Outsourcing: IT Customers Disappointed With Results

Forget all the discussion about IT outsourcing providers moving up the technology value chain to become partners in innovation; their customers’ biggest needs remain much more straightforward, according to the results of the IDG Enterprise Outsourcing & Service Providers Survey. (CIO.com is an IDG company.)

The three biggest drivers for outsourcing among the 1,176 IT and business executives who responded to the online survey were access to skills not available in-house (52 percent), cost reduction (50 percent), and managing variable staffing needs (44 percent). Around one-third of respondents were looking to third-party providers to support or enable new business initiatives or to improve business and technology processes, while 19 percent sought outsourcers to enable innovation.

The leading motivations for outsourcing were reflected in the factors respondents considered most important when selecting a provider. When choosing an onshore vendor, the most critical criteria were cost (94 percent), technology or business process expertise (92 percent) and available talent pool (88 percent). When choosing an offshore provider, reputation leapt to number one (90 percent), followed by expertise (89 percent), available talent pool (88 percent) and cost (87 percent).

The survey also revealed that achieving the desired results from outsourcing remains a work in progress. Just 44 percent of respondents said they had achieved a measurable positive impact accessing hard-to-find skills, while only 34 percent achieved measureable cost reductions and 36 percent attained the flexible staffing model desired.

The vendors themselves may not be entirely to blame for the lack of results. Survey respondents didn’t give themselves rave reviews for their management of their outsourcing relationships. Just over a quarter rated their own service delivery management and measurement practices as very effective, while 42 percent said they were somewhat effective and 12 percent said they weren’t effective at all.

Marks for overall outsourcing strategy were also mixed. Three out of five of those surveyed said their outsourcing strategy was somewhat effective—in alignment with their overall business strategy but not a main driver of business success. Meanwhile, 18 percent said their outsourcing strategy was extremely effective—a key component of their success in meeting business goals. But 22 percent indicated that their outsourcing strategy was ineffective and reactionary.

The middle-of-the-road results may not temper the use of external IT services (just seven percent of respondents said they planned to decrease their use of outsourcing). But it could make cloud-computing options more attractive. Nearly three quarters of respondents said they are considering cloud computing as an outsourcing option; 13 percent are working with existing outsourcing vendors to move to cloud-based services, and 10 percent are replacing existing outsourcing services with new vendors who can tap the cloud.

Whether cloud-enabled providers will address the biggest perceived outsourcing risks according to the survey (i.e. poor service quality, data security/intellectual property protection, and loss of internal knowledge—remains to be seen. Customers will likely have the same concerns with cloud options.