Outsourcers seen as money grabbers, but KPMG says reasons for outsourcing are changing

The headline might appear underwhelming but claiming that outsourcing is not about cutting cost is a controversial one.

Most people in the outsourcing sector, outside the supplier community, say that lowering cost is always the driver for outsourcing. The rationale: if a company could do it at a lower cost in-house it would not outsource.

Research from the National Outsourcing association (NOA) also reveals that most of the general public (80%) don’t think that outsourcing adds any value, while 65% believe it is only done to cut costs.

But KPMG think times are a changing.

Speaking at a conference Claudio Altini, director within KPMG’s shared services and outsourcing advisory practice said the desire to reduce costs or shrink headcount is no longer the driving force behind business decisions to outsource key operations.

He also said the continued economic uncertainty has forced the outsourcing industry to mature.

“All the evidence suggests that organisations are expanding the services they outsource, but it is no longer accurate to say that they are turning to third-party suppliers just to reduce costs.   Today’s challenge is much more about searching for the next level of value, which means ripping up the traditional outsourcing contract and replacing it with guarantees that assure value for money. 

“Too often, in the past, outsourcing relationships have broken down because of mixed messages around the three Rs – rates, results and responsibilities.  Now, however, businesses are no longer prepared to accept standard terms and conditions for outsourcing their core services.  They want proof that service delivery arrangements are flexible, can move with the strategic needs of an organisation and will meet the targets demanded by stakeholders. 

“Changing attitudes also mean that the old model of ‘cheapest deal wins’ is unsustainable.  The next level of value will see contracts where performance and price are more intrinsically linked and where governance comes to the fore so that there is no doubt where responsibilities lie.   The key to the future of the outsourcing industry now lies in simplifying agreements and innovation around charging models, not a pricing model where the cheapest deal wins the day.”

The industry has its work cut out if you look at the NAO research. Here are some of the findings of a survey of public perceptions towards outsourcing.

–    80% don’t think that outsourcing adds any value
–    65% believe it is only done to cut costs.
–    Only 27% recognised “a local computer company providing IT support as outsourcing
–    Only 14% know that using an accountancy firm is outsourcing
–    70% want evidence of how many UK jobs are created by outsourcing
–    69% want proof of how much outsourcing positively contributes to the UK economy
–    55% demand less wasting of taxpayers cash in public sector contracts.

Martyn Hart, chairman at the said: “The NOA is confident that we can prove to the public the value that outsourcing brings to businesses, and the nation as a whole. Outsourcing is not just about offshoring and job losses, although the public currently thinks that it is.”