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Cost Still Drives the Decision to Outsource
Companies are willing to pay more for dependable providers, but continue to choose outsourcing to reduce their costs.
Posted Mar 31, 2006
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The question of cost always drives business decisions, and according to a new joint IDC and Capgemini survey, evaluating cost in the choice to outsource is no exception to this rule. Executives attending IDC's Outsourcing Forum East cited reducing cost as the most important factor in resolving to use BPO, as well as the most crucial attribute for business growth in general. The study found IT outsourcing to be the most popular and most valued outsourcing strategy for companies to employ. The survey, completed by all attendees, focused on the factors that influence how firms evaluate outsourcing provider. It found that the decision to implement BPO was primarily cost-based. More than 36 percent of respondents said that reducing cost was the primary driver for a company, followed by focusing on its core competencies (30.3 percent) and driving innovation (21.2 percent). Correspondingly, 41.2 percent of those polled listed reducing cost as most valuable to the growth of their company over driving innovation (35.3 percent) and ability to focus on core competencies (14.7 percent). However, the study displayed that companies are much less concerned about the actual cost of an outsourcing provider. Executives cited a provider's ability to offer transformational services in addition to operate capability as most important (47.2 percent). Finding the lowest cost solution garnered only 13.9 percent of the votes, coming behind economic stability and ability to offer global coverage for onshore and nearshore operations, both of which came in at 16.7 percent. "Simply focusing on the lowest cost solution without transformational services and innovation solutions will not allow companies to obtain the more sustained ongoing strategic value they want," said Rick Tober, vice president of Capgemini, in a prepared statement. The study also highlights the major stumbling blocks of BPO. Management's resistance ranked the highest internal challenge at 39.4 percent. Lack of internal metrics (27.3 percent), cultural issues between employees and BPO (24.2 percent), and inadequate change management strategy (15.2 percent) were also listed as internal concerns. Only 6.1 percent attested running against no internal challenges.
Inability to accurately project the results of outsourcing was found to be by far the primary drawback to outsourcing. A total of 55.8 percent said that the biggest downside of outsourcing was not getting expected results (38.2 percent) or not being sure what to expect (17.6 percent). Customer backlash and losing control were also cited as concerns, coming in at 23.5 percent and 20.6 percent, respectively. "These relationships require dedication, care and feeding just like any other," Tober says. "They must be established on strong foundations, be adaptive and also provide clear direction when challenges arise. Effective collaboration is a key." More than 50 percent of those polled said that outsourcing had met or exceeded their expectations. Only 19.2 admitted that outsourcing had not met their expectations, while the other 26.9 percent said that it was too early to tell. In keeping with the overall satisfaction with outsourcing professed by the majority of respondents, all involved indicated that they would continue to outsource with a focus on IT. "Companies understand," Tober says, that "the next chapter of outsourcing will focus on the importance of growth and innovation to their business." Related articles: Companies Seek Data Protection The Cost of Doing Business BPO's Next Level
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