Firms are still inclined to outsource business processes for cost savings and operational efficiency according to a survey carried out by Deloitte. The outsourcing and insourcing survey 2012 was released this week after including inputs from 111 companies. The respondents were spread across 23 countries representing 22 different industries. The survey suggests that organizations can improve their performance if they primarily focus on three areas-outsourcing, offshoring and insourcing.
The study revealed that many firms often get confused between outsourcing and offshoring when it comes to making outsourcing decisions. According to the survey, only 54% of companies distinguish between outsourcing and offshoring. Outsourcing decision refers to the business function performed by the non employees and offshore decisions are taken to move the work to a distant location considering the labor cost and quality. Many of the firms consider insourcing only post contract termination.
The survey stated that 60% of the companies surveyed use the outsourcing services and view it as a common practice to improve their performance while 19% are considering about outsourcing. Surprisingly, it was found that 21% don’t use outsourcing service, and they do not view it as a need.
Around 48% of contracts were terminated because the companies were not satisfied with the quality of service. 71% of respondents stated that underestimating the scope by the vendor lead to the majority of deal cancellations. As a remedy, respondents more often opt for clear vendor communication.
Reducing operating cost was chosen as the most influential factor behind any outsourcing decision, and it was found that the actual cost reduction experience were lower than expected. As per the survey only 42% experienced a reduction in cost while 53% anticipated more than 10% cost reduction.
The survey highlights that insourcing can be opted to improve performance. More companies are choosing insourcing due to change in their business strategy or nonperformance of the vendor. The result indicated that almost 58% of the respondents are satisfied with insourcing. Majority of the companies participated in the survey accepted that they use cloud based services. The ability to access resources virtually without capital investment is the prominent factor that drives the companies to adopt cloud sourcing. Even though, cloud sourcing is promoted exclusively; the survey still suggest an uncertainty in its adoption by the companies in the future.
In order to improve the quality and performance survey suggests some practices i.e.:
- Bring clarity to the scope of the deal prior to signing the contract.
- Design a transition process
- Maintain vendor-management structure and design and bring internal reporting system to avoid miscommunication.
The study highlighted that information technology, human resource and finance outsourcing holds substantial share in outsourcing deals and it are expected to increase in future. It is also expected that in future, sales/marketing, legal and real estate outsourcing activities are likely to contribute a significant percentage in the global outsourcing market.