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Gartner highlights outsourcing problems

Survey: The failure by organisations to realise that their needs will change over time leads to nearly 80 percent of outsourcing contracts being re-negotiated
Written by Steve Ranger, Global News Director

Four out of five outsourcing deals will be renegotiated during the lifetime of the contract, because many deals have been too focused on cutting costs.

A survey of 200 European executives by analyst house Gartner found that 55 percent of those businesses with outsourcing contracts have renegotiated the deal.

One in eight contracts had even been renegotiated within the first 12 months of their operation, Gartner found, while only 23 percent of companies said they did not expect to renegotiate their contracts.

But only six percent were planning renegotiations to rescue existing deals, which Gartner said confirmed its view that relatively few companies are actively looking to bring outsourced services back in-house.

Half of survey respondents highlighted lack of flexibility as the biggest issue leading to renegotiations. Cost reduction was another key area, with two in five saying they paid too much for their outsourcing.

Gartner senior analyst Gianluca Tramacere said many companies had set up long-term outsourcing deals based on short-term cost-cutting needs. "Organisations don't realise that their needs are going to change," he told ZDNet UK sister site silicon.com.

He said the "sense of disillusionment" that came from this is one of the biggest inhibitors to outsourcing.

But the analyst house said that some renegotiation, in the form of a mid-term review, is a good idea.

He went on to say that as internal IT departments start to act more like a manager of different services rather than simply a provider, more emphasis should be put on correctly acquiring the right mix of internal skills.

Companies should spend at least 4 percent of their IT budget on putting in place the right team to manage the deal, and should regularly review their sourcing strategy and exit management plans, Gartner said.

Tramacere said: "Outsourcing is not just about getting rid of people, it's about acquiring people — if you don't have the [right] skillset you will continue to have tough discussions about a lack of clarity."

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