Out of house IT fails to deliver

Evidence from the field and new market research confirms that outsourcing continues to cause disappointment for directors who look to it as a way to save money and buy in specialist skills.

In a Deloitte & Touche Consulting Group survey of 1,000 senior executives, 51% said they outsourced their IT functions to take advantage of vendors’ specialist expertise. But after completing outsourcing contracts, 59% cited this as their biggest let-down.

In addition, nearly 60% said they were disappointed by the cost savings delivered by IT outsourcing.

Multimillion pound contracts can also turn sour. Last month saw the termination of Sears Retail Group’s ten-year, #334m IT outsourcing contract with Andersen Consulting – after just two years.

The retail chain turned to Consulting to help it centralise IT and finance for all of its subsidiaries at a services centre in Leicester. But last year, Sears changed its business strategy and decided to sell off Selfridges and Freemans mail order while bringing its subsidiaries’ IT and finance functions back in-house.

Peter Williams, finance director of Selfridges, which will demerge from the Sears group on 20 July, said both sides were to blame for the messy end: ‘Sears and Consulting underestimated the scale and complexity of the project. A department store and a mail-order business have different information needs.’

The contract’s exit strategy will see Cap Gemini take charge of the computer operations at Selfridges, while Consulting will continue to work on a systems development project for the store.

Williams urged companies thinking of outsourcing their IT functions to consider employing specialist advisers. ‘You need strong management when dealing with an outsourcing provider,’ he said.

Commenting on the Deloittes report, Bob Aylott, principal IT outsourcing consultant for KPMG, which took over Consulting’s IT advisory role for the Sears Group in January said: ‘All outsourcing contracts should leave the possibility of a relatively painless exit. They should also be flexible because acquisitions happen during a ten-year contract, and lawyers can find them difficult to incorporate.’

But Dick Turpin, director of group business development for CSL Group – the outsourcing arm of Deloittes – derided the report’s findings: ‘The views given in the report are probably out of date and old hat. Outsourcers don’t go into contracts they can’t deliver.’

Claire Forest, director of Birmingham-based outsourcing specialist Itnet, said the IT outsourcing market remains strong: ‘There is no sign of the outsourcing market slowing down and our new contract renewals are rising.’

She added that companies should only outsource non-core IT functions to retain control of strategy.