A global study of almost 2,100 contracts covering deals worth £7.8 billion suggests that Cloud-based services are failing to capture the popular imagination of UK businesses. It also suggests that organisations are increasing the level of IT services they outsource to improve service delivery, with many investing budgets saved over the past few years on HR, sales and finance support.
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Published today by KPMG, the 8th annual ‘Service Provider and Performance Satisfaction’ study includes detailed analysis of current corporate IT spend in Britain, by examining more than 330 UK-based contracts. It reveals that 71 percent of UK organisations are spending a mere 10 percent, or less, of their IT budget on Cloud services. Many organisations are also continuing to rely on ‘tried and tested’ outsourcing models and the survey shows that favoured destinations for IT support services remain India (51 percent), Poland (8 percent) and South Africa (8 percent).
Asked why they are reticent about employing Cloud services, the top 3 reasons cited by UK C-suite respondents centred around data location, security and privacy risks (26 percent), concerns over regulation and compliance (16 percent) and cynicism around the ease with which Cloud services can integrate with legacy IT systems (15 percent).
“Despite widespread acceptance that Cloud services offer access to the latest technologies, and make IT more accessible, adoption remains relatively sluggish. While concern about the security risks surrounding new technology is understandable it may also be disproportionate, as Cloud options are just as safe as other outsourcing solutions. Of course, investors and stakeholders will welcome caution on the part of the buyers, but they also want to see innovation, meaning that UK plc will need to find the right balance to remain competitive,” says Jason Sahota, director in KPMG’s Shared Services and Outsourcing Advisory team.
The survey goes on to reveal that, despite the economy picking up, some companies across the UK are still nervous when it comes to committing to long-term investments. Asked about their IT outsourcing plans for the next two to three years, just 43 percent said they plan to increase spending. This figure contrasts with 77 percent, this time last year.
However, where budget has been set aside for outsourcing, it is clear that organisational thinking is maturing. When the survey was first undertaken, respondents focused primarily on cost savings as their reason to outsource – but this year’s survey shows that the search for quality improvement (20 percent), access to skills (16 percent) and a desire to reduce the time it takes to ‘get things to market’ (6 percent) are driving the rationale behind IT outsourcing decisions.
The findings also suggest that satisfaction levels remain high in the UK, with 77 percent of respondents reporting that they are comfortable with the support they receive. Worryingly, however, the research shows inconsistencies in how businesses are approaching integration and governance of the services they outsource. The majority (70 percent) said that their IT function currently performs the role of service integrator, whilst only half (50 percent) have partially met the expected benefits of service integration and management.
Sahota concludes: “As IT forms an inseparable part of the wider business strategy in many organisations, technology decisions are now rarely left to the CIO alone. It means that, with the potential for conflict over the choices being made, organisations should dedicate a greater level of investment towards governance than they may have in the past. If they fail to do so as they move towards more complex delivery models, poor governance can impact their ability to provide quality services, increasing risks around cost, service quality and delivery.”
KPMG LLP, a UK limited liability partnership, operates from 22 offices across the UK with approximately 12,000 partners and staff. The UK firm recorded a turnover of £1.9 billion in the year ended September 2014. KPMG is a global network of professional firms providing Audit, Tax, and Advisory services. It operates in 155 countries and has 162,000 professionals working in member firms around the world. The independent member firms of the KPMG network are affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. Each KPMG firm is a legally distinct and separate entity and describes itself as such.