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Move to outsourcing being driven by need to improve services rather than save cash

Improving services to the business, rather than making cost savings, is ITdirectors' primary reason for outsourcing IT, according to the annual Harvey Nash CIO Market Survey 2005/6.

Forty four per cent of IT directors questioned said improved service delivery was the main reason for outsourcing, compared to 22% who cited cost reduction as their primary reason.

The survey was based on in-depth interviews with more than 400 chief information officers and IT directors with combined IT budgets of 15bn.

On average CIOs have an IT budget of less than 3% of their company's turnover. But one in ten have IT budgets exceeding 10% of turnover.

The research revealed that IT chiefs are divided over the value of outsourcing their IT functions.

It found that the proportion of CIOs outsourcing the whole of their IT budget fell by 5% in 2005, compared to 2004, but those outsourcing between 60% and 99% was up 11%.

Most CIOs remain reluctant to adopt wholesale outsourcing of IT. Only 18% outsource 50% or more of their budget, with 70% outsourcing 30% or less. Overall, 80% of CIOs outsource, spending on average 27% of their budget - an increase from 25% last year.

"Those that have found good outsourcing partners are not committing a higher proportion of their budget to the resource, whereas those who have had a disappointing experience are withdrawing from the outsourcing arena. Whether this is a temporary retreat or a more permanent move is yet to be seen," the report said.

The quality of service delivered by outsourcing suppliers is improving, according to the CIOs questioned. Fourteen per cent reported that they had achieved their outsourcing objectives, up from 10% last year. But suppliers still have a long way to go.

The biggest concern for CIOs was that outsourcing did not achieve anticipated cost savings.

The other problems highlighted by CIOs were slow response times from outsourcing partners, their lack of understanding of the business, poor communications and the negative impact of outsourcing on staff morale and customers.

More than 75% of CIOs said outsourcing work offshore had met or exceeded expectations.

When asked what they would do differently in future, many CIOs said that in retrospect they would have spent more time ensuring that the service level agreement with their suppliers was foolproof.

 

India still leading offshore choice

India remains the favourite country for offshore outsourcing. However Hungary and the Czech Republic are playing increasingly important roles following the extension of EU membership. China, Malaysia, and Vietnam have also moved into the top 10. Increasingly CIOs are outsourcing to more than one country to mitigate risk.

 

CW is top read

Harvey Nash asked IT directors to name the three publications they found most useful. Computer Weekly headed the list, followed by the Financial Times and MIS.

 


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