The market for outsourcing services is estimated to grow 27% between 2010 and 2015. Despite the high growth rate, the failure rate of large outsourcing deals is alarming. Around 30% to 40% of outsourcing deals falter every year, meaning that outsourcers and service providers fail to meet value in line with their strategic objectives. This is evident from a research by strategy en operations consulting firm A.T. Kearney.
Figure: The market for outsourcing services is expected to grow 27% between 2010 and 2015
In line with previous analyses
The conclusion from A.T. Kearney is in line with various analyses that were presented in the past year. As it turned out in May 2011, the German market for outsourcing is also expected to continuously grow in the coming years. In Germany, IT outsourcing represents over 61% (€13 billion) of the total outsourcing market, followed by Business Process Outsourcing with 32% (€6.3 billion). Especially the emergence of cloud computing ensures a momentum in the outsourcing market. Similar trends are visible in the Western countries, such as the United States, the United Kingdom and France.
Why is the failure rate still so high?
In the report, the consulting firm looks into reasons why after decades of outsourcing, companies and their providers still struggle to meet their strategic objectives. De consultants provide three overarching explanations. Firstly, the outsourcing party and the outsourcer fail to establish common objectives at the start of the engagement. As a result, Key Performance Indicators (KPIs) en Service Level Agreements (SLAs) are unclear and there is no fact-based baseline for action planning and working together. Another explanation is that the parties, despite the fact that objectives are discussed and even agreed upon, fail to define strategic and forward-thinking objectives. This leads to situations where agreements are not flexible enough to deal with change in the external (e.g. economic downturn) and internal environment (mergers & acquisitions, reorganisation). Lastly, the execution of outsourcing agreements is in many cases poor.