50pc of outsourcing deals crash and burn

20 Nov 2003

One in every two IT outsourcing agreements fails, the first Gartner Summit in Ireland heard yesterday.

This painful truth about outsourcing failing to deliver on expectation, was delivered by Gartner Ireland country manager Oisin Byrne who said that the challenge was to identify what separates the successful from the unsuccessful.

Often the failure of outsourcing agreements comes down to the legal interpretation of what is involved in outsourcing certain elements of a company’s business and technology requirements. “Often management can underestimate the amount of time required in the planning process, which can result in rushed contracts that come back to haunt you,” said Victor Timon, a consultant at William Fry Solicitors.

Timon recommended that lawyers and other consultants must be brought in early to advise on planning and strategy. “Those who end up with successful outsourcing relationships with their suppliers are the ones who’ve taken the time to get it right,” Timon said, emphasising the need to conduct internal due diligence to establish a starting point. “Then you can set clear goals for what you want to achieve.

Timon added that flexibility is the essence of a good outsourcing contract. “Your business is going to change over the life of the deal and the contract has to be able to cope.”

Accenture director Stuart McLaughlin emphasised the cost benefits of outsourcing engagements, whether infrastructure, application management or business process outsourcing.

“The constituent elements of areas such as finance and accounting, procurement and HR services typically lend themselves to outsourcing in a shared services environment,” said McLaughlin. “Similar tasks, following similar rules, and executed in volume are the hallmark of back office operations, and it makes sense to share these activities across an organisation rather than operate numerous functions duplicating workload in multiple locations.”

The question of whether outsourcing can meet the needs of small and medium-sized businesses with accounting and HR requirements was raised at the Gartner Summit. “It makes sense for some of these similar organisations to pool their resources,” noted McLaughlin.

He said: “For example, we provide financial reporting, IT development and support, HR and customer contact support services for organisations within an industry on a completely secure and confidential basis, and allow them to get on with their core business activities at lower cost.”

Gartner forecasts that this “one-to-many” service model will become prevalent in markets such as Ireland, Italy and Spain, where multiple medium-sized organisations typically operate within a single industry.

Maurice Mortell, managing director of hosting firm Data Electronics said that outsourcing works perfectly fine in companies with as little as 40 users. “If the client is looking to outsource the IT function purely as a function of cost savings, then we have a benchmark figure of 25percent savings,” explains Mortell. “If we cannot achieve savings above that point, then there is no point in pursuing the matter.”

By John Kennedy