Economic gloom shifts outsourcing focus to costs

Forget talk about partnerships, outsourcing is all about cost reduction according to a new survey

The darkening economic outlook is changing business leaders' attitudes to outsourcing, with greater focus on cost savings and a more adversarial approach to managing contracts, according to new research from law firm Norton Rose.

Nearly nine out of 10 firms said that cost reduction was the motivating factor for outsourcing, according the research. Two-thirds of suppliers, meanwhile, reported that negotiations over price were more intense.

Furthermore, when questioned about their favoured strategies for managing risk in contracts, customers repeatedly relied on key performance indicators, service credits and liquidated damages.

“It seems to be a case of using more carrot than stick to manage the relationship,” Mike Rebeiro, group head of technology at Norton Rose told Computing.

But while attitudes towards cost cutting have hardened since Norton Rose conducted similar research in 2008, shortly after the collapse of Lehman Brothers, the results also suggested that enterprises have contradictory expectations of their outsourcing contracts.

As well as reducing costs, customers are fully expecting their outsourcing deals to deliver business transformation and introduce new technologies and innovation, said Rebeiro. “It's not always possible to do that and reduce costs.”

Both customers and suppliers reported that firms' due diligence processes had tightened in the past three years. Yet nearly a third did no checks on the personnel provided by their supplier.

One area where there were signs that firms were working well with outsourcing partners was in the area of data loss, where 78 per cent of customers believed that managing the risk should be a joint effort. That is up from just 13 per cent in 2008.

The findings were based on extensive face-to-face interviews with IT leaders and senior procurement managers at large firms across the globe. A third of interviewees were based in the UK.