Why do employers outsource?

How can it be cheaper?

The same work has to be done as before

Efficiency gains


Main benefits of outsourcing

Agree Don't
know
Disagree
Provide skills 85% 5% 10%
Handle variations in demand 71% 10% 19%
Economies of scale 43% 34% 23%
Senior management pressure 22% 22% 56%
Cut costs 17% 37% 46%

NCC survey of 100 IT managers, as reported in Vowler (1996)


Other benefits



Levels of service are predictable and reliable

Costs are predictable

Costs may be variable depending on usage

Able to respond to changes in technology

Cash flow and taxation benefits


When it goes wrong

When it goes wrong, it's all our fault...

According to KPMG, for which consulting on outsourcing is a multimillion pound business: "Successful implementation can provide unparalleled competitive advantage, but organisations which get it wrong run huge risks." Despite these risks it says "many organisations are outsourcing, but few are doing it well"

(VNU, 1998)

Characteristics

In a survey by Willcocks & Lacity, 35% of contracts failed

“Virtually all failures sought primarily cost reduction… All were 10 to 12-year single-supplier deals, initiated by the company board with little IT management input”

(Cross, 1999)


Problems

Time and cost of establishing a contract

Time and cost of ongoing management

Drop in employee morale, loss of key employees

"Unexpected" costs found by FM company

Unforeseen services required by customer (outsourcer)

Difficult to get out of an FM contract

Beware of relying on a "partnership" with an FM company


Reasons for dissatisfaction

Reason %
Loss of control and influence 51%
Management time to sort our supplier issues 37%
Loss of IT expertise 34%
Inability to return service in-house 32%
Never provided the skills promised/presumed 32%
Lack of innovation 30%
Lack of understanding of business drivers 28%
Slowness of response 25%

Morgan Chambers survey, as quoted in (CW, 1998)


UpOther topics Comments please to: dwfarthi@glam.ac.uk © 1999, University of Glamorgan