Outsourcing: A Continual Work in Progress

Outsourcing: A Continual Work in ProgressPosted by Michael Gretczko and Marc Mancher on February 14, 2013

Outsourcing has come a long way since it first attracted widespread attention in the 1990s. Where it once generated skepticism among leaders leery of ceding direct control over business processes or IT services, outsourcing is now generally recognized as a potentially valuable and cost-effective way to handle non-core functions. But that’s not to say that organizations have the whens, wheres, and how-tos all figured out. As Deloitte’s 2012 global outsourcing and insourcing survey  results indicate, the nature of the outsourcing relationship between clients and vendors continues to evolve.

While 80 percent of the 111 survey participants said they use outsourcing, only 60 percent agreed that it’s standard operating practice. This 20 percent gap hints that even those who use outsourcing haven’t embraced it as fully as they might. In general, satisfaction with outsourcing ran high among respondents, with 76 percent giving a thumbs-up to their most recent outsourcing effort. Interestingly, while cost reduction was considered an important outsourcing objective by 87 percent of respondents, it wasn’t a particularly strong driver of satisfaction with the outsourcing relationship. Instead, satisfaction was strongly related to the quality of service provided, to the point where 71 percent of respondents who had ever terminated an outsourcing contract early pointed to overall quality of service as a top reason for their decision to terminate.

The survey also looked at outsourcing practices in geographic terms, including gauging respondents’ understanding and use of the terms “outsourcing” (who performs the service) vs. “offshoring” (where the service is performed). Results show there is some confusion: More than half (54%) of those surveyed said their organizations looked at outsourcing and offshoring “as a single consideration”—even though the survey results showed that true offshoring (sending work abroad to save on labor costs) is not the current norm but is likely to increase as clients become more comfortable using regional or global providers.

And what about that most far-flung of provider locations, the “cloud”? Turns out that cloud-based solutions may be too new for the outsourcing clients we surveyed to know how to use them effectively. Forty-seven percent of respondents reported their companies are not using them at all, while another 23 percent say they don’t know if their company is using them. Still, it may not be long before cloud computing becomes an integral part of the outsourcing industry, and vendors and clients would be wise to consider and discuss how use of the cloud could transform service delivery in a mutually advantageous way.

The survey’s Executive Summary offers more details and insight into the survey findings and their implications for both clients and providers, including an interesting look at “insourcing,” the practice of companies taking back work that had previously been outsourced and performing in-house. While the report stops short of delivering the secrets that make outsourcing universally appealing and effective (perhaps because no one has found those yet), it does offer practical steps that can enhance outsourcing effectiveness, promote high-quality service, and foster innovation and continuous improvement in the outsourcing relationship. We hope you’ll take some time to read it and stop back here to comment with insights from your own outsourcing experiences.

Michael Gretczko Michael Gretczko is a principal in Deloitte’s Human Capital practice. He focuses on large, complex Global Business HR Transformation using sourcing.
Marc Mancher Marc Mancher, principal, Deloitte Consulting LLP is the Leader of Deloitte’s U.S. Outsourcing Advisory Services practice. He advises clients on issues of strategy, insourced and outsourced services, as well as mergers, acquisitions, and divestitures.

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