The impact of the economic recession has been to increase the appetite for more outsourcing, up 20% from last year, but not necessarily offshoring, to the dismay of offshore supplier organizations.  This is according to Op2i’s recent Outsourcing 2010 survey report.

While interest in outsourcing has increased, focus has yet again shifted to cost reduction, with suppliers pressured to deliver more for less – the U turn from strategic to tactical outsourcing has the potential to push the outsourcing industry back a decade, if the industry does not heed the warnings.

There has been a shift in the perception of the main driver for outsourcing, away from productivity and efficiency (from 40% to 34%) towards cost cutting (from 46% to 58%).

Both improved performance and quality appear to have dropped from 20% and 13% to 13% and 5% respectively. With a race to deliver services at the lowest cost, performance and quality appear to have been sacrificed. This may have a detrimental effect in the longer run, as the market picks up and customers seek to differentiate based on quality and performance.

Whereas organizations were willing to invest upfront in transition and transformation activities with payback within 3 to 5 years, customers now expect payback within 18 months, and ideally do not want to invest any money upfront. The public sector seems bent on following a similar course.

With the success rate of outsourcing somewhere in the range 40-60%, Op2i expects to see the failure rate rise as more organizations extend this cost focus to decision and programme governance.