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Premature - and costly - death...
By Andy McCue
Published: 25 April 2007 08:15 BST
Two-thirds of outsourcing deals collapse before the contract ends because of rising costs and mistrust between suppliers and buyers.
Consultants Compass analysed 240 outsourcing contracts, with a total value of £3.3bn, over the past two years and found 65 per cent of those valued at more than £20m unravel before running their full term.
The figures also explode the myth that outsourcing is the cheaper option. Compass claims many outsourcers are charging 20 per cent more than a comparable well-performing in-house operation so they can recover the costs of winning the business and make a profit on the deal.
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The figures show how outsourcing companies front-load contracts by promising immediate savings of up to 18 per cent on the in-house IT costs before increasing their charges. Compass found most tier-one outsourcing vendors (the biggest outsourcers) were charging an average of 30 per cent - and in some cases as much as 45 per cent - above a comparable in-house rate in the final years of a contract.
Simon Scarrott, head of business development and marketing at Compass, said in a statement: "There can be sound strategic reasons for outsourcing but saving money over the long term is not one of them. Outsourcing providers are not that different from an in-house operation.
"Indeed, they often use the same people as the in-house operation after the deal is signed and outsourcers cannot perform alchemy on a business process and turn an operation into gold."
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