Wednesday, August 08, 2007

Outsourcing IT Remains Strong with Increasing Buyer Demand for Improved Service Levels

Demand remains strong for outsourcing of information technology services, but buyers are requiring more from their providers according to a new study from Alsbridge. The survey of 300 corporate buyers indicates that quality remains a big concern for companies using offshore service providers. The research also found that buyers continue to experience numerous challenges with the IT providers and are unable to realize all the benefits associated with IT Outsourcing (ITO). While they are largely achieving their cost reduction goals, the biggest gap between benefits sought and realized was found in hard-to-measure areas, such as innovation, speed and flexibility.

"Providers focus on delivering to a contract in many cases,"
says Ben Trowbridge, Alsbridge CEO. "Corporate buyers of outsourcing services need to build innovation, flexibility and relationship management into their working interaction with providers. These are difficult to build into the language of the contract, but should be dealt with as a part of governance."

The survey was designed to assess the buyer's view of information technology outsourcing (ITO) and to determine the key benefits and challenges associated with their outsourcing strategy. More than 40 percent of the participants represent organizations with annual revenues of more than $1 billion and more than 1,000 employees. Approximately 80 percent of the respondents indicate they are currently involved in IT outsourcing.

According to the survey results, the level of satisfaction with ITO is moderate across the general IT functions with "somewhat satisfied" being the most popular choice. Buyers are particularly concerned with quality issues, missed deadlines and cost overruns.

The research also demonstrates that almost half of the respondents claim that their ITO projects are either unsuccessful or partially successful. This closely correlates with another important finding - a large number of ITO contracts are being considered for renegotiation in the near future, primarily due to poor satisfaction levels of companies with their ITO providers.

"Dissatisfaction affects both the buyer's business operations and the profitability of the provider," says Trowbridge. "Best practices in outsourcing strategies require monitoring and measuring satisfaction levels against qualities of the contract and relationship. Usually an outside firm is required to provide an objective evaluation of the situation."

The survey also shows that as buyers have increased their portfolio of IT services operations in various global locations, the importance of managing risk and the relationship with the service provider has increased significantly. The issue of flexibility in relationships with the IT providers was cited among the top factors that contribute to the success of an ITO engagement.

Alsbridge has released version 2.0 of its Market Reality Assessment (MRA), a benchmarking tool that helps customers and providers identify the gaps in their perceived contractual position and relationship. Trowbridge says measurement tools like the MRA are essential to establishing the outsourcing relationship, monitoring its health, and supporting negotiations for renewals or contract changes.

The MRA provides a benchmark based on a rigorous assessment of over 300 outsourcing transactions. It provides an objective, fact-based way to quantify the features of an outsourcing relationship that make it successful. The MRA, which can be used for contract development or to assess existing contracts, generates a dashboard that enables client executives to quickly understand and focus on the key areas of their contract and relationship that need improvement.