Outsourcing becoming less popular with bigwigs
Outsourcing becoming less popular with bigwigs
Apr 20, 2005: Many of the largest organisations in the world have had negative experiences and have failed to save on costs as a result of outsourcing, according to a new study released by Deloitte Consulting LLP.
Greater caution is being exercised towards outsourcing by 70 percent of the study's participants and one in four say they have brought functions back in-house because they felt they could be more successful internally.
44 percent also said they could not see how outsourcing was useful for saving money and most of the participants complained about hidden costs involved with outsourcing.
Ken Landis, a senior strategy principal at Deloitte, said that there are fundamental differences between product outsourcing and the outsourcing of service functions. He said that these differences were initially overlooked, but have now come to the fore:
"Outsourcing vendors and companies may have conflicting objectives, putting at risk clients' desire for innovation, cost savings and quality. Moreover, the structural advantages envisioned do not always translate into cheaper, better or faster services.
"As a result, larger companies are scrutinising new outsourcing deals more closely, re-negotiating existing agreements, and bringing functions back in-house with increasing frequency."
The main problems companies found with outsourcing are that instead of saving costs, flexibility and simplifying operations, in reality, the process created new complexities, added cost and friction demanded more management than expected.
Landis added: "In the near term, outsourcing will become less appealing for large companies because it is not delivering the value as promised, and its appeal as a cost-savings strategy will also diminish as the economy recovers from recession and companies look for differentiated solutions to support their growth.
"However, outsourcing can still deliver value to companies that enter into outsourcing for the right reasons using a right model such as centralise-standardise-outsource, transform-operate-transfer, commodities outsourcing, risk transfer, and shifting fixed costs to variable, and have superb talent in-house to manage these deals from inception to execution."
The study was conducted between October to December 2004, and involved interviews with senior executives from 25 world-class organisations in financials services; technology; the Public Sector and many more industries.
Related Article: