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Speaking at the annual ITxpo in Sydney, Gartner's Chief of Research, Linda Cohen highlighted the cost benefits of outsourcing, but warned against bargain-basement deals, saying that excessively low prices could be to blame for a recent bout of high-profile IT outsourcing disasters.
Gartner revealed that effective outsourcing can deliver savings of up to 17%, but focusing exclusively on price can have its problems. She highlighted the difference between 'sourcing' and 'procurement', saying that a procurement-based approach can encourage an excessive focus on price, whereas the other factors of risk reduction, agility, expandability, scalability and new methods of operation may ultimately be of more value to businesses.
Ms Cohen urged CEOs to look beyond price and include risk and value when weighing up outsourcing providers, warning that many outsourcing deals were often 'priced to win', rather than 'priced to deliver', an approach which may have contributed to a spate of recent IT bungles, including a Virgin Blue check-in crash which grounded over 100 flights, and the loss of nearly 50,000 customer details by a UK outsourcer for the insurance company Zurich. She also added that the current bargain-basement outsourcing market was an unsuitable one.
Statistics from Gartner 2009 to 10 research
Manish Goklaney, Director of Client Services at Indicium, agrees, adding: 'There is no doubt that outsourcing provides a cost-effective and secure way for many organisations to streamline IT operations: the figures speak for themselves. But we have felt for some time that the cheaper end of the outsourcing market was unsustainable: from the recent spate of outsourcing disasters, it looks as though the cracks might be starting to show.'
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