PA Consulting Cautions Against Rushed Outsourcing

PA Consulting (News - Alert) has announced the release of its latest international IT survey titled, ‘Outsourcing – What lies beneath,’ and said that the intense pressure to reduce IT budgets and outsourcing costs has resulted in several discords in customer and vendor relationships, stitching multiple solutions together, and more or less crippled the ability to attain out of the box solutions.

Officials at the company stressed that deterioration in customer and vendor relationships were found to be even more affected when it came to outsourcing multiple interlinked, interdependent or interoperable solutions to several different vendors. The long term implications of overall risks, the company says, related to multi sourcing strategies for managed IT sourcing contracts have not been fully grasped by a significant number of companies.

"Poorly designed, implemented and managed IT outsourcing contracts bring with them massive business risk, and cost,” said Jonathan Cooper-Bagnall, Head of Sourcing Consultancy, Management Group Member, PA Consulting. “This is especially prevalent if different suppliers are used - client organizations must manage the integration of the different agencies and define how they are to work together without duplication of work or gaps being left.”

The report claims that more than 30 percent of the US, UK and European respondents have little or no understanding of either the cost of micro components or the overall cost of managing their IT contracted service level agreements, or the 'retained governance organizational cost'.

The report adds that nearly three fourths of the respondents agreed that the upcoming trend over the next five years is multiple vendor IT outsourcing. Only one fourth accepted or were aware about the risks involved with hurriedly rushing into such contracts without scrutinizing each and every detail, and recognized the pressing need for well versed internal review and management before, during and after handing out contracts.

 “We are seeing more and more that multi sourcing is a developing trend, making integration of services all the more crucial,” said Cooper-Bagnall. “However, many 'tier one' organizations have already had to invest heavily in teams of people to fulfil the integration role, simply through lack of an early identification of the need for service integration."

Unfortunately, the report reveals that about 35 percent of the customers build in non-performance criteria as shields to renegotiate contracts, and 75 percent actually have blue prints ready for saving even more cash outflow. This approach results in fractured and unrepaired relationships spread across several vendors.

The report says foundation building change management programs that clearly spell out micro and macro level tasks to handle IT sourcing contracts are being completely ignored in the name of cost saving, and this approach regrettably sows the seeds for future two way discontent.

“Pouring good money after bad is a well-known sin of business, but unless IT outsourcing arrangements are clearly defined and closely scrutinised from the outset - that is exactly what happens,” said Cooper-Bagnall.

Innovation in IT outsourcing (ITO) is another area that has mostly taken a back seat, says the report. More than 25 percent of respondents say have received no innovation whatsoever, and of the ones that do receive any bright ideas, only 5 percent deliver innovation that identifies new sources of revenue growth.

"Organizations are quite simply missing out on the tangible benefits, especially innovation that could and should be achieved as a result of a strong business relationship,” said Cooper-Bagnall. “Organizations need to provide direction and measurable objectives, such as cost reduction, to their suppliers, leaving them to work out the 'how' and allowing the client organization to concern themselves with the management of the overall relationship."