Cutting through the outsourcing hype

Gartner's hype cycle is a graphical representation of the maturity, adoption and business application of specific technologies. It depicts how and when technologies move beyond the hype, offer practical benefits and become widely accepted.

In 2005, it seemed that outsourcing initiatives were largely in the "trough of disillusionment". For example, 70% of the participants in a survey by Deloitte Consulting ("Calling for a Change in the Outsourcing Market", April 2005) cited significant negative experiences with outsourcing projects. The firms stated that although outsourcing is largely driven by cost-related objectives, they experience hidden costs related to contract administration, profit margins, and in-house management. Therefore, the management of outsourcing relationships was discerned more complex, expensive and time-consuming than anticipated.

However, recent reports such as this IMF working paper on offshoring, productivity and employment or the recent survey results of Duke's Offshoring Research Network suggest that outsourcing is traversing the "slope of enlightenment" toward the "plateau of productivity" (!!). Of course, I am not sure how Gartner defines productivity, but let's just say that we're seeing more evidence that several firms across diverse industries are increasingly learning how best to leverage outsourcing to create strategic value.