Outsourcing customers are demanding more from providers

Demand remains strong for outsourcing of information technology services, but buyers are requiring more from their providers according to new research.

The survey of 300 corporate buyers from advisory firm Alsbridge indicates that quality remains a big concern for companies using offshore service providers. The research also found that buyers continue to experience "numerous challenges" with IT providers and are unable to realise all the potential benefits associated with IT Outsourcing (ITO).

While they are largely achieving their cost reduction goals, the biggest gap between benefits sought and realised was found in hard-to-measure areas, such as innovation, speed and flexibility, the poll claimed.

"Providers focus on delivering to a contract in many cases," said Ben Trowbridge, Alsbridge CEO.

"Corporate buyers of outsourcing services need to build innovation, flexibility and relationship management into their working interaction with providers. These are difficult to build into the language of the contract, but should be dealt with as a part of governance."

More than 40 per cent of the poll participants represent organisations with annual revenues of more than $1bn and more than 1,000 employees. Approximately 80 per cent of the respondents indicate they are currently involved in IT outsourcing.

According to the survey results, the level of satisfaction with ITO is moderate across the general IT functions with "somewhat satisfied" being the most popular choice. Buyers are particularly concerned with quality issues, missed deadlines and cost overruns.

The research also demonstrates that almost half 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.

"Dissatisfaction affects both the buyer's business operations and the profitability of the provider," says Trowbridge. "Best practices in outsourcing strategies require monitoring and measuring satisfaction levels against qualities of the contract and relationship. Usually an outside firm is required to provide an objective evaluation of the situation."

The survey also shows that as buyers have increased their portfolio of IT services operations in various global locations, the importance of managing risk and the relationship with the service provider has increased significantly. 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.