Execs Value Outsourcing but Problems Linger

A strikingly high number of executives say their IT outsourcing projects met their return-on-investment goals, casting a positive light on one of IT’s more complex areas, a new study reveals.

But despite the positive results, the dark side of outsourcing persists, with many executives wishing they could go back in time.

According to Deloitte Consulting’s new survey, “Why Settle for Less?” 83 percent of executives said their outsourcing projects met their ROI projections. Seven in 10 said they satisfied or very satisfied with their projects.

But Deloitte found a few shortcomings. For example, when asked what they’d do differently, nearly half of respondents said they’d redefine service levels to better align with corporate goals. (For instance, companies can do more to consider any future transactions, like mergers, acquisitions or divestitures, and make sure the outsourcer is aware of the long-term strategy.)

A little more than one-third admitted that their companies should have spent more time evaluating service providers. Companies often rush into choosing outsourcers because of tight project deadlines. “The earlier the client begins the process, the better equipped they are to make the right decision and the more time they have to plan,” says Peter Lowes, head of Deloitte’s national outsourcing advisory practice. “The relatively modest cost of doing this typically has a huge economic payback in terms of deal economics achieved with time on the side of the buyer, more time to negotiate better terms and lower operational risk.”  

On top of that, only about one-third of respondents said they gained notable transformative benefits from outsourcing. In other words, outsourcing didn’t provide the benefits of specialized work, scale and decreased labor costs. And executives at service providers agreed, with one in three noting that their clients had flawed planning for and expectations of their outsourcing projects.  

Deloitte interviewed 300 corporate executives–including CEOs, CIOs and CFOs, as well as service provider executives–at companies spending at least $50 million annually on IT outsourcing or $30 million on business process outsourcing.  

The satisfaction numbers differed in a way from what
Insight found in our
March 2007 research report on outsourcing. In that survey of 368 IT executives, two-thirds said their domestic IT outsourcing cost as much or more than it would in-house. For offshore projects, that figure dropped to 43 percent.

But like Deloitte,
Insight found some negative signs in our March 2007 research report on outsourcing. In that survey, about two-thirds of respondents said outsourcing was overrated as a cost-cutting strategy. The sentiment rose from small to medium to large businesses, with just under 75 percent of the latter scoffing at the cost-savings results.

And respondents to our survey mirrored Deloitte’s findings when it came to doing things differently. Forty-five percent of those surveyed by
Insight said they’d want to do a better job of managing service providers, while slightly lower would want better performance from those vendors. Coming in a distant third was doing a better job in selecting outsourcing firms.  

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