New survey from IT outsourcing consultancy and multi sourcing advisors, PA Consulting Group, confirms that the risks associated with multi sourcing strategies for managed IT sourcing contracts is poorly understood and significant in value
Group survey results
According to PA Consulting Group, the IT outsourcing consultancy and multi sourcing advisors, over 30% of the US, UK and European respondents have no appreciation of the total cost of managing their IT 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.
Change management programmes that define and manage IT sourcing contracts are being sacrificed in the name of cost saving, undermining the effectiveness of the supplier/customer relationships.
PA Consulting Group, the IT outsourcing consultancy and multi sourcing advisors also found that 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 favour 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.
IT outsourcing consultancy and multi sourcing advisors, PA Consulting Group (PA), today announces the results of PA's International IT Outsourcing Survey 2009 of large-scale enterprises across the UK, Europe and the US.
The PA Consulting Group research shows that an overwhelming emphasis on reducing IT sourcing contracts costs has resulted in short term gains, but caused multiple weaknesses in relationships, integration effectiveness and innovation - which in themselves can bring cost reductions - but which leave the organisation liable to unexpected costs to resolve failing outsourcing contracts.
Jonathan Cooper-Bagnall, Member of PA's Management Group, (carol to supply link) comments, "Poorly designed, implemented and managed IT outsourcing contracts bring with them massive business risk, and cost. This is especially prevalent if different suppliers are used - client organisations must manage the integration of the different agencies and define how they are to work together without duplication of work or gaps being left."
Cooper-Bagnall continues, "Pouring good money after bad is a well-known sin of business, but unless IT outsourcing arrangements are clearly defined and closely scrutinised from the outset, that is exactly what happens. We are seeing more and more that multi sourcing is a developing trend, making integration of services all the more crucial. However, many 'tier one' organisations have already had to invest heavily in teams of people to fulfil the integration role, simply through lack of an early identification of the need for service integration."
The survey from the PA Consulting Group, about the IT outsourcing consultancy and multi sourcing advisors, also showed that while 75% of companies reported employing a service provider that has displayed innovation in some form during the relationship, only a third delivered technological innovation, which might be expected with IT outsourcing. Even fewer - less than 10% - are receiving innovations that target the core business, and a quarter see no innovation at all.
"Organisations are quite simply missing out on the tangible benefits, especially innovation that could and should be achieved as a result of a strong business relationship. Organisations need to provide direction and measurable objectives, such as cost reduction, to their suppliers, leaving them to work out the 'how' and allowing the client organisation to concern themselves with the management of the overall relationship," concludes Cooper-Bagnall.
The PA Consulting Group report is based upon a survey undertaken in late 2008, using responses collated from over one hundred organisations, service providers and lawyers of large-scale enterprises across the UK, Sweden, Norway, the Netherlands, Denmark, Germany and the US.
About PA Consulting Group
At PA Consulting Group, we transform the performance of organisations. We put together teams from many disciplines and backgrounds to tackle the most complex problems facing our clients, working with leaders and their staff to turn around organisations in the private and public sectors. Clients call on us when they want:
an innovative solution: counter-intuitive thinking and groundbreaking solutions
a highly responsive approach: we listen, and then we act decisively and quickly
delivery of hard results: we get the job done, often trouble-shooting where previous initiatives have failed.
PA is an independent, employee-owned, global firm of 3,000 operating from offices across the world, in Europe, North America, Latin America, Asia, and Oceania. We have won numerous awards for delivering complex and highly innovative assignments, have technology development capability that few firms can match, deep expertise across key industries and government, and a unique breadth of skills from strategy to IT to HR to applied technology.
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