Outsourcing rarely achieves the attractive cost savings promised at the start of a deal and in many cases actually increases costs and has a negative impact on service.
That’s the verdict of two-thirds of UK IT chiefs in silicon.com’s CIO Jury 12-strong IT user panel, whose verdict is that outsourcing doesn’t save money.
Nicholas Bellenberg, IT director at publisher Hachette Filipacchi UK, said outsourcing only usually saves money by reducing resource requirements, although benefits can include better experience and access to technical and management skills.
He said: “Outsourcing can increase costs significantly. There have been numerous recent examples of companies insourcing previously outsourced activities simply to save cost.”
Mike Roberts, IT director at Harley Street private healthcare organisation The London Clinic, has worked on both sides of the outsourcing fence during his career and said suppliers use several tactics to ensure they make their 20 per cent profit target on the deal.
A-Zs…
These include including as much chargeable work as possible to offset service level agreement penalties and transferring the buyer’s IT staff across and then charging them back at consulting rates.
He said: “On another occasion, a CFO was offered a ‘fantastic saving’ by a major global provider. When the details were reviewed by consultants with the relevant contract experience, the cost of the service increased.”
Richard Steel, CIO at the London Borough of Newham, argued: “It depends how bad the service being outsourced is. I would contend that, too often, services are outsourced because services are failing – in which case they can be improved – often to only a mediocre level. As a generalisation it would be hard to save money – and maintain excellent service – in a well-run service.”
And Ted Woodhouse, former IS director at Leeds Teaching Hospitals NHS Trust, said: “I have been in the IT business for 30 years, and I have never, ever, not even once, heard anyone ever say, ‘my word, the IT service is a lot better since we outsourced it’. The question shouldn’t be whether outsourcing saves money; the issue is whether you can afford the real costs of outsourcing.”
But not everyone agrees with this damning assessment of the value of outsourcing – although these come with caveats.
Simon Crawshaw, IT and procurement director at Bourne Leisure, said: “As with anything, results are a direct result of effort put in. Lazy outsourcing will not deliver savings as it will simply allow a supplier to abuse the relationship. Selective outsourcing when well specified and managed can deliver huge savings.”
Kevin Fitzpatrick, European CIO at Sodexho, warned: “It is crucial that real current costs and new vendor charges are fully understood. Poor knowledge of today’s environment and poor estimating of future model often leads to disappointment.”
One organisation that has cut costs through outsourcing is Vocalink. Nick Masterson-Jones, IT director at Vocalink, said: “We have focused on outsourcing work packages to trusted partners and we have achieved significant cost-savings by doing so. By retaining accountability in-house and by keeping the scope of the packages tightly controlled, we have managed to avoid some of the pitfalls that make the front pages of the computer press.”
The academic sector isn’t known for major use of outsourcing but the drive towards shared services is set to change that.
Paul Hopkins, IT director at the University of Newcastle, said: “In the university sector, we do not have any significant outsourcing (yet) but our ‘bottom-up’ approach to shared services will bring more outsourcing. Initially we are outsourcing certain activities to other universities but we are starting to engage with the major vendors to examine some potentially huge deals across our sector.”
Today’s CIO Jury was…
Alastair Behenna, CIO, Harvey Nash
Nicholas Bellenberg, IT director, Hachette Filipacchi UK
Simon Crawshaw, IT and procurement director, Bourne Leisure
Kevin Fitzpatrick, European CIO, Sodexho
Paul Hopkins, IT director, University of Newcastle
Jane Kimberlin, IT director, Domino’s Pizza Group
Nick Masterson-Jones, IT director, Vocalink
Rory O’Boyle, head of IT, The Football Association
Jacques Rene, CTO, Ascend
Mike Roberts, IT director, The London Clinic
Richard Steel, CIO, London Borough of Newham
Ted Woodhouse, former IS director, Leeds Teaching Hospitals NHS Trust
Want to be part of silicon.com’s CIO Jury and have your say on the hot issues for IT departments? If you are a CIO, CTO, IT director or equivalent at a large or small company in the private or public sector and you want to be part of silicon.com’s CIO Jury pool, or you know an IT chief who should be, then drop us a line at editorial@silicon.com
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