Irish and UK companies squander outsourcing savings

Trade

Irish and UK companies lead Europe in gaining cost benefits from outsourcing low-value IT processes but are in danger of failing to reinvest these savings into innovation, according to a report by Capgemini Consulting.By focusing purely on cost cutting, companies risk losing out to those counterparts which reinvest their savings back in technology and enjoy productivity gains of approximately 10%, the report said.

The Irish and UK CIOs surveyed predicted they would continue changing their IT delivery models over the next two years at a rate that is expected to far outstrip their European counterparts.

A total of 8% of IT operations are currently offshored by Irish and UK companies, compared to a European average of 2%. By 2008, this figure is predicted to rise to 24% in Ireland and the UK, compared to a European average of 5%.

By 2008, just 40% of Irish and UK IT delivery will be from internal resources, with the remainder being delivered by external partners, the report said.

However, the vicepresident of Capgemini Consulting Andrew Taylor described Irish and UK companies’ focus purely on cost cutting as “worrying,” at a time when productivity growth in the US is twice that of the UK and Ireland.

“The problem is that companies have not yet learned how to take the savings gained through outsourcing and plough then back into making IT deliver innovation for the business,” Taylor said.

“The UK and Ireland are winning at cost-cutting, but losing at productivity and need to address this issue as a matter of urgency,” he added.
According to Capgemini’s survey, 87 cent in every IT euro is currently spent on relatively low-value, back office tasks such as support, infrastructure management, application management and testing/roll-out.

Only five cent is spent on strategy and planning and just eight cent on conceptualization and design. Organisations have saved money by outsourcing and offshoring back office tasks, but claim to plan increasing their spend on strategy planning by just 1.2% over the next two years.

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