Business leaders 'not sure' about contribution of outsourcing

New WBS Research

Archived Article • 12 August 2009 • Press release
A forthcoming Warwick Business School study is to act on evidence that Europe's CFOs and CIOs need help to communicate the full return on investment from outsourced business arrangements.
  • Less than half of CIOs and CFOs have tried to quantify the financial contribution of outsourcing to their businesses
  • More than a third simply do not bother and one fifth (20%) cannot remember if they have tried
  • Of those who have tried, less than 1 in 5 (19%) are very confident in their calculation
  • CFOs feel CIOs need more help to communicate the full benefits of outsourcing: Only 37% of CFO respondents rate their CIOs ability to do this
  • 37% believe that the business value of outsourcing cannot be assessed beyond a one-time cost saving alone

Cognizant, a leading provider of global consulting, technology and business process services, today reveals that the European C-suite lacks the tools to measure the full return on investment of their outsourced business arrangements, despite commissioning millions of dollars on outsourcing business-critical operations each year.

Results of research by Cognizant in conjunction with Warwick Business School, carried out among CIOs and CFOs across five regions (the UK, Germany, Switzerland, Benelux, France and the Nordics), highlight how business leaders are not getting to grips with measuring the full financial impact of the outsourcing contracts they commission. This is despite spending more than $42bn on outsourcing deals in 2008, according to Gartner.

The survey, carried out across Europe's biggest companies, shows that less than half of all CIOs & CFOs (43%) have attempted to calculate the financial impact of outsourcing to their bottom line. More than a third (37%) admit they do not try to measure the returns, while a further fifth (20%) do not know whether they have tried. Of those who have tried to calculate the full value of outsourced business arrangements they commission, less than one in five of all CFOs and CIOs polled are very confident in their quantification.

CIO and CFO decision-making on future business strategies is being made without knowledge of the financial benefits: 78% of those who to cut back on outsourcing last year cited 'unclear value for money', but without any clear evidence or means to quantify the decision.

The majority of respondents spend between $5 and $100 million annually on outsourcing (29% over $50m), but measurement methods cited by the European CIO and CFO community around what has become an integral part of modern business remain vague at best, including: "Manual calculation"; "You know what it costs but you don't really know the value"; "The accountants will use some formula for calculating ROI".

The research also highlights that CFOs could be better served by increased awareness around outsourcing's impact from their CIO colleagues. Only 37% respondents admit to being happy with their CIO's ability to communicate the benefits back to the business.

Sanjiv Gossain, VP and MD, UK and Ireland, Cognizant, comments: "Outsourcing has clear, long and short-term benefits for businesses, but the research shows many companies could be missing out by failing to adequately measure outsourcing's impact.

"Senior executives appear to be making outsourcing decisions based upon short term cost cutting - which remains crucial - but outsourcing's impact stretches well beyond the initial labour, skills and cost advantages. The best partnerships can deliver significant operational flexibility and business process improvements, but companies clearly need help in measuring and communicating the long-term value of these relationships."

"The report flags a critical gap in managerial knowledge, and some businesses clearly have to do better in justifying their significant outsourcing spend to the board. A combination of proven methodology, industry expertise, and tight integration of businesses strategy into outsourcing objectives to effectively measure, improve and communicate outsourcing's true impact is required to ensure outsourcing delivers on its promises," commented Julia Kotlarsky, Associate Professor of Information Systems, Warwick Business School.

"Outsourcers need to work closely with the CIO, CFO and their teams to reduce maintenance budgets and apply them to the proactive, revenue-generating activities the business demands in order to maximise the long-term business value of outsourcing engagements."

Click here for the full report. (You will need to register.)

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