Firms fail to maximise offshore benefits

UK firms will offshore almost a quarter of their IT operations by 2008 as they continue to seek to cut costs, according to a new report this week from IT services giant Capgemini.

But the study warned that a failure to reinvest the money saved from offshore delivery meant many firms are not seeing significant improvements in competitiveness.

The survey of 161 European CIOs found UK firms currently offshore eight percent of their IT operations, but claimed that the desire for cost savings meant they plan to increase this to 24 percent over the next three years.

Outsourcing will also grow over the same period with the report predicting just 40 percent of UK IT delivery will come from internal resources by 2008.

However, Capgemini warned firms are struggling to maximise benefits from the offshore and outsourcing models due to a failure to divert the money saved into innovative new IT projects.

Andrew Taylor, vice president of Capgemini Consulting, said in a statement that too many UK firms are risking their competitiveness by using offshoring to cut IT budgets rather than divert funds into strategic IT projects.

"This is worrying when you consider that productivity growth in the US in 2005 was 1.8 percent, double that of the UK at 0.9 percent," he added. "The UK is winning at cost-cutting, but losing at productivity and needs to address this issue as a matter of urgency.”