FSN: Failure to adopt “invest to save” strategy puts outsourcing contracts at risk

Failure to adopt “invest to save” strategy puts outsourcing contracts at risk

3rd December 2007
Businesses are in danger of losing control of their outsourced IT projects due to a lack of internal IT leadership, poor business sourcing strategies, inadequate relationship building and a failure to provide the right internal resources and skills. These are the main findings of a new study commissioned by LogicaCMG.

The new research-based white paper, "Building Core Retained Capabilities" , led by Leslie Willcocks, Professor of Technology, Work and Globalisation at the London School of Economics, reveals that senior managers must identify and retain key skills and core competencies in their in-house teams if they are to truly benefit from the relationship with their outsourcing supplier.

The research shows that organisations are currently prioritising short term cost reductions over an “invest to save” strategy, resulting in a number of outsourcing projects developing problems such as loss of control, inadequate service, and constant renegotiation due to a lack of strong internal leadership and project management.

As organisations outsource more and more to achieve strategic advantage ( By 2012 about 58% of the average corporation's IT budget will be with outsourcing suppliers) it is crucial that they resource properly internally. The research identifies nine core capabilities that must be equally applied to ensure long term business performance and strategic advantage from IT and business outsourcing. These capabilities include leadership, business systems thinking, relationship building, architectural planning and design and informed buying, which lean towards softer business skills.

The consequences of failing to invest internally in these core competencies are sizeable and include high contract costs and poor pay offs, back sourcing and excessive management effort. Investment in these capabilities is expensive and with management costs of the contract value for the retained team expected to be at 10 to 12 per cent by 2010, organisations must “spend to save” now, by investing in the right internal skills to develop long term strategic benefit, says Willcocks.

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