Information security is a predominant concern in companies looking for outsourcing vendors, according to a recent report.
Posted Mar 23, 2006
Trustworthiness has become a top quality that companies look for in outsourcer mates, according to a study released today from strategy and technology consultancy Booz Allen Hamilton. The study found vendors' security capabilities and track record has risen to a top three concern in response to recent high profile cyber crime cases. Executives are now more interested in security and are willing to pay for it.
Booz Allen conducted the study to provide an understanding of how companies choose outsourcing providers and what challenges these companies face in limiting the risk of information security breeches. The 158 senior executives polled represent companies of all sizes in twelve different industry sectors. The study focused on those executives who handle defining and managing outsourcing, with 87 percent of those interviewed actively outsourcing or seeking providers.
The study found security to be the third most common concern, directly following quality and price of service, and topping both business stability and reputation. Over 46 percent of executives cited security as their number one concern overall. While a slightly greater percent (49) found pricing of services to be of greater concern, an overwhelming 85 percent were willing to pay a 10 to 15 percent premium for improved security.
Worries over security breaches were largely finance based. Respondents cited the greatest security risks as brand or reputation damage, loss of intellectual property, loss of customer relations, and disruptions of product service--all factors directly affecting revenue--over the risk that the company would be liable for actions of an outsourcing provider.
Much of the unease over outsourcing security has come out of recent media attention to occurrences of cyber crime. Sixty-three percent reported that they had reevaluated their outsourcing strategy in response to specific examples of outsourcing security troubles. "The outsourcing industry is at a crossroads," says Vinay Couto, Booz Allen vice president and author of the study. "As security concerns rise, the industry needs to establish security capabilities that restore the trust of outsourcing customers and provide them with information to make good decisions."
While geographic factors were listed as the bottom concern, far after security, in selecting an outsourcing partner (garnering only 10 percent of executives' votes), the study found that companies associate outsourcing trust with vendor location. An overwhelming 76 percent perceive the danger of security threats as higher for offshore outsourcing providers, only 3 percent perceiving the threat to be lower.
According to the study, companies' perceptions of outsourcers hinge on the national infrastructure of the company out of which they operate. Eighty-three percent answered that they saw North America as having a robust regulatory and legal infrastructure, matching the trust in domestic outsourcing. This number dropped severely in response to the perception of non-American or European countries. Only 27 percent of executives view India as having robust infrastructure, ahead of Southeast Asia (11 percent), South America (6 percent), and China (5 percent). To alleviate this perception gap, the majority (67 percent) of those questioned believe that the United States should create specific regulations for outsourcing providers. "The industry is now mature enough to benefit from public-private partnerships to alleviate some legitimate security issues and close the perception gap among outsourcers," says Jim Newfrock, a principal at Booz Allen.
Despite the growing concern over outsourcing security, almost all agreed that over the next few years the outsourcing market will grow. While this growth should put pressure on the need for security regulation and control, it seems that with or without this safety net, the use of outsourcing will continue to jump.
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