KPMG study finds root causes of outsourcing issues

A study by KPMG has found that overspending, time zones and a poor approach to governance are the root cause of issues arising when outsourcing.

Whilst cost will always remain a ‘hygiene factor’ for outsourcing, the report found that clients are now looking to achieve more than just cost savings to enable them to better serve their business.

When those surveyed were asked to explain their rationale for outsourcing over the next two to three years, cost remained the most common response by 26% of respondents; closely followed by quality improvement (21%) and access to skills (19%).

The report also states that, while many are still in the process of centralising their IT operations, the most mature companies in the survey are moving to a Global Business Services (GBS) model (14% in the Americas and 8% in EMEA).

The report helps show how IT has become the key to enabling an enterprise-wide business services organisation, one that encompasses finance, HR, sales and other IT functions.

Key recommendations

In the wake of the study, KPMG made several key recommendations:

  •  Explain specific goals in as much detail as possible to offshore developers, and design a well-structured plan with IT vendors
  • Share your company’s visions and processes to prevent overspend
  • Select the correct pricing model that suits the requirements of the project by defining the upper budget limit before launching a project
  • Understanding towards the particular market requirements and target audience
  • Agile and scrum help towards managing a project by communicating, reporting bugs and monitoring tasks, as well as managing multifunctional teams in different time zones; especially when running several teams in different regions working on product components.

The study also concluded that a poor approach to governance was another key factor with the potential to undo the benefits of outsourcing and it recommends that to ensure good governance when outsourcing, offshore companies should have clear security policies and certifications in place. This is extremely important now, more than ever, when considering the estimated number of security breaches in IT-related niches will reach 25% by 2020.

Growth opportunities

Privacy concerns are particularly important to companies who hold important data such as intellectual property and patents, bank accounts and Social Security numbers.

According to KPMG’s report, ‘the power of choice’ is an exciting development, but many companies have found themselves facing governance and integration challenges as a result.

In conclusion, it’s important to be aware of all possible risks in order to be able to take full advantage of offshore software developments. Defined project goals and regular communication is key, as well as governance and a clear budget for projects.

Furthermore, outsourcing typically means firms have more growth opportunities, access to skilled talent and the opportunity to focus on core activities. Time zone differences in software development are often challenging, but as long as the correct tools and procedures are in place, the project should be a success.

Written by Leah Alger