Billions wasted on poor outsourcing deals
Western European businesses wasted around £4.15bn on poorly structured outsourcing deals last year, despite outsourcing being the one bright spot in a struggling UK IT sector.
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While the industry as a whole contracted, outsourcing was the only sector to experience growth, expanding by 6.3%. But too many deals were signed to save money in the short-term, rather than considering the longer-term business requirements of the company, warned analyst Gartner.
The analyst said satisfaction with outsourcing among customers fell from 81% in 2001 to 50% last year.
Short-term thinking meant many companies were not getting the hoped-for benefits and this in turn led to a £4.15bn waste in outsourcing contracts, as companies undertook expensive reviews, renegotiated deals – or in worst case scenarios, scrapped the contract.
Roger Cox, vice president of IT management strategy and planning research at Gartner, said: ‘If deals aren’t well structured the confidence level is low. Then there’s a lot of wastage trying to resolve issues. You get to a point where everything becomes a problem. When confidence is high, that goes away.’
Gartner recommends a three point plan to improve the structure of an outsourcing deal; to take a long term view and view your service provider as part of the company; build deals that can cope with continuous change; and to invest in the skills, resources and processes needed to manage the contract.
‘Outsourcing is not about buying something, it’s about a major service provider becoming part of your company. If you look at it that way, it’s more like an acquisition or merger. If you get that shift in attitude at board level, outsourcing works much better,’ said Cox.
Gartner’s figures reflect findings by Ovum Holway, in its latest report on the state of the UK software and services sector, due out at the end of May. It found that the UK IT market dropped by 5% in 2001-2 and this year’s report will show a 3% decline over the last 12 months.
But take outsourcing out of the equation, and the figures are far worse. For 2001/2002, the sector dropped by 10%. Richard Holway, director of Ovum Holway, said: ‘Outsourcing is the one side of this market that continues to grow.’