• March 17, 2006
  • By Colin Beasty, (former) Associate Editor, CRM Magazine

The Cost of Doing Business

Most organizations worldwide are still focused on tactical IT outsourcing, or outsourcing to achieve short-term cost-cutting goals, according to Gartner. Research from a series of Gartner surveys during the second half of 2005 revealed "achieving cost take-out," or outsourcing IT operations to save money, was identified as the foremost driver of IT outsourcing. In addition, Gartner found that large organizations are more likely to engage in outsourcing than smaller ones. Gartner surveyed 945 individuals spanning the Asia/Pacific region, North America, and Western Europe. Behind saving money, respondents equally rated "achieving organizational speed, agility, and flexibility," and "gaining access to technical expertise and skills" as the leading motives. Large organizations are more likely to engage in outsourcing than smaller ones. In terms of markets and geography, financial services, government, process manufacturing, services, transportation, and wholesale/retail organizations all ranked cost cutting as the top reason to outsource, while North American respondents identified "improving IT service to end users" as their leading driver. As for the biggest concerns involving the outsourcing of IT operations, companies listed data security and privacy. More than 50 percent of respondents in each region listed "controlling and/or reducing operating costs or improving efficiencies" as the primary value 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 less than half of the respondents focused their IT outsourcing initiatives on accelerating or improving business outcomes, called enhancement deals, or significantly improving their competitiveness, referred to as transformation deals. "One of the big problems in today's economy is the dominant use of outsourcing to cut costs along with requirements for customized services," says Allie Young, research vice president for Gartner's sourcing research group. "Only by forgoing customization and moving to standardized service can the market effectively and reliably deliver cost efficiency goals." Companies have a growing concern about losing control of their capital and key customer or employee data when they outsource, Young says. "They're afraid somebody's job might be threatened by outsourcing." One of the biggest mistakes a company can make when outsourcing is doing it strictly for the financial benefits. "As part of any outsourcing strategy, organizations must carefully examine the goals they wish to reach from outsourcing, but equally [examine] their concerns," Young says. "This not only helps a company develop a sourcing strategy, but educates various executives and management throughout the organization about realistic outcomes and possible false assumptions or misperceptions that it holds about outsourcing." Related articles: BPO's Next Level
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