Thursday, September 20, 2007

US cos could save $9.9 b thru outsourcing: Study

“The few dozen TPI clients analysed, have unlocked at least $3.3 billion of total commercial value.”

Estimating that US businesses could be sitting on $9.9 billion in potential infrastructure savings through outsourcing, a latest Forrester study has found that companies that have outsourced, in the past, ended up with 12-17 per cent cost savings.

“The few dozen TPI clients analysed, have unlocked at least $3.3 billion of total commercial value. Firms at the high and low ends of the deal sizes saved closer to 12 per cent, while firms in the middle of the bell curve saved more than 17 per cent,” Dr Paul Roehrig, Principal Analyst, Forrester Research, said in the latest report, for which Forrester partnered with outsourcing advisory firm TPI.

While price remained a key driver, mature clients were seeking additional benefits such as access to skills, better service delivery, predictable delivery cost and sharper focus on the core business.

“Outsourcing is about jettisoning non-core business processes, to enable value accrual by focusing on business-critical work rather than enabling work that can be done better and cheaper by other firms. Outsourcing can be the force multiplier that helps firms focus on the core business rather than ancillary support functions,” it said.
Transactions data

To get outsourcing savings information for clients, Forrester asked TPI to provide data from recent transactions. Data from 53 separate IT outsourcing transactions from 2003 to 2006 were analysed – all of the deals included infrastructure management services, and 22 of the deals also included applications services.

The report concluded that from a pure cost-savings perspective, against the base spend (what it would cost without outsourcing), the few dozen TPI clients had unlocked at least $3.3 billion of total commercial value. The 37 clients who signed deals with a total contract value of $500 million or less saved about $1.3 billion.

“We know the global infrastructure outsourcing market is about $77 billion per year (EMEA is about $33 billion; the US is about $44 billion). And we know only about 30 per cent of businesses outsource infrastructure components now. That means that the potential US infrastructure outsourcing market can conservatively be sized at about $110 billion per year. If we assume our rough rule-of-thumb savings of about 15 per cent, it means that we can conclude that the potential latent asset US businesses are sitting on by not outsourcing more infrastructure services is about $9.9 billion per year,” Forrester said.