Most Common Reasons Why Australian Offshoring Deals Fail

- Gartner today highlighted that a lack of planning and consideration of hidden costs are among the most common pitfalls that lead to Australian companies failing to capture business benefits from offshoring deals.

During its Outsourcing and IT Services Summit in Sydney, Gartner said that the negative perceptions surrounding offshoring in the Australian market are incorrect, adding that the process works and has real benefits, providing certain pitfalls are avoided.

"The benefits that can be gained from global sourcing are real and understanding the competitive impact of pursuing or not pursuing global sourcing is critical," said Gartner research vice president Helen Huntley. "However, the potential advantages of global sourcing won't materialise overnight or without work."

According to Gartner, Australian companies are planning to increase their sourcing of services from offshore over the next two years. Ms. Huntley said that offshore service delivery is here to stay and Australian companies must capitalise on experiences already learned.

Gartner stressed the decision to offshore services should not be taken lightly. "The most common mistake for companies is to look only at the opportunities for cost savings and the heightened activity in the market, and rush into adopting global sourcing practices without truly assessing other considerations," Ms. Huntley said.

During her presentation, Ms. Huntley identified the root causes and key learnings for unsuccessful offshore deals. "Hidden costs are rarely considered when a decision to go offshore is made by enterprise managers eager to save money and enhance productivity. Unfortunately, after the deal is signed, these hidden costs quickly become apparent, eroding the immediate cost savings envisioned."

Gartner emphasised that planning for sourcing of any kind has to start with a comprehensive sourcing strategy. Ms Huntley added "a sourcing strategy must encompass all aspects of the business's processes, lay down maxims for what sources of services are appropriate for which parts of the business, what business values will be applied to justification, and what governance will be used to ensure success."

Gartner recommended that companies should contemplate all aspects of an offshore deal in order to reap the rewards: "Additional infrastructure costs, governance models, risk management/mitigation and cultural training must all be considered thoroughly," said Ms. Huntley. "Doing business with an offshore vendor is different from onshore models, and each deal must be looked at individually as each vendor and geographic areas contain different sets of risks to mitigate and different issues to address."

Other highlights from the summit today included a keynote presentation by Gartner vice president Allie Young on moving beyond outsourcing to achieve growth and agility, a session by Gartner research director TJ Singh on trends in business process outsourcing; and a session by Gartner vice president John Roberts on building the sourcing business case.

Noteworthy sessions on Day Two of the summit will include:

• Geoff Johnson, research vice president will present on converging network and IT sourcing and making big savings (Wednesday 9:00am)
• Jim Longwood, research vice president will present on assessing sourcing risk (Wednesday 9:00am);
• Rolf Jester, research vice president and distinguished analyst will present on how to avoid recurring problems with outsourcing deals (Wednesday 11:45am);
• Alongside Gartner analysts, the South Australian Government CIO Mike Grillo will present the Executive Locknote on sourcing strategy and outsourcing in practice (Wednesday 4:00pm)

Later this year, Gartner will release its Gartner for IT Leaders research for those working in the IT area of Sourcing and Vendor Relationships. Gartner for IT Leaders aligns a client's specific job-related challenges with the appropriate Gartner analysts and insights, giving the client the opportunity to connect with IT peers who share common business and technology issues.