Outsourcing Clients Getting More Cost Conscious

Ann All

A while back, I spoke to Charles Aird, a senior managing director for PricewaterhouseCoopers, to glean his insights on outsourcing for the coming year. Not surprisingly, much of what he told me relates to outsourcing clients' desire to maximize their savings.


In the short term, clients are assessing their contracts to ensure they are getting the expected benefits, auditing invoices and tracking credits and penalties more closely. Doing so can result in cost reductions of up to 15 percent, says Aird.


In the longer term, clients see outsourcing as a more cost-effective way to move toward a centralized shared-services environment, since they can amortize costs across the length of contracts with providers, he says. They also hope to use savings generated by outsourcing to finance more strategic projects.


Maybe so, but outsourcing was identified by CIOs surveyed by Citi Investment Research as one of the areas most likely to suffer from budget cuts in 2009, as I wrote earlier this month.


An increased focus on saving money is evident from results of a recent survey in which PwC noted shifts in what its clients are seeking from outsourcing initiatives. Seventy-four percent say labor costs are more important now than they were before. Compare that number to those who said enhancing efficiency through business process redesign was now more important (55 percent), global strategy (39 percent) and gaining access to talent (32 percent).


Cost-consciousness will likely lead to a reduction in the kinds of sweeping transformation projects in which providers are asked to contribute innovative ideas. An InfoWorld article quotes Stan Lepeak, research director of EquaTerra:

The focus will shift away from open-ended efforts. Buyers will not have much appetite for transformation in 2009.

As with any other business investment, financing projects is becoming a bigger issue, says PwC's Aird. Thirty-one percent of clients told PwC they were delaying projects due to a lack of financing, 25 percent are continuing projects with original financing in place, 23 percent are trying to spread implementations over a longer period of time, 9 percent are asking service providers to finance projects and 14 percent are looking for third-party financing.


The need for new finance models could lead to more deals like one mentioned by Aird, in which a private-equity firm is considering taking a financial stake in a PwC client's business-transformation project involving an ERP implementation combined with a shared-services model. If the project is successful, the same model could be tweaked and sold to other companies, says Aird.

Add Comment      Leave a comment on this blog post
Jan 26, 2009 3:36 AM Estelle Pretorius Estelle Pretorius  says:

I would say that clients who are cost conscious should concentrate more on outsourcing their IT efforts as this will give them better control over IT expenditure. As Mr Aird mentioned, reports for work done are being closely scrutinised to make sure no unnecessary hours are billed. This is hardly ever the case for in-house IT teams. 

Feb 6, 2009 2:37 AM Business Process Outsourcing Business Process Outsourcing  says:

You have clearly define outsourcing and how company and businesses should keep track of everything to ensure the quality of work being rendered.....nice article have a nice day!

Feb 7, 2009 11:52 AM JO T. JO T.  says:

Thought you might find this of interest....Fast Action Vital If Outsourcing Provider Melts Down, Says Alsbridge

What happens when your outsourcing provider has an unforeseen crisis, such as the recent financial meltdown of Satyam Computer Services?

'As written into your final agreement, your company is covered contractually, but being operationally prepared is a completely different matter,' said Ben Trowbridge, CEO of Alsbridge, Inc., the leading outsourcing consultancy.

View the Alsbridge article, 'Preparing for the Worst: Steps to Help

Your Company Survive an Outsourcing Provider Meltdown,' at


In the wake of a crisis, Trowbridge recommends you:

.     Meet with your project management team for contingency planning

.     Address business critical services, processes and applications

.     Don't expect quick, accurate communication about the provider's viability

.     Review the policy on hiring provider employees on termination of the agreement

.     Don't start discussions on termination of services with the provider, which could lead to degraded services

.     Require meetings between your project management office and the provider account executive who is receiving updates about contingency planning

When an otherwise viable provider suffers a debilitating event like a financial or legal scandal, its client base remains strong and attractive to competitors.  In the event a vendor changes control, breaks up, or goes out of business, its competitors will quickly target those clients and seek to take over operations quickly.  Organizations' contingency plans should account for the probability that other providers will come knocking on the door and must be evaluated quickly to keep operations going.

When starting a relationship with any outside software services provider, put a disaster recovery plan in place internally that allows for a Satyam-like scenario, Trowbridge said. 

For more information on outsourcing advisory services, contact Alsbridge at 214-696-6410 or visit www.Alsbridge.com.  For more original research and insight on outsourcing topics, visit www.Outsourcingleadership.com.


NOTE TO EDITORS: For more information on this topic, please view these stories:

The Dallas Morning News: Scandal in India Creates Opportunity For Dallas Firms: 1/28/09: http://www.alsbridge.com/news-events/archives/53/Scandal-in-India-creates-opportunity-for-Dallas-firms.html.

Information Week: Satyam Crisis Puts Indian IT Industry -- And Customers -- On Edge: 1/17/09: http://www.alsbridge.com/news-events/archives/51/Satyam-Crisis-Puts-Indian-IT-Industry-And-Customers-On-Edge.html.

About Alsbridge

Alsbridge, Inc. is an award-winning global advisory firm, providing unparalleled expertise in information, technology and business process outsourcing, shared services, finance and accounting, and benchmarking. The firm is fact-based and client-focused, with a proven methodology that fosters success.  Alsbridge defines client goals and scope, finds the best cultural fit with providers, refines the best solutions and eases transitions and implementation. Founded in 2005, Alsbridge is the proven, effective difference. For more information, visit www.Alsbridge.com.


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