Consultants take too big a share

Are outsourcing suppliers pocketing benefits due to their customers?

Are outsourcing suppliers pocketing benefits due to their customers?

Companies are not making the savings they should from outsourcing overseas, writes Tony Collins, possibly because European software houses and consultancies are taking too big a cut.

So says outsourcing expert Bob Aylott, an IT outsourcing specialist of many years' standing, whose firm Orbys has commissioned a survey of major UK organisations that have contracted out IT work overseas. Nearly half of the 80 companies which responded to the survey were questioned in depth.

Presenting the survey's findings at an offshore outsourcing (off sourcing) conference at London's Forum Hotel, Aylott said that only a quarter of the companies surveyed dealt directly with suppliers in overseas countries.

In part, this could explain why average savings were, in the main, up to 30%. Savings of 40% or more should be achievable, he said.

"European software houses and consulting organisations which are usually involved in the specification and implementation as well as acting as the agents for the offshore developer are often taking too big a cut and not passing the benefits on to their client.

"This is an immature market where lots of organisations are experimenting, learning by their mistakes, getting ripped off in the process, but nevertheless are still getting a better deal than they would onshore," Aylott added. He named several major IT companies, accounting firms and consultancies as intermediaries.

The Orbys survey found that the financial sector is the largest user of offshore development services and most of the offshore work is handled by India and, to a much lesser extent, China, Taiwan and Korea.

"Almost all who have tried it will continue to use the capability and in the majority of cases with the same supplier," Aylott said.

Outsourcing the development of tightly-specified bespoke systems was the most successful and maintaining legacy software the least successful form of offshore contracting out.

The survey also found that offshore outsourcing, mostly to India, is growing rapidly after a Y2K lull.

"Many companies are asking, 'Should I or shouldn't I, and who should I do it with?' Some are into serious relationships but most are just experimenting," said Aylott.

One in five of the US Fortune 100 companies have outsourced some software requirements to India. In the UK, users of offshore outsourcing include Royal & SunAlliance, J Sainsbury, Asda, and British Airways.

For more information on the survey contact Orbys Consulting, 020-7872 5525

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