IT Outsourcing Customers Get What They Pay for, Not What They Want

A survey of both IT services buyers and IT services providers reveals that while outsourcers deliver cost reduction and increased efficiency, they may lack innovation and analytical capabilities.

IT outsourcing customers say they want more innovation, analytics capabilities, and attention to business outcomes from their IT service providers, but they may not be getting it.

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[Related: 9 IT Outsourcing Trends to Watch in 2013]

Less than half of IT services buyers say that they have formal training for their staff in analytics, industry acumen or relationship management. Even fewer IT outsourcing customers--less than a third--indicate that they had formal training in the areas of analytics, industry acumen or transition management.

And, according to survey of more than 450 IT services buyers and providers conducted by outsourcing analyst firm HfS Research, there's plenty of blame to go around.

"Quality service providers must make real investments in talent to help their ambitious clients beyond the 'old world' cost-arbitrage outsourcing model to one that is delivering value based on current business objectives and outcomes."

--Phil Fersht, HfS Research CEO

When asked to rate their own talent, outsourcing buyers consider themselves strong in tactical areas such as contract negotiation and service provider selection but weaker in the more strategic fields of improving analytics, driving innovation, and defining business outcomes beyond cost savings.

These talent gaps in outsourcing partnerships will come to the forefront in the coming year, says HfS Research CEO Phil Fersht. Outsourcing customers cite cost reduction as the most important driver for outsourcing decisions--43 percent of respondents label it "mission critical."

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Looking out at the year ahead, however, respondents say the most important issues related to outsourcing strategy would be change management, altering the leadership mindset from cost reduction to value creation, and accomplishing innovation with operational processes.

"Outsourcing buyers are getting what they paid for: cost-reduction and efficient delivery," Fersht says. "[But] outsourcing buyers are not getting what they now want: innovation, analytical capability and skilled talent to define business outcomes."

In part, that's because the focus at the start of most outsourcing relationships is on the tactical. "Buyers want execution skills initially, and providers want to ensure they meet their metrics and performance goals," says Fersht. "In addition, it's expensive to recruit more experienced staff with the necessary strategic acumen."

[Related: Decline in IT Outsourcing Market Challenges Service Providers]

In order to move beyond the status quo, both IT outsourcing customers and service providers need to step up their efforts. "Quality service providers must make real investments in talent to help their ambitious clients beyond the 'old world' cost-arbitrage outsourcing model to one that is delivering value based on current business objectives and outcomes. [They] must help provide direction and focus to their clients' roles and career direction," says Fersht. "Enterprises must be continually inspired by their service providers' talent and capabilities."

There should be continued opportunities to elevate those outsourcing relationships in the coming years. According to HfS Research's first quarterly market index report, the IT outsourcing industry should see 3.5 percent growth in 2012 and sustain a 4.7 percent compounded annual growth rate through 2017.

Tight IT budgets will force more IT organizations to consider outsourcing to cut costs and fuel new IT investments, according to the report. "2013 will see a maturing of organizational approaches to outsourcing and shared services," says Fersht. "Gone are the excuses. Now is the time for execution after the recent years of uncertainty."

Stephanie Overby is regular contributor to CIO.com's IT Outsourcing section. Follow everything from CIO.com on Twitter @CIOonline, Facebook, Google + and LinkedIn.

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