Outsourcing; Study: many firms question benefits.

• Author: Marshall, Jeffrey
• Position: BusinessBRIEFS

For all the success that outsourcing firms have claimed in the past few years, a recently released study finds a notable undercurrent of dissatisfaction among their customers.

Many of the world's largest organizations that were quick to participate in information technology and business process outsourcing are bringing operations back in-house and exploring alternatives, according to the study by Deloitte Consulting LLP. Ironically, dissatisfaction in areas that traditional outsourcing was expected to improve, such as costs and complexity, was found to be the primary reason behind participants' unhappiness.

The study, "Calling a Change in the Outsourcing Market," reveals that 70 percent of participants have experienced significant troubles with outsourcing projects and are now exercising greater caution. One in four participants have brought functions back in-house after realizing that they could be addressed more successfully and/or at a lower cost internally, while 44 percent did not see cost savings materializing as a result of outsourcing.

Moreover, 57 percent of participants absorbed costs for services they believed were included in the contracts with vendors. Nearly half of the study participants identified hidden costs as the most common problem when managing outsourcing projects.

However, the study did conclude that, if properly structured and done for the right reasons, outsourcing can deliver real value for customers.

"There are fundamental differences between product outsourcing and the outsourcing of service functions, differences that were overlooked but have now come to the fore," says Ken Landis, a senior strategy principal at Deloitte. "Outsourcing vendors and companies may have conflicting objectives, putting at risk clients' desire for innovation, cost savings, and quality. Moreover, the structural advantages envisioned do not always translate into cheaper, better, or faster services. As a result, larger companies are scrutinizing new outsourcing deals more closely, re-negotiating existing agreements and bringing functions back in-house with increasing frequency."

According to the study, participants originally engaged in outsourcing activities for a variety of reasons: cost...