On the 29th April, PA Consulting announced the results of its International IT Outsourcing Survey 2009 – research into the opinions, predictions and aspirations of large-scale enterprises across the UK, Europe and the US.

It was practically a given that the biggest item on the agenda was the immediate goal of cost reduction, but there were important underlying themes that were derived directly from it.

Many organisations believe that multi-sourcing is one of the key ‘tools’ to achieve cost reduction. With more suppliers, it is often possible to obtain a lower cost for a specific service. But with more suppliers often comes a lack of integration. Where a single supplier would theoretically perform all the roles in a cohesive fashion, multiple suppliers perform their roles in isolation, placing a large administrative burden of engineering a unified and consistent collaboration on the client organisation. Multi-sourcing is by no means a negative tactic, but it does carry a health warning. If the time, effort and resource are not dedicated to the integration and management of the individual suppliers, when many organisations struggle with just one supplier, the cost savings are soon lost and the inherent risks increased.

Related to this, many organisations still do not understand the importance of relationship management. While integrating all the suppliers is vital, so is the administration of the individual suppliers. In a climate of cutting costs, renegotiation often takes centre stage and there is more scrutiny over performance clauses. There is of course nothing wrong with examining achievements against targets, but cultivating a close relationship where demands, processes and needs are fully understood, by both parties, will typically engender a better outcome than just slashing the monthly fee.

Lastly, innovation is often referred to within outsourcing contracts, but is equally often buried and lost in the negotiations over hard costs. However, starting and encouraging a dialogue on innovation rather than being preoccupied with shaving a percent or two off the contract price is far more constructive. The overall cost benefits will be greater, more sustainable and could actually result in the client company becoming more competitive in its market.

Cutting costs rapidly is a great short term solution, and will result in excellent internal PR for the department involved, but it will inevitably make the contract more adversarial, less sustainable and will damage the overall performance. While suppliers are putting more effort and time into their account management as a reaction to the economy, now is the perfect time for organisations to improve the long term return on investment of outsourcing by targeting innovation as a key goal rather than a nice-to-have and focussing on the importance of improving supplier relationships to help ensure that the business outcomes required are achieved.

Of course the contract is important but it is important to understand the internal capability of the organisation and what can be achieved by working more closely with the supplier. This balanced approach is much more likely to result in both short and long term success.