The demand for outsourcing services remains strong and outsourcing continues to be a buyer's market that allows clients to request improvements in service levels and sat. The results of a new survey of buyers indicate that quality remains a big concern for companies using offshore service providers. The research also found that buyers continue to experience numerous challenges with the IT providers and are unable to realize all the benefits associated with IT Outsourcing (ITO). The biggest gap between benefits sought and realized was found in hard-to-measure areas, such as innovation, speed and flexibility.
According to the survey results, the level of satisfaction with ITO is moderate across the general IT functions with "somewhat satisfied" the most popular choice. Buyers are particularly concerned with quality issues, missed deadlines and cost overruns.
The research also demonstrates that almost half of the respondents claim that their ITO projects are either unsuccessful or partially successful. This closely correlates with another important finding - a large number of ITO contracts are being considered for renegotiation in the near future, primarily due to poor satisfaction levels of companies with their ITO providers.
The percentage of offshore components continues to be very high in the sourcing strategies utilized in the buyers' ITO activities. Although India enjoys the top position among the most preferred offshore destinations and retains a cost and language advantage, China is attempting to close this gap in many areas of IT outsourcing. Canada, Philippines and Mexico fill up the other slots in the top offshore destination list.
As buyers have an increased their portfolio of IT services operations in various global locations, the importance of managing risk and the relationship with the service provider have become quite significant. The issue of flexibility in relationships with the IT providers was cited among the top factors that contribute to the success of an ITO engagement.
Key Findings
This survey was designed to assess the buyer's view on the recent market trends of Information Technology Outsourcing (ITO) and to determine the key benefits and challenges associated with their outsourcing strategy. The survey is also aimed at measuring the satisfaction of buyers with their ITO service providers. The survey includes responses from more than 300 executives who are primarily in the top regional or multinational organizations in various industries of the North America region.
More than 40 percent of the participants represent the organizations with annual revenues of more than $1 billion and more than 1,000 employees. Approximately 80 percent of the respondents indicate they are currently involved in IT outsourcing and the other 20 percent are also planning to start ITO in the near future. BPO involvement constitutes approximately 50 percent among the survey participants.
ADM, Help Desk Services, and Consulting and Systems Integration
Are the Most Preferred ITO Functions
The following IT functions ranked high as the most preferred candidates for outsourcing: Application Development and Maintenance, Help Desk Services, Consulting and Systems Integration, Desktop and Mainframe Data Center. Imaging/OCR Services, Telecom, and Network Infrastructure ranked the lowest
Most Essential Benefits Sought by the ITO Buyers Align with the Benefits Realized
The majority of respondents cited cost optimization, better focus on core competencies, and increase in speed and flexibility as the most sought-after benefits associated with IT outsourcing. Other secondary benefits, such as improved efficiency of business operations and improvement in scalability, organizational transformation, and innovation were some of the less important criteria for IT Outsourcing. These secondary benefits are extremely hard to measure, but are expected to be realized in the long term as the customers become more sophisticated and demand more value from their service providers. According to the survey results, it was further determined that IT outsourcing allows companies to realize these benefits to some extent, especially in the most essential areas.
Selection of a High Quality Service Provider and Flexibility in the Relationship with the Provider Are the Most Important Factors for Success and Failure
When asked to select the top five factors for success and/or failure of an ITO engagement, the majority of the respondents cited the following issues: selection of a high quality service provider, flexibility in the relationship with the provider, well defined objectives and scope of services, executive management support and sponsorship, and quality of an ITO contract and SLAs. However, it is interesting to note from other survey results that even though quality is a key challenge faced by companies using ITO service providers and the selection of a high quality service provider is perceived as a key criterion for success of ITO engagement, "Cost" still appears as the key metrics for evaluating ongoing performance levels of these service providers.
Most Important Factors for Success / Failure of an ITO Engagement
IT Outsourcing Practitioners Are Somewhat Satisfied Across All IT Functions
Survey participants were asked to measure their level of satisfaction with IT Outsourcing based on the scale of four. "Somewhat satisfied" emerged as the most common answer among respondents across all the general IT functions. Application and Development Maintenance, Mainframe Data Center, Help Desk Services, Desktop, and Network Infrastructure scored the highest in satisfaction with ITO. Satisfaction levels tend to slip a bit in the areas where it is hard to put some solid metrics, such as Consulting and Systems Integration, Telecom, and Imaging/OCR Services. The results clearly reveal there is room for improvement for the service providers in terms of improving customer satisfaction levels and thus, move themselves up from "Somewhat satisfied" level to "Very Satisfied" levels"
Levels of Satisfaction with ITO
Almost Sixty Percent of the Respondents Consider Renegotiating
Their Existing IT Contracts in the Near Future
As the survey results demonstrate, almost 60 percent of respondents consider renegotiating their existing IT contracts, which correlates to some other interesting data found in this research - 45% of the respondents claim that their ITO projects are either unsuccessful or partially successful. The data shows that there is a demand for a higher quality service and more flexible contracts between the ITO buyers and service providers. However, the ITO providers are not meeting this demand. The satisfaction derived from the existing service contracts is low due to quality related issues, as evident from the other results provided below.
Considering Renegotiating Existing ITO Contracts
Quality Issues, Missed Deadlines and Cost Overruns Are the Most Common Challenges with IT Service Providers
The majority of the respondents (almost 70%) states that quality related issues are the major challenge faced with IT service providers, followed by missed deadlines, cost overruns, lack of understanding of the organization's core business, and lack of flexibility. Other challenges, such as poorly drafted outsourcing contracts and SLAs, lack of adequate value for money, and lack of interest in providing benefits beyond cost savings scored slightly lower, but still received a lot of attention among the survey participants. We might conclude from these findings that service providers are more focused on strictly managing to the terms of the contract than delighting their clients (see Level of Satisfaction with ITO).
Challenges Experienced with IT Providers
Cost Effectiveness, Service Availability, On-Time Delivery, and Defect Rates Are the Most Popular Quantitative Metrics for Provider Performance
More than 60 percent of the respondents believe that "Cost Effectiveness" is the most important quantitative metric for ascertaining the performance of the service provider, followed by other important metrics such as "Service Availability", "On time Delivery" and "Defect rates." The results clearly displayed that "cost" is still the most critical factor for evaluating the service provider and quality still lags behind cost, even though it is the most critical challenge faced by companies using IT service providers.
Quantitative Metrics to Measure Provider Performance
India, China, Canada, Philippines, and Mexico
Are the Most Preferred Offshore Locations
More than 65 percent of respondents indicate that they are currently using an offshore sourcing model in its ITO activities or plan to use it in the near future.
India emerged as the most preferred offshore location for almost 65% of the respondents, making it the number one offshore location for outsourcing and far ahead of other locations such as China and Canada. The huge availability of English speaking and skilled labor force at low costs in India has made it the leading offshore destination. Overall, Asian nations scored over their counterparts in Europe and Latin America in terms of client's preferred choice.
Preffered Offshore Locations
Buyer Survey Sample
The "convenience" sample of the total population was employed to conduct this survey. The sampling frame was drawn from the current practitioners and prospective buyers of ITO services. Potential respondents were pre-selected from the newsletter subscription database of www.OutsourcingLeadership.com. This list includes professionals from over 1000 regional and multinational companies of various sizes and business purposes.
The survey targeted a broad cross section of the business and not-for-profit organizations from various parts of the world, as well as a wide range of business functions. Almost 75 percent of the participants represent the North America region, 2.9 percent - Western Europe, 2.9% - Eastern Europe, 14.3 percent - Asia-Pacific and 5.7 percent - other regions, such as Latin America and Africa. Participants were primarily represented by the executive and managerial level professionals who are most knowledgeable about their company's operational strategies and outsourcing initiatives.
Organization size ranged from annual revenues of less than $10 million to greater than $50 billion and from less than 1,000 employees to more than 25,000. The charts below demonstrate that more than 40 percent of the participants represent the organizations with annual revenues of more than $1 billion, and almost 9 percent out of them constitute the organizations with annual revenues of more than $50 billion. A vast majority of the respondents are represented by organizations with more than 1,000 employees, and 20% out of them belong to organizations with more than 25,000 employees.
Respondents Profile: Annual Revenues and Number of Employees
About Alsbridge
Alsbridge is an award winning global advisory firm, providing unbiased advice and assistance on outsourcing, shared services and offshoring. Alsbridge consultants bring extensive vertical industry expertise and a practical knowledge of all areas within information technology and business process outsourcing. The firm's proven methodology incorporates proprietary collaborative sessions, bringing together executive teams from both the client and the provider in an environment that fosters a platform for building long term sustainable relationships. Alsbridge supports its recommendations and assistance through significant investments in proprietary benchmarking and ongoing research within the industry.
Additional Information
For additional information, please contact Jeff Anderson at the number below.
Jeff Anderson
Vice President - Client Relations
Alsbridge, Inc.
3535 Travis Street
Suite 105
Dallas, TX 75204
Tel: +1 214 696 6410
Fax: +1 214 239 0698
Email: information@alsbridge.com |
