IT buyers say innovation is an increasing motive for outsourcing

Widespread claims that IT outsourcing contracts deliver cost savings of over 60 percent are grossly exaggerated, according to a new report today from outsourcing advisory firm TPI.

TPI examined outsourcing contracts awarded between 2003 and 2005 and found that when associated professional fees, severance pay and governance costs were included the average savings were between 10 and 39 percent, and 15 percent was the average saving when deals were signed.

However, cost savings are no longer the sole motive for outsourcing, according to the research, which found the proportion of companies outsourcing primarily to improve quality was up from 11 percent in 2004 to 21 percent today.

Managing director of TPI Duncan Aitchison said in a statement that although costs remained a focus for many firms there is an "ever-growing number of clients using outsourcing as a way of introducing innovation into their business ".

Despite an apparent failure to deliver massive costs savings, interest in outsourcing is stronger than ever. The first three months of 2006 broke the record for the number of deals signed globally in the first quarter, according to TPI. Its report says that 83 contracts were signed with a total value of over €18bn.

“This strong quarter is due in part to the rise in the number of contracts being restructured," said Aitchison. "However, even when we exclude restructurings, the number of contracts signed so far this year is still a first quarter record.”