Billions wasted on poor outsourcing deals

Western European businesses wasted around €6bn on poorly structured outsourcing deals last year, despite outsourcing being the one bright spot in a struggling UK IT sector.

While the European industry as a whole contracted, outsourcing was the only sector to experience growth, expanding by 6.3 per cent.

But too many deals were signed to save money in the short term, rather than considering the longer-term business requirements of the company, warned Gartner.

The analyst explained that satisfaction with outsourcing among customers fell from 81 per cent in 2001 to 50 per cent last year.

Short-term thinking meant that many companies were not getting the hoped-for benefits.

This led to €6bn being wasted in outsourcing contracts as companies undertook expensive reviews, renegotiated deals or, in worst case scenarios, scrapped the contract altogether.

Roger Cox, vice president of IT management strategy and planning research at Gartner, said: "If deals aren't well structured the confidence level is low.

"Then there's a lot of wastage trying to resolve issues. You get to a point where everything becomes a problem. When confidence is high, that goes away."

Gartner recommends a three-point plan to improve the structure of an outsourcing deal:

• Take a long-term view and look at your service provider as part of your company.
• Build deals that can cope with continuous change.
• Invest in the skills, resources and processes needed to manage the contract.

"Outsourcing is not about buying something; it's about a major service provider becoming part of your company," said Cox.

"If you look at it that way, it's more like an acquisition or merger. If you get that shift in attitude at board level, outsourcing works much better."

Gartner's figures reflect findings by Ovum Holway in its latest report on the state of the UK software and services sector, due out at the end of May.

It found that the UK IT market dropped by five per cent in 2001-2 and this year's report will show a three per cent decline over the last 12 months.

But take outsourcing out of the equation, and the figures are far worse. For 2001-2, the sector dropped by 10 per cent.

Richard Holway, director at Ovum Holway, said: "Outsourcing is the one side of this market that continues to grow."