04 Feb 2009
Large UK organisations are more likely to turn to outsourcing as a way to save money during the recession, according to research by consultancy EquaTerra.
The study of senior managers at 125 of the top IT spending organisations in the UK suggested that 63 per cent are looking to outsource more, compared to 54 per cent the previous year.
Some 80 per cent of survey respondents said that further cost savings was the main reason for increasing their levels of outsourcing.
Nearly nine out of 10 organisations (89 per cent) said they use Indian IT services firms to meet some of their needs, and 66 per cent are using a combination of near- and offshore outsourcing as part of their strategy – compared to 57 per cent the year before.
"These results clearly demonstrate that service providers with existing IT outsourcing contracts are unable to rest on their laurels," said EquaTerra European chief operating officer Phil Morris.
"As price becomes a more immediately pressing attribute than satisfaction, clients will seek opportunities to consolidate their IT service provider portfolio in an effort to gain economies of scale and drastically reduce spend levels."
However, the findings are at odds with separate research published last month by consultancy TPI that showed a 50 per cent fall in the value of outsourcing contracts in the second half of 2008 – even though last year was still a record year in Europe for the number of deals signed.
"The weakness we noted in the third quarter of 2008 continued into the fourth quarter, and looks likely to remain into the first part of 2009," said TPI president Duncan Aitchison at the time.
It comes as no surprise, that recent research from EquaTerra has placed cost saving benefits as the main priority for companies considering outsourcing contracts, especially during a recession. Cost has always been one of the key drivers in the past and there is little point outsourcing a function with guaranteed returns, if it leads to extra expenditure and resources in other areas.
However, large-scale and long-term outsourcing projects will always have a role to play but their success doesn't have to simply hinge on cost savings. During the current economic situation, customers should look to suppliers that can remain flexible and adaptable to changing business needs and add value at every opportunity.
Cost saving initiatives should not wholly determine an outsourcing deal, but there should be an alignment of budget requirements and innovative objectives. Turning off technology investment during troubled economic periods is counter-productive and, when the upturn arrives, companies may find they lack the core capabilities to remain competitive.
Ultimately, outsourcing contracts should always be entered into having considered monetary value but it remains paramount that innovation across IT projects is not shelved during economic instability.
Posted by: Tom Higgins, Managing Director, Commercial Solutions Europe, Perot Systems 10 Feb 2009
There's a lot of debate going on right now about whether to outsource, what to outsource and why. Every organisation is facing new pressures that lead to a drive to reduce costs in their totality and at the same time get flexibility into a fixed cost base. On the face of it, outsourcing is the answer.
Outsourcing is certainly an answer, but it depends what the question is. Many organisations have inbuilt inertia. It's done that way, because its always been done that way. The pressures we're facing now mean it's a really good time to start asking some much harder questions.
Those questions start with, What are we trying to achieve, what's our strategy?? From there, it's a natural progression to ?-What do we need to do ? what processes do we have - to make our strategy succeed?? In turn, that leads to What IT systems do we need to make our business processes as efficient as possible??
Outsourcing to reduce costs alone isn't enough. It also needs a hard look at what you're going to outsource. The change in provision is exactly the right time to align better with the business processes we're trying to support - and that can lead to much more significant savings.
Posted by: Mike McCormac 05 Feb 2009
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