The UK leads Europe in gaining cost benefits from outsourcing low-value IT processes
but is in danger of squandering its advantage by failing to reinvest those savings
into innovation that will rejuvenate the business.  According to Capgemini’s European CIO Survey – views on future IT delivery 2006, this focus on purely cost-cutting, means companies risk losing out against
those who do invest their savings in technology, to constantly innovate and as
a result of doing so enjoy 10% higher productivity.

UK CIOs surveyed for Capgemini’s report predict that they will continue to change
IT delivery models more radically than European counterparts over the next two
years.  UK companies currently offshore 8% of IT operations offshore compared
with a European average of 2%.  But they plan to grow this to 24% by 2008, far
outstripping the predicted European average of 5%.

In fact by 2008, just 40% of UK IT delivery will be from internal resources.  The other 60% will have external partners to deliver IT.  However, the survey
finds worrying signs that while UK CIOs see the benefits of offshoring, they are
still too focused on purely cost-cutting rather than delivering the value released
by IT to boost productivity.

Andrew Taylor, vice president of Capgemini Consulting, explains: “Lower cost
is cited by UK CIOs as one of the key drivers for changing the IT delivery model.  The problem is that companies have not yet learned how to take the savings gained
through outsourcing and plough them back into making IT deliver innovation for
the business.  UK IT budgets are either staying the same or decreasing for two
thirds of businesses – only a third are investing more in new technology to make
their companies more competitive. 

“This is worrying when you consider that productivity growth in the US in 2005
was 1.8%, double that of the UK at 0.9%.  The UK is winning at cost-cutting, but
losing at productivity and needs to address this issue as a matter of urgency.”

According to Capgemini’s survey, 87 cents in every IT euro are currently spent
on relatively low-value, back office tasks such as support, infrastructure management,
application management and testing/roll-out.  Only five cents are spent on strategy
and planning and just eight cents on conceptualisation and design.  Organisations
have saved money by outsourcing and offshoring back office tasks, but claim to
plan increasing their spend on strategy and planning by just 1.2% over the next
two years.

However, there are plans Europe-wide to realign spending along the IT value chain.  Companies intend to shift an average 4% of their total IT budgets from the later
parts of the value chain to earlier parts.  This shift in spending will be nearly
10 times bigger than reallocations that have been made in the past two years,
says Taylor.

“There is already a clear correlation between profitability and how well the
IT delivery model is aligned to the business.  Those companies that innovate through
IT instead of seeing it as a cost centre have 10% or higher operating margins.  If a CIO says IT has changed but the business hasn’t, then you have failed.
 It’s
vital to take money saved from outsourcing and re-invigorate the business – otherwise
UK plc will lose a massive opportunity to capitalise on its leadership position
in Europe.”

About Capgemini

Capgemini, one of the world’s foremost providers of Consulting, Technology and
Outsourcing services, has a unique way of working with its clients, which it calls
the Collaborative Business Experience. Through commitment to mutual success and
the achievement of tangible value, Capgemini helps businesses implement growth
strategies, leverage technology, and thrive through the power of collaboration.
Capgemini employs approximately 60,000 people worldwide and reported 2004 global
revenues of 6.3 billion euros.

Consulting Services is the management consulting discipline of the Capgemini
Group and has a leading role in the strategy-, management-, and technology consultancy
markets. Capgemini is aiming to offer excellence through understanding the specific
customer needs in all business sectors. Based on our strong functional expertise,
it is our ambition to work with our customers to identify the best strategies
and execute transformation projects impacting both business growth and competitiveness.

Across the world, it employs over 5000 consultants specializing in Transformation
Consulting, CRM, Supply Chain and Finance and Employee Transformation, in nearly
30 countries.

More information about individual service lines, offices and research is available
at www.capgemini.com