In a similar survey two years ago, none of the executives surveyed by DiamondCluster said they were decreasing their outsourcing. But this year, 9 percent of those who use onshore services -- outsourcing conducted within the U.S. -- and 8 percent of those who turned to offshore outsourcing services said they plan to cut back on outsourcing this year.
"We've seen more people pull back this year than last year, and in 2004, nobody told us they were going to pull back," said Tom Weakland, who heads DiamondCluster's global sourcing practice.
This Chicago-based management consultancy surveyed 153 senior executives, mostly CIOs at companies with IT budgets ranging from US$5 million to $500 million. It has been doing these surveys since 2002, offering some idea of outsourcing trends in this market.
The reasons for the reaction vary: Some companies moved into outsourcing too quickly and outsourced the wrong things; others picked the wrong provider, put together bad contracts or just weren't prepared to do it, said Weakland. And some troubled outsourcing deals did come to a natural end -- the result of finished application development projects, for instance. But Weakland said those represent only a small fraction of outsourcing deals that went sour.
One company that took back some of its IT work this year was Nissan North America Inc., which outsourced IT functions including business analysis and program management in a 1999 deal with IBM that was valued at the time at $1 billion. Some of those jobs were brought back in-house, the company disclosed in April.
Still, outsourcing continues to grow, if at a slower pace than in recent years. Almost two-thirds of those surveyed, 64 percent, said they intend to increase their level of offshore outsourcing in the coming months. That's still a significant decline from the 86 percent who said that in 2004.
"It's still big growth, but it's not boom growth," said Weakland. "It's slow managed growth of the relationship."
Some 47 percent of those taking part in the survey also reported that they had "abnormally terminated" -- or fired -- an outsourcing firm or canceled a contract during the previous year. Just 21 percent said they had done so in 2004. Most affected where onshore providers.
"That tells me that buyers are taking a critical look at their relationships," said Weakland.