“The results of the survey show that when companies in the sector have used outsourcing and they have cost reduction or restructuring initiatives, there are particular considerations that impact success,” says Mark Puzey, KPMG’s Energy & Natural Resources Partner and IT Governance & Performance Asia Pacific Leader.
Outsourcing practices are evolving as businesses continue to identify opportunities and benefits, but companies have found it difficult to measure the performance of their service provider, according to KPMG's Information Risk Management's survey of outsourcing activity.
The selection process for service providers is changing as evaluation of their services is becoming increasingly subjective with measurements such as customer satisfaction being used, says Egidio Zarrella, KPMG Global and Asia Pacific Partner in Charge, Information Risk Management.
The KPMG 2004 Asia Pacific Outsourcing Survey: who is conducting the orchestra, of more than 100 leading Asia Pacific organisations, found that many participants said that service providers were meeting contract terms, but not promises. As a result, organisations have begun to redefine priorities and performance measures using more non-financial metrics such as cultural fit and company ethics when selecting a service provider or renegotiating contract terms.
“Organisations with long-standing outsourcing arrangements are now requiring new assessments and specifications in contract terms to reduce the complexity, volume and frequency of performance measurements incorporated into Service Level Agreements where manageability and practicality are fundamental,” Zarrella said.
“Establishing an outsourcing relationship will become a significant and continual investment of cost and time for an organisation. Performance measurements will be simplified, while outsourcing models are becoming more complex, often involving multiple suppliers and subcontractors.
“If the outsourcing relationship is successful, the organisation can achieve substantial economies of scale, savings, access to expertise and diverse offerings as well as time to pursue strategic business objectives.”
Surveyed participants were also concerned about the risks of outsourcing and indicated their greatest concerns as being the loss of business processes or IT systems expertise, as well as exposure to information privacy issues.
“The loss of a company’s internal expertise is a result of its reduced ability to understand the service provider, manage the relationship and knowledgably make strategic decisions affecting the relationship or the scope and volume of services provided,” Zarrella said.
“Organisations believe they are aware of and are managing the risks associated with outsourcing. But they do not have a holistic and current view of their risks and are not appropriately monitoring or auditing the risks and controls."
The survey also showed that risk management practices have lagged and regulators were now more closely examining outsourcing arrangements.
“Outsourcing business processes including IT, entails significant investment, so organisations must be confident with every aspect of any complex outsourcing transaction,” Zarrella said.
“Performance evaluation is now moving towards business needs rather than statistical measurements, and the measures for service provider selection are moving to business values.”
