KPMG undertook an IT outsourcing survey in late 2004; this release summarises some of the key findings of the survey and discusses challenges going forward.
Organisations are increasingly demanding cost-effective running of their business in order to improve productivity and profitability. In order to achieve this, one often considers outsourcing various functions. The decision to outsource must be strategic. Outsourcing is a significant investment that will, by necessity, affect an organisation`s bottom line, culture, risk profile, customer relationships, flexibility and day-to-day operations.
KPMG conducted a global IT outsourcing survey late 2004. Key findings from the survey are as follows:
* A large number of organisations are engaging in outsourcing initiatives, irrespective of the size or industry classification.
* Buyers are generally satisfied with the performance of service providers, although many had higher expectations, based on initial promises.
* Performance evaluation is moving towards business needs rather than statistical measurements. Traditional performance measurements have been found too hard, too imprecise, time-consuming and error prone, leading to disputes. Organisations want to reduce the complexity, volume and frequency of performance measurements incorporated into service level agreements (SLAs), where manageability and practicality are fundamental.
* Certain functions of IT outsourcing are being brought back in-house. Business process outsourcing (BPO) is mature and stable, compared to IT outsourcing (ITO) which is continuing to evolve.
* Loss of experience, knowledge and information exposure are considered the highest risks of outsourcing.
* The selection process for service providers is changing. More subjective, non-financial metrics are being used to evaluate potential service providers. Subcontracting by service providers appears to be substantial, often without the buyers being aware of these arrangements, increasing risks to the buyers.
* Regulators will increasingly review outsourcing arrangements, particularly in industries such as financial services. IT security and business continuity management (BCM) are already receiving regulatory tightening overseas. Organisations have to ensure that contracts and SLAs adequately provide the level of control required by regulators. Regulatory bodies in the US have requested organisations to test controls at the service providers or execute an agreement to obtain a suitable report to this effect when management renew outsourcing contracts.
Outsourcing is maturing, it is widely accepted and being utilised as a management strategy. There are many positive indications that buyers and service providers are working to improve relationships and partnership models.
The challenge going forward is to adopt more mature outsourcing frameworks that manage risk, ensure commercial viability, adhere to regulatory requirements and satisfy stakeholder expectations.
KPMG member firms will continue to monitor development in outsourcing models and related risk management, and publish thought leadership materials for the benefit of clients and professional colleagues.
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