A study by TPI, the leading sourcing advisory firm, has
for the first time revealed the true cost savings delivered by
outsourcing.
Research examining outsourcing contracts awarded between 2003
and 2005, has disproved the widespread market claims that
outsourcing can reduce costs by over 60%. The study by outsourcing
advisory firm TPI found that savings net of professional fees,
severance pay and governance costs average 15%.
Duncan Aitchison, managing director of TPI, said, “The promise
of massive operational savings is unrealistic. Outsourcing
arrangements which focus solely on delivering huge savings often
fail to meet expectations.”
TPI’s research showed that cost reduction remained the primary
motivation in current outsourcing contracts. However, an
increasing number of companies are outsourcing primarily in order
to improve quality, up from 11% in 2004 to 21% today.
The study found that 19 restructuring contracts totalling €6bn
had been signed so far this year. TPI said a further 141
contracts totalling almost €33bn were due for restructuring during
the remainder of 2006. According to TPI, the majority (66%) of
restructurings occurred as a result of first generation contracts
coming to the end of their term, rather than due to any unhappiness
with the provider.
Aitchison said, “Although historically most outsourcing
restructurings have been renegotiated with the incumbent service
provider, it can no longer be taken as read that the existing
provider will retain all or even part of the original deal through
a restructuring.”