Outsourcing failing on strategic objectives

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Outsourcing delivers cost savings, but little else in terms of strategic advantage, according to a new report.

The outsourcing report 'Why settle for less?,' published by IT services consultancy Deloitte, has revealed that 89 per cent of outsourcing initiatives are achieving a return on investment of more than 25 per cent, but that other, key non-financial benefits are not being realised.

Some 64 per cent of the 300 senior US, UK, German and Canadian executives questioned for the survey cited cost reduction as their primary motive for their largest outsourcing contract, while access to technology expertise was the second most important reason for 56 per cent.

But only 37 per cent want to improve customer value and 27 per cent were hoping to gain competitive advantage through outsourcing parts of their IT infrastructure. Just 34 per cent said they benefited from their service providers' innovative ideas or transformation of their operations.

The report said that feedback from the surveyed executives, each of whom spend at least $50 million (£25.5 million) on IT outsourcing initiatives or at least $30 million (£15.3 million) dollars on business process outsourcing (BPO) deals annually, recognised that they should have wanted more.

Given the chance to start projects over, almost half (49 per cent) said they would define service levels that aligned better with their companies' business goals.

And, although 70 per cent of respondents stated they were "satisfied" or "very satisfied" with outsourcing arrangements - the highest levels in any Deloitte outsourcing study - a significant two in five reported they had terminated at least one outsourcing contract and transferred it to a different vendor.

Peter Moller, Deloitte consulting practice partner said: "The true potential of outsourcing is not being achieved and we are still seeing a focus on a narrow remit of labour arbitrage and cost reduction. In short, companies are aiming too low."

In 62 per cent of cases of termination or transfer, problems were escalated to senior management within the first year, with 15 per cent reporting five or more such escalations. This rises to 53 per cent for those that continue to escalate in the second year. And of those reporting they were "dissatisfied" or "very dissatisfied", 50 per cent brought the function back in-house.

By contrast, the report also surveyed service providers and found 75 per cent said clients are not preparing well enough for outsourcing initiatives. The service providers cited a lack of maturity in processes and the inability of many clients to clearly articulate their goals and needs.

The proportion of executives from the United States was 42 per cent, with 25 per cent from the UK, 25 per cent from Germany and 8 per cent from Canada.

While UK businesses may not be taking full advantage of outsourcing, a separate report recently published

has shown that India is benefiting from a boom in IT jobs.

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