Outsourcing saves less than claimed

[UA_Iron]

AMSTERDAM (Reuters) - Outsourcing of information technology and business services delivers average cost savings of 15 percent, a survey found on Thursday, disproving market claims that outsourcing can reduce costs by over 60 percent.
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After professional fees, severance pay and governance costs, savings range between 10 percent and 39 percent, with the average level at 15 percent when contracts are first let, according to outsourcing advisory firm TPI.

"This research proves that the promise of massive operational savings is unrealistic when you take into account the costs of procurement and ongoing contract management," Duncan Aitchison, TPI's managing director, said in a statement.

"In our experience, outsourcing arrangements which focus solely on delivering huge savings often fail to meet client expectations," he added.

Cost reduction remains the primary motivation behind current outsourcing contracts, but an increasing number of companies are outsourcing primarily to improve quality, at 21 percent now versus 11 percent in 2004.

The first three months of 2006 had the largest number of outsourcing contracts ever signed in the first quarter of a year. TPI found that 83 contracts were signed, valued globally at over 18 billion euros ($21.9 billion), compared with 76 deals worth just over 13 billion euros over the same period last year.

IBM, EDS and T-Systems were the main beneficiaries of contracts let in the first quarter of 2006, winning total contract values of 3.7 billion euros, 3.6 billion euros and 1.1 billion euros, respectively.

The pipeline of deals on which TPI is currently advising is led by EDS, IBM and CSC, which are competing for deals totaling 6.4 billion euros, 6 billion and 4 billion, respectively, it added.

http://news.yahoo.com/s/nm/20060413/tc_nm/outsourcing_dc_1

 

[UA_Iron]

Those are some interesting numbers.

I had heard before that a lot of times outsourcing engineering work led to unsatisfactory work from the foreign companies - I guess there's some truth in that.

I wonder now if the goal will be to limit outsourcing to dumbed down jobs or if they will try and correct the communication barriers and demand better product.

 

[UA_Iron]

Electrical and Computer engineers get paid so well. Their jobs are probably the easiest to outsource too...

 

[mrplunkey]

Professional fees and severance costs are one-time costs tho. Those should be exluded from the calculation if the business is expected to be long-lived (as most are).

Also, a lot of outsourcing is about reduced health claims, reduced absenteeism, reduced regulation, and reduced litigation. Even if the operating costs where the same, being free of a possible discrimination or on-the-job injury lawsuit would be a massive benefit.

 

[mrplunkey]

... oh, and Unions. I'm sure thats a major part of it too in a lot of situations.

 

[UA_Iron]

Professional fees and severance costs are one-time costs tho. Those should be exluded from the calculation if the business is expected to be long-lived (as most are).

Also, a lot of outsourcing is about reduced health claims, reduced absenteeism, reduced regulation, and reduced litigation. Even if the operating costs where the same, being free of a possible discrimination or on-the-job injury lawsuit would be a massive benefit.

Ah true - things I didnt even think of.

I'm an engineer not a business major so I really dont have any idea of how the whole system works to be honest.

 

[HunterUk]

lol I had to give a talk on this just the otehr day, woulda been interesting to have found that beforehand!

 

[UA_Iron]

lol I had to give a talk on this just the otehr day, woulda been interesting to have found that beforehand!

who would you say gets hurt most by outsourcing?

 

[mrplunkey]

who would you say gets hurt most by outsourcing?

The middle class by far. Basically mid-level service people and low-end professionals.

- Customer service representitives / call centers
- Order entry / order processing houses
- Accountants
- Low-end programmers
- Software report writers / interface designers
- Technical support personnel

Essentially you have people who have been paid at historical rates and those rates have increased modestly over time (as they should). The catch is, we keep dumping extra costs on businesses even as the "third world" is being better educated and better wired. So employers see a lower-cost, litigation-free, regulation-free, union-free opportunity and jump on it.

 

[pintoca]

I work for the biggest Workspace Management company in Europe.

Nearshoring is the right thing orb: think Eastern Europe (Hungary, for example) and Mexico.

Leave India for Call taking if you can handle the accent. If you want them to develop software be prepare to write specifications so clear that they start by "1. please turn on computer"

 

[SlimJim52]

My company awarded a guy big bucks for his Six Sigma (YUCK) project which outsourced some 1500 jobs and saved the company big bucks. Wonder if the 1500 people that got outsourced out of work feel he deserved his reward?

 

[pintoca]

My company awarded a guy big bucks for his Six Sigma (YUCK) project which outsourced some 1500 jobs and saved the company big bucks. Wonder if the 1500 people that got outsourced out of work feel he deserved his reward?

was he at least a black belt?

 

[javaguru]

Those are some interesting numbers.

I had heard before that a lot of times outsourcing engineering work led to unsatisfactory work from the foreign companies - I guess there's some truth in that.

I wonder now if the goal will be to limit outsourcing to dumbed down jobs or if they will try and correct the communication barriers and demand better product.

I've worked on several "disaster recoveries" due to shoddy foreign software design.

 

[Razorguns]

Outsouring DOES save money.

But the problem is quality, time and efficiency. It can take 3x as long to outsource things, and deal with a slow-ass late-night conf program, daily emails, qa in different time codes, etc. that can make a 3-month project here turn into a 6 month project.

Here you can make your workers work 14 hours to get that shit done. With outsourcing, all you can od is send an email and hope it's done next morning. You're very "hands off" with outsourcing. That's the #1 prob.