PA's international IT outsourcing survey 2009

Outsourcing - what lies beneath

The analyst community agree that the global outsourcing market is set to grow by 8.1% in 2009 (Source: Gartner), as organisations look to impose tighter cost control over IT expenditure. However, PA's IT Outsourcing Survey reveals that short-term cost gains are likely to be achieved at the expense of fast rising corporate risk. In a bid to mitigate this risk, organisations are likely to see unexpected costs rise significantly in forthcoming years.

The following is a brief summary of our report, collated from over one hundred organisations, service providers and lawyers of large-scale enterprises:

• Organisations are going to use more outsourcing suppliers (multi-sourcing) to try and reduce costs. However over 30% of all respondents have no appreciation of the total cost of managing their sourcing contracts – the 'retained governance organisational cost'. In light of the strong trend over the next three to five years towards multi-source contracts – confirmed by almost 75% of respondents – over a quarter of respondents with IT sourcing contracts identified integrating multiple providers as the top risk with multi-sourcing, with the need for strong internal governance as the second.

• The combined trends of multi-sourcing and sustained cost focus are also putting pressure on the supplier relationship. Programs that define and manage IT sourcing contracts are being sacrificed in the name of cost saving, undermining the effectiveness of the supplier/customer relationships. 35% of client organisations are increasingly using non-performance clauses as reasons for initiating contract renegotiations, with 75% planning competitive and cost-saving approaches to the restructuring. This is instead of mending failing relationships, leaving the client company with persistent relationship failures across multiple suppliers and high remedial costs.

• Innovation in IT outsourcing (ITO) has generally been sidelined in favor of quick cost improvements. Currently, over 25% of respondents report receiving no innovation at all, and of those that do, fewer than 5% deliver innovation that identifies new sources of revenue growth.

For PA, it is about your business agenda, not the outsourcing transaction or software solution that is at the forefront of our mind.

To discuss how the survey findings apply to your own organisation or more information on how we advise companies through the outsourcing lifecycle, please contact us now.