- Early Terminations Double; Offshore Outsourcing Satisfaction
Rates Plummet 17 Percent
Buyers of outsourcing services in growing numbers are dissatisfied
with offshore service providers, prematurely terminating contracts
and struggling to harvest the full value of their outsourcing
relationships -- even as many of those same companies plan to
increase their level of outsourcing over the next 12 months,
according to new research by DiamondCluster International (Nasdaq:
DTPI), the global management consulting firm.
According to DiamondCluster International's 2005 Global IT
Outsourcing Study the number of buyers prematurely terminating an
outsourcing relationship has doubled to 51 percent while the number
of buyers satisfied with their offshoring providers has plummeted
from 79 percent to 62 percent.
"The blame cannot be heaped solely on the shoulders of providers,"
said Tom Weakland, who leads the outsourcing advisory services
practice at DiamondCluster. "Many buyers are now several years into
at least one outsourcing relationship, but they still lack effective
measures to gauge the success of their outsourcing initiatives, which
are critical for knowing and getting what you want."
DiamondCluster's third-annual study was the first in which any
buyers reported that they are planning to reduce their outsourcing
spending. Seven percent will decrease onshore outsourcing and five
percent will do the same with offshore outsourcing.
As for outsourcing's benefits, the re-allocation of internal
resources to more critical functions was the benefit of outsourcing
buyers most often cited (83 percent). Cost savings, generally
considered the primary driver of outsourcing decisions, was only
second in the DiamondCluster study.
"This finding underscores several things we see going on in the
market," Weakland said. "Companies are learning that the tremendous
cost-savings outsourcers have been promising are actually very
difficult to achieve. And they are learning more about the cost of
losing good people and the value of their institutional knowledge."
Other key findings from DiamondCluster's 2005 study of companies
that outsource and the vendors who provide IT outsourcing services,
which are expanded upon below, include:
-- 40 percent of buyers expect to outsource some IT functions to China
over the next three to five years compared to eight percent last
-- 88 percent of buyers remain concerned about employee backlash, but
worries about anti-outsourcing legislation and political pressure
-- Buyers report that the greatest risks of outsourcing include the
increased complexity of managing relationships, reduced operational
effectiveness, and lower quality of output from their outsourcing
DiamondCluster's "2005 Global IT Outsourcing Report" details the
findings of surveys and in-depth discussions with 210 senior IT
executives at global 1000 companies and with 242 senior executives at
outsourcing service providers in the United States, India and other
countries. Research was conducted in late 2004 and early 2005. Copies
of the complete study are available on request by sending e-mail to:
China Rapidly Emerging as Next Offshoring Hot Spot
In 2004, only six percent of survey respondents said they planned
to establish offshore operations in China. Today, that number has
soared to 40 percent.
"China is starting to look like India did 10 years ago," Weakland
said. "As outsourcing capability in China takes off, it will put
deflationary pressure on the traditional providers of commoditized
outsourcing services and set an entirely new price point. The most
aggressive providers are establishing operations in China now to grab
market share. Taking a wait-and-see approach is not an option.
Countries that appear to have fallen out of favor, according to
the data, are Israel and Russia.
Providers Keep the "Face of Outsourcing" Out of Sight
While worries about anti-outsourcing legislation and political
pressure have dropped dramatically from 85 percent to 50 percent,
concerns about backlash from employees, customers and the public
persists. Eight-eight percent of buyers remain concerned about
employee reactions to outsourcing, 67 percent fret about employee
severance costs, 66 percent about customer reaction and 65 percent
about negative publicity. Sensitive to buyers' concerns, providers
limit their onsite presence to keep the "face of outsourcing" out of
sight from employees, according to the study.
"Interestingly, buyers are not overly worried about the impact of
competitor criticism or union pressures on their outsourcing
endeavors," said DiamondCluster's Weakland. "We feel that this
shifting mindset shows outsourcing has become integral to today's
Despite war, terrorism and mounting tensions in the Middle East,
buyer perceptions of global stability have improved. In 2004, 78
percent of buyers said that concerns about global stability were
impacting their outsourcing decisions, but today that number has
dropped to 68 percent.
Larger world conflicts are concentrated in regions not typically
known for outsourcing and concerns about reactions here at home are
taking precedence, according to Weakland.
Providers Get Smart about Pricing
Buyers offered conflicting viewpoints on pricing of providers.
While the majority believes rates have remained consistent, 25
percent believe they have increased and 22 percent believe they have
"Providers have worked hard to remove cost as a key differentiator
and it appears to be working," said Weakland. "Traditional industry
pricing benchmarks are becoming less reliable as an indicator,
therefore, buyers must be willing to balance costs and value when
Summing up the major findings of the DiamondCluster 2005
Outsourcing Study, Weakland said: "The organizations we studied make
it clear that outsourcing is here to stay, but they are still
struggling to execute an optimal sourcing strategy. One-off,
transactional outsourcing deals haven't yielded the expected results.
"The future of outsourcing is dependent upon the ability of buyers
to think about sourcing IT talent strategically and in using the
appropriate metrics to confirm that they are deploying the right
resources -- internal or external -- for the right functions," said
Weakland. "In turn, it will be up to providers to meet and exceed
buyer expectations, or risk losing important contracts."
DiamondCluster International (Nasdaq: DTPI) is a premier global
management consulting firm that helps leading organizations develop
and implement growth strategies, improve operations, and capitalize
on technology. Mobilizing multidisciplinary teams from our highly
skilled strategy, technology, and operations professionals worldwide,
DiamondCluster works collaboratively with clients, unleashing the
power within their own organizations to achieve sustainable business
advantage. DiamondCluster is headquartered in Chicago, with offices
across Europe, the Middle East and South America. To learn more visit
Web site: http://www.diamondcluster.com
ots Originaltext: DiamondCluster International
Im Internet recherchierbar: http://www.presseportal.ch
David Moon, Media Relations, +1-312-255-4560, cell, +1-708-623-4133,
; Laura Cinat, Investor Relations,
; Tony Bernstein,
United Kingdom, +44-20-7959-7700, email@example.com