Article titled: "Outsourcing 'not delivering' report -- MIDRANGE-NONTECH

(Cross-posted)

Article titled: "Outsourcing 'not delivering' report

- Alan

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http://www.digitalmediaasia.com/default.asp?ArticleID=7664 A new report from Deloitte Consulting in the US has added to the growing body of evidence that outsourcing frequently fails to deliver the benefits expected by clients.

The eye-opening study, which looked at outsourcing strategies, impact on organisational performance and emerging trends, concludes that 'outsourcing is an extraordinarily complex process, and the anticipated benefits often fail to materialise.'

Research into 25 'world class' organisations - who together spend an estimated €40bn on outsourcing contracts - found that seven out of ten had 'significant negative experiences'. In a random sample of 50 problem deals, 38 had resulted in litigation or termination.

The findings serve as an ominous warning to markets such as the UK public sector with a forecast that more deal failures will mean that more operations are brought in-house.

The report states: 'Organisations have now begun to recognise the real costs and inherent risks of outsourcing. Instead of simplifying operations, outsourcing often introduces complexity, increased cost, and friction into the value chain, requiring senior management attention and deeper management skills than anticipated.

'Organisations are discovering that their contracts will never fully protect them against customer damage and business losses caused by service disruption.'

Moreover, vendors' structural advantages do not always translate into cheaper, better or faster service, the report states. One in four study participants have brought functions back in-house after realising that they could be addressed more successfully or at a lower cost internally. Nearly half of the organisations surveyed identified hidden costs as the most common problem when managing outsourcing projects.

The report forecasts that organisations will be outsource less and in a increasingly cautious and conservative manner - outsourcing, for example, non-core and non-strategic functions, such as web-hosting or mailroom services) or for shorter periods to prevent vendor dependency.

As organisations scrutinise new deals more closely, re-negotiate existing contracts and in-source more frequently, vendors become increasingly selective about the deals they pursue, eroding the outsourcing market, says the report.

'Those that apply strong skills in deal structuring and risk management and strong management skills to oversee deals from inception to executive will be best positioned to reap the benefits of outsourcing,' it states.