IDC: Select outsourcing favours service providers

Small and mid-sized service providers could be the beneficiaries of the latest trend toward selective outsourcing.

The claim comes from research firm, IDC, which recently found organisations are increasingly dissatisfied with a whole-of-IT outsourcing approach.

A lack of flexibility and transparency in pricing, along with declining service levels, have been flagged as particularly sore points amongst businesses, senior outsourcing and BPO analyst, Aprajita Sharma, said.

"Large-scale, single-vendor arrangements have been characterised by unrealised cost savings, ill-defined contractual terms, ineffective service levels, and vendor inflexibility in response to changing business requirements," she said.

Rather than a specific failing of IT outsourcing itself, these problems came down to a lack of due diligence on the behalf of vendors and organisations to make regular renegotiations a feature of their contracts, Sharma said.

"Vendors and organisations are finding that it is too hard to define a service level over a ten-year contract as technology changes so fast," she said.

The use of a range of smaller and more specialised service vendors were a better way to drive costs down and efficiencies up, Sharma claimed.

However, selective outsourcing had its own pitfalls. In particular, sourcing a range of service vendors to address specific areas could increase complexity and raise issues of vendor management and governance, she said.

"Selective outsourcing may also lead to duplicated efforts, and problems might go unresolved if they don't clearly fall within the scope of responsibility of any individual vendor," Sharma said.

Therefore, the need for clear and defined sourcing strategies prior to taking on a selective outsourcing model was vital, he said. In turn, this created a range of consultancy opportunities for savvy service providers. Post-contract management consulting was also potentially lucrative.

"As part of maintaining service level agreements, organisations and suppliers should renegotiate their contracts every two to four years," she said. "As such, there is a cost of procurement that needs to be managed."