Credit crunch keeps primary focus of outsourcing on cost

Credit crunch keeps primary focus of outsourcing on cost

Long-term strategy overlooked in favour of shorter-term gains

Nearly nine out of 10 IT outsourcing agreements produce a return on investment (ROI) of 25 per cent or better, but businesses are still failing to realise the full benefits, says Deloitte’s 2008 outsourcing survey.

Nearly two-thirds (64 per cent) of the 300 senior executives questioned by the consultancy cited cost reduction as the main attraction of outsourcing.

And only 34 per cent of respondents said they were using ideas from their service provider to make significant structural changes to their organisation.

But focusing on immediate gains leaves companies in danger of missing out on wider rewards such as the provision of forward-thinking business strategies, according to Deloitte partner Neville Howard.

“There is a risk that organisations just outsource and then throw the baton across to the provider, expecting them to provide all the benefits with very little input from the client,” said Howard.

Reduced spending is only one way to measure ROI. But as the US credit crunch continues to drain confidence in global economic prospects, cost remains a valid focus, said National Outsourcing Association director Mark Kobayashi-Hillary.

“We have spent years talking about the benefits of partnering with experts as a way of improving service, but in times of economic distress it is belt-tightening rather than long-term strategy that will be the norm,” he said.

“Given the present uncertainty, it is highly likely that outsourcing in the near future will be about cost rather than flexibility.”

India’s dominance of the global outsourcing market is expected to grow over the coming year, according to Indian IT trade association Nasscom.

Overall revenue will grow to $64bn (£32.5bn) in 2008, of which $40.8bn (£20.7bn) will be located outside India, according to figures published last week.

Indian suppliers are likely to double their share of the UK IT outsourcing sector over the next five years, according to predictions from analyst Pierre Audoin Consultants.