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Daily Spin: Are Outsourcing Savings Overblown?

The Big Picture
Are Outsourcing Savings Overblown?

Outsourcing is today's IT mega-trend. Company's are shipping many "commodity" IT functions to lower-cost off-shore locations such as India or China, with the idea of significantly reducing costs. Many IT departments have adopted the trend, as have many IT vendors, including Dell, IBM and EDS.

But now at least one study is questioning those cost savings. In its quarterly review of the IT and business process outsourcing market, advisory firm Technology Partners International found that the overhead associated with outsourcing appears to be eating up the bulk of savings. Factoring in transition, legal, advisory and management costs, outsourcing typically lets a company reduce the expense of a particular function by 15%. Straight outsourcing salary savings are typically 40% to 80% compared to the U.S.

Those numbers could cause IT departments to think twice about considering outsourcing.

Network Computing recently issued an RFP to help evaluate the value of data center outsourcing. We found that "savings can be elusive, and not just because of corporate resistance to layoffs and the desire to use talent already on staff for other important projects." Rather than just focusing on cost savings, IT may be be better off thinking about outsourcing in terms of increasing capacity on important projects, desire to improve IT services in general and shortened time to market for core business imperatives.

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