Whether offshore outsourcing represents good value for money is a complex and contentious issue. Certainly, few offshoring engagements go off without a hitch: statistics from analysts Gartner and TPI show that 80% of contracts are renegotiated during the lifetime of the deal, and a tenth are renegotiated in the first year.
“There is a planning problem,” said Stephen Bullas, managing partner at the European Centre for Offshore Development, “and it needs to be resolved in order to get value from outsourcing.”
Some offshore providers are addressing the issue of customer value, Bullas explained. “They are shifting from the normal and well-understood cost and labour arbitrage deals to so-called output-based deals engagement models based on value. But the problem is that they are badly promoted and badly understood by the vendors.”
Furthermore, the move to output-based outsourcing is not a strategic priority for much of the industry, said Bullas, and it will take a “significant market trigger” for it to become one. He recommended that delegates keep a close eye on the next round of quarterly GDP figures, as a ‘double-dip’ recession could be such a trigger.
Another trend is for outsourcing providers, specifically those in India, to swallow the upfront transitional costs – take them “on the chin”, as Bullas puts it – to lock clients into longer contracts, he explained.
Still, there is evidently a sizeable divide in expectations between buyer and supplier. Quoting figures from Diamond Cluster, Bullas stressed that poor provider performance was the most common reason for the termination of an outsourcing contract.
Despite this, Bullas forecasts that the cost, productivity and quality benefits will continue to be too strong a lure for many organisations. “The biggest driver, irrespective of the company, is always cost. Clearly, in times of recession, that is even more important.”
Also from the Managing IT Cost Effectively seminar
The economic downturn put the breaks on decision making, said Stephen Martin of Dynamic Markets
The energy costs of IT represent a growing financial burden, said Camco’s Chris Miller
Cost and flexibility make open source software a compelling proposition, said Talend’s Martin James