There’s no easy way to break the news: most strategic service provider deals fail. Traditionally, outsourcing has been driven primarily as a cost reduction initiative, yet a recent study by Gartner Group indicates that half of this year’s outsourcing projects will be considered unsuccessful by senior decision makers for not delivering on bottom-line promises, notes Joan Conway, global director, Managed Services, Fujitsu Consulting. Why does this happen if outsourcing is the right strategy for the business, she so rightly asks.
A recent IDC study for Accenture reports that although respondents indicated that outsourcing is being used to drive change, 20 per cent admitted they have no measures in place.
“The Holy Grail is always ‘we’d like to get better,'” comments Blake Hanna, Accenture’s Financial Services partner. “If you’re going to drive change, how much change and how will you recognize change and how will you define success in achieving that change? That all speaks to measures and metrics. I think the focal point here is what are those services levels being defined by? Are they simply year over year internal performance? Or is it that we will become a six sigma company and we’re going to try to drive error incidence down to one occurrence only. Service levels are very important. Measurement is key to making a successful outsourcing arrangement.”
There’s another opinion on the cause of the high failure rate. Outsourcing consultancy Harvard Negotiation Project/Vantage Partners claim 57 per cent of relationship breakdowns are attributable to relationship health, points out IBM’s Garth Isset, vice-president, strategic outsourcing, IBM Global Services Canada.
And yet, outsourcing is one of this year’s expected growth areas for the IT sector.
Peter Valters, director, Client Services, xwave, quotes IDC’s findings that the Canadian IT outsourcing market is maturing but there appears to be considerable room for spending growth until 2006 and beyond. Roughly 15 per cent of large and medium-sized businesses in Canada have outsourced, suggesting spending growth can easily occur as more companies decide to outsource after they see the benefits gained by other Canadian enterprises, including lower capital and operational costs, enhanced productivity and greater customer and employee satisfaction. But will they see those returns with such a high failure rate?
Jason Bremner, senior analyst, outsourcing services, IDC Canada, was optimistic when reporting on their recent study. “We found that outsourcing continues to evolve to serve the needs of Canadian business,” he noted. “While every organization has unique needs, there is undeniable evidence that outsourcing allows executives to focus on the core business while resolving skills shortages or resource problems, reducing costs, and fundamentally transforming how an organization thinks, acts and operates.”
This issue of IT Focus is packed with opinions, tips and trends relating to outsourcing in Canada’s financial services sector. If or when you are involved in an outsourcing project, hopefully these will help you defy those odds seemingly stacked against you.