London School of Economics: poor management raises outsourcing costs

Better internal managers can improve the service, quality, cost of outsourced projects by 20% to 40%.

This was a key finding of research by the London School of Economics for LogicaCMG, a UK IT services firm.

Firms will spend almost 60% of their IT budget with external suppliers by 2012, and the cost of managing the contracts will rise from 10% to 12% of the contract value by 2010, said Leslie Willcocks, LSE's professor of technology, work and globalisation.

Willcocks said companies that outsource IT projects should keep key skilled staff in-house or risk losing control over the projects. "Relationship management through senior management attention, contract, structure and refined capabilities can create a 20% to 40% difference on service, quality, cost and other performance indicators."

But organisations are putting short term cost cuts before proper management of the projects. The result is a loss of control, inadequate service, and constant renegotiation because of a lack of strong internal leadership and project management, said Willcocks.

Firms must retain leadership, business systems thinking, relationship building, architectural planning and design and informed buying to make outsourcing cost-effective, he said.