In-Depth

IT Only Partially Satisfied with Outsourcing

Study suggests lack of legwork a primary cause for disappointment

• By Stephen Swoyer
• 01/21/2002

Those are two of the conclusions drawn in a new report from research firm DiamondCluster International which surveyed Global 2000 clients that were currently outsourcing, or planned to outsource, IT operations over the next twelve months.

DiamondCluster says that only 23 percent of the IT executives it surveyed reported being more than “partially satisfied” with their outsourcing partners. In addition, fully 53 percent of IT executives say that they are only “partially satisfied” with their outsourcing relationships. Another 23 percent report being “dissatisfied” with their experiences.

Not surprisingly, writes Tom Weakland, managing partner of DiamondCluster’s global sourcing practice, things could be a lot better. But, Weakland suggests, outsourcing providers themselves aren’t entirely to blame. "Our research…also points to some root causes, often not the fault of the outsourcer, that clients can start to address to improve the situation."

According to Weakland, one of the foremost causes of a less-than-satisfactory outsourcing experience is—surprise—a poor match between an IT organization and its partner. In addition, he indicates, some organizations aren’t comfortable with the costs, benefits and tradeoffs that are associated with outsourcing—even after they’ve entered into a relationship with a provider.

Most important, Weakland suggests, is the simple fact that a lot of organizations don’t know how to manage the outsourcing relationships that they’ve entered into with their providers. “Creating tangible value from an outsourcing relationship requires constant management attention from the start. However, this is the opposite of what many firms are doing.”

In particular, Weakland indicates, IT organizations don’t always do the necessary legwork—in terms of creating business cases and drafting service level agreements (SLA) to protect their outsourcing arrangements—that’s necessary to ensure a productive experience. “More emphasis needs to be placed on setting realistic performance expectations and then tracking performance much more closely. Once this happens, we would expect to see a positive shift in executive attitudes towards outsourcing relationships."

Nevertheless, DiamondCluster found that 92 percent of the clients that it surveyed had established SLAs with their providers that specify reward or penalty clauses.

The research company identified four fundamental questions that companies that outsource their IT operations should be able to answer:

- How well is the outsourcer performing versus service level agreements (SLAs)?

- How well is the client organization performing versus those SLAs?

- How do the actual results of outsourcing compare to the projected results in the business case?

- How has the business case changed with the changing nature of the outsourcing relationship?

No Boon to Revenue

Not surprisingly, DiamondCluster acknowledges, few companies reported that outsourcing had a definitive impact on revenue growth, and most (62 percent) said that they did not see any increase in revenues. At the same time, 54 percent of companies indicated that their outsourcing activities had a positive impact on the quality and efficiency of processes that remained in-house.

The research company found that a lack of proximity didn’t seem to deter many companies from outsourcing their operations to offshore providers. Moreover, it indicates, companies that outsource operations with offshore providers are generally more satisfied with their experience than are companies that partner with domestic providers. Of IT organizations that outsource a portion of their operations to offshore providers, 80 percent do so with partners from India.