IT Outsourcing Is Here To Stay, Shows Survey By US Company

Chicago, Illinois, March 27 | Updated: Mar 28 2004, 05:30am hrs
Despite some high-visibility setbacks and backlash from politicians and the public, corporate information technology (IT) executives and the providers of IT outsourcing services say outsourcing, both onshore and offshore, is here to stay. In fact, of those participating in Diamondcluster Internationals 2004 IT outsourcing study, 86 per cent expect the use of offshore IT outsourcers to increase over the next 12 months.

IT outsourcing has all the characteristics of a maturing business, said Tom Weakland, who leads the outsourcing advisory services practice at Diamondcluster International, a global management consulting firm.

Executives have become more realistic in their expectations and are now more likely to implement outsourcing initiatives incrementally, Mr Weakland said. The outsourcing euphoria that we saw in 2002 has been replaced with a focus on sourcing as a business-enabler. While reducing costs is still the number one reason fueling the outsourcing trend, another key factor is that companies are looking to free up internal resources to focus on more critical initiatives.

Other key findings from Diamondclusters second study of companies that outsource and the vendors who provide IT outsourcing services include:

74 per cent of buyers are satisfied with their outsourcing efforts to date.

64 per cent of buyers expected their use of IT outsourcing to further increase over the next 12 months.

21 per cent of buyers said they had prematurely terminated an outsourcing arrangement in the last 12 months.

Diamondclusters 2004 global IT outsourcing report details the findings of surveys and in-depth discussions with senior IT executives at global 1000 companies and with senior executives at outsourcing service providers in the United States, India and other countries. Research was conducted in late 2003 and early 2004.

BACKLASH STANDS OUT AMONG RISKS: While outsourcing is now well established as an important tool in an organizations strategic arsenal, it is still a risky proposition, study participants report. For example, 85 per cent of buyers and 81 per cent of providers are concerned that legislation or political pressure might prevent them from taking advantage of the wage arbitrage opportunities associated with offshore outsourcing.

The reaction of employees is another source of anxiety. At least 84 per cent of the buyers and 82 per cent of the providers said they are concerned about backlash from employees as jobs are lost to offshore outsourcers. Of particular concern to some employers is the potential for employees to purposefully undermine offshore relationships. Negative publicity is also an issue, particularly with providers, 72 % of whom were somewhat very concerned about their reputation for taking US jobs overseas. Senior management wants to take advantage of the benefits that outsourcing can offer as part of a sound sourcing strategy, said Diamondclusters Weakland.but they are engaged in a balancing act to ensure that they dont get locked into deals that might be threatened by new legislation, boycotts or employee sabotage.