Businesses outsource IT for reasons other than cost

Cost-cutting is diminishing in importance as a reason to outsource IT, according to research of 630 contracts worth £14bn carried out by KPMG

Cost-cutting is diminishing in importance as a reason to outsource IT, according to research of 630 contracts worth £14bn carried out by KPMG.

In its 2012 UK Service Provider Performance and Satisfaction study, the KPMG found 70% of businesses are influenced by cost when making their outsourcing decisions. This compares with 83% in the last survey two years ago.

The results, from over 200 participants from user businesses, showed 46% said the need for better quality services was their reason for outsourcing, while 51% said it was due to a lack of in-house skills.

Lee Ayling, partner in KPMG’s Shared Services and Outsourcing unit, said the need for better services combined with a lack of in-house expertise is driving outsourcing.

“Just going for a low-cost option isn’t the de facto reason to outsource anymore. Companies are now looking at how outsourcing helps improve the quality of service they can offer to customers," said Ayling.

"At the same time a thirst for quality improvement means they want access to the skills that may be missing in house and the ability to respond rapidly to change.”

Mark Lewis, head of outsourcing at law firm Berwin Leighton Paisner, said the figures look about right from what he is seeing from his clients. 

“These figures stack up but I would expect the figure for cost as driver to be in the mid eighties,” said Lewis.

“It also makes sense that a lack of skills drives outsourcing because if you are implementing new technologies it is unlikely you will have the skills in-house.”

The survey revealed 56% of end users were satisfied and very satisfied with their IT service, 31% somewhat satisfied, while 13% were unsatisfied.

Ayling said the increased take-up of multi-sourcing meant suppliers cannot take customers for granted and are being forced to re-invent their service offerings.

“The survey highlights that buyers are now using multiple service providers where they didn’t before - hence service providers have to respond to shifting preferences for how IT is delivered if the current trend is set to continue,” he said.

Other key findings revealed that customers are unhappy about service provider performance. A large 45% believe service providers are failing to actively identify opportunities for innovation and three in 10 claim that some agreements are not met on time or to budget.

See analysis of the survey two years ago which was carried out by Equaterra before it was acquired by KPMG.

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