This week, CIO Magazine. in continuing series of surveys on outsourcing, reported that it fares poorly as a cost saving measure:
….our cost management survey shows that IT outsourcing is usually not an effective way to reduce IT costs.
Only 15% have found it results in large savings, while 45% found it only produces minimal savings. (The other 40% do not use outsourcing.)
That 1-in-4 ratio is in the bottom quartile of the all the ways companies attempt to reduce IT costs.
These underwhelming results are consistent with other CIO Magazine surveys. In March 2007 they learned that:
* 68% said outsourcing is overrated as an IT cost-cutting strategy.
* 67% said the total cost of using domestic outsourcing vendors has been as or more expensive than doing the same work in-house.
* About half (48%) of companies below $1 billion said the same thing.
The only group that, in most cases, save money (or at least don’t lose money) by outsourcing are large companies using offshore outsourcers.
Even worse for the proponents of outsourcing, the questions were phrased so as to get respondents to focus on hard costs. For example, “The total cost of using domestic outsourcing vendors has been as or more expensive than doing the same work in house.” The phrase “same work in house” would lead respondents to focus narrowly, and many likely omitted the cost in management time of vetting vendors and negotiating the deal.
And aside from cost considerations, outsourcing also increases risk and response times, and decreases flexibility.