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Archived updates for Monday, June 06, 2005

A Change in the Services Outsourcing Market?

According to a new report by Delloitte Consulting, the outsourcing of services requires a complex series of tradeoffs: cost savings versus growth, speed versus quality of service delivery, and maintaining organizational cohesion versus knowledge and innovation. They note that 70 percent of the participants have had negative outsourcing experiences and have either revised or are revising their outsourcing outlook, strategies, and tactics:

Vendors and organizations have inherently conflicting objectives, putting the latter’s
objective for innovation, cost savings, and quality at risk. Moreover, the vendors’ structural advantages do not always translate into cheaper, better, or faster services. The world’s largest companies should be able to replicate the vendors’ structural advantages in-house and rely on vendors only under specific circumstances, such as fixing deep-seated structural problems or maintaining infrastructure operations.

Outsourcing originated and became popular as a cost-saving strategy during a recessionary environment. The world’s largest organizations in this study are calling into question its efficacy in today’s economy. Companies should outsource only commodity functions to guard against a loss of knowledge and should plan for short-term outsourcing to prevent vendor dependency. Demanding transparency to costs,
negotiating for simplicity to eliminate hidden charges, and actively managing against service disruptions may improve the outsourcing experience for large companies…but in turn they also will increase the time needed to manage the complexity and
costs of these arrangements.

In the near future, with structural risks that cannot be fully mitigated, uncertain cost savings, and a multitude of components to manage (people, process, and knowledge), outsourcing will likely lose luster for large organizations.

Click here for more on legal services outsourcing.
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