Select Outsourcing Favors Smaller Service Providers

Filed in archive Outsourcing News on March 23, 2005

Research firm, IDC, said that smaller service providers would benefit from the latest trend towards selective outsourcing. They said that companies are dissatisfied with large-scale outsourcing of IT operations to a single vendor.

Aprajita Sharma, senior outsourcing and BPO analyst, added, "Large-scale, single-vendor arrangements have been characterized by unrealized cost savings, ill-defined contractual terms, ineffective service levels, and vendor inflexibility in response to changing business requirements." She added that problems were ultimately brought about by the vendor and client's lack of diligence to make regular renegotiations a part of their contracts.

Sharma said that the use of smaller and more specialized vendors is more cost effective and efficient. However, she said that it also has drawbacks: "Selective outsourcing may also lead to duplicated efforts, and problems might go unresolved if they don't clearly fall within the scope of responsibility of any individual vendor."

In the end, Sharma said that there should be a clear and defined outsourcing strategy before using the selective outsourcing model. In addition, she said that clients and vendors should renegotiate their contracts every two to four years to maintain service level agreements.