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May 24, 2006

EquaTerra Study Concludes Direct Correlation Between Outsourcing Satisfaction and Investment in Outsourcing Management/Governance

TMCnet News

(Business Wire)-- May 24, 2006 --   EquaTerra, a multi-national outsourcing and insourcing advisory firm, today announced the results of its new study, "Outsourcing Management and Governance: Building a Foundation for Outsourcing Success." Participants in the study included more than 250 qualified ITO and BPO decision makers in North America, 75 percent of who work for organizations with more than $1 billion in annual revenue.

One key conclusion from the study is that there is a direct correlation between the investment organizations make in Outsourcing Management and Governance (OM/G), and outsourcing engagement satisfaction. EquaTerra defines OM/G investment as the personnel, processes, software and tools, and external services (e.g., advisors, lawyers and auditors) required for outsourcing success. EquaTerra typically advises clients that optimum investment levels range from four to seven percent of total annual contract value on OM/G to achieve the greatest level of satisfaction from their outsourcing deals, and satisfaction levels in the study support that suggested spend-level.
 
Other key study findings include:
 
1. Outsourcing satisfaction improves over time (respondents whose
 engagements had been in place more than two years were consistently
 more satisfied); IT and CRM executives cited the highest
 satisfaction levels

2. While satisfaction was greatest for companies that spend four to
 seven percent on OM/G, over forty eight percent of respondents
 spend between one to four percent; HR executives were the least
 satisfied at this one to four percent spend-level
 
3. Executives who outsourced for process improvement versus cost
 savings tended to be more satisfied
 
4. Industries more satisfied with outsourcing than the norm -
 High-Tech Products & Services, Pharmaceuticals and
 Automotive/Manufacturing
 

EquaTerra drew the following conclusions from the above study findings: IT and CRM executives were likely most satisfied with their outsourcing agreements as they are the most mature outsourced processes; many HR outsourcing organizations are relatively new to large scale outsourcing and may under-invest in OM/G, thus yielding the lower satisfaction levels; organizations whose primary outsourcing driver is cost savings will likely under-invest in OM/G; and usually, but not always, industries which have outsourced for a longer period of time cited higher levels of satisfaction.
 
The study further analyzed OM/G spend and found the breakdown of categories tends to be the following:
1. OM/G Personnel - 41 percent
2. OM/G Software/Tools - 32 percent
3. External services supporting OM/G - 29 percent (includes advisors, lawyers, auditors, etc.)
 
Additionally, the study assessed the components of OM/G tool capabilities that respondents viewed as most important to the success of their outsourcing engagements. It was no surprise that Service Quality was the most important functionality in OM/G tools, and interesting that Communication capabilities ranked least important. Yet, further detail revealed that IT executives, arguably with the longest success with outsourcing, cited Communication Management as the most important functionality in OM/G tools.

The study also found that organizations were using a wide range of software tools to support their outsourcing efforts. There was no clear consensus on which software applications or class of software vendors has the most compelling OM/G tools. However, organizations clearly identified that value for the money and ease of use are the key desired functional attributes of a quality OM/G tool, and that providing timely, relevant and actionable data was the more important deliverable from an OM/G tool.

Said Stan Lepeak, EquaTerra's Managing Director of Research, "While EquaTerra has long cited the value OM/G contributes to the success of outsourcing initiatives, this study confirms the clear connection between OM/G and outsourcing satisfaction. It highlights the need for organizations to focus, in any outsourcing engagement, on deploying skilled and adequate OM/G resources, policies, procedures and tools."

A webcast analyzing the results of EquaTerra's "Outsourcing Management and Governance: Building a Foundation for Outsourcing Success" study will be conducted on Thursday, June 1 at 11am eastern. To register for the webcast, please contact: allison.norman@equaterra.com. A report detailing the study findings will also be available in early June by sending an e-mail to: research@equaterra.com.
 


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