The report, "Embarking on a Successful IT Outsourcing Journey: Refocusing Your Human Capital Management Strategy," was published by people3, a Gartner company. It found that only 21.1% of companies reported cost savings greater than 20% as a result of their IT outsourcing efforts.
Conversely, 18.4% of companies did not achieve any cost reductions, while 9.2% experienced an increase in costs from their IT outsourcing contracts.
"There's an assumption by many companies that they can save a large percentage of their budgets by outsourcing some or all of their IT capabilities, however the true savings are not always as promising as one would expect," said Lily Mok, a senior consultant at people3.
She continued:
"Many companies often neglect to factor in all costs associated with managing the outsourcing engagements, which average 4.5% of the total contract value and can be as high as 15%. It is important to set reasonable goals and expectations regarding the benefits that could be achieved through IT outsourcing."
According to the report, additional costs can be difficult to quantify. These may include costs in the time and effort spent during the transition period (on knowledge transfer, addressing cultural differences, putting infrastructure in place), disruption in the current work processes, increased turnover of IT employees who possess critical IT knowledge and skills, lost productivity, and lowered employee morale.
All of those factors can erode and even exceed the potential cost savings from the outsourcing efforts, warned people3.
"Companies are often unsuccessful in their outsourcing efforts because they overlook the human capital implications of IT outsourcing and do not have a robust, step-by-step action plan to address those issues," said Mok.
"Our outsourcing survey results reveal that only 39.5% of companies have a human resource action and change management plan to support a smooth transition and execution of the outsourcing strategy."
