Research released today by Valueshore Spain, the Spanish Government-backed group of IT consultancies, has shown that three quarters of UK organisations are disappointed with the quality of work provided by offshore outsourcers. However, the research also revealed that the majority of organisations still continue to base their outsourcing decisions primarily on cost rather than quality. 78% of those questioned admitted that they still use day rates as the main method to calculate outsourcing costs.
“There needs to be a fundamental change in the way that many businesses think about offshore outsourcing,” said Daniel Naoum, co-founder of Valueshore Spain. “Taking a cost-only approach can have a detrimental effect on the quality of work received. Businesses also need to open their eyes towards the ‘hidden’ costs. The cheapest option doesn’t always provide to the biggest overall savings, as quality concerns can often result in more management time being required and increased travel and troubleshooting costs.”
Interestingly, 94% of the organisations questioned admitted that by focusing too much on cost they were increasing the likelihood of their IT projects failing to meet their requirements and needing more management time. Therefore, if an outsourcer has been chosen purely on price and then found not to be up to the task, costs can soon spiral. By failing to take into account the hidden costs of offshore outsourcing, the final outsourcing bill can often be more expensive than originally planned and in fact negate potential cost savings.
Popular outsourcing destinations such as India have started to become victims of their own success as rising attrition, wage inflation and skills shortages have resulted in a dip in the quality of work delivered to many organisations. Common issues they face with their outsourcing providers include staff churn, a lack of senior staff and difficulties in communication. It is therefore not surprising that 70% of the organisations surveyed were considering nearshoring as a viable alternative to offshore outsourcing to countries further afield.
What is clear is that outsourcing will continue to play a key role as we come out of recession, with organisations continuing to look at ways of improving the business and cost efficiency of their IT. Two-thirds of those organisations surveyed admitted that, due to the lower costs and greater availability of skills, they were looking to outsource some IT projects offshore over the next couple of years.
“Businesses need to ensure they scope out their outsourcing projects more carefully, otherwise they risk their future success. Outsourcing is undoubtedly a great way for many businesses to cost-effectively gain access to the IT skills they need, so they need to constantly evaluate whether they are receiving value for money from the destination or provider they have outsourced to. At the same time it is equally important that outsourcers’ propositions continue to meet the requirements of both large and small organisations and demonstrate true value,” added Daniel Naoum.
The survey of 200 UK IT directors was commissioned by Valueshore and conducted by independent research company Vanson Bourne.
About Valueshore Spain
Valueshore Spain (valueshore.org) is a collaboration of 25 of Spain’s leading IT consulting firms aimed at promoting the region as a nearshore hub for innovation in Western Europe. Founded in 2008 by the AEC (the Spain association of consulting firms), its members represent over 80% of the total turnover of the management and technology consultancy market. The group also employs over 60% of the professionals in this sector.
Valueshore Spain aims to make outsourcing to Spain easy by providing companies with access to the information they need. This includes organising site visits, providing legal support and offering independent quality control of an outsourcing project.