OUTSOURCING: ONE OUT OF EVERY TWO OUTSOURCING AGREEMENTS FAIL

Outsourcing – “One out of every Two Outsourcing Agreements fail”

At the first Gartner summit in Ireland (20 November 2003), 200 people gathered to hear presentations on the nature,
reality and future of outsourcing in Ireland.

The Challenge

Introducing the event and setting the challenge for companies in this area
was Oisin Byrne, country manger for Gartner Ireland. He pointed to the fact
that recent Gartner research has highlighted the painful truth that one in
every two outsourcing agreement fail to deliver on expectations. His
challenge to the speakers was to identity what separates the successful from
the unsuccessful.

Legal Considerations

Victor Timon, consultant at William Fry tackled the legal considerations of
outsourcing. He carried on the theme of why some deals fail and how to avoid
this. “I cannot stress enough the importance of thorough preparation,” says
Timon. “Often management can underestimate the amount of time required in
the planning process which can result in rushed contracts which come back to
haunt you. Those who end up with successful outsourcing relationships with
their suppliers are the ones who`ve taken the time to get it right.” This
means doing internal due diligence to establish your starting point. Then
you can set clear goals for what you want to achieve.

Next is the negotiation process. “This is about maximising your leverage” he
says. Is it better to negotiate with one supplier or many?

What`s the most important quality of a good outsourcing contract?
“Flexibility” says Timon. “Your business is going to change over the life of
the deal and the contract has to be able to cope”. Finally, to make the
relationship work, both parties must feel they have a good contract.

He also recommends getting the lawyers and other consultants in early to
advise on planning and strategy.

Shared Services Outsourcing

Typical benefits of outsourcing engagements include reduction in cost,
improved flexibility and access to new skills according to Stuart
McLaughlin, Director, Accenture. This is true of all forms of outsourcing
regardless of whether it relates to infrastructure, applications or business
process services.

With these requirements in mind Accenture has developed a range of shared
service offerings which are based on a considerable track record of
experience; a key factor in achieving success in outsourcing arrangements.
“The constituent elements of areas such as finance and accounting,
procurement and HR services typically lend themselves to outsourcing in a
shared services environment,” said McLaughlin. “Similar tasks, following
similar rules, and executed in volume is the hallmark of back office
operations, and it makes sense to share these activities across an
organisation rather than operate numerous functions duplicating workload in
multiple locations driving efficiencies and economies of scale. In addition
this approach allows for the development of specialist skills and
capabilities which generates improved service levels to the end user.”

SMEs – One to Many

One of the questions frequently raised in Ireland is whether outsourcing can
meet the needs of many medium-sized businesses. Within any industry sector
in Ireland, the companies, in European terms, may be relatively small, yet
each has its own discrete functions in areas such as finance, accounting and
HR.

“It makes sense for some of these similar organisations to pool those
resources,” noted McLaughlin.

“For example, we provide financial reporting, IT development and support, HR
and customer contact support services for organisations within an industry
on a completely secure and confidential basis, and allow them to get on with
their core business activities at lower cost.”. Gartner forecast that this
`one-to-many` service model will become prevalent in markets such as
Ireland, Italy and Spain, where multiple medium-sized organisations
typically operate within a single industry.”

SMEs – One to One

Defining what constitutes an SME is straight forward according to Maurice
Mortell, managing director of Data Electronics. “We will work with
companies with as little as 40 users or `seats`. Once there is value in a
company`s IT infrastructure, we can work with them to reduce costs, improve
service or refresh their technology – it all depends on their business
strategy.”

Data Electronics` first step is to provide a complimentary audit of the
existing IT infrastructure. “If the client is looking to outsource the IT
function purely as a function of cost savings, then we have a benchmark
figure of 25percent savings,” explains Mortell. “If we cannot achieve
savings above that point, then there is no point in pursuing the matter.
However, as the audit is free, there is no loss to the company.”

However, not all decisions to outsource are made purely on a cost savings
basis. Recent awareness of the outsourcing model has made many companies
evaluate the concept from a range of requirements.

Networks are Complex

Mike Davidson, head of managed services for eircom, recognises that the
modern network environment is increasingly difficult to manage: “Networks
have to be flexible and scalable, and increasingly have to be able to
prioritise the growing mix of complex applications they carry. This reflects
the myriad of communications relationships an enterprise has to manage with
its partners, suppliers and customers.

“Without doubt, managing a network infrastructure is hard. As a result, the
idea of outsourcing a complex, knowledge-intensive, resource-draining,
non-core utility makes sense,” he said. Most recently, the trend in
outsourcing is to marry the best in breed with a single source, or a prime
contractor according to Davidson. “This has the benefit of delivering the
best service across all functions but also providing `one throat to choke`
in the case of problems.”

Ends

About Gartner:

Gartner, Inc. is a research and advisory firm that helps more than 10,000
clients leverage technology to achieve business success. Gartner`s
businesses are Research, Consulting, Measurement, Events and Executive
Programs. Founded in 1979, Gartner is headquartered in Stamford, Conn., and
has more than 3,800 associates, including approximately 1,000 research
analysts and consultants, in more than 75 locations worldwide. Revenue for
calendar year 2002 totaled $888 million. For more information, visit
www.gartner.com.