Local outsourcing deals consolidate; vendor mistrust continues

Australian businesses still do not trust outsourcing vendors, despite an estimated 4.7 percent rise in 2008 market spend.

Analyst firm Gartner said the spend splurge, set to top $10.9 billion by year's end, belies immature and misaligned outsourcing strategies prevalent through local businesses.

Gartner research director Kurt Potter said while local and internationally based outsourcing deals are commonplace in Australia, they are riddled with mistrust.

"Although organizations often have fundamentally sound procurement departments to initiate outsourcing contracts, their IT sourcing strategies and governance structures are still immature, lacking altogether, or misaligned with enterprise objectives," Potter said.

"Expected cost savings and other benefits are difficult to obtain because they lack the basic building blocks for successful vendor management.

"In extreme cases, the lack of needed trust and control to optimize the outsourcing relationship results in deal failure."

Small outsourcing deals have replaced behemoth contracts and led to a global 50 percent drop in the value of publicly reported IT outsourcing (ITO) and business process outsourcing (BPO) contracts.

Potter said local vendor management jobs will open up this year as businesses tidy up scattered contracts into multisourced deals.

"We expect to see some early adopters of multisourcing to consolidate around fewer providers to reduce their service integration costs and harvest the benefits of better relationship management with fewer strategic suppliers," Potter said.

"Some organizations will appoint new vendor management roles or consider prime-contractor outsourcing models because multisourcing [is] often associated with hand-off points between competing providers and unclarified vendor management processes."

The explosion of Indian-based outsourcing deals is stalling, according to Gartner vice-president Ian Marriott, as the available labour force dries up and the skills shortage spreads through the Asia Pacific region.

"Other countries will continue to emerge as challengers to India; strong demand is putting a strain on the available Indian labour force, while staff attrition and cost increases remain high," Marriott said.

"Sophisticated buyers are seeking a multi-country strategy to minimize risk and align nearshore and offshore delivery centres with their primary time zones.

"India's share of total offshore spending will decline slightly in 2008, although the country's offshore revenue will continue to grow."

The firm predicts global outsourcing will increase by 8.1 percent this year.