Value Based Outsourcing - White Paper

The Outsourcing Performance Trap (and how to avoid it)

There's no shortage of take up for outsourcing services of all kinds.

Why should this be? The superficial answer is cost reduction - it's the received wisdom. Engage a third party who is 'expert' in your non-core activity and they will take away a 'problem' and reduce costs.

There's good evidence in support. Lacity and Willcocks, in their book 'Global I.T. Outsourcing - In Search of Business Advantage', give evidence of strategic advantage gained in the following areas:

  • Improving the business's financial position while reducing, or at least, containing costs.
  • Redirecting the business and I.T. into core competencies.
  • Strengthening resources and flexibility in technology and service to underpin the business's strategic direction
  • Facilitating and supporting major organisational changes.

Not everyone has been this lucky. Dataquest found 53% of European contracts were being renegotiated once underway. 8% were cancelled altogether and a further 16% switched supplier.

It gets worse. Weill and Broadbent (Harvard) studied fifty-four businesses over five years. In their paper 'Leveraging the new Infrastructure', they found that those outsourcing at a faster rate had achieved lower costs but also experienced greater strategic losses compared with organisations that did less outsourcing.

Those losses included:

  • Significantly increasing I.T. staff turnover.
  • Longer time to market for new products.
  • Lower perceived product and service quality than their competitors.
  • Slower rate of increase in revenue per employee.
  • Lower return on assets.

This is confirmed by Lacity and Willcocks having studied 75 companies over ten years.

"Despite the rapid growth in I.T. Outsourcing, - most companies are still seeking the elusive 'added-value' they anticipated".

BPO fairs little better. Accenture research shows 52% of executives interviewed felt they had limited success in achieving their objectives.

So, there's the trap - hurry into outsourcing and, if you do it right, your costs will go down - but - and it's a big but! - you stand a very real risk of putting your longer-term competitiveness at risk.

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