Leader: How to avoid an outsourcing disaster

There may be talk of an outsourcing backlash amid examples of companies bringing failed IT deals back in-house but the reality is that outsourcing is not only here to stay but it's on the rise.

The government and financial services sectors in particular are driving the current demand - and the number of companies using high levels of outsourcing services is predicted to nearly double over the next two years in western Europe. So said analyst Gartner at its annual outsourcing bash in London this week.

Linda Cohen, VP and distinguished analyst at Gartner, said: "We are not going back to a way where everything is done internally. We have already moved on from that."

But getting it right remains one of the biggest headaches for organisations, especially with the move towards a multi-sourcing approach that requires the management of complex contracts with four or five different IT service providers.

The message is that businesses need to take a more disciplined approach to outsourcing and one that focuses more on service levels of the business processes the IT supports, rather than on the IT itself.

Gartner analyst Roger Cox said at the event: "The leading edge companies are moving away from credits and penalties to business performance indicators."

Corporate governance is one of the main drivers behind this more disciplined approach to outsourcing and with new regulations such as MiFID on the way, that emphasis is only likely to increase - and that's a good thing.

Cohen claimed: "Governance is the single most important factor in determining success."

The bad news for IT directors in all of this is that outsourcing decision-making is increasingly moving towards the board-level business execs and away from the IT department, according to Gartner.

And it's not just some knee-jerk reaction to high levels of corporate outsourcing failures in the past. Cox reckons there is an inverse straight line correlation between technical competency and outsourcing success.

Despite that, Gartner is quick to dismiss others who say up to two-thirds of outsourcing deals fail. It says just five per cent of deals get to the stage where they collapse.

The message for the IT directors out there worried about losing control of outsourcing relationships is - if they haven't heard it enough already - they must put business concerns above technical issues. In other words, who cares about five-nines network uptime if the customer service that network delivers is still failing?

What do you think? Do you agree that an over-emphasis on technical issues spells failure for outsourcing projects? Post a Reader Comment below.