BPO falling from favour: Study

A new study has said that hidden costs and added complexity have prompted 25 per cent participants to reduce outsourcing activities.

In a bit of bad news for the BPO sector, a new study has said that hidden costs and added complexity have prompted 25 per cent participants to reduce outsourcing activities.

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Various large organizations that were quick to participate in information technology and BPO are bringing operations back in-house, exploring alternatives, scrutinizing new outsourcing deals more closely, re-negotiating existing agreements, and bringing functions back in-house with increasing frequency, the study released yesterday by Deloitte Consulting LLP said.

"There are fundamental differences between product outsourcing and the outsourcing of service functions, differences that were overlooked but have now come to the fore," said Ken Landis, a Senior Strategy Principal at Deloitte.

The primary reason for outsourcing boom was cost savings, ease of execution, flexibility, and lack of in-house capability.

However, instead of simplifying operations, many companies found that outsourcing activities can introduce unexpected complexity, add cost and friction into the value chain, and require more senior management attention and deeper management skills than anticipated, the study said.

"In the near term, outsourcing will become less appealing for large companies because it is not delivering the value as promised, and its appeal as a cost-savings strategy will also diminish as the economy recovers from recession and companies look for differentiated solutions to support their growth," said Landis.