Satisfaction With Outsourcing Hits Bump In The Road, Survey Says - InformationWeek

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IT Leadership // IT Strategy

Satisfaction With Outsourcing Hits Bump In The Road, Survey Says

Though more IT execs say they'll increase the use of outsourcers this year, for the first time a minority plan to cut back, the DiamondCluster International survey says.

IT executives seem ambivalent about their outsourcing endeavors.

They like the cost-savings and the expertise outsourcing provides, though about half have canceled some outsourcing contracts. IT outsourcing also helps companies better manage variable capacity needs and free internal resources for more critical projects. Yet, at the same time, the IT execs feel embarrassed if their employees, customers, and the public find out just how much outsourcing they commission.

These conclusions are the gist of a survey of 210 buyers and 242 providers of outsourcing services released Tuesday by the management consultancy DiamondCluster International Inc.

The majority of surveyed IT managers say they expect to increase their use of outsourcers this year, though a small number indicate they'll cut their use of outsourcers, something unheard of in recent years. Though IT execs see value in their outsourcing contracts, half the buyers say they've terminated outsourcing deals, up from 21% a year earlier.

"The blame cannot be heaped solely on the shoulders of providers," Tom Weakland, head of DiamndCluster's outsourcing advisory services practice, said in a statement accompanying the 19-page study. "Many buyers are now several years into at least one outsourcing relationship, but they still lack effective measures to gauge the success of their outsourcing initiatives, which are critical for knowing and getting what you want."

Most buyers of outsourcing services like what they get: 78% expressed satisfaction in their outsourcing deals, up from 74% last year, but they don't like broadcasting the fact they're doing it. Nine of 10 buyers expressed concern about employees' reactions to outsourcing, and two-thirds fret about customer reaction and negative publicity. But they don't care what their competitors or labor unions think about their outsourcing ventures. "This shifting mindset shows outsourcing has become integral to today's business strategy," Weakland says.

Though overall satisfaction is on the rise, dissatisfaction with outsourcing also is going up: 15% of buyers surveyed expressed dissatisfaction with their outsourcing contracts -- evenly split between onshore and offshore deals -- up from 10% last year.

Nearly three-quarters of buyers expect to increase IT outsourcing this year -- that's up from 64% last year. Still, 7% told survey takers they'll decrease the use of onshore outsourcing and 5% said they'll do the same for offshore outsourcing. In its three years of conducting these surveys, DiamondCluster said no one ever told them they'll decrease the level of outsourcing.

Other findings of the survey:

  • 40% of buyers expect to outsource some IT functions to China over the next three to five years compared with 8% last year.
  • Buyers report that the greatest risks of outsourcing include the increased complexity of managing relationships, reduced operational effectiveness, and lower quality of output from their outsourcing providers.
  • Application maintenance and app development are the top outsourcing investments made by buyers.
  • When comparing one outsourcer against another, buyers rank technology expertise first, followed by cost, flexibility in structuring operating models, existing or prior relationships, and references and reputations.
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