IT Pros: IT Outsourcing More Costly Than ExpectedBy Ericka Chickowski | Posted 2011-05-14 Email Print
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IT organizations that have sought to reduce costs through outsourcing are finding the services end up being more costly than they thought, and the service providers can't offer the flexibility that internal staff can.
Managed services and outsourcing partners may have work to do in improving their reputations if a new survey out this week is any indication. According to a survey conducted by Lieberman Software among 500 IT professionals, more than three-quarters of IT professionals who work in organizations that use outsourcing say their providers have "made up" work in order to rake in extra cash.
The survey found that 43 percent of IT professionals work at organizations that have outsourced a significant portion of their IT, with larger organizations even more likely to outsource for efficiency reasons. But as the outsourcing trend has progressed, many organizations are becoming disillusioned with their services, says Phil Lieberman, president and CEO of Lieberman Software.
"Once upon a time, IT was seen as the lever arm of the company – a group that could use technology to make the organization more competitive, exciting and different in the marketplace. Industry analysts and consultants in the area of business process management came up with the idea that every job could be fully described and therefore outsourced to the lowest bidder," he says. "Given that the advice came from a 'credible source’ these executives were able to achieve remarkable reductions in cost and liability for a while, until business challenges began to appear that required flexibility, corporate knowledge, and dedication to the company. The experts never considered dedication and loyalty as elements in their 'process reengineering’ - it was deemed as not quantifiable."
What's more, the savings many organizations hoped to achieve through outsourcing are not nearly as substantial as they initially projected. Approximately 62 percent of survey respondents reported that they paid more than they anticipated on their outsourcing agreements, with 27 percent reporting that they had spent "significantly more" than they planned. Only 11 percent reported that they paid less than they expected.
These figures also went up drastically for organizations with over 1,000 employees. Approximately 82 percent of professionals a these organizations reported that their outsourcing deals cost them more than expected.
"What I see today, and what this survey confirms, is that many organizations are growing frustrated with IT departments that consist largely of outsourced employees who come and go at the whim of outsiders," says Lieberman. "If organizations are going to outsource IT they must measure their outsourcers’ performance across the appropriate set of criteria – not only cost, but resiliency, transparency and data security."