Fixation on cost rather than value causes problems
Obsession with keeping costs low means UK firms are often disappointed by the quality of work provided by their offshore outsourcers.
Three-quarters of the UK firms surveyed by Valueshore Spain, a government-backed group of IT consultancies, said they were unhappy with the quality of work provided by their offshore outsourcers. An overwhelming 94% admitted that focusing too much on cost increased the likelihood or project failure or problems, yet 78% said they used day rates to calculate expenditure and that cost was the primary issue.
Daniel Naoum, co-founder of Valueshore Spain, said firms should be concerned with value rather than the lowest price tag. “Companies should evaluate the whole situation, not just cost,” he said. “There’s also innovation, delivery, communication and travel costs – getting value.”
The economic situation has not helped matters. Tighter purse strings has meant CFOs and purchasing departments have tended to take more of an upper hand in signing off deals instead of the CIO.
“Right now, finance is taking a bigger role in decision making. Procurement will push down on prices, but what really needs considering are other factors that might affect things,” said Naoum. What’s required, Naoum told CBR, is for CIOs to be more involved in the procurement process and point out the hidden costs, for example, the travel and troubleshooting expenditure of choosing an offshore rather than nearshore provider.
Despite the high levels of dissatisfaction, the outsourcing juggernaut shows no sign of slowing down. Two-thirds of the respondents said that the lure of lower costs and skills availability meant they would continue to offshore some IT projects.