Outsourcing Application Development Takes a Hit

More companies are signing help desk outsourcing deals they hope will leech costs from the bottom line, and fewer are hiring outsourcers to create new applications and systems aimed at helping them innovate and bulk up the top line. So says a newly released survey conducted by Computer Economics, which early this year interviewed more than 200 U.S. and Canadian companies to find out where their outsourcing dollars are going.

In fact, although application development was the most popular form of outsourcing—by 33% of organizations in the study—tasking a service provider to develop new systems is losing favor. In 2007, says the firm’s research director John Longwell, at least 52% of the companies surveyed were outsourcing some or all of their application development. “That’s a fairly significant falloff,” Longwell says. Computer Economics believes application development outsourcing is losing ground in the current economic environment as organizations cut back on project-based work.

To be fair, Computer Economics’ annual “IT Outsourcing Statistics: 2009/2010” report showed that spending on IT outsourcing is down across the board (except help desk operations, mind you). As with everything else, the recession has taken its toll on outsourcing. But Computer Economics’ survey has consistently shown application development outsourcing a popular choice in recent years, Longwell says.

There may be more to blame than the recession. The survey also found that companies are experiencing cost overruns with application development (a topic for another day). Certainly its easier to estimate how much it costs to operate a help desk responsible for answering phones or electronic inquiries from end users, and how much can be saved if that operation is outsourced.

There’s no surprise here, then, that application development outsourcing is down. When companies are faced with tough economic times, they’re looking to stay afloat, not win any races. So the purse strings are pulled tight for new IT initiatives… you know, the kind of initiatives like a shiny new applet that would let your road warrior sales woman access product databases from her mobile phone so she can give customers the most current pricing while sitting in said customer’s office. Conventional wisdom advises against such bold spending on a project that has to earn its keep and instead recommends companies spend outsourcing money on one that promises more immediate savings. The kinds of initiatives that eliminate in-house costs for manning help desks. Clearly it’s not wise to pay more for a help desk than need be, and if companies aren’t outsourcing help desk services when there are providers that can do it better, cheaper, and faster… shame on them.

But to ignore opportunities is to take serious risks. Companies can’t stop investing in themselves, and that may mean investing in application development even in lean times. When the lean times are over and the fat comes back, companies need to be ready with leading-edge systems and applications that’ll let them partake in the feast.

So, what’s your budget look like these days for outsourcing application development? Is it feast of famine?