An Ipsos-Reid study indicates that Canadian companies are prepared to spend less on IT, but devote more of their budgets to outsourcing.

The study, called “”The IT Vendors Guide to Customer Economics,”” surveyed 603 senior decision-makers: half of them CIOs and IT managers, the other half CEOs.

Between 2003 and 2005, budgets for applications, hardware and infrastructure, services and security will decline 4.4 per cent overall. Applications will take the largest hit, according to the report, with a projected decline of 13 per cent.

Of the 603 companies, 131 were small businesses with less than 100 employees. The remainder were mid and large-size companies with 100-1,000 employees.

Their budgets may be smaller, but the portion that will be devoted to outsourcing will increase by five per cent over the next 18 to 20 months. More companies will be devoting themselves to outsourcing business processes like HR, payroll and transaction processing. Already a leader in that market, financial institutions and insurance firms will continue their commitment to business process outsourcing (BPO).

The other verticals addressed by the Ipsos-Reid report were: communications and services (telecommunications, data processing, professional services); manufacturing (industrial, distribution, wholesale and retail); and government (federal, provincial, municipal).

Government alone plans to increase its BPO by seven per cent over two years, but its overall IT spend will decrease three per cent.

According to report author Lise Delazizzo, based in Toronto, “”Twenty per cent of companies told us that they were outsourcing BPO in 2003. That jumps to 28 per cent in 2005.””

Respondents were less likely to rely on offshore outsourcing, at least in the short term. Lack of control over the outsourcing process when it’s moved overseas was cited as a deterrent by 33 per cent of companies surveyed. Thirty-two per cent of respondents said that a desire to keep jobs in Canada also detered them from using an overseas partner.

The response was more vocal when it comes to outsourcing software development jobs overseas. The study suggests that companies are facing difficulties with integrating new technology in their own organizations and are reluctant to exacerbate that problem by having a third party in another country handle development.

“”We’re seeing a backlash right now and we think this has a lot to do with the current political environment,”” said Delazizzo. “”Global outsourcing is part of a political platform. It’s all about ‘Let’s keep jobs here. Why are we sending them offshore?’ We’re seeing a reaction to this in Canada.””

This outlook is temporary, however. “”I think if we asked those 603 decision leaders one year from now how they feel about this, I think you’re likely to see a change,”” she said.

According to a PricewaterhouseCoopers study released in April, 75,000 of 550,000 Canadian IT jobs will move overseas to India, Russia and other countries by 2010.

Thursday’s Ipsos-Reid study was commissioned by five Canadian IT companies: Borland, HP, Telus, IBM and SAS.

“”The interesting result of the survey was that overall it was generally very consistent with what we’ve been hearing directly from our customers,”” said Chris Corey, vice-president and general manager of Borland Canada.

“”It’s less a question about offshore outsourcing versus onshore and more a question about what is the most effective way to them to increase their productivity while maintaining a high degree of quality.””

Offshore outsourcing requires a carefully managed approach due to the inherent political, cultural and lingusitics differences, he said.

Borland doesn’t outsource any of its own operations, but does maintain six international sites. “”Currently they are Borland employees, so they’re not technically outsourced. But they are, for all intents and purposes, offshore as it relates to the complexity of offshore development.””

Delazizzo urged software companies to offer more outsourcing opportunities for their own clients. A growth market will be applications management, according to the survey, with a projected six per cent spend increase in the application services sector by 2005.

Mainstay outsourcing companies like IBM Global Services and CGI will have to deepen their existing relationships with outsourcing customers, she said.</

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