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Research reveals escalating costs of outsourcing contracts
(Microscope Via Thomson Dialog NewsEdge)
The outsourcing sector is facing a mid-life crisis, with many customers across Europe paying significantly higher prices for IT services than they would had they remained inhouse. These are the findings of research by Compass Management Consulting, carried out among 240 customers in 35 countries over 24 months, accounting for ?2.7bn worth of outsourced contracts. "We are seeing up to 65 per cent of all outsourcing contracts worth over ?20m [each] unravelling before their full term," said Simon Scarrott, head of business development and marketing at Compass. The cost of failing contracts is high for providers and customers, and the legal and advisory costs could quickly escalate, he added. "The real cost impact arises as the issue becomes a business problem and constrains strategic freedom for the future, as well as having a negative effect on current operations," said Scarrott. Compared with inhouse functions, outsourcing could save up to 18 per cent in year one, but the research showed most tier-one providers were charging 30 to 45 per cent more in the final years of contracts.Outsourcing is a valuable tool providing it is controlled for the benefit of the client not the provider, said Duncan McIntyre, chief executive at Morse, adding more flexibility needed to be built into contracts. "In an environment where businesses can rapidly change direction, they may need to rip up the contract and start again, which can be hugely expensive," he said.Duncan Aitchison, partner and managing director EMEA and Asia-Pacific at outsourcing specialist TPI, argued that if outsourcing was poor value for money there would be more cases of repatriation.
Copyright 2007 Reed Business Information - UK. All Rights Reserved.
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