By Andy McCue, 25 April 2007 08:15
NEWS
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.
Special Report: Inside India
In February silicon.com's Steve Ranger visited the Indian tech hotspots of Bangalore, Mumbai, Pune and Hyderabad. Click on the links below to see photo galleries of the cities and companies visited.
♦ Satyam's IT campus
♦ Hyderabad's tech parks
♦ Bringing tech to rural India
♦ High-tech on the streets of Pune
♦ Pune - the new Bangalore?
♦ Boom town Bangalore
♦ Bangalore's Electronics City
♦ SAP and Wipro in Bangalore
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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