Outsourcing can save companies big bucks, report says

Companies are sitting on approximately $10 billion in savings by not optimizing their outsourcing opportunities, report says.

Outsourcing noncore infrastructure management and application services can save companies between 12% and 17% on average, a Forrester Research report shows.

IT shops that outsource infrastructure management and application services can expect to save 12% to 17% annually on average, which means U.S. companies are sitting on about $10 billion in potential savings, according to a new Forrester Research report

Forrester concluded that U.S. companies, which spent close to $150 billion for all IT services and outsourcing in 2006, could reap more rewards by crafting better contracts.

Motivated by previous survey results showing that about 70% of 615 technology decision-makers are hoping to reduce their budget spend on IT services, Forrester teamed with IT outsourcing advisory firm TPI to calculate potential savings. TPI provided data from more then 50 IT outsourcing transactions between 2003 and 2006, and all of the deals used in Forrester's study included infrastructure management services, with 22 of the contracts also featuring application services.

Forrester says companies seeking large outsourcing engagements should target the "sweet spot deal," which runs about seven years in duration and has a total contract value of between $200 million and $1 billion, with between $50 million and $120 million in annual spend. Forrester's savings calculations -- determined by comparing the projected internal costs without outsourcing to the total planned costs with outsourcing -- show that companies landing such sweet spot deals could save 17% at the high end and 12% in more conservative deals.

"The few dozen TPI clients analyzed here have unlocked at least $3.3 billion of total commercial value," Forrester reports.

Copyright © 2007 IDG Communications, Inc.

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