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Has outsourcing peaked?
April 19, 2005
Deloitte Consulting is the latest firm to release a study showing that process outsourcing is tough. Released today, the report, Calling a Change in the Outsourcing Market (1MB pdf download), is based on interviews with just 25 big companies, so the broad conclusions it draws are a bit shaky, statistically speaking. Nevertheless, it sheds some useful light on the complexities of outsourcing. About 70 percent of the surveyed companies have experienced substantial difficulties with at least some of their outsourcing projects. The difficulties take many forms, with organizational complexity, unanticipated costs, quality issues, and lack of pricing transparency being among the most common. About a quarter of the companies have seen at least one effort fail outright, requiring them to bring the process back inside.
Still, the authors' glass-half-empty rhetoric feels overstated. They make the claim that "companies will outsource less" in the future and that the overall outsourcing market will "erode," but at the same time they admit that the problems the surveyed companies have confronted haven't been big enough to dissuade them from continued outsourcing. "Most participants intend to continue outsourcing," they say, noting that outsourcing can be an effective way to turn fixed costs into variable costs, to temper risk, and to achieve other benefits. Deloitte is wise to raise red flags about the difficulties of complex outsourcing arrangements, and the way rash outsourcing can undermine a company's strategic advantages, but the firm's claim that outsourcing has peaked seems dubious.
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Comments
Companies are only beginning to understand the complexities of managing outsourcing. Those that travel the learning curve quickly will master a new art of building value thru outsourcing arrangements.
Posted by: John Shin at April 19, 2005 07:33 PM
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