Outsourcing used to drive down costs in short term

TechWorld.com - Most organizations resort to outsourcing as a short-term tactical measure to lower costs rather than as a strategy in its own right, according to a new report from Gartner Inc.

The firm surveyed 945 individuals in North America, Europe and the Asia-Pacific region. Gartner concluded that while strategic IT outsourcing can be an integral part of a company's long-term business success, most organizations worldwide are still focused on tactical IT outsourcing as a means of reducing costs.

According to the survey "controlling/reducing operating costs or improving efficiencies" was identified by more than half of the respondents in each region as the primary value they expected to receive from IT outsourcing. Efficiency deals are focused on cost control and, over time, cost reduction with the goal of maintaining consistency in service delivery. The survey found that fewer organizations outsourced their IT as a way to improve their business or their competitiveness.

"One of the great clashes in the market today is driven by the dominant use of outsourcing to cut costs, along with requirements for customized services," said Allie Young, research vice president for Gartner's Sourcing research group. "Only by foregoing customization and moving to standardized services can the market effectively and reliably deliver the cost-efficiency goals."

According to the survey, "achieve cost take-out" was identified as the foremost driver of IT outsourcing, with large organizations more frequently identifying this driver than small ones. Following cost take-out, respondents rated "achieve speed, agility, flexibility" and "gain access to technical expertise and skills" equally as drivers.

Overall, variations existed by vertical industry and by geography. Financial services, government, process manufacturing, services, transportation and wholesale/retail organizations all ranked cost reductions as the top driver of IT outsourcing. North American respondents identified "improve IT service to end users" as their leading driver. The top two inhibitors to IT outsourcing focused on data security or privacy issues and concerns about the potentially high costs of outsourcing.

"Companies have a growing concern about losing control of their intellectual capital and the business knowledge of key employees whose jobs or roles may be threatened by outsourcing, particularly when downsizing occurs," Young said. "As part of a sourcing strategy, organizations must carefully examine the goals they wish to reach from outsourcing, but equally their concerns. This exercise not only will help in developing a sourcing strategy, sourcing maxims and prioritization of goals, but will educate various constituents in the organization about realistic outcomes and possible false assumptions or misperceptions that it holds about outsourcing."