- The National Outsourcing Association's (NOA) recent report has shown that the value of the market for outsourcing services grew by 8% in the last three months of 2008.
- Outsourcing in the IT industry led this growth with a 12% increase in revenue for the last quarter of 2008 as compared with the last quarter of 2007.
- Many organisations are requesting that a high volume of low cost contracts are completed over short timeframes which, according to NOA chairman Martyn Hart, is setting up outsourcing contracts to fail. Martyn Hart warns that it is more important than ever that outsourcing contracts are workable for each party and that they establish a balanced contractual relationship. The success of outsourcing is measured by the establishment of a mutually beneficial partnership between the parties to a contract.
Outsourcing is a traditional cost-saving mechanism for business. The continued growth of the industry is probably a natural consequence of economic turbulence.
The NOA report suggests that the economic crisis of the past year has had an effect on the outsourcing market with deals becoming simpler and more cost-focused than in the past.
Moreover, organisations are postponing or simply avoiding long-term transformational deals that require significant up-front investment. Martyn Hart has, however, expressed concern that cost pressure could lead to organisations attempting to squeeze too much from suppliers.
A frequent response of large businesses which need to cut costs is to increase pressure on companies to reduce fees and push through a higher volume of low cost contracts over shorter time frames. More often than not, this is a recipe for the failure of outsourcing contracts whose success is measured by the establishment of a mutually beneficial relationship between the contracting parties.
What is clear is that despite the potential cost benefits of outsourcing certain business functions, organisations should not chase low costs to the point that they neglect the stability of their core business and expose themselves to the risk of dysfunctional and under-performing relationships with their suppliers. Outsourcing can be an extremely effective way to cut costs, especially in an economic downturn, but it is not a quick fix solution.
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