Outsourcing and communications expert Martyn Hart looks at a hot
issue of the day.I see that the latest Ovum Holway report has found
that the savings from outsourcing is being used to fund new IT
implementation.
I spoke about this to my colleagues on the board of the National
Outsourcing Association (NOA). We were surprised because we think
the savings actually go back into the business to fund core
activities, which is why companies outsource in the first place,
right?
In fact some organisations are actually using outsourcing to get
not just savings but assets off their balance sheet too: one of the
results of Sainsbury's and Accenture's latest deal. Barclays
Capital raised some £350m in bonds to fund the outsourcing deal,
thus reducing capital expenditure and enhancing shareholder
value.
When the deal is right, outsourcing doesn't just save costs - it
gives the customer state-of-the-art systems, high availability,
high end-user satisfaction plus staff size and costs in line with
the demands of the business cycle.
Companies are using outsourcing to drive up share performance, it's
becoming a strategic business driver.
At the NOA, we find it neatly breaks down into four areas:
Fixed outgoings. Converting variable costs and capital
expenditure into an agreed price depending upon performance.
Reuse. All that released capital expenditure can fund other
growth opportunities (probably not in IT).
Best of breed. The outsourcers are better at running those
old assets than you are, so you get higher service levels at the
same or lower prices.
Boosting the balance sheet. You might get some cash for
assets following your outsourcing deal.
And, as Barclays Capital has pointed out, there are opportunities
in realising all that capital tied up in IT. For Barclays, its cost
of capital is less than say, for Sainsbury's. That gives the
customer the opportunity to pass on some of the risks not just to
the outsourcer, but to the financiers too!
So we can't wait to see what percentage of the UK's outsourced
savings actually go back into UK IT - we have a number, want a
bet?
Should outsourcing savings be pumped back into IT?
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Martyn Hart is chairman of the national Outsourcing Association and
practice director at Mantix, a consultancy that delivers value from
complex programmes.