Cost savings still clinch IT services contracts

Cost savings are the main reason UK firms are outsourcing services, but more than a third now cite service improvements as the top reason

Cost savings are the main reason UK businesses outsource services, but more than one-third now cite service improvements as the top reason.

Research by the National Outsourcing Association (NOA) of its members revealed that 54% of outsourcing buyers gave cost reduction as the main reason for doing so, while 36% said improved services were the main driver. The remaining 10% cited access to other value-add services as the top reason.

The NOA also asked suppliers for their views, and results were similar. A total of 56% said their clients were most interested in cost savings, 27% said improved services and 17% said access other value-add services.

According to the survey, suppliers are promising cost savings, with 60% offering savings between 11% and 30%, but 57% of executives buying the services expect savings of between 21% and 40%.

Good relationships were cited as the main factor leading to successful outsourcing outcomes. The NOA said: “For buyers, all the key components of outsourcing success were the softer skills, ranking governance, their team’s and the supplier’s team’s skills and capabilities, and then supplier transparency/trust as key to success, in that order.”

Despite being in vogue, the use of multi-sourcing models is not necessarily a driver of added value, with 36% of buyers actually regarding it as a negative influence.

The NOA said businesses are planning to increase their outsourcing, despite having no standard way to measure success. “Some 60% of outsourcing buyers plan to use outsourcing more in the next five years, which presents many opportunities for our industry, but there are some key differences of opinion around how to measure the success of outsourcing, particularly around the theme of increased productivity, which suppliers are promising much more of,” said the association.

IT outsourcing is a major component of business outsourcing and, according to ISG, the first six months of 2014 have seen the biggest spend on IT outsourcing since the financial crisis of 2008.

A total of €5bn was spent on IT outsourcing in the three months from April to June – a 32% increase on the equivalent period last year. ISG reported in April that €2.4bn was spent on IT outsourcing in the first three months of this year – 29% more than in Q1 2013.

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