Outsourcing is broken and it is costing YOU, personally, money

Outsourcing is broken and it is costing YOU, personally, money

The outsourcing industry is in the crapper. There are precious few outsourcing virgins out there, there are virtually no mega deals left in the market. The service providers have economic models still suited to the “early and good old days”, they still pay huge salaries and commissions to staff who cannot now sell economic large deals, their own marketing department are undermining the whole of their economic proposition with “cloud everything, pay per unit, plug and play anything, minimal commitment” and all at commodity pricing and near zero profit margin. With large over-supply in the market further consolidation is imminent, especially in tier two and three suppliers the most likely be acquired in the short term, such as Xchanging, Phoenix IT and even Unisys.

Clients, including the outsourcing industry bedrock of central and local government, have ceased buying on a large scale, favouring plug and play, short term, zero asset transfer type transparent deals where tier three providers (Capita, Serco, et al) regularly succeed in beating tier one providers (IBM, CSC and HP) by virtue of their agility and instant and devolved decision making down to middle management whilst the tier one providers still decide via investment committees and achingly slow internal processes. Then there is the fact that tier one’s do not provide the services they say they do – for example BT offers but does not provide all its own datacentre services having subbed them out years ago to HP. Desktop provision by third parties would make clients really nervous if they really knew in detail at decision making time. So as a buyer, what are you buying and from whom and where do you sit when market consolidation happens?

So clients, can you go find yourself an independent intermediary and can they really tell you how any supplier will sub and divide your portfolio of services?  Few can. This it important – you bet your sweet $%£& it is!! How can you plan for the future when you put at risk your own career, based on limited or incomplete knowledge and with consultants who primary skills are in RFP’s r 4US and running a process? Why aren’t consultants held to account? They should be.

So why does Lex say outsourcing is costing you personally money – the facts are in today’s headlines, for example the FirstGroup fiasco with Virgin is headlined at costing the British taxpayer (that would be you) around £40m. Sources close to Lex believe that this is the mere tip of the iceberg, with a final price tag of between £300m and £400m once the lawyers have costed the 20% drop in FirstGroup’s share price, the impossibility of running a secondary “fair” tendering process, the whole rethink of government of evaluation criteria, the associated governance changes necessary, the refunds of the original tendering parties bid costs, etc.

What then about the sheer cost of litigation proceedings of other government cock ups (corporate cock-ups seldom hit the press) – let’s take the NHS project. State sponsored litigation here is against CSC and Fujitsu, with BT and Accenture settled some time back. At stake is about £2Bn. That is two thousand million for any Americans in the room. Costs are running at many tens of millions so far. Any state failure to win can be measured in hundreds of millions for the tax payer.

In addition, if you happen to have a pension (remember those “financial protection policies” for when you retire) then think of the costs associated with various failed outsourcing deals in the top investment portfolios. Let’s not bother with who is to blame – client or supplier, but all shareholders need to know about these failures of management and executives in huge outsourcing deals, such as service provider and previous pension-fund sweetheart G4S. Now there is at least £200m of costs to be written off, never mind the brand impact; AstraZeneca’s fight with IBM – final costs undisclosed but it was a £900m contract; the Thompson Reuters cancellation of the £500m Fujitsu deal and still subject to ongoing legal action; bad software upgrades by an outsourcer that made RBS’ systems unable to process payments for both individual and business customers hitting NatWest and Ireland’s Ulster Bank – compensation run to millions;  the DWP’s  cancellation of the £300m deal with Fujitsu; DBS and IBM’s “repeated failure to apply the correct procedure when addressing instability in the communications link of the storage subsystem resulted in the service outage” of a national ATM’s at peak times, etc, etc the list goes on and on.

Data commissioned by Lex shows that the extra costs to shareholders in the UK’s FTSE 250 companies alone, to recover, migrate and re-implement IT systems ran to a minimum £480m in the year March 2011 to March 2012. UK plc (Her Majesty’s government) outshines this figure four or five fold.

So do you still think that as a tax payer and shareholder that outsourcing is not costing you money, personally?

Posted in Uncategorized Comments: 3 comments


3 Responses to Outsourcing is broken and it is costing YOU, personally, money

  1. Alan Pollard says:

    Have just read your latest Lex comment with interest and wondered where this places Burnt Oak. Unless I have missed the point or glossed over the irony, you seem to be heralding the demise of consultancy (out)sourcing advice. Does this indicate a subtle shift on your target business based on in-sourcing, a growth in the need to cultivate and train intelligent customers and a more savvy utilisation of cloud services?

    • Robert Morgan says:

      Intermediary services have been shrinking in influence and relevance since 2005-6. As an industry we are not held to account, we have not invested and not adapted and are not worth the money we charge. BOP canvas’ for accountability – of themselves, clients and suppliers

      The deals are commoditised and suppliers cannot sell big deals any more (they are shit) – we structure everything we do to create the right environment for old fashion big risk taking, balance sheet altering and sustainable big deals. Three under our belt and two on the way. We not the suppliers do the big deals. We have the passion not the suppliers.

      The Lex was an angry outburst on the rush to commoditisation we witness daily.

  2. dRGQPslqJ6 says:

    293433 112946 very nice post, i definitely adore this web site, keep on it 279499

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