Cost-cutting main goal of outsourcing, survey finds

Competitive advantage comes a distant second in a Gartner study of reasons for outsourcing. By Emma Wollacott

Most organisations resort to outsourcing as a short-term tactical measure to lower costs, rather than as a strategy in its own right.

That’s according to a new report from Gartner, which surveyed 945 individuals in North America, Europe and the Asia-Pacific region. Gartner concluded that, while strategic IT outsourcing can be an integral part of a company’s long-term business success, most organisations worldwide are still focused on tactical IT outsourcing as a means of reducing costs.

According to the survey, “controlling/reducing operating costs or improving efficiencies” was identified by more than half of the respondents in each region as the main benefit they expected to receive from IT outsourcing. Efficiency deals are focused on cost control and, over time, cost reduction with the goal of maintaining consistency in service delivery. The survey found that fewer organisations outsourced their IT as a way to improve their business or their competitiveness.

“One of the great clashes in the market today is driven by the dominant use of outsourcing to cut costs, along with requirements for customised services,” says Allie Young, research vice president for Gartner’s sourcing research group. “Only by foregoing customisation and moving to standardised services can the market effectively and reliably deliver the cost efficiency goals.”

“Achieve cost take-out” was identified as the foremost driver of IT outsourcing, with large organisations more frequently identifying this driver than small ones. Following cost take-out, respondents rated “achieve speed, agility, flexibility” and “gain access to technical expertise and skills” equally as leading drivers.

The survey uncovered variations in different vertical markets and regions. Financial services, government, process manufacturing, services, transportation and wholesale/retail organisations all ranked cost take-out as the top driver of IT outsourcing. North American respondents identified “improve IT service to end-users” as their leading driver. The top two inhibitors to IT outsourcing were data security and privacy issues and, secondly, concerns around the potentially high costs of outsourcing.

“Companies have a growing concern about losing control of their intellectual capital and the business knowledge of key employees whose jobs or roles may be threatened by outsourcing, particularly when downsizing occurs,” Young says. “As part of a sourcing strategy, organisations must carefully examine the goals they wish to reach from outsourcing [and], equally, their concerns. This exercise not only will help in developing a sourcing strategy, sourcing maxims and prioritisation of goals, but will educate ... the organisation about realistic outcomes.”

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