Outsourcing might not help your company

Canadian companies are lagging behind their global peers when it comes to reaping the financial benefits of IT and business-related outsourcing projects, according to a new Deloitte Consulting report.

The global survey of about 300 corporations and outsourcing service providers found that Canadian businesses only experience a 15 per cent return on investment from their outsourcing projects compared to the global average of 25 per cent. The New York-based consultancy said that a lack of maturity in the Canadian market has led to poor planning and an over-emphasis on cost reduction for many outsourcing initiatives.

“Canadian companies on the whole are less mature than U.S. or U.K. outsourcing clients,” Michael Hart, managing specialist for outsourcing advisory services practice at Deloitte Consulting, said. “Canadian organizations, for the most part, are less inclined to put up big investments when developing their business case and determining what their total cost of ownership should be.”

According to Hart, about 50 per cent of surveyed companies said they have outsourcing deals in place, but are still having trouble with vendor staff and technology. In Canada only 60 per cent of survey participants said they were satisfied with their outsourcing services. The fact that many companies do not have a well defined outsourcing landscape, Hart said, plays a major role in the dissatisfaction these companies experience in their projects.

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To combat these struggles, Deloitte outlined a variety of steps companies can take in order to succeed in their current and future outsourcing deals. “The first thing companies need to do is examine how their outsourcing strategy affects their overall competitive situation in the market,” Hart said. “Have they carefully thought through their outsourcing initiatives? And are those initiatives aligning and supporting their company’s strategic direction?”

Deloitte said that transferring a dysfunctional operation to a vendor in the hopes of saving money is a sure-fire recipe for disaster. The creation of a business case and the establishment of effective service level agreements (SLAs), Hart said, should be of paramount importance to Canadian firms. “The survey showed an alarming number of companies that don’t have well documented service levels,” Hart said. “We found a fair amount of progress comes out of organizations just thinking through the outsourcing process and asking themselves whether they are over or under delivering these services to their internal clients.”

In addition to a clearly defined strategy, Hart also said company’s need to examine how outsourcing can help support their marketing and production efforts, as well as, the company’s financial planning.

“The Canadian market is night and day different to what it was five years ago and companies have really evolved tremendously in education when it comes to outsourcing,” Hart said. “Today, you hear a lot of people at the executive and board level saying, ‘what do we plan to do in regards to outsourcing this year?’ So, we think that companies will need to focus on making sound decisions when it comes to their outsourcing plans and how it can help all levels of business”

And because of this, Deloitte said that organizations will need to spend added time on finding a capable service provider that strikes a good balance between strategic process improvements and cost reductions. To achieve this, the consultancy advised firms to negotiate a mutual and flexible contract upfront, so that the focus can stay on fostering long-term and effective outsourcing operations.

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Jim Love, Chief Content Officer, IT World Canada

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