Eyes Wide Open, Part 1

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    “The world’s largest companies have engaged in outsourcing for a variety of reasons: to reduce costs, expand capabilities, and increase flexibility. However, contrary to the optimistic portrayal of outsourcing by vendors and the marketplace, outsourcing is an extraordinarily complex process and the anticipated benefits often fail to materialize.”

    So begins a new report, "Calling a Change in the Outsourcing Market," out from Deloitte & Touche, which sent researchers around to 25 very large organizations, which have a combined capitalization of a trillion dollars, employ a total of a million people and generate, on average, annual revenues of $50 billion apiece.

    These subjects spend a “combined $60 billion USD on their large outsourcing contracts alone.” In other words, their thoughts on the topic carry weight.

    There’s a lot going on in the report, so I’m going to make it the topic of several entries.

    I’ll start with the “lure” of outsourcing. You’ve read the various studies citing the rationale for outsourcing:

    • Cost savings
    • Best practices and innovation
    • Flexibility/capacity/scalability
    • Access to “high-caliber labor”

    And so on…

    According to the report, experience hasn’t measured up to expectation.

    • For example, 38% of participants said they’ve paid extra costs for services they thought were part of their contracts.
    • A third of participants said service providers became complacent around innovation once the contracts had aged a bit.
    • And participants commented on the fact that outsourcing can actually make operations a bit more rigid. Providers may not take on last-minute changes or requests, pointing to contract terms to justify their inability to respond.
    • A fifth of respondents said their companies experienced greater than expected employee turnover from the service provider.

    Next, I’ll tackle that part of the report that examines risks inherent in outsourcing.

    You can download your copy of the 34-page report in PDF format here:

    http://www.deloitte.com/dtt/research/0,1015,cid%253D80376,00.html

    (You may have to register for free on the site to obtain it; I’m already registered, so I can’t tell from my current perspective.)