Outsourcing: Why does the hostility persist as new deals emerge?

Signs that outsourcing activity is on the rise may do little to dispel the animosity it sometimes attracts.

Negative attitudes to outsourcing continue to surface but one expert says they remain out of step with the realities of IT, which is experiencing a surge in deals as economies recover from recession.

Recent figures from the ISG Outsourcing Index, which tracks commercial contracts with an annual value of €4m ($5.5m) and above, showed record quarterly IT outsourcing deals for the EMEA region.

"The negative press outsourcing sometimes receives, which is tiny in comparison to the amount that's done in reality, is invariably around how it's ineffectively delivered," ISG North Europe partner and president John Keppel said.

"They often blame outsourcing but it's just a mode of operation - it's not a big hairy thing."

According to Keppel, much of the criticism aimed at outsourcing focuses on its effectiveness as a vehicle for change in an organisation.

"In a lot of those cases where it's suggested that it's ineffective it's often because the relationship, the contracts and the commercial elements are just not being managed very effectively," he said.

Record outsourcing contracts

Although the ISG figures revealed a record number of EMEA contracts awarded in the third quarter - 176 contracts worth €2.8bn ($3.8bn) - the sums spent on outsourcing globally in 2013 are still 20 percent down on a year ago.

The value of renegotiated deals also rose significantly on the previous quarter – up 200 percent – but showed only a marginal increase on the same point last year.

"The criticism is fair enough. Outsourcing shouldn't be immune to it. But it's not like it's going to change. It's a perfectly legitimate component of most organisations - there are very few organisations that don't do it," Keppel said.

"There are a few that don't do much of it. But there are few that very specifically don't do it in IT."

Sourcing specialist ISG works with some of the organisations in this category, Keppel said.

"For instance, one the most well known serial insourcers is HSBC, which traditionally don't outsource because they feel they've got IT scale, which they have, and they feel they can manage it effectively, which they do," he said.

"But for years now we've done global benchmarking work with HSBC all over the world to make sure that we can tell them exactly where in the IT estate they've got trapped costs. That's all a service provider would be doing.

"They manage it themselves and they don't think that a provider could really give them anything that they haven't already got."