Outsourcing deals rising, but risks increase as focus narrows to cost cutting

May 11th, 2009

Almost 60% of organisations in Western Europe say they will outsource more IT and business process functions this year, compared to last, according to an online survey by analyst Gartner. The analyst also predicts that prices of IT services outsourcing will decline by 5—20% through 2010.

“The outsourcing market’s growth has slowed from 2008, but today’s market is characterised by a high volume of activity across the board,” says Claudio Da Rold, vice president and analyst at Gartner.

“These outsourcing contracts very often include offshore work and intense renegotiations. Last year, the activity was primarily concentrated on renewals and new deals,” he adds.

And it’s all about cost reduction. More than 70% of respondents rated budget and cost containment as their top concerns in 2009, up 17.5% from 2008.

“The focus on cost reduction is driving a high usage of outsourcing and global delivery in Europe in 2009 and 2010. However, under the current economic and technological conditions prices are going to decrease, creating a market full of opportunities and challenges for both end-users and service providers,” comments Da Rold.

He also warns that some inexperienced organisations, driven into outsourcing to achieve rapid cost reduction, may create another wave of unsatisfactory outsourcing contracts. “This must be avoided in such an uncertain business climate, as the inflexibility of bad outsourcing relationships can seriously harm business viability,” says Da Rold.

Gartner predicts that, through 2012, inflexibility caused by an excessive cost reduction focus will result in business disruption in 30% of outsourcing deals – including an inability of the buyer to compete effectively.

Source:www.sourcingmag.com

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