Outsourcing contracts cost businesses more than expected, finds Lieberman survey

Most IT outsourcing contracts turn out more expensive for businesses than were initially anticipated.

Research carried out at two major IT events revealed IT services contracts cost more than expected for 62% of businesses.

The survey was conducted by automation software supplier Lieberman Software. The research was carried out at Infosecurity Europe 2011 in London and the RSA Conference 2011 in San Francisco.

Of 500 IT professionals interviewed, 62% said outsourcing contracts - often used in strategies to cut costs - are costing more than originally planned, with 27% stating that costs were significantly higher.

The disappearance of corporate knowledge, talent and loyalty are to blame, says Philip Lieberman, CEO at Lieberman Software.

He says outsourcing took off in businesses where people believed every job could be labelled exactly and outsourced to the supplier offering the lowest costs.

He says the dedication and loyalty of in-house staff were never considered because it was deemed unquantifiable. "Given that the advice came from credible sources, businesses that outsourced were able to achieve remarkable reductions in cost and liability for a while, until business challenges began to appear that required flexibility, corporate knowledge and dedication to the company."

The survey also revealed over three quarters of IT workers believe outsourcing suppliers are creating unnecessary work for extra money.

The results suggest a lack of confidence and trust in service providers which contradicts research from Oxford Economics, that found £35bn was spent on outsourced IT in the UK private sector, while the UK public sector accounted for £6.7bn, in 2009.

According to the research from Oxford Economics, large companies are increasingly placing their trust in outsourced IT service providers. New structures of relationships are emerging from the recession as businesses attempt to get more out of outsourcers.

Led by the banks, large businesses are sharing strategic information with suppliers, according to BG Srinivas, head of Europe at Indian IT services supplier Infosys.

Srinivas says there is an increasing sharing of strategies. This he says helps both sides plan and increases trust. "These strategic alliances do not need to be financial alliances but can mean suppliers and their clients planning together."

He says the banks are already doing this but other sectors will follow. "Financial services businesses are always the pioneers but other sectors are doing it."

Shared objectives and information can overcome cost overuns and skills shortages because suppliers and clients will be better prepared.