Outsourcing moves towards multiple suppliers — survey

15 Aug 2006

Many organisations are opting for multiple suppliers in outsourcing agreements instead of favouring a single service provider, new research suggests.

A survey from PMP Research, commissioned by the Evaluation Centre, uncovered some possible new trends in the outsourcing market, with some businesses now signing shorter contracts or even ending deals in order to take their facilities back under their own control.

More than two thirds of respondents (68pc) said they are selecting multiple suppliers, with less than one in five (19pc) preferring a single outsourcer. This doesn’t appear to be a temporary development, as 77pc indicated that they will be going down the multi-sourcing route in the future, compared to 16pc who want to stick with one supplier.

The survey also uncovered significant levels of customer churn, with close to half of those polled (47pc) saying they tried to transfer from one outsourcing supplier to another at some point, or else they sought to reactivate their services internally. That being said, many respondents said such moves were ‘difficult’ (53pc) or ‘very difficult’ (5pc).

However, it wouldn’t be true to say that these developments are a response to customer dissatisfaction. Half of the sample reckon their current service level agreements are met exactly as anticipated (26pc) or even exceeded (36pc).

In 10pc of cases there has never been an instance where a supplier failed to provide a service as specified once the contract begins. One third of respondents (33pc) said problems were very rare occurrences.

Instead, organisations appear to be concerned about retaining flexibility over their outsourcing deals. Not one of those polled said they signed a contract of 10 years’ duration or longer. The majority now expect a contract to cover a period of one to two years (39pc) or two to five years (39pc). Deals lasting less than a year are rare (3pc) but one in 10 organisations expect their outsourcing arrangement to last between five and 10 years.

The survey also indicates that outsourcing’s popularity isn’t waning. Almost two thirds of the sample feel outsourcing is either ‘important’ (36pc) or ‘very important’ (26pc) to their organisation’s IT strategy. Some 48pc said that their own spending in this area would increase over the next 24 months; 25pc said investment would remain the same and 17pc expect their outsourcing budget to be reduced.

Gauging return on investment is another matter, it seems. Three quarters of companies find it ‘fairly hard’ (54pc) or ‘very hard’ (23pc) to calculate the financial returns from outsourcing.

By Gordon Smith