Firms fail to monitor outsourcing benefits

Three-quarters of firms lack the ability to measure the success of contracts
Lisa Kelly , Computing, 28 Feb 2007
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Many businesses do not understand the value of their outsourcing arrangements and are unable to quantify benefits, according to research released yesterday (Wednesday).

An international survey by consultancy KPMG has found that 42 per cent of companies with outsourcing arrangements are not supported by a formal measurement framework.

Some 59 per cent of respondents only track benefits of IT projects at an elementary level, or not at all. And 72 per cent said they do not have the criteria to measure the success or failure of sourcing arrangements.

But the appetite for outsourcing remains high, with 89 per cent of respondents expecting to maintain or increase sourcing levels. Just 14 per cent admit to a significant misalignment of financial expectations with their provider.

Alan Dion, KPMG IT sourcing practice director, says while firms have wider goals when it comes to outsourcing, cost reduction can overshadow them.

‘It is rare for cost reduction to be the only objective of an outsourcing contract,’ said Dion.

‘Other business objectives such as becoming more agile, speed of IT development for new products and end-user experience are also important.

‘But often these broader business goals are forgotten and cost and technical service level agreements become important.’

Paul Morrison, a director at the National Outsourcing Association, shares this view.

‘Organisations are getting better at making outsourcing work as they learn how to manage contracts properly, but they should make sure they are getting as much benefit as possible by adequate tracking.’

Morrison says benefits can be tracked by finance teams if the contracts are relatively small. But firms embarking on seven- to 10-year deals are increasingly setting up a programme management office or sourcing team to monitor progress.

‘If the agreement is not delivering, it is a basis for rectifying the issue or, at worst, for exiting the deal,’ said Morrison.