Companies Question Benefits of Outsourcing

Many large companies that outsourced information technology and other services are bringing operations back in-house after failing to achieve expected savings, according to a survey.

Almost three-quarters of companies questioned experienced significant problems with outsourcing projects and a quarter had brought functions back in-house, the study by Deloitte Consulting found.

Ken Landis, senior strategy principal at Deloitte, said the study showed evidence of a "fundamental shift" among large companies, many of which had overlooked the differences between outsourcing manufacturing and outsourcing services.

"Outsourcing was a tool developed in a recessionary environment and companies are now questioning whether it is the right strategy in a growth economy, especially when half the time the expected cost savings do not materialise."

The study questioned executives from 25 of the world's biggest companies with more than $50bn of services outsourced.

Many of the companies found outsourcing can introduce complexity, add cost and friction, and require more management attention than expected.

"As a result, larger companies are scrutinising new outsourcing deals more closely, renegotiating existing agreements, and bringing functions back in-house," Mr Landis said. This would translate into a slowdown in growth in outsourcing if not a contraction, he added. The study found the experience of companies was similar, regardless of the industry or the services contracted out.

Outsourcing became a political issue in the run-up to last year's presidential election with Democrats raising fears about jobs. There were legislative moves to bar companies from federal contracts if they planned to carry out work abroad. Several large US companies have moved operations back onshore including Dell Computer and Capital One, the credit card company.