Study: Outsourcing Boom Is Over

By Stan Gibson  |  Posted 07-11-2006

The outsourcing boom has passed and maturity is setting in, according to a new study from consulting firm DiamondCluster International in Chicago.

The leveling off is due in part to experienced customers becoming more savvy and more picky about the work they hand to outsourcing providers.

The reticence on the part of some customers is due to disappointment with the performance of their outsourcing providers, the study found.

"I expected the abnormal termination trends to go down, but they remained pretty high," said Tom Weakland, leader of the outsourcing advisory services practice at DiamondCluster. Abnormal terminations occur when customers scrap a contract before its scheduled completion date.

Premature contract terminations, particularly with onshore providers, continue to be a prevalent trend, he noted.

The study found that 47 percent of buyers reported they had prematurely terminated at least one outsourcing relationship in the prior 12 months.

Only 28 percent of buyers terminated at least one offshore deal, but 42 percent of onshore customers had done so. Of those, 53 percent cited poor performance by their onshore provider.

In addition, customers also questioned whether they're receiving value from onshore providers, Weakland said.

"There's negativity building in onshore versus offshore. We see more people terminating onshore deals in order to put things offshore," said Weakland.

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