Outsourcing study points to lost opportunity

Outsourcing may help your organization cut IT costs, but a new study shows that many outsourcing initiatives are hampered by poor planning and a lack of innovation.

That’s the finding of a Deloitte report, “Why Settle for Less,” released in February. It shows that 83% of companies polled achieved a return on investment of more than 25% on their outsourcing projects. That’s good news. However, there’s still disappointment associated with the arrangement. Nearly half of those polled said they would have defined service levels better if they could have a do over, and only 34% thought they had gained important benefits from their service providers.

What’s more, by a 3-to-1 margin, the service providers say their clients didn’t have a solid plan, lacked the operational data needed to make sound decisions and didn’t understand how the outsourced organization would really work.

“Outsourcing is working financially for a majority of companies in this survey, however, executives’ propensity to lead with cost reduction and labor arbitrage without emphasizing the need for overall optimization stymies their companies’ chances to realize the full benefits of outsourcing,” says Peter Lowes, a principal with Deloitte Consulting. “The themes of unrealized potential and lost opportunities to use outsourcing as an opportunity echo throughout this report.”

Deloitte suggests closely considering the following aspects of an outsourcing deal to help improve efficiency, reliability and productivity:

* Do you have a clearly defined strategy? Make sure your firm house is in order rather than handing over a dysfunctional IT operation to a service provider to manage.

* Does your company have a solid foundation? Creation of a business case and service-level agreements is key.

* Chose the right service provider. Cost alone should not be the main criteria.

* Strike the deal for a mutual, flexible contract.

* Manage the relationship to ensure you’re getting what you expect.