Opinion

Thought for the day:Outsourcing savings fund new IT

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? >> CW360.com reserves the right to edit and publish answers on the Web site. Please state if your answer is not for publication.

Martyn Hart is chairman of the national Outsourcing Association and practice director at Mantix, a consultancy that delivers value from complex programmes.

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This was first published in May 2002

 

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