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Bad communication scuppers outsourcing deals

Interviews undertaken by PA Consulting with 300 international company executives and suppliers have identified a worrying mismatch between technology suppliers and customers in outsourcing deals.

While two thirds of customers state access to IT skills as an important goal for outsourcing, only 14% of suppliers believe this is what their clients want. And while every single supplier surveyed believes cost reduction is a motivator for outsourcing, only 76% of customers highlight cost cutting as a reason for outsourcing.

“Any lack of clarity around sourcing strategy and the business case has the effect of immediately starting to drive a wedge between the parties involved,” states the report.

It’s not all suppliers’ fault: only a fifth of suppliers feel that clients clearly communicate their needs. Two-thirds of customers believe they didn’t check out their supplier’s ability to deliver their needs thoroughly enough at the outset.

A separate study from sourcing advisory firm TPI finds that the costs savings from outsourcing are far more modest than the 60% mentioned by many experts. In reality, spending on professional fees, severance pay and governance brings down average savings to a respectable and still significant 15%.

“The promise of massive operational savings is unrealistic when you take into account the costs of procurement and ongoing contract management,” says Duncan Aitchison, managing director of TPI.

“In our experience, outsourcing arrangements which focus solely on delivering huge savings often fail to meet client expectation. Fifteen percent is not only a realistic saving, but also a significant one.”


 

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