Survey: Outsourcing saves less than claimed

13.04.2006

Outsourcing of information technology and business services delivers average cost savings of 15 percent, a survey found on Thursday, disproving market claims that outsourcing can reduce costs by more than 60 percent.

After professional fees, severance pay and governance costs, savings range between 10 percent and 39 percent, with the average level at 15 percent when contracts are first let, according to outsourcing advisory firm TPI.

"This research proves that the promise of massive operational savings is unrealistic when you take into account the costs of procurement and ongoing contract management," Duncan Aitchison, TPI's managing director, said in a statement.

"In our experience, outsourcing arrangements which focus solely on delivering huge savings often fail to meet client expectations," he added. Cost reduction remains the primary motivation behind current outsourcing contracts, but an increasing number of companies--21 percent now versus 11 percent in 2004--are outsourcing primarily to improve quality.

The first three months of 2006 had the largest number of outsourcing contracts ever signed in the first quarter of a year. TPI found that 83 contracts were signed, valued globally at over $21.9 billion, compared with 76 deals worth just over $15.7 billion over the same period last year. IBM, EDS and T-Systems were the main beneficiaries of outsourcing contracts in the first quarter of 2006, winning total contract values of $4.47 billion, $4.35 billion and $1.33 billion, respectively.

The pipeline of deals on which TPI is currently advising is led by EDS, IBM and CSC, which are competing for deals totaling $7.74 billion, $7.26 billion and $4.84 billion, respectively, it added.

http://news.zdnet.com/2100-9597_22-6060771.html

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