Mass disruption caused to UK businesses from third party failures

Only 11% of UK firms are prepared to deal with third party failure during uncertain times, despite 80% having ‘high’ or ‘critical’ levels of dependence on outsourced providers

Mass disruption caused to UK businesses from third party failures

'In the current climate, some will be focussing on issues such as where they will continue to be located, or assessing talent models, particularly during the two-year time frame in which the UK intends to depart from the European Union'

Over the last three years, one in three UK companies have experienced major disruption or complete failure due to the actions of outsourced providers, according to a survey on third party management from Deloitte, the business advisory firm.

Its latest survey, examining third party governance and risk management (TPGRM), found that just 11% of UK companies feel equipped to deal with such failures during times of uncertainty.

The global survey, which included the responses of 107 UK companies across all sectors, also found that the UK had one of the highest dependencies on outsourcers, at 80%.

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Kristian Park, global extended enterprise risk management partner, Deloitte, said: “This year’s survey results demonstrate that third parties are increasingly relied upon, with this trend likely to increase. Unfortunately, management processes and technology that support the oversight of these relationships are not keeping up, creating an ‘execution gap’.”

“Whilst there is clear organisational commitment to address this, it is not being matched by the right skills, processes and technology to achieve intended results. Whilst both political and economic uncertainty has slowed investment and subsequent progress, there is greater appreciation of the related risks.”

Deloitte estimates that most large organisations take between two to three years to develop an integrated TPGRM framework.

“We predict 2017 and 2018 as the years when people will make significant strides in addressing this issue. However it will be mostly dependent on the priorities set by individual companies”, continues Park.

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“In the current climate, some will be focussing on issues such as where they will continue to be located, or assessing talent models, particularly during the two-year time frame in which the UK intends to depart from the European Union.”

Deloitte recently calculated that third party failure could cause shareholder losses of an average 2.55% or up to 10 times the regulatory fine.
Historically, this has ranged from £1.3 million to £35 million, reaching £650 million for internationally-operating firms subject to global regulation.

Alex Guillen, go-to-market manager at Insight said he was shocked to see the rate at which UK businesses have been failed by third party contractors.

“UK businesses,” he said, “rely on third party specialists to help them navigate a tough business landscape, and often rely on them for technical expertise. In a world where organisations are undertaking their own digital transformation journey in order to stay competitive, it’s essential the ecosystem is working right for everyone in it.”

“What is paramount to making these relationships work, is communication…Whatever the method used, having a clear strategy from the outset and constant communications throughout is essential to the running of any project, and crucial to organisations preparations for a digital tomorrow.”

 

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