Outsourcing Your Way to Innovation: IT Leaders Question the Value

Outsourcers continue to market themselves as the IT department’s partners in innovation. Yet with increased globalization and the resulting decrease in profit margins for many IT service providers, can they really deliver on that promise? We asked 290 IT executives to tell us what they think. The results show that for most IT leaders, outsourcing offers benefits in many areas. But when it comes to innovation, they prefer to keep those efforts closer to home.

Innovation Belongs In-House, or At Least On-Shore

Three quarters (76%) of technology executives who responded to the survey said that they believe in-house activities contribute the most to IT or IT-enabled innovation. Only 22% said that they believed offshore/captive activities contribute the most to IT or IT-enabled innovation.

Respondents’ satisfaction levels with innovative products also proved higher when those projects stayed in-house or on-shore. According to the study, eighty-five percent (85%) of respondents were satisfied with the level of innovation provided by internal IT operations at their organization Projects outsourced to onshore providers, meanwhile, compared favorably, with 78% of IT executives surveyed saying they were satisfied with the level of innovation offered by those providers.

Offshored innovation didn’t perform nearly as well. Just over half (52%) of the respondents reported that they were satisfied with the level of innovation provided by their offshore outsourcers/external providers–a significant difference from the other two options.

The reasons for the lack of satisfaction varied widely. More than half (54%) of the survey’s respondents cited cultural or communication issues as one of the biggest barriers to increasing innovation by outsourcers, followed by lack of skills within the outsourcer (37%), internal resistance (32%) and internal budget restraints (30%).

Respondent Profile

The 2007 Outsourcing & Innovation Survey was conducted online among the CIO audience. More than half (56%) of the respondents were senior IT managers with 44 percent claiming to be the top IT executive at their company or business unit. Respondents represented a wide range of industries, from non-computer related manufacturing (10%) to finance (10%) to healthcare (5%). 83-percent of respondents report being based in the United States. 45-percent of the respondents claim to work for companies with $1B or more in annual revenue.