Friday, February 29, 2008

IT outsourcing no longer just about costs

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A new report from market researcher Gartner says that 41% of organizations that are currently outsourcing IT responsibilities do so “to enhance business outcomes and performance.” That’s only slightly less than the percentage (47%) that outsource to reduce costs and considerably more than said they outsourced for business performance in 2005 (28%).

The trend is a snowball effect. Buyers are outsourcing more because they see an improved base of IT outsourcing providers around the world, says Gartner analyst Allie Young, but the outsourcing providers are driven to improve their operations as more buyers gain confidence.

“Cost issues remain strong, and the shift in buyer expectations toward viewing IT outsourcing as a means to enhance operations is a sign of a maturing market that has higher expectations from IT outsourcing providers,” says Young in the Gartner report. And Dane Anderson, research director at Gartner, points out that “The appetite to outsource is a compelling reason for providers to concentrate on and ensure their current client base is well-served, satisfied and continues to see progress in reaching their outsourcing goals.”

Another report finds that focusing too narrowly on cost and poor planning when outsourcing services like IT can hamper the benefits of outsourcing.

Deloitte surveyed 300 mid- and large-sized corporations and outsourcing service providers found that, while 70% of the executives said they were satisfied or very satisfied, only one-third (34%) of the respondents said they gained important benefits from their outsourcing service providers' innovative ideas or transformation of their operations.

"Survey findings clearly show that there is room for improvement, and that companies should re-evaluate and step up the targets they set for outsourcing projects - looking beyond immediate concerns of cost savings through labour arbitrage or economies of scale," says Gordon Shields, partner in Deloitte's Consulting practice.