'Lost Opportunities' Characterize Many Outsourcing Initiatives, Says Deloitte

Ann All

Despite occasional reports to the contrary, it is now a given that outsourcing helps companies save money. A new Deloitte report confirms this, with 83 percent of the companies it surveyed saying they achieved ROI of at least 25 percent on their outsourcing initiatives.


Yet many of them appear to fall short when it comes to achieving more strategic business benefits through outsourcing.


Forty-nine percent of respondents told Deloitte they would define service levels more closely aligned with their companies' business goals if they got a "do-over" on their outsourcing projects. Just 34 percent of respondents say they gained significant benefits from their outsourcing providers' innovative ideas or business-transformation efforts.


Says Deloitte principal Peter Lowes:

The themes of unrealized potential and lost opportunities to use outsourcing as an opportunity to innovate echo throughout this report.

Service providers assign the blame for such lost opportunities to their customers, according to the research. More than 75 percent of the outsourcing companies say their clients do not have a solid outsourcing plan and lack the kind of operational data that would help them make informed decisions.

The Deloitte report highlights five areas that might not receive enough emphasis from outsourcing customers: strategy definition, creation of a business case, vendor selection, contract negotiation and ongoing performance management.

"Nobody ever achieved greatness by just cutting costs," points out Thomas Koulopoulos, author of "Smartsourcing: Driving Innovation and Growth Through Outsourcing," in a 2006 IT Business Edge interview. Mentioning some of the same points outlined in the Deloitte report, Koulopoulos says companies experience four common challenges with their outsourcing iniatives:

  • They fail to define their core competencies with the same level of scrutiny that they may apply to defining the cost reduction of outsourcing.
  • They do not fully understand the processes they outsource. Instead, they simply lift-and-shift a poor process to a partner.
  • They don't establish enough metrics to monitor their key objectives.
  • They fail to put a premium on a partner's ability to transform business processes.

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