Outsourcing driven by cost not productivity

28 April 2010

28 April 2010 | Allie Anderson

Organisations focus too heavily on cost-cutting rather than improved efficiency when making outsourcing decisions, a report concluded.

More than half of respondents (58 per cent) to the second Annual Outsourcing Survey by consultancy Op2i cited reduced costs and improved profitability as the main driver of outsourcing and offshoring decisions during the 2009-10 financial year. This had increased from 46 per cent in 2008-09.

Improved productivity and efficiency was the main driver for 34 per cent of respondents in 2009-10, a decrease from 40 per cent a year earlier.

The survey questioned directors and board members at more than 100 firms globally about the effects of the recession on outsourcing and offshoring. Some 64 per cent of respondents said the recession had led to a rise in outsourcing during the 2009-10 financial year.

Organisations are most likely to outsource facilities management, HR, media management and logistics and procurement.

The functions most likely to be offshored during 2009-10 were software developing, testing and maintenance (83 per cent, down from 86 per cent the previous year), IT (static at 71 per cent) and customer service (down from 69 per cent to 64 per cent).

While CEOs tend to share responsibility for outsourcing and offshoring decisions with the CFO and operations, IT and procurement continue to have the most influence on them. However, IT has gained greater input, increasing from 38 per cent to 43 per cent, with procurement having a lesser role, dropping 7 percentage points to 21 per cent.

Bharat Vagadia, CEO at Op2i, said: “There have been significant cost pressures on outsourcing deals, many renegotiating existing deals and newcomers seeing cost-cutting as the only real driver. Business transformation is dead for now, but may well reappear as organisations realise that a pure focus on cost will lead to adversarial relationships, and may well lead to lower quality.”

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