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A survey conducted recently by Quint Wellington Redwood, the independent management consultancy dedicated to solving IT-related organizational issues, reveals that for 75% of companies, cost reduction is still the most compelling reason for IT outsourcing. However, outsourcing to reduce costs has a negative impact on commercial innovation. The survey actually shows that too sharp a focus on cost reduction is a clear impediment to innovation. Other findings are that the outsourcing market is continuing to mature and that companies are tending to become more selective in their outsourcing.
The major role in outsourcing still played by cost reduction is the most striking outcome of the Quint Wellington Redwood survey. 75% of companies still view outsourcing as the definitive way of enhancing employee productivity and cutting costs. 50% of the outsourcing suppliers succeed in saving costs through outsourcing as agreed with their customers. Half of this group have severe constraints on their innovative capacity. Outsourcing motivated by cost reduction is often at the expense of commercial innovation, because companies tend to enter into inflexible outsourcing contracts without allowing freedom for innovation, or at least failing to document it.
Most IT outsourcing contracts are still concerned with the IT infrastructure. The need for cost containment and a focus on core activities is boosting the popularity of this type of outsourcing. The survey also shows the strong growth in the outsourcing market. Compared with 2004, the proportion of companies outsourcing application administration and development has risen from 15% to 32%. Expectations are that this trend will continue. Companies would also appear to be becoming more selective in their outsourcing. Rather than opting to outsource all IT, they are choosing only certain items, such as the IT infrastructure. The partners would appear to assess the most suitable supplier on an item by item basis. This approach demands a more extensive outsourcing policy of companies and a more professional controlling organization.
"Outsourcing IT applications can make a valuable contribution to commercial innovation", says Arno IJmker, partner at Quint Wellington Redwood. "Properly thinking through and planning outsourcing can lead to a strategic partnership between the supplier and the partner. This partnership stimulates the partners to be innovative, and so to retain their distinguishing features, which leads to the constant improvement of business processes."
About the survey
The survey was conducted among 107 people with ultimate responsibility for IT (in the business and ICT domains) in companies based in Europe and South America, distributed over all sectors. Several IT outsourcing experts were also interviewed in order to gather more qualitative information. The number of employees in the participating organizations varied from 100 to over 10,000, and the IT budgets ranged from 50,000 euros to more than 200 million euros.
About Quint Wellington Redwood
Quint Wellington Redwood - or simply 'Quint' - is an independent management consultancy that is devoted exclusively to IT-related organizational change. We supply our services in more than 30 countries from fourteen internationally distributed offices. Quint focuses on strategy, sourcing issues and the implementation of processes.
Quint's customers are prominent profit-based and non-profit organizations that rely heavily on IT. We help our clients establish integrated management of the business and IT domain and so to achieve strategic advantage over their competitors. These ideas are captured in our mission, Orchestrating Business Excellence.
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