ITO Buyers’ Involvement in Salary Negotiations with Project Team Members on Vendor’s Side
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Figure 15: ITO Buyers’ General Satisfaction with Their Service Providers
Figure 16: Top 3 Impressions of IT Outsourcing
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Figure 17: Top 3 Factors Preventing Companies from IT Outsourcing
Figure 18: Top 3 Factors Likely to Influence Companies’ IT Outsourcing Decisions in the Future
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Part II: DACH
Figure 1: Top 3 Industries that Most Actively Use ITO Services in 2011
Figure 2: Top 3 Outsourced Project Areas
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Figure 3: Multi-sourcing vs Single-sourcing
Figure 4: Top 3 IT Outsourcing Geographies
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Figure 5: IT Outsourcing Projects Value (€)
Figure 6: Top 3 IT Outsourcing Drivers
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Figure 7: Top 3 IT Outsourcing Challenges
Figure 8: Top 3 Responses to Challenges
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Figure 9: Top 3 IT Outsourcing Destination Selection Criteria
Figure 10: Top 3 IT Outsourcing Partner Selection Criteria
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Figure 11: Top 3 IT Outsourcing Partner Search Tactics
Figure 12: Top 3 IT Outsourcing Engagement Models
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Figure 13: ITO Buyers’ Involvement In HR Selection On Vendor’s Side
Figure 14: ITO Buyers’ Involvement In Salary Negotiations With Project Team Members On Vendor’s Side
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Figure 15: ITO Buyers’ General Satisfaction With Their Service Providers
Figure 16: Top 3 Impressions of IT Outsourcing
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Figure 17: Top 3 Factors Preventing Companies From IT Outsourcing
Figure 18: Top 3 Factors Likely To Influence Companies’ IT
Outsourcing Decisions In The Future
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The German Austrian Swiss Outsourcing Association (Deutscher Outsourcing Verband e.V.)
represents the interests of outsourcing professionals and organizations and is an
independent partner of outsourcing users, consultants and service providers in Germany,
Austria and Switzerland.
Mission
The main goal of the Association is to further influence the market for outsourcing
services - BPO, ITO and SSC - in the DACH region. The development of dedicated
communication channels and media, a massive expansion of the communication within
the market and the available information as well as the installation of an independent
platform for maintaining and extending the network were identified as key aspects of the
work of the association.
In 2011 the association has established several councils and local representations as well
as relationships with the key organizations and leading professional. Further the
association has actively supported the main industry events and published almost 400
articles with special relevance to the DACH markets for outsourcing services.
Network and Councils
Good co-operation is built on good contacts. Therefore the association aims to establish
good relationships with knowledge carriers, business leaders and other independent
organizations, both on national and on international level. Further the association offers
free presentation services and moderates open groups on social / business networks.
The association has established interest groups - councils - that act as knowledge
networks to single topics such as Shared Services or as representation of markets /
outsourcing destinations Goal is to represent the interests of the respective market
segments, topics, branches or locations in an independent, collaborative manner. Usual
tasks are for instance: representation within our markets, publishing respective
information, reviewing information, establishing partnerships, building networks and
supporting the knowledge transfer by organising workshops, seminars, webinars and
webcasts. The membership with the councils is for professionals free of charge,
organizations can support the work of the councils with a sustaining membership.
The Outsourcing Journal
The Outsourcing Journal is THE independent news and information services about BPO,
ITO and Shared Services in Germany, Austria and Switzerland. It provides exclusive
information, company news, professional articles, interviews, best practices, studies,
market data, reports and much more for outsourcing professionals in Germany, Austria,
Switzerland and beyond. > www.outsourcing-journal.org
Public Relations
Market attendees can take advantage of the network and communication channels of the
association and get support in their public relations and communication efforts. The
association offers via its PR agency professional and market fit services.
> www.outsourcing-marketing.org
Partner Program
The partner program opens professionals and corporates the opportunity to support the
market and to gain access to first-hand information and an independent network. Further
the program supports corporate partners and members actively in their marketing and
public relations efforts in the DACH region.
For further information please visit www.outsourcing-verband.org/en or contact Mr.
Stephan Fricke at [email protected]
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Part III: Cyprus, Malta, Netherlands & United Kingdom
Figure 1: Top 3 Industries That Most Actively Use ITO Services In 2011
Figure 2: Top 3 Outsourced Project Areas
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Figure 3: Multi-sourcing vs Single-sourcing
Figure 4: IT Outsourcing Projects Value (€)
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Figure 5: Top 3 IT Outsourcing Geographies
Figure 6: Top 3 IT Outsourcing Drivers
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Figure 7: Top 3 IT Outsourcing Challenges
Figure 8: Top 3 Responses to Challenges
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Figure 9: Top 3 IT Outsourcing Destination Selection Criteria
Figure 10: Top 3 IT Outsourcing Partner Selection Criteria
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Figure 11: Top 3 IT Outsourcing Partner Search Tactics
Figure 12: Top 3 IT Outsourcing engagement models
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Figure 13: ITO Buyers’ Involvement In HR Selection On Vendor’s Side
Figure 14: ITO Buyers’ Involvement In Salary Negotiations With Project Team Members On Vendor’s Side
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Figure 15: ITO buyers’ general satisfaction with their service providers
Figure 16: Top 3 impressions of IT Outsourcing
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Figure 17: Top 3 Factors Preventing Companies From IT Outsourcing
Figure 18: Top 3 Factors Likely To Influence Companies’ IT Outsourcing Decisions In The Future
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Ngi, the Dutch Computer Society, represents 2,500 ICT
professionals. Ngi is a non-profit organisation seeking to improve
and promote high standards among Informatics Professionals in
recognition of the impact that Informatics has on employment,
business and society.
Ngi is a member of IFIP (International Federation for Information
Processing) and CEPIS (Council of European Professional
Informatics Societies).
Contact Details:
Postbus 1058
3860 BB Nijkerk
Netherlands
Web: https://www.ngi.nl
Email: [email protected]
Tel.: 033 247 3427
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The following IT outsourcing behavior patterns common for all European
regions surveyed have been observed in the course of the 2011 All-
European IT Outsourcing and In-House Software Development Research:
1. IT (software) industry demonstrates the highest demand for IT
outsourcing services
2. Web development is the most outsourced area of expertise
3. Nearshoring is the most popular geography of outsourcing in
Europe
4. 2011 has been the year of small ITO projects (up to €50K)
5. Cost reduction remains the major driver of corporate decisions to
outsource IT /development in Europe
6. When choosing their ITO hubs, European companies make sure
they have a vast pool of IT talent with an excellent command in
foreign languages (e.g. English)
7. When searching for potential ITO service providers, European
companies rely most on own online research and vendor
references from their market peers
8. The project-based and Managed / Own Development (Agile,
SCRUM etc) Team models are the most popular engagement
models in Europe
9. The majority of ITO buyers in Europe are not involved in salary
negotiations with their project team staff on vendor’s side, which
marks a high level of hidden agenda in ITO transactions
10. The majority of ITO buyers in Europe are either somewhat
satisfied, or just satisfied with their service providers
The following IT outsourcing concerns common for all European regions
surveyed have been identified in the course of the 2011 All-European IT
Outsourcing and In-House Software Development Research:
1. Poor communication with project teams and/or management on
vendor’s side
2. Actual incurred costs exceed or far exceed the expected
(contracted) costs
3. Loss of managerial control of corporate IT / development projects
in case of outsourcing
To keep their current and future customers satisfied with their ITO
outcomes, ITO service providers should revise and update their models of
engagement to allow a better project scrutiny and control on client’s side
and more transparent pricing structures to ensure more predictable
longer-term ITO budgets. Additionally, it is highly recommended that ITO
service providers look beyond their Service Level Agreements and
develop a set of value-added services to proactively meet their clients’
business needs in today’s hectic and rapidly changing business
environment.
Conclusions & Recommendations
Pan-European IT Outsourcing Intelligence Report 2011
41 | I T S o u r c i n g E u r o p e | C o p y r i g h t | A l l R i g h t s R e s e r v e d | 2 0 1 1
Pan-European IT Outsourcing Intelligence Report 2011
42 | I T S o u r c i n g E u r o p e | C o p y r i g h t | A l l R i g h t s R e s e r v e d | 2 0 1 1
About IT Sourcing Europe
IT Sourcing Europe is a UK-based market intelligence company specialized
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