Over half of outsourcing budgets are being spent on reducing IT costs, not business benefits

Fifty-two per cent of IT directors’ spend with outsourcing suppliers is focused on reducing the cost of IT, rather than achieving business benefits, according to research from technology company MooD International. This is despite the fact that only 21 per cent of IT directors and their teams cite cost reduction as the area that the outsourcing partner’s use is the most critical. Revenue generation and growth are named as the most important initiatives in the business (48 per cent).

The research spoke to over 160 IT managers and directors responsible for the management of one or more IT, applications or business process outsourcing projects, who were also the budget-holders for these contracts. Seventy-six per cent of respondents said that their internal clients’ expectations are not aligned with what the outsourcing suppliers perceive they are contracted to deliver.

And these problems could be tracked back to the transaction-based service level agreements (SLAs). While 77 per cent of suppliers talk business benefits to a great or fair extent (which has increased over the last two to three years), 64 per cent of contracts are either entirely or mainly measured on transaction based SLAs.
George Davies, CEO, MooD International, comments: “SLAs are outdated and should be thrown on the scrapheap; the outsourcing world has progressed. Suppliers need to move on from two-dimensional management of service performance to a third dimension – the ability to clearly understand the business impact and achievement of business outcomes.

“Automation and digitisation should be the driving force behind activity and transformation as they will improve processes, drive out cost and importantly, accelerate innovation and line-of-sight to business value. ”

IT directors are facing pressure from both sides; fifty-eight per cent of them believe it’s become more difficult over the last year for their suppliers to deliver within the agreed budget. And 30 per cent believe their internal clients’ satisfaction rates have declined over the last year.

George Davies continues: “IT directors and managers are getting pressure from multiple directions when it comes to outsourcing. On one side they’re facing pressure from their internal clients to show clear business value, whilst driving out costs and demonstrating innovation. On the other side they have suppliers who are trying to make a fair profit in an increasingly complex role.

“Outsourcing can bring benefits that are felt at all levels of a business, from the data centre right up to the CIO, but if these benefits are not communicated properly then the improvements being made can be missed. There needs to be a common view which joins up all the parts of the supply chain and can identify gaps – and resource-wasting overlaps – ensuring there is transparency across the business and not inefficient silos.”

IT directors and managers also feel their role is becoming more complex and difficult to manage. Fifty-seven per cent said that their role has become much or slightly more difficult over the past year or so. And this is impacting on their job satisfaction, with 46 per cent saying their satisfaction with their job has declined slightly or significantly.

“The move we’ve seen towards using multiple specialist suppliers looks like it’s having an impact on the role of IT directors and managers and making their jobs more complex,” adds George Davies.

“The more suppliers you have, the more important it is to have a clear view of what’s happening across the business in a joined up view. Whether your service integration and management is done in house or outsourced, both clients and suppliers need to be able to access the same information to give them the same view of the status of the business and the true end-to-end business performance.”